Download budgeting as a tools for planning and control in an

Survey
yes no Was this document useful for you?
   Thank you for your participation!

* Your assessment is very important for improving the work of artificial intelligence, which forms the content of this project

Document related concepts

Operations research wikipedia, lookup

The Modern Corporation and Private Property wikipedia, lookup

Operations management wikipedia, lookup

Organizational analysis wikipedia, lookup

Transcript
BUDGETING AS A TOOLS FOR PLANNING AND
CONTROL IN AN ORGANIZATION
(A CASE STUDY OF STANMARK COCOA PROCESSING
COMPANY ONDO)
1
ABSTRACT
This project work is presented in five chapters, chapter one deals with an
introduction to research topic, description of the research, it objective and limitation.
Chapter two which contain the literature review embraces the concept of budgeting,
budget committee and budget manual, functional budget, master budgets and
human aspect of budgeting. Chapter three, touch vividly on the research
methodology, method of data collection and making reference to the constraints to
data collection. Moreover, the essence of the research work was highly emphasized
in chapter four with analysis of data collection and also the presentation of data. The
recording of transaction and test of hypothesis were also emphasized. Chapter five,
deals with the presentation of the summary of procedures used, principal findings,
conclusions, Recommendations and finally suggestion for further studies.
Conclusively, this write up is committed to budgetary as a tool of planning and
control. I am of the opinion that this research work did not fail the functional budget
use in manufacturing companies operations as expected in the modern economy so
as to improve the activities of our manufacturing industries to the economy system.
2
TABLE OF CONTENTS
TITLE
PAGES
Certification
ii
Dedication
iii
Acknowledgement
iv
Abstract
v
Content
vi
CHAPTER ONE
1.0 Introduction
1
1.1 Statement of the problem
2
1.2 Objective of the study
3
1.3 Significance of the study
4
1.4 Scope and limitation of the study
5
1.5 Definition of terms
6
1.6 Statement of the research hypothesis
9
CHAPTER TWO
2.0 Literature review
10
2.1 Definition of budget
13
2.2 Definition of budgeting
14
2.3 Importance of budgeting
14
2.4 Budget and budgetary plan
15
2.5 Budget and budgetary control
15
2.6 Brief history of the case study
16
2.7 Review of important related issue
18
3
CHAPTER THREE
3.0 Research methodology
26
3.1 Statement of research methodology
26
3.2 Method of data collection
26
3.3 Constraints
28
CHAPTER FOUR
4.0 Data presentation and analysis
29
4.1 Data presentation
29
4.2 Data analysis
31
4.3 Test of data analysis
32
4.4 Interpretation and report of data analysis
39
CHAPTER FIVE
5.0 Summary, Conclusion and Recommendation
40
5.1 Summary
40
5.2 Report of findings
40
5.3 Conclusions
41
5.4 Recommendations and suggestions
42
BIBLOGRAPHY
45
APPENDIX
48
4
CHAPTER ONE
1.0
INTRODUCTION
Budgets are required to carry out a set of functions, including forecasting,
setting target, planning, coordinating, and evaluating performance.
There are various measures of controlling the organizational activities, financial and
non financial, amongst the control measures, budget is the most important.
Budgetary planning and control is the most viable use of accounting
information in the management control process. By setting standard of performance
and providing feedback by means of variance report, the accountant supplies much of
the fundamental information required for overall planning and control.
According to stoner (1976) “Budgets are the most important widely used
means for planning and controlling activities at every level of an organization profit
planned for some future date. The planned figure become the standard by which
performance are measured”, Budgets are fundamental part of an organizational
control program.
They are usually stated in monetary terms. Budget can be particularly
comprehensive, convenient and flexible control devices. Furthermore, the monetary
5
aspect of budget means that they can directly provide real information on every
organization resources and a key organization goal. Hence they are heavily favored
by profit oriented companies.
Budget establish a clear and unambiguous standard of performance and cover a
period usually a year; at stated intervals during the time period, actual performance
will be compared directly with budget, deviation can be quickly detected and acted
upon. Also by submitting budget to a higher authority for approval, manager tends to
commit themselves to reaching the budget objectives.
Thus, their responsibility for these objectives is clear. If specified results
are not obtained or if cost limit imposed by the budget was exceeded, the manager
responsible for the budget will be held accountable. Therefore, a budget represents
management projections of the future and this act as a forecast of event in the real
world.
1.1
STATEMENT OF THE PROBLEMS
A lot of observations and comments have been made on the importance of
budget in the manufacturing industries; scholars said that budgets are being used to
assist in the management of major areas of the manufacturing companies. Therefore,
6
it has become necessary to determine whether budgets are under utilized in
manufacturing industries despite the immense benefits derivable from their optimum
utilization.
Budgets offer unlimited opportunities to the management and should be
recognized as potential profit increasing tools. We should have self-confidence and
positive outlook upon the utilization of budgets, since facts generated through
budgets have become indispensable to successful management.
In the light of the above, this write-up examines the significance of budgetary
as a tool of planning and control in manufacturing companies.
1.2
OBJECTIVES OF THE STUDY
The purpose of this write up is intended to investigate the possibility that there
can be case of an inadequate utilization of budgets in manufacturing companies
today. The principal aim of this write-up is to find out whether budgets are not
adequately utilized, if any, and to create the awareness of the benefit being lost due to
such under utilization.
Another purpose of this project work is to highlight the unexplored potential of
budgets necessary for efficient and smooth operations of the manufacturing company
(ies) as far as planning and control are concerned. This study serves as reference
materials to the potential scholars in related fields.
7
Finally, this study is also intended to bring out and recommend means of
optimizing the usage of budget for planning and control in manufacturing companies.
This also makes it possible for those companies that are yet to be aware of the benefit
derivable from the use of budget.
1.3
SIGNIFICANCE OF THE STUDY
The importance of budgeting as a tool for planning and control in a
manufacturing company cannot be overemphasized because proper budgeting makes
the planning and control to serve as an impetus to effective and efficient performance
of the management of the manufacturing company (ices).Proper budgeting could
enhance employee moral, increase output, improve equipment repairs, use of new
kind of equipment, investment of surplus funds etc. It is in this connection that high
proceeds would be recorded and that both primary and secondary objectives of the
organization can be met. In the light of the above, it is assumed that this study will
contribute to our understanding of the theory to be able to have a fair understanding
for the thriving of any business organization in which they may find themselves.
The study can also be of good assistance to learners in related field of studies
to have broad knowledge of the concept of budgeting as a driving force for effective
planning and control in manufacturing companies and other companies.
8
Finally, budgeting is so important as it serves diverse purposes, the whole
process of budget preparation and subsequent performance evaluation by budgetary
control needs to be carried out so as to motivate employees rather than create
resentment and adverse reactions.
1.4
SCOPE AND LIMITATION OF THE STUDY
The project work is mainly focused on importance of budgeting as a tool of
planning and control in a manufacturing company, as a result of limitation to be
discussed shortly, this write up is limited to Stanmark Cocoa Processing Industry,
Ondo town, Ondo State.
The operations of the manufacturing companies that are capable of being
carried out through the aid of budgeting were investigated and attentions were solely
focused on the planning and control. Actually, the successful execution of the project
work is limited by some factor amongst which come as a result of the nature of our
academic program, there was no enough time to conduct a very detailed study as
might be mostly expedient.
Finance was also a limiting factor to this research work. A study of this nature
need a huge financial commitment but the capital available for this research work
was limited. Contractual factor also serves as a limitation to the study. Most members
9
of staff are usually not willing to give out information about their company’s
operation because of the need not to violate certain provisions of contract of
employment (Duty of Secrecy).
1.5
DEFINITION OF TERMS
1
Budget: - It can be defined as a quantified plan of action relating to a given
period of time; expressed in a quantitative or monetary terms. For a budget to be
useful it must be quantified. There is a standard with which to measure the actual
achievement of people, departments of various forms. It may also be defined as a
quantitative statement prepared prior to a defined period of time, of the policy to be
pursued during the period for purpose of attaining a given objectives.
2
Budget Reports:- These are reports that are sent regularly and promptly to the
appropriate managerial grades responsible for completing the technique of budgetary
by taking action to current and adverse trend disclosed.
3
Budget Manual:- This serves as a rules book and reference for
implementation of a budget program. It tells what to do, when to do it, how to do it,
and which form to do it on. Effective budgetary planning relies on the provision of
adequate information to the individuals involved in the planning process.
4
Budget Committee:- This is a committee that serves as a consulting body to
the budget officer, member generally include top level officers or the executives.
10
5
Budget Officers: - This is also called budget controller. This is usually a
senior member of accounting staff who will advice on the preparation of the budget
and collate them into master budget.
6
Budget Period:- Budget may span for a period of one year or less, more
companies use budget as essential tools for long range planning, the usual planning
and control budget period is one year.
7
Budgetary Control:- This relate to the use of budget as control device where
by predetermined plans, output, income and expenditure are compared with an actual
attainment so that, if necessary, corrective action may be taken before it is too late.
8
Master Budget:- This a summary of all the subsidiary budgets, which is
commonly prepared as profit and loss account and Balance Sheet and presented to the
committee and board of directors for final approval.
9
Governing Factor:- This is the factor, the extent of whose influence must first
be assessed in order to ensure that the functional budgets are reasonably capable of
fulfillment. This is also called limiting factor or key factor.
10
Functional Budget:- A factional budget is one which relates to any of the
functions of an organization, functional budgets are subsidiary to the master budget,
which is the summary budget, incorporated in component functional budgets which is
finally approved, adopted and employed.
11
11
Zero Base Budgets:- This is a modern management tool for planning and
controlling expenditure of an organization. It may be defined as an operating
planning and budgetary process which requires a manager to justify his entire budget
request in details from scratch (hence zero base) each manager share why he should
spend any money at all.
12
Continuous Budgeting:- This is also known as rolling budget, this is a system
of updating budgets, so that there is always a version of budget data base on current
experience. This extends the planning horizon of the organization and so
necessitating a continuous forward looking approach to budgeting.
13
Planning:- This is an important function of the management that deals with
peeping into the future and determines what one will like to be in foreseeable future
and prepare towards achieving the desired target.
Planning also deals with the
establishment, formulization, evaluation and solution of strategies, lotus and action
require achieving the desire objectives.
14
Budget Centre:-This is an important section of an organization that is defined
for the purpose of budgetary control.
15
Control:-This is also an important function of the management; it is the
process by which management assures itself that action taken by the member of an
organization conforms to its original plans and policies. In broader sense, control is
concerned with efficient use of resources to achieve a previously determined
12
objective compared with a plan. Control is exercised by feedback of information on
performance compared with budgeted plan.
1.6
STATEMENT OF RESEARCH HYPOTHESIS
To have a better understanding and to emphases on the presentation of this
research work, it is important to state the following hypothesis that were tested.
These are;
1. That budgeting is widely used by the manufacturing companies during
planning and control.
2. That the required qualified and component staff is employed.
3. That there is a section of the company responsible for planning and control.
4. That the success of the budget implementation depends on the laid down
management policies.
5. That the budget report is sent regularly to the appropriate quarter.
6. That proper budgeting is the only good means of improving the activities of
the manufacturing companies.
13
CHAPTER TWO
2.0
LITERATURE REVIEW
The term “BUDGET” originated from a Latin word called “BUDGEE”. It is
defined by the Institute of Cost and Management Accounting, as a financial and
quantitative statement, prepared and approved prior to a defined period, of the policy
to be pursued during that period for the purpose of attaining a given objectives.
Furthermore, it is also described as a standard with which to measure the actual
achievement of people, department form etc. It is also of large strategic plan relating
to a period of time, expressed in quantitative or monetary terms. Every organization
anywhere requires a budget to carry on it business.
In the private sector, budgets are used to measure profit earnings in profit
making organizations while the not-for-profit making organizations use budgets as a
guide for their operations that is, as a measure for the distribution of resources which
are limited and to estimate the funds to be received or expanded. The important thing
to note is that a budget relates to “planned events”. Before a plan is finalized, a
number of choices must be considered. The statement used in the process of
determine the plan to adopt are known as forecasting. It is until the best of choice
forecasts has been selected to the statements of probabilities become budgets. In
14
addition, all estimates have to be coordinated so that they become part of overall
plan. Only then they can be called budgets. For control purposes, it is necessary to
establish action plans. It is necessary to set budget covering a financial year of the
firm during the course of the year, reports will be presented to the management at
shorter regular intervals possibly monthly. This budget reports are continuous
comparison of actual result with the budgeted revenue. The comparison brings about
the various form of the budget objectives or alternatively to agree some modification
of the organizational budget.
In preparing a budget for ensuring period, each department head compiled an
estimate of operations and submit it to the budget director. Apparently, certain
department budget can be prepared, only after necessary information is supplied by
certain other departments. Since there must be a logical sequence in preparing
various functional budgets, a procedure should be set up to ensure the proper
arrangement of the estimates of the various departments.
The budget controls enables the management on the preparation of sectional
budgets and collate them into master budget. sometimes such a system impose an
order strain on the coordination ability of the budget director, but the formation of a
budget committee may overcome this defect, creator coordination should thereby be
15
achieved, but there is always a tendency that at the committee, certain matter of on
concern to individual members will be tabled.
Finally, after the preparation and approval of the budgets, continuous compares
of budget with actual performance must be made through the budgets report in order
to determine whether or not efficiency is being attained by the organization.
There are some principal budget factors that limit the size of operation of an
organization in achieving its budget objectives. If the factor to which extent of whose
influence must considered has been assessed in order to ensure that departmental
budget are responsibly capable of fulfillment.
The following are the key factors, which affect budgeting.
MATERIALS
1.
Availability of supply
2.
Restrictions imposed by licenses, quota etc
LABOUR
1.
General; shortage
2.
0Shortage of specialized labor in a particular process
16
PLANT
1.
Limited plant capacity due to shortage in supply, lack of capital and space
2.
Bottleneck in certain key process
MANAGEMENT
1.
Insufficient capital, restriction policy
2.
Shortage of efficient salesmen
SALES
1.
Low market demand
2.
Shortage of efficient salesmen
3.
Inefficient or inadequate advertising due to lack
2.1
DEFINITION OF BUDGET
A budget may be defined as “a plan quantified in monetary terms prepared and
approved prior to a defined period of time usually showing plans to be generated and,
or expenditure to be incurred during that period and the capital to be employed to
attain a given objective”.
A budget is a future plan of action formulated by management for the whole
organization or a section there of, which is expressed, in monetary term. A budget is
therefore a detailed commitment to a plan of action, and this aspect is differ from a
17
“forecast” which is merely an assessment of future event which are likely to occur if
no positive planning action is taken. (Adeniji”2002).
2.2
DEFINITION OF BUDGETING
Budgeting can be known as the underlying activities or task that must
generally be carried out to attain maximum level of the goal set on the budget.
The fundamental concepts of budgeting are usually identified under the followings.
1.
Management commitment to effective management participation by all level in
the enterprises.
2.
A management process that include planning, organizing, staffing, leading and
controlling.
3.
An organization structure that clearly specifies assignment of management
authority and responsibility at all organization level
2.3
IMPORTANCE OF BUDGETING
The importance of budgeting is the standard way that enables the management
of an organization to meet their targeted and forecasted goals. These importances of
budgeting are highlighted below;
1.
Ensuring sound organization structure
18
2.
Remove the cloud of uncertainty that exist among level of management in term
of company objectives
3.
Compels all member of management to participate in establishment of goals
and plans
4.
Serve as a useful performance-monitoring tools
5.
Help to promote coalition of interest and to increase motivation.
6.
Reduce the like-hood of fire-fighting approach to decision making
7.
Help to achieve co-ordination between various departments and functions of
the organization.
2.4
BUDGET AND BUDGETARY PLAN
Planning is the determination and review of objectives in relation to the needs,
both present and forecast, of the organization budgetary plans. The translation of first
year of the program and financial plan to a more detailed and precise annual budget
which sets targets for the performance, fixes limited for spending and forecast output
to be achieved and (if any) income to be received. (A.A Adeniji 2002)
2.5
BUDGET AND BUDGETARY CONTROL
2.5.1 Budget: the Institute of Cost and Management Account (ICMA) define budget
as
“A plan qualified in mon etary terms, prepared and approved prior to a define
19
period of time, usually showing planned income to be generated and or expenditure
to be incurred during that period and the capital to be employed to attain a given
objective”.
2.5.2 BUDGETARY CONTROL
The ICMA defines budgetary control as “the establishment of budgets relating
to responsibility of executives the requirements of a policy and the continuous
comparison of actual with budgeted result either to secure by individual action, the
objectives of the policy or to provide a basis for its revision”.
Budgetary control relate expenditure to the person who incur the expenditure, so that
the actual expenses can be compared with budgeted expenses, this is in contrast to
standard costing which relates expenses to a product a services.
2.6
BRIEF HISTORY OF CASE STUDY
Stanmark is purely agricultural company that only relies on Agricultural raw
materials for their production. It uses cocoa processing company. The export
processing factory was established under Degree 63 of 1992 RC.157769. It started its
operation on December 17, 1992. It was co-owned by Cadbury Nigeria plc (80%)
AND A GROUP VASALITE Nigeria entrepreneurs with wide experience in Cocoa
Industry (20%) for example, the late king Osemawe of Ondo Kingdom “OBA
20
ADESANOYE”and
also high chief lisa of ondo kingdom CHIEF BAYO
AKINOLA.
Stanmark Cocoa Processing Company (SCPC) has a 14,500 Loren capacity plant
located in Km5, Ondo Akure Road, Ondo town, Ondo State, 275 km from Logos
Nigeria. The company is located right in the heart of the main raw material, since
Ondo State accounts for about 70% of Nigeria’s cocoa output. Products from the
plant include cocoa cake, cocoa butter and cocoa liquor which are exported to Europe
and United State of America, while cocoa powder and cocoa cake are sold locally
and to the African sub-region. Stanmark is the main, if not the only producer in
Nigeria today, of cocoa liquor, the plant, constructed to Cadbury Schweppes”
specifications, has consistently proved capable of meeting European Economic
Community (EEC) standard of cocoa liquor.
Raw material i.e. cocoa are supplied through Ed & F man Co.ltd, JOF local
merchants and from village local merchants while product are sold to Cadbury, Ed &
F man co.ltd, the cocoa company . The plant is completely automated using Siemens
micro processor-based on automatic control systems. Packing is hygienically done
into transparent cell phone; poly-bag, which are sealed, and final packing is into
either woven sacks or cartons.
Stanmark cocoa processing co.ltd. Has six departments for the efficiency of its
operation, which are listed below
21
1.
Administration department
2.
Finance department
3.
Material department
4.
Engineering department
5.
Provision department
6.
Quality control department
While it has a total number of 285 staff in these entire departments, the company has
(MD) managing director as the head of i.e. to manage with 3 managers under him,
these three managers are:1.
General manager
2.
Senior manager
3.
Junior manager
Each of these managers, have a special and specific duty and department to control
for effective operation.
2.7
REVIEW OF IMPORTANT RELATED ISSUES
2.7.1 MASTER BUDGET
When all subsidiary or functional budgets have been prepared that are
summarized into what is known as “master budget” it is a comprehensive planning
model of an organization for the next period, which is commonly prepared in form of
22
forecast profit and loss account and balance sheet and is variously called summary
budget, planning budget, operating budget/plan etc presented to the budget committee
for approval. The boards may make certain amendment before it is finally approved.
However when the budget is finally approved it represents a standard, which should
be achieved by each department in the undertaking.
2.7.2 FUNCTIONAL BUDGET
Functional budget is one which relate to any of the functions of an
undertaking. Functional budgets are subsidiary to the summary budget (master
budget).
There are many types of functional budgets, of which the following are frequently
used.
1.
Sales budget
2.
Production budget
3.
Material usage budget
4.
Material purchase budget
5.
Direct labour utilization and cost budget
6.
Production overhead budget
7.
Selling and distribution budget
23
8.
Administration cost budget
9.
Capital expenditure budget
10.
Cash budget
1.
SALES BUDGET
This is probably the most tedious function budget to prepare because of
difficulty in estimating the customer’s future demands, especially when a new product
is being marketed. It is bedrock or which the preparation of production budget is
based; it is usually prepared in terms of quantities, the evaluation at budget unit price.
It is classified under a number of headings of which the following are commonly are
used.
(a)
Product
(b)
Territories
(c)
Types of customers
(d)
Materials
Preparation of this budget is the responsibility of the sales manager who may
have aids in estimating sales of which the following may be important:
(a)
Historical analysis of sales
(b)
Business conditions
(c)
Reports by salesmen
24
2.
(d)
Market analysis
(e)
Special conditions
PRODUCTION BUDGET
This shows the quantity of products to be manufactured; it is prepared by the
production manager based on the following:
(a)
The sales budget
(b)
The factory capacity
(c)
The budget stock requirement
(d)
The management policy.
This budget is classified under various headings;
(a)
Products
(b)
Materials
(c)
Manufacturing department
It should be noted that this budget is stated in finished physical unit. The
determination of this budget gives rise to:
(a)
Direct material budget
(b)
Direct labour budget
(c)
Factory overhead budget
25
3. MATERIAL USAGE BUDGET
This shows the estimated quantity of all the raw materials and components
needed for the output demanded by the production budget. It serves the following
purposes.
1. It serves the purchasing department and planning purposes
2. It provide data for raw materials control
3. It assist in preparation of purchase budget
This subsidiary budget shows the details of the purchases which are planned to be
made during the period to meet the need of the undertaking. The main purposes of this
budget are
a.
To enable the purchasing department to plan its purchases and enter into longterm contract where advantageous.
b.
To facilitate the management of finance of the business by defining the cash
requirement in respect of the budget period
4.
DIRECT LABOUR UTILIZATION AND LOST BUDGET
These budgets represent the forecast of labour requirement to meet the demand
of the company during the budget period. This budget amidst linked with production
budget.
It serves the following purpose.
a. To estimate the labour cost of production
26
b.
To determine the direct labour required in terms of labour hours and hence, the
number and grade of workers required to meet the production requirements.
c.
To provide the personnel department with personnel requirement, so that it may
plan recruitment
d.
To provide data for determination of cash requirement for payment of wages
e.
To provide data for material control of labour cost
5.
PRODUCTION OVERHEAD BUDGET
This is the quantity of products to be produced expressed in terms of cost, it is
classified under various heading e.g.
(a)
Product
(b)
Manufacturing departments
(c)
Materials
(d)
Element
Many companies prepare a raw material budget, which give analysis figures of
the element of cost sector of production
6.
SELLING AND DISTRIBUTION BUDGET
This shows the cost of selling and distributions of the quantities recorded in the
sales budget. The sales manager will cooperate with the budget director in the
27
preparation of this budget. The sales budget and selling and distribution cost budget
are paid simultaneously because each has a definite impact on the other.
7.
ADMINISTRATION COST BUDGET
This shows the forecast of all administration cost that will be incurred by the
undertaking in a budget period. Most of the expenses are fixed into a particular limit
or range.
8.
CAPITAL EXPENDITURE BUDGET
This budget shows the estimated expenditure on the tangible asset during the
budget period. Its objectives are:
a. To enable the company establish a system of priorities in expenditure.
b. To correct capacity imbalance.
c. To make proper financial provision to meet planned expenditure.
d. To provide tool for controlling capital expenditure.
28
9.
CASH BUDGET
It establish sound basis for control of cash position. There are three method
of preparing the cash budget. They are:
a. The receipt and payment method
b. The adjusted profit and loss method
c.
The balance sheet method.
It must be noted that the development of this budget frequently reveals
information
about the level of funds planning through the organization and the
pattern of cash disbursement and receipt.
29
CHAPTER THREE
3.0
RESEARCH METHODOLOGY
3.1
STATEMENT OF RESEARCH METHODOLOGY
Research methodology are used for the purpose of the study, the procedure
adopted in gathering data and their subsequent analysis so as to attain the desired goal
and objective of providing useful information through the suggestion and facts given
by respondents with a view to determine the significance of budgeting in a
manufacturing organization.
3.2
METHOD OF DATA COLLECTION
The methods used for the collection of information and data used for the
purpose of this write-up were mainly from primary and secondary sources.
The primary sources data were obtained by using the following techniques:
3.2.1 QUESTIONAIRE:- The questionnaire serves as a major tool for the collection
of the
required information. They are structured in order to answer the statement of
the research study. This was prepared to cover a wide range of budgeting operations,
and is also structured with most of the questions demanding “Yes” Or “No” answers,
while opinions was also sought where necessary.
30
3.2.2 PERSONNAL INTERVIEW: Investigation requiring detailed examination
was made through this means; the interviews were conducted in the offices of the
organization and through interaction with the accountants and other staff who were
very reluctant in giving out information. People directly involved in budget operation
were asked questions as related to the area of interest and responses were given. This
formed the basis in which the project work has been written. It formed the principal
sources of information for the data collection. Also, the secondary data
were
collected using the following sources: Literature review, Review of the theoretical
frame work, the review were made through textbooks, journals ,handouts, seminar
/workshop paper of budgeting and other publication. Also data were obtained from
the internet (WWW.tutor211.com and google.com).
3.2.3
SAMPLE AND SAMPLING TECHNIQUES
The population for the study is made up of an estimated number of about two
hundred and eighty five (285) people. Out of which (80) are the collar officer, the rest
are casual workers, from the population of the collars staff 25% were selected aside.
Simple random samplings were used in selecting the sample from six major
departments that makes up the organization.
31
1. Administrative Department
2. Financial Department
3. Material Department
4. Engineering Department
5. Production Department
6. Quality Control Department
Four people were selected from each of the department which makes the sampling
size to a total of 24 respondents.
3.3
CONSTRAINTS
The research was based on questionnaire and oral interview to gather the
necessary information from the respondents. The questionnaire which was the main
in- structure used for collecting reluctant information is divided into two sections A
and B.
Section A contains the Bio-data of the respondents while section B deals with the
theme of the research. There are twenty (20) questions in this section ranging from
how the company use budget on the performance of business operation to how budget
is used as co-coordinating tools in the organization among the various departments.
32
CHAPTER FOUR
4.0
DATA PRESENTATION AND ANALYSIS
4.1
DATA PRESENTATION
The purpose of this chapter is to illustrate the effects of budgeting usage in
planning and control of the resources of
Stanmark Cocoa Processing Company
Ondo and other manufacturing companies.
The data gathered shall be logically presented and analyzed using statistical
method of analysis. The choice of this approach was due to the fact that the data
gathered deals with operational procedure and
usage of budget as they affect
planning and control.
The whole data and information obtained from various sources were critically
compared and analyzed. For the purpose of this write-up data were gathered in three
parts namely: questionnaire, interview and personal observation. Questions and
answers are presented and analyzed in groups.
QUESTIONNAIRES
These questionnaires were administered to the company officials. A total of
(45) forty-five questionnaires were given out and only (40) forty were returned.
Questions were asked to ensure that the data were obtained from competent sources
especially heads of departments.
33
BUDGETING EXPERIENCE
Enquiry was carried out to determine how long these manufacturing companies
have been using budget for planning and control of their operations. The aim of the
enquiry was to determine the length of time these manufacturing companies has
budget immediately Stammark Cocoa Processing Company’s commencement of
operation.
QUALITY OF BUDGETING STAFF
Questions were asked to evaluate the quality of staff involved in the preparation
of budgets. The manufacturing company claimed to have a budget committee, budget
manual as well as budget officers. They also claimed that those involved in the
preparation of budgets are reasonably exposed to training program.
BUDGET APPLICATION
Stammark Cocoa Processing Company and other manufacturing companies that
is cocoa processing company use the budget for planning and control in the functional
areas and others.
BUDGET FACILITIES
Questions were also asked to know whether the manufacturing companies have
extended budget facilities to their various departments. The importance of budget
were felt in all their departments (Participating Budgeting).
34
4.2
DATA ANALYSIS
Data gathered was logically presented and analyzed using statistical method of
analysis, the data that has been artificially examined and analyzed with the adoption of
descriptive analyzed techniques. The choice of this formula was due to the fact that
was gathered, it deals with the operation procedure and usage of budget as they affect
planning and control.
The following presentation represents the way of preparing the budgets of
Stammark Cocoa Processing Company which stated its operation with a budgeting
based manufacturing system with the use of budget in all aspects of the company’s
operations. However, the company improved in their services and this positively
encouraged the suppliers and distributors of the company.
4.3
TEST OF DATA ANALYSIS
With reference to the research hypothesis formulated in the earlier chapters of
this write-up, this chapter was devoted principally to testing the research hypothesis.
As a result of achieving our aim, questionnaire was designed as contained in the
Appendix. The hypothesis will now be tested based on (45) forty-five questionnaire
sent-out by the research scholar, completed and returned by the competent
respondents. Forty questionnaires were returned out of the total that was produced.
35
HYPOTHESIS 1
QUESTION 8
TABLE 1 SECTION B: AGE DISTRIBUTION
Responses on whether the team is responsible for planning and control function
effectively by using budget?
AGE
18-25
26-35
36-45
46
RESPONSES
& TOTAL
ABOVE
YES
8
_
16
8
32
NO
_
8
_
_
8
TOTAL
8
8
16
8
40
Source: Questionnaire administered
From the above table, all the respondents that said “YES” is greater than that of those
that said “NO”. This means that 80% of the respondents have a positive opinion that
the use of budgets during planning and control in manufacturing organization is
effective and 20% say that budgets are not being widely utilized.
36
HYPOTHESIS 2
QUESTION 3
TABLE 2
Responses on whether the required, qualified and competent staffs are
employed?
AGE
18-25
26-35
36-45
RESPONSE
46 &
TOTAL
ABOVE
YES
_
8
_
_
8
NO
8
_
16
8
32
TOTAL
8
8
16
8
40
Source: Questions administered
From the above table, all the respondents that said “NO” is greater than that of those
that say “YES”. This means that 80% of the respondents have Negative Opinion “that
required and competent staffs are not employed and 20% say that competent staffs are
employed.
37
HYPOTHESIS 3
QUESTION 3
TABLE 3:
Responses on whether proper budgeting is the only good means of improving
the activities of the organizations?
AGE
18-25
26-35
36-45
RESPONSE
46
& TOTAL
ABOVE
YES
8
8
5
11
32
NO
_
5
3
_
8
TOTAL
8
13
8
11
40
Source: Questionnaire administered
The table above shows that 80% of the respondents are of opinion that the use of
proper budgeting is the only good means of improving the organization while 20% did
not agree with this. The majority of populations agreed that when proper budgeting is
adequately it will improve the productivity of the organization.
38
HYPOTHESIS 4
QUESTION 4
TABLE 4
Responses on whether the successfulness of budget implementation depends on
the laid down management policies?
AGE
18-25
26-35
36-45
RESPONSES
46 &
TOTAL
ABOVE
YES
_
8
_
_
8
NO
2
10
12
8
32
TOTAL
2
18
12
8
40
Source: Questionnaire administered
Judging from the above table, the hypothesis “that the successfulness of budget
implementation depends on the laid down management policies” should be rejected
since the number of respondents which said “NO” constitutes 80% of the total
respondents.
39
HYPOTHESIS 5
QUESTION 20
TABLE 5
Responses on whether the budget reports are not sent regularly to the
appropriate quarters?
AGE
18-25
26-35
36-45
RESPONS
46
& TOT
ABOVE
AL
ES
YES
_
_
_
_
_
NO
6
10
14
2
40
TOTAL
6
10
14
2
40
Source: field survey, August, 2014
Since all the respondents said that budget reports are not sent regularly to the
appropriate quarters, it should be rejected.
40
HYPOTHESIS 6
QUESTION 23
TABLE 6
Responses on whether the proper activities of the budgeting are the only good
ways of improving the productivity of the organization?
AGE
18-25
26-35
36-45
RESPONS
46
& TOT
ABOVE
AL
ES
YES
12
20
6
2
40
NO
_
_
_
_
_
TOTAL
12
20
6
2
40
Source: Field survey, August, 2014
Judging from the table above, the hypothesis “that proper budgeting is the only
good
Means of improving the activities of the organization” should be accepted since the
number of respondent which said “YES” constitutes 100% of the respondents.
The hypothesis had been tested and analyzed using different questions as
contained in the questionnaire and various conclusions were made. Close observation
41
and study showed that budgeting is a must for manufacturing organizations. Different
questions were framed from the relationship of budget and other different economic
situations that prevail at a particular time. Conclusively, adequate budget must be
made for resources of the organization.
IMPROVEMENT IN OPERATION
Enquiries were made whether there has been noticeable improvement in their
operation during the use of budgets. All answers were positive.
EFFICIENCY OF SERVICE
In other to determine whether the organization was responding to the customer’s
orders promptly and efficiently. most of the respondents claimed that the organization
was meeting the customer’s purchase orders regularly.
INTERVIEW
In other to increase the depth of the study as well as to verify some of the answers
given in the questionnaire, interviews were also conducted. The responses gotten from
the interviews and the questionnaires were however in conformity with each other.
Stammark Cocoa Processing Company used budgets in its planning and control
operations while some companies still do not use budget in planning and controlling
42
their operations .Such companies blamed themselves for non-adherence to the budgets
principally on inefficient management and the inflationary trend in the country.
Stammark Cocoa Processing Company also registered complaints of inadequate
reports on budgets due to lack of acquired technical skills.
PERSONAL OBSERVATION
This also helped in verifying some of the claims of the respondents. On the
average it was observed that wastes were reduced as a result of supervision.
4.4
INTERPRETATION OF DATA ANALYSIS
The six research hypothesis formulated and tested showed that three (3) out of
them were rejected while only three (3) of them are accepted. This is to point out that
hypothesis 2,4 and 5 were rejected, only hypothesis 1,3 and 6 were accepted.
Moreover, the first hypothesis that budgeting is not widely used by the
organization during planning and control was tested and rejected.
43
CHAPTER FIVE
5.0
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1
SUMMARY
A lot of observation and comments had been made on the importance of budget
in an organization “scholars said that budgets are been used to assist in management
major areas in the organization. Therefore, it has become necessary in order to
determine whether budget is underutilized in the manufacturing industries despite the
immense benefit derivable from the optimum utilization. Budgets offer unlimited
opportunities to the management and should be recognized as potential profit
increasing tools. Therefore, we should have self-confidence and positive outlook of
the utilization of budget since fact generated through budget have become
indispensible to successful management. In light of the above, this write-up examines
the significance of budgeting as an instrument of planning aid control in
organizations.
5.2 REPORT OF FINDING
Critical analysis of the questionnaire, budget literatures, personal observation
and interview showed some important findings deserving thoughtful considerations.
These were delineated below. From the afore-stated analysis, it was found out that
44
overwhelming majority of the staffs in the organization strongly agreed that a good
budgeting system gave directors the knowledge to correct where necessary. They
share the belief that the most important aspect of human element in budgeting system
could not be over emphasized as a tool of planning and control in organization. There
were the general agreements amongst the staff that a good budgeting system should
spell out the organization’s objectives in financial terms. Hence, a good budgeting
system should be in quantitative terms rather than qualitative terms.
Finally, there was a general consensus of opinion amongst the respondents that
organization goals should not be implemented without consideration for the
congruence of the organization goals and aspiration of the individuals within the
organization. The presence of conflict between individual goal and corporate goal is
bound to have negative effect on the implementation of the budget and hence render
budgeting control ineffective.
5.3
CONCLUSION
Budgeting system is an instrument of planning and control in manufacturing
company. It is apparent that budgeting methods are quiet- essential, forward looking
as they provide yardstick for compensation purpose.
There are myriad of problems of budgeting in a manufacturing company of
Nigeria economy such as, fluctuation in the economy, political instability inflationary
45
trends, authorization of responsibility, the control and implementation of budgeting.
Thus, budgeting is an interminable and brain storming exercise since it is a plan of
operation for a definite period in the future.
Some companies in Nigeria today like Stanmark Cocoa Processing Co. Ltd
Ondo town, for example are facing the problem raised by expansion through increased
sales and introduction of new products. On the other hand, many are encountering the
problem of contraction due to the interaction of substitute products. Therefore, it is
essentially important that management should be in a right position to plan ahead and
control the metamorphosis level of organizational activity that must be carried out so
that the objectives of an organization can be met.
Finally, there is need to mention therefore that budgetary control is an off shoot
of decision making process and identified as instrumental to effective management
decision making in the manufacturing companies like Stanmark Cocoa Processing
Company Limited, Ondo State, Nigeria.
5.4
RECOMMENDATIONS AND SUGGESTION
As a result of the afore-mentioned findings of the research work the following
recommendations were suggested. If they are strictly adhered to there is surely going
to be successful changes in the area of budgeting as a tool for planning and control.
46
This will in turn increase the sales and consequently the profit of an enterprise. In
other words the benefits that are accrue from budgeting will automatically accrue to
Stanmark Cocoa Processing Company limited and other manufacturing companies.
1.
The accounting system must be supportive and effective that is, actual result
must be capable of being measured and compared with the budget at a regular
interval.
2.
Adequate recognition should be given to budgeting in every organization so as
to provide an organized procedure for the future planning of earning whereby,
the organization plan would be reviewed and changed where necessary.
3.
The system should be operated to assist motivation and not simply used as a
‘’big stock’’ or a pressure devise, corrective action is initiated to ensure that
future performance is in accordance with budgets. Action may involve
motivating people to implement policies, modifying certain policies, retaining
employees or changing the manufacturing methods. The budget will have to be
revised if the deviation is due to incorrectly set budget,
4.
The budgeting must have the active and full support of the business owners.
The participation of the budget planner is highly essential during
implementation stage. Moreover, there must be due recognition for participating
approach for the implementation of budget to be successful.
47
5.
Then forecast figure must be realistic otherwise, budgeting system can fall into
disrepute.
6.
The budgeting system should better be developed gradually so that management
can have time to understand and use the system effectively for planning and
control.
7.
The principle of management by objective (MBO) should be applied while
enforcing control through budgets. No action or intervention is needed as long
as the actual performance approximately conforms to the budgets. Management
intervention should be focused exceptionally on significant deviations; control
limit that budget should be developed. The management should not rate the
employee in the organization by creating a climate of cost consciousness in
which they will be stimulated to strive to attain the stated goal.
48
BIBLIOGRAPHY
Adam, R.A. Public Sector Accounting and Finance made simple, Lagos, Corporate
Publisher Venture (2004)
Adeniyi, A.Adeniyi, An insight into Management Accounting, Lagos, Eitoda venture
ltd (2004)
Ajayi, O.A, Odetayo, Financial Management, Ibadan bash Moses Printing Ltd (2001)
Fayemi, O.A. Solution to Public Sector Accounting Problem, Lagos hand mark
publication ltd (2003)
Akande, A.A. Theory and practice of Management Accounting FrankBap prints, llesa.
(2006)
Abggris O.K. Impact of budget on people: 1ST Edition the Controllership Foundation
Ltd Scotland (2007)
Cohn Drury R.J. Management and Cost Accounting Acford Ltd. Chichester Great
Britain, (2000)
49
Gloffery .k.p. practice Cost and Management Accounting 2nd Ed. PAN Publishers
Limited, London. (2000)
Haper .W.M. Costing and Management Accounting, 3nd Ed. Mac Donald’s and
Evans Ltd, London. (2000)
James lafferertyl F.W. Accounting: 5th Ed, Pitman Book Limited, London. (2000)
Lonye, O.P, Bamidele, M.M Raimi, O.O. Public Sector Accounting and Government
Accounting Published by Freeze Nigeria ltd. (2009)
Lucey, t. Management Accounting London, DP Publication. (2002)
Odetayo, T.A. Cost Accounting, an Easy Way, Ibadan, Ejon Publication.(2002)
50
Robert Antony. N. and John Deardan. Management Control System, 3rd Ed.
Homewood. N Richard D.Limited. New York. (2000)
Simon Ibitoye. G.B. Handbook of Budgetary Control; 1st Ed Graham Burn Publisher’s
Ltd, London. (2000)
51
APPENDIX
Crown Polytechnic,
School
Studies,
of
Business
Department
P.M.B 5424,
of
and
Financial
Accountancy,
Odo, Ado Ekiti, Ekiti state.
Dear Respondent,
QUESTIONNAIRE
I am a final year HND Accountancy student of Crown Polytechnic, Odo,
Ekiti state conducting a research on budgeting as a tool for planning and control in
organization, with Stanmark Cocoa Processing Company Ondo State as a case study.
You are hereby enjoined to fill in the attached questionnaire. Be assured that
any information given here will be treated with utmost confidence.
Thanks for your cooperation.
Yours faithfully,
Ewutanure Justina .E.
52
QUESTIONNAIRE
The questionnaire is divided into sections. Please mark ( ) in the appropriate
boxes below to indicate correct response to the questions.
SECTION A: Personal Data
1. SEX: Male ( ) Female (
)
2. AGE DISTRIBUTION: 18-25 ( ) 26-35 ( ) 36-45 ( ) 46 & Above ( )
3. QUALIFICATION: NCE/GCE/ AL/ (
) HND/BSC (
) MSC/PHD (
)
ACA/FCA ( )
4. WORKING EXPERIENCE: Below 5 years ( ) between 5 and 10 years ( )
5. POSITION IN ORGANIZATION: Top level management ( ) managerial
level ( ) officer/supervisor ( ) clerk ( ).
53
SECTION B (GENERAL DATA)
6. Your company complies with budgeting procedures? YES ( ) NO ( )
7.
Your team is responsible for planning and control functions effectively by
using budget? YES ( ) NO ( )
8. In your organization, budgeting bring about comparability and conformity
of financial statement? YES ( ) NO ( )
9. In your company, the required qualified and competent staffs are employed?
YES ( ) NO ( )
10.
In your organization the existence of budget committee hamper the
effectiveness of the budgets? YES ( ) NO ( )
11. Had there been any cause for deviation from budgets? YES ( ) NO ( )
12. In your organization the success of budget implementation depend on the
laid down management policies? YES ( ) NO ( )
13. In your company does the financial controller solely responsible for
coordination and controlling the budgets? YES ( ) NO ( )
14. Does your company operate fixed budget alone? YES ( ) NO ( )
54
15. In your company, is there any section responsible for planning and control?
YES ( ) NO ( )
16. Does your company have a good budgeting control system? YES ( ) NO (
)
17. In your company, does budgeting system give direction to correction? YES
( ) NO ( )
18. In your company do you believe that budget reports are sent regularly to
the appropriate quarters? YES ( ) NO ( )
19. Do you agree to the belief that the impact of human element in budgeting
system cannot be over emphasized? YES ( ) NO ( )
20. In your company budgeting shows the degree by which actual results varies
from the standard. Do you agree? YES ( ) NO ( )
21. In your company do you believe that proper budgeting is the only good
ways of improving the activities of the organization? YES ( ) NO ( )
22. Do you agree that a good budgeting system spells out the organization
objective in financial terms? YES ( ) NO ( )
55
23. Do you agree that budget serves as a tool for planning and control system
in the organization? YES ( ) NO ( )
56