BUDGETARY CONTROL

Timaru Herald, Volume CXLVII, Issue 21394, 11 July 1939, Page 5

BUDGETARY CONTROL

“COMPASS OF HIE SHIP OF INDUSTRY" Various difficulties of modern industry and commerce are compelling the captains to give increasing attention to the matter of budgetary control. Some very important aspects of that subject were mentioned by Mr S. J. Divett in a lecture to the Institute of Cost Accountants at Sydney. “The adoption of a system of Budgetary Control is. to any industry, no less essential than is the installation of navigation equipment to a ship.” he said. "In fact, the budget should be the compass of the ship of industry. No marine master would venture from port without definite sailing instructions. His proposed voyage is clearly charted, he knows exactly where he is going, how long his voyage will last, and. furthermore, he has an almost exact estimate of how much it is going to cost to get him and his ship to his destination. "Something of the same principle that guides the shipmaster can be applied to the Ship of Industry. If every business executive were to be asked in July. 1938. to submit an approximation of his balance sheet position at June. 1939. how many would be able to give an immediate answer? The executive, whose course through the financial year has teen charted, would produce his budget. The great majority, however, must confess that they are in the position of not knowing where they arc going or how they arc going to get there. In fact, they have omitted to install the navigation equipment in their Ship of Industry. "And yet. budgetary' systems, in an embryo forms, arc in common use in all undertakings. The office boy uses an elementary form of budget when purchasing his supply of postage stamps from petty cash. The purchasing officer uses a higher form of budget when placing orders for raw materials, and the production manager must arrange his output to conform to some preconceived programme of sales and stock requirements. "The:se are all forms of budget, although they may not be recognised a.s such, end perhaps are undertaken by the officers concerned merely a.s a matter of routine. It Is this routine work carried out by the production manager which provides th; basis upon which the control budget can be built. In order that his department may function efficiently, this officer must endeavour to anticipate sales over a given period, and plan his production accordingly "The control budget must take the same course, since everything in industry depends, to a great extent, upon turnover. "It. is not suggested that unlimited turnover must necessarily mean unlimited success. In many cases the reverse has happened, and the magnitude of the sales, although possibly effected at a reasonable profit, has been too great for the financial resources to carry, and the result has teen bankruptcy. “The control budget must, therefore. be carried Io an ultimate conclusion. and must be so arranged as to take care of the following business features: Hi Anticipated sales; <2> production Io service sales; <3i profit required; ( 4) finance requirements. Each of these features is of sucli individual importance that the neglect, of any one of the four is sufficient to wreck the whole undertaking."