Administration of the budget


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The administration of the budget is the responsibility of the budget officer who is usually the accountant . The accountant works in conjunction with the budget committee comprised of the departmental management. Senior management outline the broad strategic objectives of the organisation and communicate these to the functional managers. The budget committee identifies the key budget factor which determines what acts as a constraint on the organisation’s activities. This key budget factor decides the key budget ie. the one which sets the objectives for the subordinate budget. The subordinate budgets are constructed by asking the questions – when are the goods to be sold, where are the goods to be sold and how are the goods to be produced.It may be the sales volume which drives the other subsidiary budgets. For instance, if the sales department forecasts the annual sales at 20,000 units then the production budget must be integrated with this figure. Alternatively, productive capacity may be the key budget factor . The company may have the capacity to produce only 18,000 units a year so this figure sets the objectives for the other budgets.

The accountant helps the managers to set the budgets by providing information as required. Sales forecasting may proceed by means of statistical methods which are based on economic indicators  or by carrying out an internal forecast by canvassing the sales staff. The current sales level, past trends, market research can provide useful information.

On receipt of the various budgets  the accountant notifies managers of revisions to their budget. Once the accountant and the committee agree  the master budget which is a forecasted profit and loss account  and balance sheet can be drawn up.

In terms of control the accountant is responsible for the regular monitoring of the budgets,  for reporting back to the budget committee regularly( daily,weekly or monthly basis) through variance reports and for revising the budgets if necessary.


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