BUDGETING AS TOOL FOR PLANNING AND CONTROL IN A MANUFACTURING FIRM (A CASE STUDY OF NIGERIAN BOTTLING COMPANY PLC, ENUGU)

ABSTRACT

The increased complexity of the society and high level of competition in the business world has made it imperative for business organization to do serious planning and control in order to survive volatile business climate. This research work studied budgeting as a tool  for  planning  and  control in  a  manufacturing  firm with  particular  emphasis  on Nigerian Bottling Company PLC, Enugu. The main objective of this study was to x-ray the relevance of budgeting as tool for planning and control in manufacturing firm. And also to ascertain the effect of non-existence of budget on the performance of business organization. The methodology adopted were simple percentage and chi-square statistical methods to deduce general statement about the effect of budgeting on planning and control is relevant for the survival of manufacturing companies. Also, budgeting is a tool for measuring efficiency and performance in manufacturing firm. The recommendations put forward was that management of every organization should prepare budgeting and adhere strictly to the provisions of the budget. There should also be a regular and periodic review of the budget in order to detect variations. The research work will serve as a template to managers, entrepreneurs, creditors, and employees on how to effectively allocate scarce resources judiciously through budgetary planning and control.

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 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.

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 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 management 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?

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.

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.

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 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

period and the capital to be employed to attain a given objective.

2.     Budgeting: This is the process of making future plan of  action formulated by  management for  the  whole organization  or  a  section,  expressed  in  monetary terms.

3.     Budget manual: Budget manual is an instruction or information manual about the way budgeting operates in a particular organization and the reasons for having budgeting.

4.     Planning: Planning is the selection of short and long term objectives and the drawing up of tactical and strategic plans to achieve those objectives.

5.     Efficiency: This is the minimum cost of input required to produce a desired amount of output.

6.     Effectiveness:  This  is  the  extent  to  which  actual performance compares with targeted performance.

7.     Economic Order Quantity (EOQ): This is the size that minimizes the sum of carrying and ordering cost.

8.     Cost Centre: This is any location, person or items or equipment for which costs may be ascertained and used for the purpose of cost control. 9.     Profit:  This  is  the  difference between  revenue  and cost.

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