Budgeting As an Instrument of Internal Control in a Manufacturing Organization

Description

– Budgeting As an Instrument of Internal Control in a Manufacturing Organization –

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Abstract

An efficient budgeting control system is one that produces the desired result. A balanced budget is the one that produces no variances but to achieve this, we are left to contemplation rather than a reality.

This has become the problem of most of our manufacturing concerns in Nigeria. This study investigated the budget control and execution in manufacturing concerns in Nigeria with a view of appraising their efficiency.

Out of a population of one hundred and fifty-six drawn from the manufacturing concern, seventy-eight were selected as the sample size using statistical sample tools (Taro Yamani). A questionnaire was designed and distributed to elicit information from the sample population; also data was sourced through primary and secondary sources.

These data collected were presented and analyzed by means of tables and percentages. The hypotheses adduced were tested using such tools as chi-square. It was observed that manufacturing concerns do plan their profit so as to minimize losses though the procedure is not religiously carried out.

However, it was discovered that the procedure is inadequate and inefficient. An inadequate budget procedure and execution causes a high accumulation of inventory thereby tying down the capital which could have yielded greater profit to the organization.

Therefore there is need for the proper control of budgets in manufacturing concerns as to minimize losses and maximize profits.

Introduction

1.1 Background of the Study

According to Enudu (1999), the business environment is characterized by a lot of uncertainties ranging from such factors as: Economic environment, political and legal factors, social environment, supply and demand forces, competition, consumers’ attitude and technological changes.

A critical look at the performances of some of these manufacturing business organizations will reveal a lot of business failures as a result of lack of proper planning against these uncertainties.

According to Drury (2000), proper planning of business helps in reducing uncertainties thereby providing the management of these enterprises with a clear direction by determining their courses of actions in advance.

According to Pandey (2010), for any enterprise to achieve these goals and objectives, they must be managed effectively and efficiently. Management is efficient if it is able to accomplish the objectives of the enterprise and becomes effective when it accomplishes the objectives with minimum efforts and costs.

One of the ways in which the management can achieve these objectives is though profit planning and control or budgeting. According to Nweze (2011), Budgeting in its true word is the design of the future state of an entity and the effective ways of bringing it about.

Budgeting or planning involves the determination of the future course of actions for accomplishing the objectives of the enterprise. According to Lucey (2002), the main purpose of budget planning is to provide the necessary guidelines for making decisions.

With the proper budget planning, the enterprise can no longer be under the mercy of whims of Fickle economic and social forces thereby relying on the ability to sense what is required. (Nweze 2011).

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