What do you mean by Budgetary Control ? Explain its advantages and limitations.

Answer – Budgetary control compares actual results with budgets, identifies variances and takes corrective action. It is based on numerical plans, responsibility assignment, periodic comparison and coordinated action.

Advantages: focuses attention on defined targets; supports coordination across departments; promotes economy; clarifies responsibility; provides a basis for performance evaluation and corrective action.

Limitations: estimates may be inaccurate; rigid budgets may discourage necessary changes; preparation and administration take time and money; managers may focus excessively on meeting figures or deliberately set easy targets.

A budget should be realistic and reviewed when major assumptions change. Cash, sales, production and purchase budgets serve different purposes but must be consistent.