THE EFFECT OF BUDGETING AND BUDGETARY CONTROL ON THE PERFORMANCE OF MANUFACTURING COMPANY IN NIGERIA

THE EFFECT OF BUDGETING AND BUDGETARY CONTROL ON THE PERFORMANCE OF MANUFACTURING COMPANY IN NIGERIA

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CHAPTER ONE

1.0   INTRODUCTION

The success of every organization depends largely on effective planning and control. Planning and control are pre-conditions for the attainment of organizational goals. The objectives of organization are realized through a careful plan of action and control. Both public and private organizations are established for the purpose of achieving specific objectives. Budgetary planning and control are managerial functions responsible for setting specific targets or expectation to be met. Budgeting is not only a management planning device but also a basic accounting model for managerial control. In manufacturing firm, planning and control are used to set profit target, revenue, prices and cost.

Hence, planning is the process of deciding ahead of time, what a firm seeks to achieve and how it seeks to achieve them. Planning is future-oriented. Control on the other hand, is the evaluation of performance and the putting in place of corrective measure where necessary. Control seeks to compare


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plans with actual goal realized. Control entails restrain, supervision, safeguarding, checking or even to correct deviations.

1.1   BACKGROUND OF THE STUDY

In a manufacturing industry, and other business organization, top or line managers are faced with problems of limited resources due to organization policies. Such policies may include income and expenditure policies, raw material utilization policy, purchasing policy, production policy, labour and time limit policies, it is viewed against the above mentioned background that the concept of budgeting as a tool for planning and control is pertinent. It is about making plans for future, implementation, and monitoring of activities to see whether it conforms to the plan.

Budget is thus, a formal expression of managerial plan in quantitative and monetary terms encompassing different phases of operation aimed at assisting management in the realization of organization’s objectives. Budgeting is a financial and quantitative interpretation, prior to a defined period of a policy to be implemented in order to achieve a given objective.


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1.2   STATEMENT OF THE PROBLEM

Generally, organizations are faced with limited resources and the allocation of scarce resources to meet competing needs. The problem bedeviling most organization is how the available scarce resources can be allocated effectively and efficiently to achieve organizational objectives.

The problem therefore, is most manufacturing firm do not appreciate the relevance of budgetary planning and control for its survival.

Another glaring issue is the attitude of employees toward budget implementation. Budgeting may create a sense of confusion, frustration, suspicion and even hostilities within organization because employees regard the goals of the organization as alien to their individual goal.

Most often, government establishment feel that budgeting is a mere paper work that can be toyed with, thus, most management executive do not adhere strictly to the budget or implement it religiously. While many private firms feel that

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there is no enabling law binding on them to prepare a budget.

This often makes them to operate without a formal budget.

1.3  OBJECTIVES OF THE STUDY

The objectives of this study shall include:

1)                  To ex-ray the relevance of budgeting as tool for planning and control in manufacturing firm.

2)                  To ascertain the possible effect of non-existence of budget on the performance of business organization.

3)                  To create an opinion as to whether budgeting is actually an effective tool for profitability planning and management control.

4)                  To ascertain the extent to which budgetary planning and control aid smanagement in decision making.

1.4  RESEARCH QUESTIONS

The following research questions are formulated for the study.

i.                    To what extent does the private sector appreciate the relevance of budgetary planning and control?


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ii.                  What is the attitude of employees towards budget implementation?

iii.                How can budgeting be used as a performance evaluator?

iv.                What are the problems involved in the implementation of budget?

1.5  HYPOTHESIS FORMULATION

The  success  of  this  research  work  depends  on  the

formulation and testing of hypothesis and the drawing of

conclusions from it. The hypothesis is as follows:

HYPOTHESIS I

Ho:      Budgeting is not a tool for measuring efficiency and performance in manufacturing firm.

Hi:       Budgeting is a tool for measuring efficiency and performance in manufacturing firm.

HYPOTHESIS II

Ho:      That successful business organization does not make use of formal budget as management tool.

Hi:       That successful business organization make use of formal budget as management tool.


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HYPOTHESIS III

Ho:      Effective budgetary planning and control is not relevant for the survival of manufacturing companies.

Hi:       Effective budgetary planning and control is relevant for the survival of manufacturing companies.

1.6  SIGNIFICANCE OF THE STUDY

The        significance              of       this         study          is       that         if       the

aforementioned objectives are achieved, this research work will

enable managers and employees of organization to appreciate

the relevance of budgeting as a control tool for performance

evaluation and measurement.

The study will also aid top management of business

organization  to  work  out  effective  strategies  to  surpass

corporate failure.


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Resources to competing alternatives in order to meet organizational goals, small business will be able to evaluate performance and correct deviation where necessary.

1.7  SCOPE OF THE STUDY

This research work shall focus on the “relevance of budgeting as tool for planning and control in manufacturing companies”.

In carrying out this study, the researcher focused attention only on a particular manufacturing firm, even though, there are many others. In Nigeria since the searcher could not visit all the manufacturing firms, he limited the scope of his study only on Nigeria Bottling Company, Enugu.

The decision to study the relevance of budgetary planning and control about Nigeria Bottling Company was borne out of its international outlook. It has gained goodwill in its operating environment in spite of the notable nature of Nigeria’s economy; it has been surviving for many years amidst many competitors. Therefore, references to any other


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business organization are just for the sake of clarity and emphasis within the scope.

1.8  LIMITATION OF THE STUDY

In the course of carrying out this research work, the researcher encountered a lot of hurdles. Many organizations are not willing to disclose detail information relating to their business operations. This affected the collection of reliable information.

Financial constraint also affected the researcher since much is needed for transportation and the procurement of materials.

The time frame was not also enough to complete a research of this magnitude since the researcher was also involved in his course work, and other official work.

1.9  DEFINITION OF TERMS

1.                  Budget: A budget is a plan quantified in monetary terms prepared and approved prior to a defined period of time, usually showing planned income to be generated and expenditure to be incurred during that


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