THE IMPACT OF BUDGETING AND BUDGETARY CONTROL IN MANUFACTURING COMPANY (A CASE STUDY OF NIGERIA BREWERIES PLC)


Content

 

ABSTRACT

 

The aim of this study is to identify the effectiveness or otherwise in the preparation of budgeting and its control in the manufacturing company. This is a survey type of research. Fifty respondents were selected using population census within Lagos. The major instrument used was questionnaire. The method of data analysis used in the study was table and percentage distributions. Chi-square was used to test the hypothesis. The core findings for the results obtained showed that budgeting and budgetary control are inevitable in the manufacturing company for ensuring rational allocation of the resources of manufacturing company, it is the improvement in earning ability, it is the motivational tools for staffs and enhance decision making in an organization. It was recommended that policies and strategies should be formulated by the management of the manufacturing company. Conditions and situations that are likely to preventing the future should be anticipated. Budgeting is one of the management tools that force managers to a given level of expectation. Budgetary control is a control technique of planning in advance of various functions of a business as a whole can be controlled.


 

 

TABLE OF CONTENTS

Pages

Title Page                                                                                 i

Certification                                                                             ii

Dedication                                                                               iii

Acknowledgement                                                                    iv

Abstract                                                                                   v

CHAPTER ONE: INTRODUCTION                                          

1.1      Background to The Study                                                        3

1.2      Statement of Problem

1.3      Statement of Objectives                                                   4

1.4      Significance of Study                                                               5

1.5      Scope of Study                                                                 6

1.6      Historical Background Of Case Study                              6

1.7      Research  Questions                                                                9

1.8      Research Hypotheses                                                       10

1.9      Operational Definition of Terms                                               11

CHAPTER TWO:  LITERATURE  REVIEW                           

2.0   Introduction                                                                     13

2.1   The Concept of Budget                                                     14

2.2   The Concept of Budgeting                                                        16

2.3   Nature of Budget                                                              17

2.4   Type of Budgets As It Relates to Manufacturing Company    19

2.5   The Budgeting Procedure                                                        20

2.6   Revenue Budget                                                               22

2.7   Master Budget                                                                 22

2.8   The Fixed Budget and the Flexible Budget Fixed Budget       23

2.9   Budget Period                                                                  24

2.10 The Budget Committee                                                    25

2.11 Budget Manual                                                                        26

2.12 Budgetary Control and Accounting System                      27

2.13 The Concept of Control in Budgeting                              28

2.14  Essential Features of Budgetary Control                         29

2.15        Advantages of Budgetary Control                                    30

2.16          Limitation of Budgetary Control                                     31

2.17          The Human Aspect of Budgetary Control                               32

CHAPTER THREE: RESEARCH METHODOLOGY

3.0   Introduction                                                                     34

3.1   Research Design                                                              34

3.2   Population of Study                                                         34

3.3   Sample Size and Sampling Technique                             34

3.4   Research Instruments                                                      35

3.5   Procedure for Data Collection                                          36

3.6   Data Analysis                                                                   36

CHAPTER FOUR: DATA PRESENTATION

4.0   Introduction                                                                     38

4.1   Data Analysis                                                                   38

4.2   Testing of Hypothesis Using Chi-Square                          47

CHAPTER FIVE: SUMMARY OF FINDING, RECOMMENDATION AND CONCLUSION

5.0   Introduction                                                                     58

5.1   Summary of Findings                                                      58

5.2   Recommendations                                                           59

5.3   Limitation of Study                                                          60

5.4   Conclusion                                                                      61

5.5   Suggestions for further study                                           62

Bibliography                                                                    63

Appendix                                                       65

CHAPTER ONE: INTRODUCTION

1.10 BACKGROUND TO THE STUDY

The increasing complexity of business operation and the ever-changing conditions of the business environment-social, economic, technological and political factors make it increasingly difficult for a company to consistently earn a profit that constitutes a fair return on the capital investment. The internal operation of a firm using financial tools has been a very long time. Management has to have a plan of action as a means of monitoring profit and financial control.

Budgeting is the accepted basis for profit planning and financial control. It has been practiced effectively and profitably by many progressive companies who generally regard it not simply as a procedure, but as one of the more important of process of management. Budgeting is one of the management tools that force managers to perform according to a given level of expectation.

The process of preparing the budget forces the executives to become better administrators. It puts planning in the first key and budgeting primary attention directing because it helps managers to focus in the operating problems early enough, for effective planning or action. Budgeting has always been an integral part of various plans. It provides feedback for the actual result. Budgeting usually has many purposes. The primary purpose of budgeting, however, is profit planning and control. When budgeting is conducted under favourable conditions, there is no doubt that a firm which budget will tend to perform rather better than a similar one that does not budget.

Budgetary control is a control technique which when the comparison of the planned state of affairs with the actual state of affair, and the continuous devising of means of correcting the deviation. It involves the use of available technique such as operational research, computer science and, so on to ensure that the budgets are realistic as possible. The budget is without doubt, the most widely used control device in both business and governmental circle. The budget is drawn up for control purpose, that is, an attempt to control the direction that the firm is taking. Indeed, it is used extensively that to many people; the word budget is synonymous with control still, the preparation of budget originates as a part of planning process.

Some companies in order to avoid the negative reaction that are many a time associated with the concept of control, refers to their budgetary controls as either profit plan or profit paths. The aim of budgetary control is to provide a formal basis for monitoring the progress of the organization as a whole and of its components part, towards the achievement of the objectives specified in the planning budget. Budgetary planning with budgetary control is part of the overall system of responsibility accounting within an organization.

A vast number of organization and companies are getting involved in budgeting and budgetary control in Nigeria, and this is taking different forms, but the one that seems to be gaining more recognition is based on the concepts and ideas developed in budgetary control.

1.11 STATEMENT OF PROBLEM

Some problems are identified to why companies make losses. These problems include;

i       Inability to evaluate and assess the profitability of the organization.

ii      What tools to be employed in comparing organization present or actual performance with the planned or future performance and how tools can be implemented to give a good deviation and control?

iii     What tools to be adopted in assessing the organization performance in terms of its fair return on the capital investment?

Going by these problems, the study then consider budgeting and budgetary control impact on the manufacturing company.

1.12 STATEMENT OF OBJECTIVES

The objectives the appraisal and evaluation of business organization in the following areas:

i.      to itemize the impacts of the budgeting and budgetary control in the manufacturing industry.

ii.     To exemplify by using budgeting and budgetary control by management for planning, control and decision making.

iii.    To know what is budgeting and budgetary control and why is it of interest and to whom.

iv.    To look into ways of encouraging human supports for budgeting practice.

1.13 SIGNIFICANCE OF STUDY

The outcome of this study cannot be over-emphasized. These are:

i       The effectiveness of budgeting on achieving their corporate goals.

ii.     The study will help in the formulation of corporate policies concerning manufacturing industry.

iii     It will help management to understand ways in which budgeting could be a powerful tool for planning, control and decisions making.

iv     It will reveal how rational allocation of resources can be ensured.

 

 

1.14 SCOPE OF STUDY

The researcher intends to cover budgeting and budgetary control as it relates to the private sector and special consideration been given to the manufacturing or industrial sector.

The expected limitation form a through analysis includes the following:

i       Time

ii      Respondents

iii     Finance

As a result of these, the researcher will limit the evaluating of budgeting and budgetary control in Nigerian breweries Plc over the years.

1.15 HISTORICAL BACKGROUND OF CASE STUDY

Nigerian Breweries Plc is the pioneer and larger brewery company in Nigeria. The company was established in 1946, and recorded a land mark landmark when the first bottle of star rolled off the bottling lines in Lagos on Thursday June12, 1947. Aba Brewery in 1963 and Ibadan Brewery in 1982. The company’s range of product include star Beer (1949), Guilder (1977), Maltina (1976), legend star Extra stout which came on stream on June 1, 1992, Diamalt another popular non-alcoholic beverage, 1993 and Amstel Malta introduced on November 23rd 1994.

Nigerian breweries plc has a high profile profitability and successful operations can be defined as the follow factors:

Ø   Good product policy

Ø   Efficient management of operation

Ø   Strategic penetration into the market environment

Ø   Proper understanding of consumer attitude and habit.

Ø   High social responsibility profit at national and zonal levels.

In this continual search for improved technology and in response to government directives that breweries should source their raw materials locally the company established a N4 million research and development centre (currently valued at N40 million) to enhance its research activities. It was commissioned on 15 June, 1987, the research and development center conducts research on local raw material and their suitability for brewing.

In addition to the intensification of the efforts to maintain its commitment to excellence, the company extended its brand portfolio to the stout sector of the market with the emergence of legend extra stout. Legend has been welcomed by the consumer with the excitement and enthusiasm. Their reaction pays tribute to and justifies the meticulous care taken in selecting raw materials of high quality and adopting a brewing process, which not only ensures but guarantees that legend is brewed as stout should be brewed.

As a major brewing concern, the company encourages the establishment of business that depend on it for their existence, it is not generally realized that many organizations and individuals depend largely on the company for their means for livelihood. These include manufactures of bottles, crown cork, labels cartons, plastic crates and such services as hotels or clubs direct customers and attaches.

As a part of its social responsibility, the company sponsors tables and lawn terms, cycling, chess, golf, squash, badminton, dart, boat race, ultimate search. The aim is to develop Nigerian women and men to participate in the national and international stars had their first exposure and test of stardom through the company sponsored sporting activities.

From the foregoing, we could see that Nigerian Breweries Plc is a model of success in the private sector. The company’s impressive performance in the capital market has made its hare the first choice among Nigerian shareholders. A contributor in the national revenue, the company has the best training programme in the industry and strives at all times to contribute to community development project in various parts of Nigeria. Nigerian Breweries Plc managers are serving in several overseas establishments. The company’s technical training school in Lagos also refers technical training to brewery personnel from Zambia and Sierra Leone.

1.16 RESEARCH  QUESTIONS

The researcher intends to test the following research questions in the course of this project.

i       will budgeting and budgetary control increase profit of an organization?

ii      will budgeting and budgetary control ensure rational allocation of resources?

Iii     will budgeting and budgetary control be a motivational tool for staff?

iv     will budgeting and budgetary control enhance planning and decision making in an organization?

1.17 RESEARCH HYPOTHESES

The hypothesis would be formulated as null and alternative.

H01:  Budgeting and budgetary control will not increase the profit of an organization.

HA1:  Budgeting and budgetary control will increase the profit of an organization.

H02:  Budgeting and budgetary control will not ensure rational allocation of organizational resources.

HA2:  Budgeting and budgetary control will ensure rational allocation of organizational resources.

H03:  Budgeting and budgetary control is not a motivational tools for staffs.

 H04: Budgeting and budgetary control will not enhance planning and decision-making.

HA4:  Budgeting and budgetary control will enhance planning and decision-making.

1.18 OPERATIONAL DEFINITION OF TERMS

v Budget: A budget is a summary statement of plans expressed in qualitative terms.

v Budgeting: This is the process of preparing a summary statement of plans expressed in monetary quantitative terms.

v Budgetary control: This is the control technique of planning in advance of the various functions of a business so that the business as a whole can be controlled.

v Control: The process of setting goals and objective in advance and determining ways of achieving it.

v Decision Making: Involve selection from among alternative course of action or most preferred choice out of many alternative.

v Plans: A set of things to do in order to achieve something usually done in advance.

v Planning: This is the process of setting goals and objectives in advance and determining ways of achieving it.

v Responsibility accounting: This is a term used to describe a system of decentralization of authority with performance of the decentralized units measured in term of accounting results.

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