Budgeting as an instrument of internal control in a manufacturing organization

Abstract

An efficient budgeting control system is one that produces the desired result. A balanced budget is the one that produces no variances but to achieve this, we are left to contemplation rather than a reality. This has become the problem of most of our manufacturing concerns in Nigeria. This study investigated the budget control and execution in manufacturing concerns in Nigeria with a view of appraising their efficiency. Out of a population of one hundred and fifty six drawn from the manufacturing concern, seventy eight were selected as the sample size using statistical sample tools (Taro Yamani). A questionnaire was designed and distributed to elicit information from the sample population; also data was sourced through primary and secondary sources. These data collected were presented and analyzed by means of tables and percentages. The hypotheses adduced were tested using such tools as chi-square. It was observed that manufacturing concerns do plan their profit so as to minimize losses though the procedure is not religiously carried out. However, it was discovered that the procedure is inadequate and inefficient. An inadequate budget procedure and execution causes a high accumulation of inventory thereby tying down the capital which could have yielded greater profit to the organization. Therefore there is need for the proper control of budgets in manufacturing concerns as to minimize losses and maximize profits.

TABLE OF CONTENTS

Approval Page ii

Dedication iii

Acknowledgement iv

Abstract v

CHAPTER ONE: INTRODUCTION

1.1 Background of the Study 1

1.2 Statement of the Problem 3

1.3 Objective of the Study 4

1.4 Research Question 4

1.5 Hypotheses of the Study 5

1.6 Significance of the Study 6

1.7 Scope of the Study 7

1.8 Limitation of the Study 7

1.9 Definition of Terms 8

References 9

CHAPTER TWO: REVIEW OF RELATED LITERATURE

2.1 Definition of Budget Manual 10

2.2 Reasons for Budgeting 11

2.3 Budget and Budget Planning 12

2.4 Fixed and Flexible Budget 13

2.5 Master Budget 14

2.6 Cash Budget 17

2.7 How to Prepare A Budget 20

2.8 Problems of Budgeting 25

2.9 Effective Internal Control System 26

2.10 Tools of Internal Control System 37

References 39

CHAPTER THREE: RESEARCH METHOLOGY

3.1 Research Design 40

3.2 Sources of Data 40

3.3 Research Instrument 41

3.4 Reliability/Validity of Research Instrument 42

3.5 Population 42

3.6 Sampling Size/Technique 43

3.7 Administration of Research Instrument 47

3.8 Method of Data Analysis 48

3.9 Decision Criterion for Validation of Hypothesis 49

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS

4.1 Data Presentation 50

4.2 Analysis of Questions 51

4.3 Test of Hypotheses 72

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.1 Summary of Findings 83

5.3 Conclusion 84

5.4 Recommendations 86

Bibliography 88

Appendix 1 91

Appendix 2 92

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

According to Enudu (1999), the business environment is characterized by a lot of uncertainties ranging from such factors as: Economic environment, political and legal factors, social environment, supply and demand forces, competition, consumers’ attitude and technological changes.

A critical look at the performances of some of these manufacturing business organizations will reveal a lot of business failures as a result of lack of proper planning against these uncertainties.

According to Drury (2000), proper planning of business helps in reducing uncertainties thereby providing the management of these enterprises with a clear direction by determining their courses of actions.