THE IMPACT OF BUDGETARY CONTROL ON PROFITABILITY OF AN ORGANIZATION

ABSTRACT

This study examined the impact of budgetary control on profitability of an organization. Thus, the importance of budgetary cannot be emphasized in business organization, as management needs to embark on budget to effect proper planning and control. In this vein, budgeting can be seen as a process of planning and control. Proper budgeting can never affect efficient plans of organization without control. Thus, the desire to examine whether budgetary control is practicable in Samsung Electronics Nigeria Plc ignited this study. To achieve this objective, four research questions and two research hypotheses were formulated to guide this study. A well structured questionnaire was used as the major instrument to gather data from the 70 staff and management of Samsung Electronics Nigeria Plc and a sample size of 60 were randomly selected. The data collected from the respondents were analyzed using simple percentage and Chi-square statistical tool was employ for testing the hypotheses. The study concluded with some recommendations that the management of Samsung Electronics Nigeria Plc should make use of budgetary control to avoid failure in business.

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 divergences 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

          What really instigated the topic impact of budgetary control on the profitability of an organization was the due to the major setbacks in most organization in terms of profit maximization as a result of poorly planned budget; poor planning of budget has led to poor cost control and this has had significant effect on the profitability of an organization. The ongoing issue has become alarming because most organization has failed to make use of the available resources such as funds and raw materials in production process. According to Adams (2001), views budget as a future plan of action for the whole organization or a sector thereof. Budgets are plans that deal with future allocations and utilization of resources to different activities over a given period of time. For any organization to make progress or achieve its goals, it needs capital and to be able to make profit, it requires planning of its resources, which can only be achieved through budgeting; until an organization is able to completely plan an effective budget, then the profitability of that organization remains questionable.

1.3     OBJECTIVES OF THE STUDY

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

1. To examine the impact of budgetary control on profitability in an organization.
2. To determine whether budgetary control is practicable in Samsung Electronics Nigeria Plc.
3. To find the effect of fund management and utilization of available resource on the level of profitability in Samsung electronics Plc.
4. To find out whether budgetary control has been implemented in Samsung Electronics Plc.
5. 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 is the effect of fund management and utilization of available resource on the level of profitability in Samsung electronics?
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:     the management of funds and utilization of other available resources has significant effect on the level of profitability 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

• PLANNING: Planning is defined as the activity where the managers analyzed the present conditions to determine the way of reaching a desired future state.
• FORECASTING: This is the procedures and techniques for predicting condition or event that are expected to prevail in the future.
• BUDGETING: This is a formulation of plans in a given period in numerical term.
• 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.
• 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.