IMPACT OF BUDGETING CONTROL ON PROFITABILITY OF AN ORGANIZATION

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THE STUDY

          The process of preparing and using budget to achieve management objectives is called “budgeting”. Budgeting is an essential element which is vital to management accounting technique which can benefit all aspect of business if it is understood and properly used. The growing complexity of the business environment and the ever increasing competition among firms in the modern time makes planning and budgeting inevitable tool for business success (Lucey 2010).

          Successful management is no longer just a matter of flair, skill and determination, a conscious effort is needed to harness available resources towards the achievement of enterprise objectives (Pandy, 1985). Therefore budgeting is one of the tools adopted by management for effective cost planning, control and increase in productivity.

          Wildarsky (1984:213) argued that because a budget served diverse purposes, it mean different things to different people, among the various possible interpretations given by him include; it is a plan, it is a prediction, and it is a link between financial resource and human behavior to accomplish policy objectives. Also, it is a mechanism for making choices among alternative expenditure.

Rufus Wizon (2012) observed that without a budget a business may in order aim lessely. It may never know where it is going or where it should go. Even with a budget a business may not reach its planned objectives or destination, but the exercise of budgetary control will note the deviation from the plan and thus provide the opportunity for necessary corrective action. The making of such plans and the continuous review and execution are the essence of budgetary control.        

Batty (1982), defined budgetary control as a system which uses budgets as a means of planning and control-ling all aspects of producing and or selling commodities or services. This is true as we tend to prepare revenue and expenditure variance analysis to be able to deduce areas of divergencies for which the management needs to watch to avoid embarrassment as any adverse variance will translate into inability to meet the corporate objective which will eventually lead to disagreement with stakeholders.

1.2     STATEMENT OF THE PROBLEM

          Most often budget and budgetary control research concentrated on its impact in the Federal Government budget and its attempt to control the use of public fund. There is no doubt that some other write-ups on budget and budgetary control has concentrated greatly on profit oriented organization, the issue failed to emphasize on the issue of budgetary control which is the bedrock for which budget implementation could be more effective and plans realization efficient. 

          Budgets are attention directed and forward looking on financial statement. Budget tends to ensure goal congruence and elicit managerial efforts which are both wrapped up in motivation. Budgets relate to objectives and policies to managerial responsibilities, and facilitate accountability. In profit seeking organization budgetary control provide relevant information relating to what the organization wants to achieve and the measure it would adopt to translate its plans into reality. Time has come to direct our searching eyes of budgeting to budgetary control in our manufacturing companies.

1.3     OBJECTIVES OF THE STUDY

The objective of the study is based on the statement raised in the preceding paragraph. They are:

a.                 To examine the impact of budgetary control on profitability in an organization.

b.                 To determine whether budgetary control is practicable in Samsung Electronics Nigeria Plc.

c.                  To find out the benefits of budgetary control to shareholders of an organization.

d.                 To find out whether budgetary control has been implemented in Samsung Electronics Plc.

e.                  To make useful recommendations based on research findings

1.4     RESEARCH QUESTIONS

          The following research questions are generated to guide this study:

1)                What are the impacts of budgeting control of profitability in an organization?

2)                Does budgetary control is practicable in Samsung Electronics Nigeria Plc?

3)                What are the benefits of budgeting control to shareholders of Samsung Electronics Nigeria Plc?

4)                Has budgetary control been implemented in Samsung Electronics Nigeria Plc?

1.5     RESEARCH OF HYPOTHESES

The following research hypotheses were formulated to guide this study.

Hypothesis 1

H0:     There is no significant relationship between budgeting control and profitability in an organization

Hypothesis 2

H0:     There is no significant relationship between budgetary control and the benefits to shareholders in Samsung Electronics Nigeria Plc. 

1.6     SIGNIFICANCE OF THE STUDY

          It is the major way in which the organizational objectives are translated into specific plans, tasks and objectives related to individual manager and supervisors; it should provide clear guidelines for current operations.

          It is an important medium of communication for organizational plans and objective and of the progress towards meeting these objectives.

          The development of budgets helps to achieve, co-ordinate the various departments and functions of the organization.

          Performance at all levels is systematically reported and monitored thus aiding the control of current activities.

1.7     SCOPE OF THE STUDY

This study centered on the impact of budgeting control on profitability of an organization with a particular focus on Samsung Electronics Nigeria Plc.

1.8     LIMITATIONS OF THE STUDY

One of the major problems encountered in the course of this study was difficulty in obtaining data from the management body of the organization due to fear of disclosing their management strategies to competitors. Time constraints were also a problem in the course of this research work.

1.9     OPERATIONAL DEFINITION OF TERMS

Ø    PLANNING: Planning is defined as the activity where the managers analyzed the present conditions to determine the way of reaching a desired future state.

Ø    FORECASTING: This is the procedures and techniques for predicting condition or event that are expected to prevail in the future.

Ø    BUDGETING: This is a formulation of plans in a given period in numerical term.

Ø    BUDGET: This is defined as a future plan of action for the whole organization or a section there of, which is expressed in monetary term.

Ø    BUDGETARY CONTROL: This is the establishment of budget, relating to the responsibility of the executives to the requirement of the policy and the continuous comparism of actual performance with budgeted level so as to secure either by individual or collective action the objective of such policies.