What are the disadvantages of budgetary control, Managerial Accounting

What are the Disadvantages of budgetary control

1) Uncertain future: the budgets are prepared for the future period. Despite best estimates made for the predictions may not always come true. The future is always uncertain and the situation which is presumed to prevail in future may change. The change in future condition upsets the budgets which have to be prepared on the basis of certain assumptions. The future uncertainties reduce the utility of budgetary reduce the utility of budgetary control system.

2) Budgetary revisions required: budgets are prepared on the assumption that certain condition will prevail. Because of future uncertainties assumed condition may not prevail necessitating the revision of budgetary targets. The frequent revision of targets will reduce the value of begets and revisions involve huge expenditures too.

3) Discourages efficient persons: under budgetary control system the targets are given to every person in the organization. The common tendency of people is to achieve the targets only. There may be some efficient persons who can exceed the targets but they will also feel contented by reaching the targets. So budgets may serve as constraints on managerial initiatives.

4) Problem of co ordination: the success of budgetary control depends upon the co ordination among different departments. The performance of one department affects the results of other departments. To overcome the problem of co ordination a budgetary officer is needed every concern cannot afford to appoint a budgetary officer. The lack of co ordination among different department results in poor performance.

5) Conflict among different departments: budgetary control may lead to conflicts among functional departments. Every department head worries for his department goals without thinking of business goal. Every department tries to get maximum allocations of funds and this raises a among different departments.

6) Depends upon support of top management: budgetary control system depends upon the support of top management. The management should be enthusiastic for the success of this system and should give full support for it. If at any time there is a lack of support from top management then this system will collapse.              



Posted Date: 7/8/2013 6:44:42 AM | Location : United States

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