CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF STUDY
Whenever the demand for factors of production is greater than the supply, some method of apportioning them among different uses has to be employed and this brought the need for budgeting and control. In a perfect competition, they would be distributed among different employments according to the demand for them, equilibrium being achieved when the marginal productivity of each was the same in all occupations (J.L.Hanson, 1977).
Budgeting being the single most important decision making process can therefore be considered an important part of the classic management cycle of planning, action and control or more specifically, as part of a total management system that includes: -
- strategy formulation and implementation
- planning systems
- budgeting systems
- organization
- production/marketing systems
- control/reporting systems.
As long ago as 1931, the Macmillan Committee on Finance and
Industry recommended control of investment. To support his policy of full employment, lord Beverage suggested that since investment was easier to control than saving, the two should be brought into line by imposing control over investment. Since investment cannot exist without budget and implementation, there became the need for budgetary control rather than investment control (Ifeanyi .A. Arji, 1997).
1.2 STATEMENT OF PROBLEM
A striking feature of large corporations is that the owners
(Stockholders) are usually not directly involved in making business decision, particularly on a day to day basis. Instead, the company (corporation) employs mangers to represent owner’s interests and make decision on their behalf. The financial manager acts in the best interests of the shareholders by making decisions that increase the value of the stock. The appropriate goal for the financial manager, who is in charge of budget and budgetary control of the corporation can therefore be stated easily; the goal of the management or the manufacturer is to maximize the current value per share of existing stock for profit making entities and for none profit making businesses, to maximize the market values fo the owners equity.
Infact, considering the above financial goals, one might come up with some of the ideas for the following; survival, avoid financial distress and bankruptcy, beat competition, maximize sales or market shares, minimize cost, maximize profit, maintain steady earning growth. All or each of these goals poses problems to the manager as he has the following questions to answer: -
1. What long-term investment should you take on? That is what lines of business will you be in and what sorts or buildings, machineries ad equipment will you need?
2. Where will you get the long-term financing to implement your budget? Will you bring in other owners or wil you go a borrowing?
3. How would you manage your everyday financial activities such as collecting from customers and paying suppliers?
4. How will government policy affect the cooperation such as bane of raw materials and import duties as well as tare ad other tariffs?
5. What control measures will you take to make sure of accurate execution of the budgeted funds?
1.3 PURPOSE OF STUDY
The purpose of this study is to find budgetary control
techniques adopted and applied by service industries which aim at providing all ranks or management with enough information for recording plans and measuring performance in objectives and various plans in order to meet such objectives and budgetary is part of planning. Some organization go into liquidation or fold up due to lack of planning as one commentator said, few business plan to fail but many of the hazard execution and inadequate application of the control techniques.
It is in view of this and particularly the failure of some business both small and large scale that made the researcher study the aids of budgeting and budgetary control and if application in achieving corporate objective.
This research work is therefore aimed at reviewing the whole system of budgetary control with a view to finding a lasting solution to the problems inherent in them.
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