CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Budgeting is carried on the day to day activities of organizations, government bodies and

individuals are expected to make convincing budgets of their activities projected for a year.

Omolehinwa (2007) states that budgeting system is a technique, which establishes predetermined

estimates of cost and use the predetermined cost to plan for the future of the organization. He

stressed further that budgeting can also be viewed as the plan of the dominant individuals in an

organization expressed in monetary terms and subject to the constraint impose by the other

participants and the environment indicating how the available resources can be utilized. This

equally involves financial or quantitative statement prepared prior to a defined period of time in

order to guide the policies set for the period. From the definition, it shows that budgeting could

be used as control mechanism in business organizations.

The work of Hayes, Dassen, Schilder and Wallage (2005), they state that internal control

according to Committee of Sponsoring Organisations of Treadway Commission (COSO), is a

process, effected by an entity’s board of directors, management and other personnel, designed to

provide reasonable assurance regarding the achievement of objectives in the following

categories: effectiveness and efficiency of the operations, reliability of financial reporting,

compliance with applicable laws and regulations and safeguarding of assets against unauthorized

acquisition, use or disposition. Omolehinwa (2007) cited Wildavsky (1964) that budget is a

prediction, plan work, link between financial resources and human behavior to accomplish policy

objective, mechanism for making choices among alternative expenditures and In the government,

a record of preferences that have prevailed in the determination of national policy.

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This research work tends to investigate lapses from budgeting that can still translate into

financial losses and other forms mismanagement, such gaps include: variances, national

economic programmes, over/under budgeting, organizational politics and extent of monitoring.

The gap created by budgeting relate to the standard set which is always at variance with the

actual performance. This causes distortions in the business flows of the organization in business,

Pandey (2010) states that variability is the extent of the deviations (or dispersion) of individual

rates of return from the average rate of return. This measures the extent of the actual

performance to the plan of the business. With strict budgeting wider variations that obstructs

business negative still occur. Budgeting control is described as the process of comparing other

results with planned or budgeted results and reporting upon variance (Lucey, 2004). Budgeting

control is the control put in place to ensure that budget set and approved by the appropriate

authority (management) are adhere to and that expenditure are incurred only on the authorized

and purposes for which the budget was approved (Jimoh, 2007).

Also, economic programmes of the nation could affect organisations’ budgets to undermine its

control efforts. The face of subsidy removal in 2012 in Nigeria without realizing its potential

benefits put a lot of businesses on hold. This is evident as budgets were based on these

programmes.

The budgets that experienced over/under budgeting of organizations resources will add little or

no value to the controls of the organization. This is equally a control gap in itself that the

organization should have address. In most cases paucity of data do cause these things to occur.

Also, inaccurate data play roles of budgeting problem that would not allow it to ensure a useful

control measure.

Personnel and organizational interaction translates into organizational politics. This in turn affect

budgeting let alone the control it will institute in the organization. The organization politics

allows the pulling of resources to areas of sub optimization and consequent business failures.
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The extent of monitoring for budget implementation has equally been a gap as personnel in this

area of deliverable have been known to compromise standards. This often affects control

measures in the organization. An important aspect of budgeting which refers to the act of

preparing budget is that if looks at situations in advance, thinks about the impacts and

implications of things in advance and attempt to take care of situation in advance. In an attempt

to act as a control measure, the budget is seen as part of budgetary control, where it checks to see

whether or not standards have been met. There are major aspects of financial planning and

coordination, carried out in the financial control system

in every organization. Manufacturing companies want to know much income will be for the year.

On the strength of this background, researcher intends to fill the gap of budgeting and effective

control on activities of manufacturing companies in Nigeria.

1.2 Statement of the Problem

Even though the application of budget and budgetary control have made management and

administration more easier, there are still need to investigate some problems normally encounter

in these processes in manufacturing companies.

i. The product standard is not met as organizations do record variations in their

planned activities. Business enterprises in Nigeria often budget to achieve 100%.

ii. Problems of distortion on original plan as a result of an unstable national

economy and political development, such as the effect of structural adjustment

programme (SAP), subsidy removal as they affect the national economy of

Nigeria.

iii. There is the fear of over or under budgeting in certain department of the company

particularly where it is difficult to predict the behaviors pattern of some cost or

revenue items. This leads to wasteful spending in the system.

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 iv. The problem of allocating the scarce or limited resources available in the

company that is (human, materials, and financial) to various department in order

to minimize cost. This in most cases is driving by organizational politics which is

prevalent in our society.

v. Behavioral problem often represent a major obstacle or as a hindrance to the

successful implementation and operation of a budgeting control technique.

1.3 Aim and Objectives of the Study

Specific objectives of the study are presented as follows:

i. To investigate the extent to which the method adopted in reporting variances affect

budget control.

ii. To examine the effect of over or under budget as control devices in the organization.

iii. To examine the extent to budget control are influenced by external forces in the

organization.

iv. To identify the extent to which behavioral factors affect deviation from the estimate.

1.4 Research Questions.

The following research question will be of reverence to the study.

i. To what extent does the method adopted in reporting budget affect budget control?

ii. To what extent does over or under budget affect control devices in the organization.

iii. What are the factors that will influence the external forces in the organization?

iv. What are the causes of variance from the deviation of the budget established, whether

behavioural problems influences the achievement?

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1.5 Research Hypotheses.

This hypothesis tested to find solution to the problem raised in the section.

Hypothesis 1

Ho: There is no significant relationship between budgeting control and organization goals and

objectives.

H1: There is significant relationship between budgeting control and organizational goals and

objectives.

Hypothesis 2

Ho: There is no significant relationship between budgeting control and efficiency of the

manufacturing company.

H1: There is significant relationship between budgeting control and efficiency of the

manufacturing company.

1.6 Significance of the Study

The justification of this study is that its outcome is expected to enlighten readers on budgeting

and how it is used as a control device in an organization. It is expected to make organizations

embrace budget and improve quality of budgeting with view to enhancing control in the business

organization.

It is also necessary, that the person involved in the budgeting process, to process some in- depth

knowledge and additional skill in the use of budget as a control device in the company. This

particular research works with aimed at finding solution to the problem of budgeting in Unilever

Nigeria Plc.

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1.7 Scope of the Study.

The scope of this study is based on definitions of budgets, budgetary control and budgetary

system. It will highlight the components of a well design budget and the problem encounter

during the process of budgeting in a given budget period and techniques use in the

implementations. It will also include the role of the budget committee and other person involved

in the budgeting process. The scope highlights the different kinds of budget conditions for a

successful budget, principal budget factor or limiting or key factors and also, empirical analysis

of budgetary process in a manufacturing company “Unilever Nigeria Plc”.

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 CHAPTER TWO

LITERATURE REVIEW

2.1 Preamble

In this chapter, the researcher reviewed some theoretical framework on budgeting and budgeting

control. Previous works of researchers on the subject of study were appreciated. Historical

background of Unilever Nigeria PLC was discussed briefly in the chapter.

2.2 Theoretical Framework

2.2.1 Definition of Budget

A budget can be viewed as a plan of dominant individual in an organization expressed in

monetary terms and subject to the constraints imposed by other participants and the

environment , including how the available resources may be utilized ,to achieve whether

dominant individual agreed to be organizations priority . (Omolehinwa, 2007). Budgeting in the

early days of its evaluation was primarily concerned with serving the purpose of legislative

accountability. Budgeting control was said, not be viewed as a penny pitching cost saving

exercise but as a positive and integral part of an organization, planning and control (Lucey,

2004)

Pandey (2010) defines budget as a short term financial plan. It is an action plan to guide

managers in achieving the objectives of the firm.

Lucey (2003) in his formal definition defines budget as “a qualitative statement, for a period of

time, which may include planned revenue, expenses, assets, liabilities and cash flows. A budget

provides focus for the organization, aids the cor-ordination of activities through facilitate control

whereas control is generally exercised through the comparison of actual cost with a flexible

budget”. Lucey (2003) in his recent definition of budget defines it as “a qualitative expression of

a plan of action prepared for the business as a whole for department, for functions such as sales

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 and production or for financial resources items such as cash, capital expenditure, and manpower

purchase.

A budget is a Qualitative plan of the operations of an organization or an individual; it identifies

the resources and the commitment s required to fulfill the organization‘s or individual’s goal for

the budget period (ATSWA, 2009).

2.2.2 Budgeting

Budgeting can be defined as a technique which establishes organizationa estimates of the cost of

product and services and compared these predetermined costs (Omolehinwa, 2007)

Welsh (2003) opines that budgeting is the only comprehensive approach to managing so far

developed that, if utilized with sophistication and good judgment fully recognized the dominant

role of the manager and provides a framework for implementing such fundamental aspect of

scientific management as management objectives .effective communication, participation

management, Dynamics control, continuous feedback, responsibility accounting management by

exceptions management flexibility.

The Tennessee board of Regents (2006) defines budgeting as the process were by the plans of

institutions are translated into an itemized, authorized and systematic plan of operation,

expressed in dollars for a given period

The word Budgeting means a plan to work link between financial resources and Human

resources. This provides reference point for control purpose; It also gives manager a continuous

reminder of the action there have decided upon .This also direct some of the management

attention for present to the future.

Some of the potential tasks of budgeting are:

 To direct some of management’s attention from present to future.

 To re-enforce the management motivation to achieve the company’s goal and objective.

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  To enable management to motivation problems and opportunity in time and deal with them

effectively.

 To provide a reference point for control reporting.

 To force managers to anticipate problems of opportunities in the.

Through budgeting, management is given the opportunity to coordinate resources and

projects as they are usually a common financial dominator. In addition, the benefits of

budgeting system where properly planned and administered to be communication

coordinating motivating, promoting and congruence, better control and possible cost

reduction. In addition to being the managers’ planning tools, budgeting is also one of the

most effective tools of communication and integration. It shows how each part of the

organization relates to the whole. Budgeting therefore require that the manager in charge of

the and each person in charge of parts discuss the budget jointly in order to arrive at better

result (Adeniji, A .A. 2008).

2.2.2.1 Essentials of Budgeting Control System

A successful and sound budgeting system is based upon a certain prerequisite. The pre-

requisition structure and managerial approach for the important essential fundamentals of

successful budgeting are as follows:

a. To management

b. Clear and realistic goals

c. Assignment of authority and responsibility

d. Creation of responsibility center or budget center

e. Adaptation of accounting systems

f. Full participation

g. Effective communication

2.2.3 Budgetary Control

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 The establishment of budget relates the responsibilities of executives to the requirement of a

policy and the continuous comparison of a actual with budgeted results either to secure

individual action by the objectives of that policy or provide basis for its revision.

Budgetary control therefore, is the planning in advancing various function of business so that

the business as a whole can be controlled. Budgeting control relates expenditure, to the person

who incurred the expenditure so that the actual expense can be compared with budget

expense. This is in contrast to standard costing, which relates expenses to a product or a

service.

In a bigger organization or company like Unilever, budgeting control is a part of a corporate

planning system.

2.2.3.1 Budgetary Control and Management

A budgeting system will be an utter failure if not initiated and supported by management

within an organization, top management must realize that budgeting is not merely an

accounting device but an important management technique. To enable the top management to

realize and adhere to its set of objectives they must:

a. Understand the nature and characteristics of budgeting

b. Be willing to devote efforts required to make it operative

c. Support the programme in all its ramifications

d. Be convinced that the particular approach to managing preferable for their situation.

e. View the results of planning process as performance commitments.

Top management’s confidence in budgeting process makes subordinate more efficient and

conscious. It has been shown by the behavioral research the subordinates of a manager, who

has become conscious through his confidence in budgeting, would be approximately three

times more conscious than the subordinate of a manager who is not cost conscious.

2.2.4 Business Policy and Responsibilities.

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 Business policy and responsibilities, has to do with the laid down rules of an organization

and the responsibilities that are being faced in order to achieve an effective goal and

objective .To further explain the policy and responsibility of a company ,the following are

explained.

a. Requirement of a policy.

Unless the management has a specific claims in view and take appropriate action to

attain those aims, its development and goal if any would haphazard and fragmentary, and

resources of asset and skills will not be utilized to maximum advantage.

Thus budget is a statement of policy concerning the position business hope to be at end of

a period of time rather than a forecast of how outside influence will affect the firm.

b. Executive Responsibility.

All managers have specific jobs to do and their work must at all times be directed

towards the objective of the business that is the policy. The result is co-ordinate rather

than individual effort.

Comparison of Actual with budget result

Control can be effective where there is a plan because no one can be said to be in control

of a situation, if he does not know where he is going he will be like a ship heading

towards a rock, moving blissfully without a course. Therefore control takes effort

measuring the result of an activity and comparing actual with planned budgets and there

are significant divergences from the plan management can take action to correct them.

c. The Revision of policy

It is only when management can understand the forces affecting the performance of

business that it can realistically steer ship on acceptable courses for the future. Policy

must not be static but dynamic hence it must take into account the different between

required objectives and attainable objectives.

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2.2.5 Clear and Realistic Goals

Budgeting is a means to achieve goals and objectives hence it is presuppose that

objectives and goals have being clearly and realistically planned and unambiguously

established.

In the absent of goal clarity, employees will look at a proper direction and the effort of

management will be wasted once the employees know that the goal and objective o f

management of an enterprises are not achieve and attainable, they would not put serious

efforts to achieve them, They achievement does not require special offers, and therefore

employees do not feel motivated. In order to achieve realistically objectives

And goals for an organization, the following factors must be considered.

1. The size of the enterprise.

2. Managerial philosophy and quality.

3. Age of enterprises

4. Nature of activities and many psychological factors . When realistically goals is set it will

provide motivation for the employees on the long run.

2.2.6 Assignment of Authority and Responsibility

A well structural organization chart is very essential for the success of the budgetary

system. Hence, it is required that authority and responsibility must be well identified and

establish in designing of an organization chart. Once this is done, it will provide an

effective means of achieving the enterprise objectives and goal in coordinated and

efficient manner (Colville, 1990). The performance of managers within an organization

should be evaluated in terms of authorities and responsibilities. If there is no

synchronization between the budgeting system and the organization chart structure then

the planning and control system will not be effective.

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13
2.2.7 Creation of Responsibility and Budget Centers

A small enterprise or firm can be managed by an individual or small group of

individual. But, the activities of a large firm cannot be easily supervised or managed by

an individual or few individuals. Therefore for an effective control and management, a

large firm should be divided into meaningful segments, department or divisions even into

or areas or sections, each unit is assigned certain responsibility for the authority or

division or area managers who are responsible for the activities of the areas or sectors.

The sub-units or area offices of an enterprise is an organization for the purpose of

executing effective control are called Responding centers or Decision centers” The

responsibility centre can be a big unit such as production department or a small unit such

as cash unit or section of an accounting department . The criteria for creating a

responsibility center are:

I. That the unit or area office should be separable and identifiable for operating purpose and

II. That the performance measurement should be possible

2.2.7.1 Profit Center.

For planning and control purpose another responsibility centre is profit centre referred to

as contribution margin centre, contribution margin I s a cost accounting terminologies,

which is the difference between revenues and cost i.e. variable overhead that is fixed cost

are not included, therefore a profit centers or contribution margin center should provide

more effective assessment of performance as both cost and revenue are measured in

financial terms. The profit center allowed both in Revenue are measured I financial

terms. The profit centre allows both input and output to be measured.

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2.2.7.2 Cost Centers

A budget cost centre is the lowest level of an organization for which detailed cost is

budgeted. It is important that there should be a clear designation responsibility over

budget the emphases will be no o responsibility rather than on benefit criterion. Ideally

cost should be charged to budget centers before appointment of these cost are made to

other cost center are this helps to identify responsibility for cost. Thus cost is the primary

planning and control date in a cost center. The performance of the manager is evaluated

by comparing the actual expenses incurred with the budgeted expenses for the cost

centers. In the cost center, lather consequences of decisions are measured by cost alone,

this accomplishment of cost center is not measured in financial terms.

2.2.7.3 Investment Centers

This is another responsibility center where managers are responsible le for revenue and

costs plus investment undertaken in asset by the centers. In this center, performance is not

relating results to the investment are used as performance evaluation criterion in an

investment center.

2.2.8 Budget Period

The budget period is the period for which a set of budget is prepared typically the budget

period is of one – year duration and will be designed to coincide with the organization

financial or fiscal year. Most organization will divide their budgets period into calendar

months (or period s), whereas others have thirteen period year call of an equal four week

period, in certain situations, the budget period will be analyzed according to some

particular feature of the work in that situation for example, stock brokers have their year

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 divided into account of two and three weeks duration. Hence decision of a budget period

is control periods.

2.2.9 Preparation for the Budget

In large companies the preparation of budget is usually the responsibility of a budget

committee. However, in small companies a budget officer or accountant may be given the

responsibility of coordinating the work connected with budget is. The committee set up in

a large firms are to formulate a generally programmed for preparing a budget and

exercises over all control. The chief executive of the company may establish guideline

principles but usually he delegates the responsibility for operating the system to the

budget officers a secretary of the committee.

This committee is comprised of the chief executive, budget official and head of man

departments each members will prepare his own initial budget or budgets which will then

be considered by this committee and then all budget will then coordinated . Usually many

changes are affected before the budget one finally integrated and approved.

The main functions of the committee are:

i. To provide historical information to help managers in forecasting

ii. To issue instructions the various departments regarding budget requirement s deadlines

dates for the respect of budgets.

iii. To define the general policies of the management in relation to the budget.

iv. To advice in preparation of budgets.

v. To review budget s estimates submitted by sectional heads.

vi. To suggest revision and amendment of budget.

vii. To approve budgets.

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 viii. To ensure that budgets are submitted in due time.

ix. To prepare budgets summaries where necessary.

x. To advice the managers on all matters concerning the budget.

2.2.10 Administration of Budget in Manufacturing Companies

Budget administration can be described as the whole process of budget supervision in

order to ensure that the set goals and objectives of the firm are achieved as planned

(Davidson,2008).Budgeting itself is the process of estimating the needs of the firm for a

future based on past experience and future needs (Lucey,2004)

Budget monitoring or budgetary control is a process of companies’ actual result with

budgets to serve for performance evaluation and revision of budgets. (Drury, 1991).

The budgeting process in manufacturing companies usually commences with a strategies

session held at a external venue involving all management staff. A detailed appraisal and

macro-economic issues as they affect the manufacturing industry is made and the outlook

for the economy at large is agreed upon. Based on this, a business plan for the year ahead

is made and reviewed.

When this is done, the preparation of the operating and capital budgets for the new

financial period commences on an individual department basis. Several meeting follows

later by the budget committee on these inputs to finally arrive at the final budget.

2.2.11 Budget Manual

This is defined by the Chartered Institute of Management Account (C.I.M.A.) as a

document, which set outstanding instructing governing the responsibility of persons and

the procedures from, and record relating to the presentation and use of a budget. It is
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 usually in loose leaf form, so that any amendments or alterations can easily be made and

incorporated as at when required appropriate section can be issued to the executives

requiring them. An index may be provided as to case location of information.

The manual will prove invaluable as it will provide the following information regarding

the preparation of budget.

i. Description of the system and its objectives.

ii. Procedures to be adopted in operating the system.

iii. The reports and statements required for each budget periods.

2.2.12 The Principal Budget Factors

Budget factors are a factor which at any given time is as overriding planning limitations

on the activities. It is referred to as the Principal Budget Factors, Limiting factors or Key

Factors by some authors.

The principal budget factors may be more than one in some cases but in peculiar in the

divisional multi-product company.

The principal budget factor may be sales productions materials, labour or finance, it is

important to ascertain the principal budget factor first and then to determine the limit or

impose on the other functions performance. It is after this that the budget preparation

should commence (Omolehinwa, 2007).

Limiting factors is anything that limits the activity of any entity (Williamson, 1991).

Examples of limiting factors are shortage of supply of resources and restriction on sales

at a particular price. That is, the limiting factor is the one factor that dominates all other

18
 factors; the limiting factors can be any factors can be any factors that are important to the

carrying out of the organization activities. Examples are:

i. Cash

ii. Raw Materials

iii. Skilled Labour

iv. Land

v. Equipment

2.2.13 Development of Budget

Though it is conventional for top management and controller or directors are developing

budgets and consequently, they are impose on the low managers. The current practice is a

slight derivation from this patterns that some organizations still adhere to lower level

managers are now involved in the budgeting process.

Fig 2.1 Budgeting Process

Board of Director of commission

Management Director

Top Managers

Division Heads Division Heads

Operating Unit Head Operating Unit Head Operating Unit Head

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 Adapted From Lucey, 2004

2.2.14 Budgeting Process

The figure 2.1 above shows the process that is followed in budgeting, beginning with top

management providing guidelines for the overall pattern of the budgets by requesting for

budget needs. Benefits from this approach to budgeting are as follows:

i. The involvement of managers in the development of the budget will likely ensure their

meeting it.

ii. Naturally individual unit managers are more family with their own needs rather than

anyone else.

2.2.15 Budgeting Techniques

There are three (3) main techniques discussed by various authors they are as follows:

i. Incremental (Traditional) Budgeting.

ii. Zero Based Budgeting (BB)

iii. Planning Programming Budgeting System (PPBS)

2.2.15.1 Incremental or Traditional Budgeting

Incremental Budgeting is a produce where increase or addition are added to the previous

budget. In others words the passengers is accepted in total. Incremental budgeting is found to

have the following advantages.

a. It is easier to be done

b. It is not sophisticated and the result is commonly used

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 c. The old budget is taken as a base

d. Only the additional are needed to be added (Ballou, 2006).

Incremental budgeting has been particularly faulty because of the following reasons:

1. Planning emphasis or cost and expenditure and not on the service output.

2. Future cost of current decisions ignored.

3. It does not permit the use of technique or flexible budget.

4. Providing resources for programmed of low usefulness or even expired ones on a continual

basis (Schroeder, 1990).

Incremental budgeting system is relatively an easy way of preparing the budget and it is the

most commonly used in industries and in government institutions.

2.2.15.2 Zero Based Budgeting (Z.B.B)

Zero Based budgeting has been described as an operating, planning and budgeting

process which requires each manager to justify his entire budget from scratch to end.

Each manager states why he or she spends any money at all. In other words the budget

should be built up each year from a base zero.

ZBB is form described by the Chartered Institute of Management Accountants (CIMA) as

a method of budgeting where by all activities are revalued each a budget is set Discrete

level of each activity are valued and a combination chosen to match the funds available.

The use of ZBB was pioneered by Peter Phyrr, in the united state in the early 1970’s has

gained wide acceptance probably because it is a simple idea obviously based on common

sense. ZBB is concerned with the evaluation of the cost and benefit of alternative and

implicit opportunity (Hill, 2002). This approach requires that all activities be identifies as

decision packages. This will be ranked in order of importance. The main difference

between ZBB and incremental budgeting system is justification of the budget.

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 2.2.15.2.1 Advantages of Zero Based Budgeting

Five reasons why ZBB has an edge over other budgeting techniques:

i. Low priority programmed can be eliminated

ii. Programmed effectiveness can be dramatically improved

iii. High impact programme can be funded by shifting resources within an agent or

department.

iv. Increase in revenue increase in taxes especially can be regarded as something to

be used effectively.

v. ZBB creates an atmosphere of continuous receiving

vi. Efficient allocation of score resources is facilitated.

2.2.15.2.2 Disadvantages of Zero Based Budgeting

i. It is a time consuming process, which can generate volumes of paper work especially for

the decision packages.

ii. ZBB very costly

iii. It may encourage wrong impression that all decisions have to be made in the budget.

Circumstance change and now opportunities and threats can arise at anytime and

organization must be flexible enough to deal rapidly with the circumstances where they

occur

iv. Co-ordination of different activities may be very problematic e.t.c

v. There are considerable management skills required in both drawing up decision packages

and for the ranking process. The skills may not exist in the organization.

vi. ZBB is not always acceptable to staff or management or trade unions who may prefer the

cozy status quo and who see the detailed as a threat not a challenge.

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2.2.15.3 Planning programming Budgeting System (PPBS)

It is a sophisticated concept developed in North America and is usually considered in

relation to state and Federal Government activities although there is no reason why the

system could not be more widely applied. PPBS are based on systems theory and its

output and objective oriented with a substantial emphasis on resources allocation based

on economic analysis. The system is based not on traditional organizational structures

and division, but on programmes grouping of activities with common objectives

(Dervitsiotis, 1998).

PPBS require the organization prepares a long-term relating to the objectives of the

organization sub-divided into programmes. These programmes are expressed in terms of

objectives to be achieved over the medium to long-term, say 3 to 5 years. The key point

is that the programme is objective related and spread across several conventional

departments. The total estimated costs are for the programme as a while and are not

initially expressed in relation to department. When the various programme for the

organization have been agreed they form long term plan for the organization. PPBS

reporting system should be able to report upon results in terms of programmes of

activities unlike conventional reporting which is geared to existing organizational sub-

division and usually deals only with expenditure.

The essential features, PPBS can be summarized as:

i. A careful specifications and analysis is of basis programmed initially specified.

ii. Analysis is so far as possible of the output of a given programmed initially

specified.

iii. The determination of the total cost of the programmed not just for one year but

also for several years.

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 iv. An analysis of the various alternatives seeking those which have objectives,

specified in the first step or those, which achieve those objectives, at least costs.

2.2.16 Types of Budget

The various types of budgets have been identified namely:

2.2.16.1 Cash Budget

Cash budget enables the management to know the cash implications of policy decisions

and the budgeted trading activities.

Usually substantial part of receipt in a month or period comes from cash collection from

sales and debtors in each month taking into consideration the existing arrangement for

effecting settlement of sales such as cash sales. When debtors settle their debts and cash

discounts offered if any; other sources of cash receipt include issue of shares and

debentures, sales of fixed assets or investment and receipt of dividend for investment

outside the business.

a. New Product Research

b. Improvement of present Products

c. Development new and improved product to the point of introduction on the market.

When budgeting in Research and Development, the following factors have to be put into

consideration.

a. Number of personnel and hours of work proposal.

b. Salaries and wages of pay.

c. Cost of materials for trail purposes

d. Special machines required for testing

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2.2.16.2 Plant and Utilization Budget

This represents the plant requirement to meet the product you budget. This

budget may be very important because of the following:

a. It details the machine load in every manufacturing department

b. It draws attention to any under loading so that the sales manager can be requested to

investigate possible increased sales.

c. It draws attention to over-loading in time for any corrective action to be taken. Example

purchasing new machinery, overtime working shift working, sub-contracting etc.

2.2.16.3 Selling and Distribution of Cost Budget

The selling and distribution of cost budget shows the planned amount of expenditure for

selling, general and administration expenses during the budget period.

2.2.16.4 Master Budget

The mater budget is a summary of quantitative expectation regarding future cash flows, net

profit and financial status of an organization after reflecting the feasible objectives of all sub

units like sales, production and distribution. It normally takes the form of cash budget, a

budget profit and loss account balance sheet as at a given date for the organization as a

whole. To be able to prepare the master budget, the supporting subsidiary budget like sales,

production and purchases must be preparing (Schonsleben, 2000).

2.2.16.5 Capital Expenditure Budget

The capital budget is prepare in all types of organization, detailed plans for major

acquisitions and disposal of assets such as plants and equipments, vehicles and land.

2.2.16.6 Sales Budget

Sales budget is the primary budget from which the majority the other budgets are developed

it is necessary to make a sales forecast. A forecast is a production or estimate of the event,

which are likely to occur in future. The forecast becomes a budget only if management
25
 accepts it as the objective. Frequently, consideration of the forecast sales lead management to

make adjustment to threw plans so that the agreed sales budget differs from the original sales

forecast. Sales forecasting is complex and difficult task and involves consideration or

numerous factors including past sales patterns, general economic indicators e.g. Personal

income, results of market research studies and test marketing etc. (Chopra and Meindl,

2001).

2.2.16.7 Production and Related Budget

The production shows the quantities and costs involved for each product and product group

and will be scheduled to dovetail with the sales and inventory budget. This coordinating

process is likely to show short fall or exercise in capacity at various times over the budgets

period, where temporary short falls are anticipated then consideration would be given to extra

overtime or shift working, sub contracting, buying in more parts or machine, hire some other

short-time way of increasing output. Where there is a more significant shortfall the means

that production capacity in the limiting factor and considered will have to be given to

providing more substantial increase in capacity (which will have implication for the capital

expenditure budget).

When production capacity exceeds the anticipate sales level for significant periods then

consideration will have to be given to product diversification, additional promotional effort

reducing selling prices if demand is considered to be price elastic) or else if all fails, selling

of the excess production capacity when the production budget is finalized the production

inputs (labour material production services) are developed based on the budgeted activity

level and existing stock position and projected labour material and service cost (Lucey,

2004).

26
2.2.17 The Relevance of Computer Application in the Preparation of Budget

The use of information technology facilities such as computer and relevant application software

and programmes are of tremendous assistance in the budgeting process in the manufacturing

companies and in Unilever Nigeria. They provide an-efficient and effective means by which the

completeness accuracy and validity of the world budget can be assured. Compute spreadsheets

go on long way in easing the entire process of scenarios building and modeling, which are key

task in budget preparation. The application of computer has come a long way in the preparation

of budget. In the determination of expected and actual budget all programs are computerized on

that make working easier, because it is faster for determining the budget. In the process too, units

that achieved their sales turnover can easily be identified with the use of the computer.

Some of its advantages are that it make budgeting easier to determine and because of the

technology involved, errors don’t easily occur, information on the organization is stored and can

be kept away for as long as possible and will only be seen be who has access to it. The success

of programs can be depending on good budgeting procedures. The extensive history of the export

of American Computer Technology began in 1952 with an order for the electric tabular “to IBM

South Africa. The number of computer continued to grow totaling more than forty five hundred

in 1982. Systems are continually asserted that the application of their computers were put to

abridge human rights, despite acknowledge that the uses to which their computers were out could

not be known in all cases.

The computers being applied in budget preparation help a format in which the budget will be,

prepared to in order to achieve a complete and accurate budget. Computing resource are innate

and must be shared, users may use does not unreasonably interfere with the use of computing

and network resources by other users, or with operation of computing and network resources

,interfere with the users employment or other obligation to violate this policy or law. The use

your computer account or the network for commercial activities that are not approved by
27
 appropriate supervisory personnel consistent with applicable policy or for personal financial

gain.

The applications of computers are really a great help as the work is done faster, and the prepared

budget turns out to be accurate at effective.

2.3 Empirical Review of Previous work in the Area of Studies

This study follows other empirical work, which suggests that there is a positive relationship

between the process and setting of targets and managers commitment to them (Jermier and

Barkes, 1979; Rhodes and Steers, 1981;Brownell, 1982). These studies are primarily focused on

the relationship between participative styles and organizational commitment (Argyris, 1952;

Becker and Green, 1962, from Nouri and Parker, 1998), they also argue that there are additional

variables that need to be acknowledged in the relationship such as organizational commitment

and the adequacy of budget expectations. The issue of adequacy of expectations and commitment

is not only related to participation but is subject to increasing levels of accountability both on the

organization as well as at the level of the individual.

Budgeting also makes an organization aware of operation bottleneck and is able to efficiently

allocate resources (Davila and Wouters, 2005; Ugoh and Ukpere, 2009). In addition, it enables

an organization to coordinate activities through integrating departmental budgets. Effective

budgetary motivates members to work toward organization goals, which could as well serve as

control criteria of departmental performance (Jacobs, 1998). Budgeting is successful when it

receives full support by top management and well perceived by members of its initiation and

implementation (Chaney et al., 2002; Ugoh and Ukpere, 2009).

28
The budgetary process has been a part of management control system of the organization. This

process encourages managers to plan, consider the stakeholders involved, provides information

for improved decision making, increases and enhances communication and coordination among

departments, and for evaluation.

Budgeting in this regard is viewed as enabling the different functions of management control

further, state that the budget represents their numbers and their benchmarks against which their

performance is measured (Herath and Indrani, 2007).

According to Akintoye, (2008, p. 9), budgeting is not a substitute for effective decision making.

The managers’ planning tool, budgeting is also one of the most effective tools of communication

and integration.

GFOA (1998, p.4) states that, “The mission of the budget process is to help decision makers

make informed choices for the provision of services and capital assets and to promote

stakeholder participation in the Decision process”.

According to Marginson and Sharma (2011), the budgetary practices and procedures encountered

may be unique to that organization. They mention that insights into the connections and

interdependencies between budgeting and strategizing in day today activities within an

organization.

Akintoye (2008) in his work on budgetary control and its effect on firms’, tested the association

using turnover as one of the variables with the assumption of turnover as the budgetary control

indicator and Dividend per share,Earning per share and Net asset per Share as the indicators for

firms’ performance.

They discover that there is a significant relationship between the two categories of variables

mentioned above. Wijewardena and De Zoysa (2001) argue that the impact of budget planning
29
and budgetary control on performance may vary from firm to firm depending on the extent of its

use.

30
 CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Preamble

This chapter entails the use of budgetary control in an organization that is Unilever Nigeria Plc.

This chapter presents a clear description of the research design for this study and the methods

employed in data collection, the assumption, population study, sampling techniques and the

instrument of data analysis.

3.2 Research Design

The design for this study is a survey design. This type of design is one, which a group of people or

items is studied by collecting and analyzing data from one people or items considered to be

representatives of the entire group. The research was carried out in Lagos. This study attempts to

identify budgeting control in a manufacturing company.

3.3 Population of the Study

The population of the study is the staff of Unilever Nigeria Plc. Head Office at Oregun, Lagos.

This company was chosen based on its volume of operation. It keeps vast quantity of inventory

and applies relevant control tools to minimize cost of production. The staff strength of this

company as at present stands at 650 including permanent employees at management and non-

management cadres. The population comprises of all the staff of various divisions or departments

of the company that makes use of Budgets and various head/ managers and the professionals

associated with the use of Budgets in the company.

3.4 Sampling, Procedure and Sample Size

The sampling techniques used in this research is the random sampling techniques was applied in

selecting the number of persons that will complete the questionnaires from the company 150
31
 employees were selected. The sample size used consists of one hundred and fifty (150)

employees of Unilever Nigeria Plc Members were drawn from the following departments /

section.

- Accounts Department (20 employees)

- Administration Department (40 employees)

- Commercial Department (40 employees)

- personel department (50 employees)

Selection is based on random sample; where by copies of the questionnaires were distributed

to the respondents according to first come first serve basis.

3.5 Data Collection Instrument and Validation

The questionnaire was constructed and given to the project supervisor, who made some

corrections and necessary amendments were incorporated into the questionnaire. The

questionnaire was also seen as useful and consistent for the purpose for which it was designed.

Explanations were necessary for clarifications on the questionnaires; effort was made to make

sure that the copies of the questionnaires were collected on time, so as to ensure a high

percentage of returns. The company’s personnel also offered assistance during the administration

of the questionnaire.

3.6 Method of Data Analysis

The simple percentage analysis methods will be used in analysing the data. Information gathered

with the use of questionnaires will be presented by summarizing the individual responses. The

information given by the respondents will be compared. Also the secondary data collected from

32
 various publications will provide a guide for making conclusions and specific recommendations

for the instituting of a sounds budget and budgetary control in an organization.

The research questions are analyzed through the use of percentages. The hypotheses will be

tested with the use of chi – square test.

3.7 Administration and Collection of Instruments

The questionnaires were administered personally by the researcher to staff understudy. A total of 150
copies of questionnaire were administered. Out of the l50 copies of questionnaire distributed, 110 were
returned. The break down of the returned questionnaire is shown in the table below.

33
Table 3.7.1 No of questionnaire administered to the staff of Unilever Nigeria Plc and the number

returned
Staff Administered Returned Percentage of Returned
Category

Top Manager
20 15 10%

Middle
Mnager 40 35 23%

Low level 40 25 17%

managers

clarks 50 35 23%

Total
150 110 73%

34
Table 3.7.2 No of questionnaire administered to the Unilever Nigeria Plc staff

Category Administered Percentage 100%

Top level managers

20 13%

Middle level managers 40 27%

Lower level mangers 40 27%

clarks 50 33%

Total
150 100%

3.8 Limitation of the Methodology

In view of type of company; the case study is, that is Unilever Nigeria Plc, and the researcher

encountered the following limitations in the course of carrying out the study.

35
Restriction on type of information this is due to the fact that the company is a public enterprise

and they are not willing to disclose vital information that will reveal the pattern and nature of

their operations, there was a limited to the kind of information they could disclose.

CHAPTER FOUR

PRESENTATION AND DATA ANALYSIS

4.1 Preamble

This chapter presents the analysis for the data collected and interpretation of results,

based on the research question or hypothesis.

4.2 Presentation and Analysis of the opinion of respondents.

Table 4.1 Data presentation of Respondents’ Demographic Characteristics
Response Frequency Percentage
%
 
Respondent by Response Returned 110 73%
  Unreturned 40 27%
  Total 150 100%
  Male 68 62%
Respondent by Sex Female 42 38%
  Total 110 100%
WASC/GCE 12 11%
 
  OND/NCE 41 37%
Respondent by Qualification BSC/HND 30 27%
MBAA/MSC 27 25%
 
  TOTAL 110 100%
  1-2 years 22 20%
  3-4 years 42 38%
respondents by year of 5-6 years 44 40%
service
Above 6 years 2 2%
 
  Total 110 100%

36
 Source: field survey, 2021

4.2.2 Presentation and Analysis of Data According to Research Questions

This section relates to part two, which is the body of the questionnaire. Therefore, the main

research questions for the objective of this study are addressed accordingly

SECTION B

Table 4.2 Budget monitoring and control contribute to the attainment of organizational goals

being an important tool which is strategically planned.

SA A U D
STATEMENTS/QUESTIONS % % % % TOTAL
 Budgeting monitoring in the
organization prevents
significant variations
between the actual and
 7 budgeted operation.  68 30 2 0 100
 The important nature of
budgeting makes it to be
 8 strategically planned  70 26 4 0 100
Budgeting is an important
tools for attainment of
 9 organizational goals  60 36 0 4 100

Source: Filed Survey 2021

From question item 7 above, 68% strongly agreed with the question, 30% agreed that budget monitoring

in the organization prevents significant variations between the actual and budgeted operation while 2%

were Undecided.

From question item 8 above, 70% strongly agreed that the important nature of budgeting makes it to be

strategically planned while 26% also agreed their statement while the remaining 4% was Undecided

about it. But majority strongly agreed that strategically planned budgeting plays an important roles in

every organization.

37
From question item 9 above, 60% strongly agreed that budgeting is an important tools for attainment of

organizational goals, while 36% also agreed to this statement and 4% ‘’Disagreed’’ that budget is not an

important tools for attainment of organizational goals.

Table 4.3 Budget preparations should be done by professional and experienced staff with more

computer knowledge which is very necessary.

SA A
STATEMENTS/QUESTIONS % % TOTAL
 Experience and professional staffs
 1 are essential for proper budgeting
0 formulation in the organization  72 28 100
 1  The use of computer is necessary
1 in the preparation of budget  76 24 100
Source: Filed Survey 2021

From question item 10 above, 72% strongly agreed that experience and professional staffs are important

for proper budget formulation in the organization while 28% also agreed this statement.

From question item 11 above, 76% strongly agreed that computer usage is very important in budget

preparation while 24% also agreed that computer usage is very important in budget preparation.

Table 4.4 All relevant department of the organization should be involved in the preparation and with

approval of a budget plan by the Heads of department.

SA A U D SD
STATEMENTS/QUESTIONS % % % % % TOTAL
All departments should
 1 participate In budget
2 preparation.  40 24 10 20 6 100 
 Budget committee is
 1 compulsory for efficient budget
3 preparation. 70 28 2 0 0 100
 1 Final approval for budget should
4 be made by highest authority. 76 24 0 0 0 100
 There is consistency in
 1 budgeting techniques in
5 manufacturing organization. 76 24 0 0 0 100
 1  Budget implementation has 74 24 2 0 0 100
6 been effective in manufacturing
38
 organization.

Source: Filed Survey 2021

From question item 12 above, 40% strongly agreed that all department in the budget preparation in the

organization while 24% also agreed` to the above statement while 10% was undecided and 20%

disagreed and 6% strongly disagreed that all department should participate in budget preparation.

From question item 13 above, 70% strongly disagreed that budget committee play major roles in budget

preparation while 28% also agreed to the above statement but 2% were undecided.

From question item 14 above, 76% strongly agreed that the budget final approval were made by the

highest authority while 24% also agreed to the above statement.

From question item 15 above, 76% strongly agreed that there is consistency in budgeting techniques

while 24% also agreed to the above statement.

From question item 16 above, 74% strongly agreed that budget implementation must be effective in

manufacturing organisation 24% also agreed to the above statement and 2% was undecided.

Table 4.5 Economic, social and business operating factors can hinder the implementation and

objective of budgeting.

SA A U
STATEMENTS/QUESTIONS % % % TOTAL
 There are provision for
 17 encumbrance in the budget plan.  66 30 4 100
Actual variance from budget used to
 18 be small. 88 8 4 100
 Budgeting assists in the
achievements of organizational
 19 goals. 76 24 0 100
 There is hindrance in the
 20 implementation of budget. 50 36 14 100
 Economic instability is likely to
 21 cause budget failure 48 40 12 100
Source: Filed Survey 2021

39
From question item 17 above, 66% strongly agreed that in the budget plan there are always provision for

encumbrance while 30% agreed to the above statement and 4% were Undecided.

From question item 18 above, 88% strongly agreed that actual variance from budget used to be small,

while 8% also agreed that actual variance from budget used to be small while 4% was Undecided.

From question item 19 above, 76% strongly agreed that organizational goals can be achieved through

budgeting while 24% also agreed to the above statement.

From question item 20 above, 50% strongly agreed that there are hindrances in budget implementation,

while 36% also agreed that there are hindrances in budgeting implementation while 14% was

Undecided.

From question item 21 above, 48% strongly agreed that budget failure may likely caused by economic

instability, while 40% also agreed to the statement while 12% was undecided.

4.3 TEST OF HYPOTHESIS

According to Osasona (2005) defined hypothesis as a statement of expected relationship between two or

more variables. It can also be defined as a predictive statement of the expected relationship or difference

between two or more variables in a research study. For the purpose of this study, the test of hypothesis

shall be tested to be able to drawn conclusion regarding the research opinion of either to accept or reject.

In testing the hypothesis as regards the research question for the objective of the study, it must be noted

that the questions designed waiting for responses from the company’s executives and workers are

constructed positively aiming that budget preparation and budget control play significant role in

achieving the organizational goals and objective. As a result of this, a chi-square test of one- categorical

variables that its goodness of fit test would be conducted in testing the effectiveness of budget

preparation on the entire performance of the organization in which fifteen (15) questions are given with

the expectation of 750 responses all together from the company’s executives and workers which have

been principally categorized into five namely; Strongly agreed, Agreed, Undecided, Disagreed, Strongly
40
disagreed. It must be noted that the hypothesis would be divided into null hypothesis (Ho) and

Alternative hypothesis (Hi) as thus:

Ho: Budget Preparation and Budgeting control play insignificant role towards achieving organizational

goals and objective

Hi: Budget Preparation and Budgeting control play significant role towards achieving organizational

goals and objective.

As a result of this test, the entire responses are sorted out as follows based on the questionnaire

distributed and completely received from 50 Respondents. Notes:

Ho is the null hypothesis which is always structured inform of a negative statement.

Hi is the alternative hypothesis created in case the null hypothesis

Formula for chi- square is

X2= (0-E)2 Also, since there are five answers

available for responses, the
E probability of choosing one answer
Where O = Observed frequency as response is 1/5. Therefore, total
responses is 750, probability of each
E = Expected frequency responses is 1/5 x 750 = 150
Therefore, to find X2 cal,

CONTINGENCY TABLE

VARIABLES O E 0-E (0-E)2 (0-E)2

E

Strongly Agreed 505 150 355 126,025 840.17

Agreed 203 150 53 2809 18.73
Undecided 27 150 -123 15129 100.86
Disagreedd 12 150 -138 19044 126.96
Strongly 3 150 -147 21609 144.06
Disagreedd
1230.78
Source: Filed Survey 2021

Therefore, the X2 cal =1230.78. To find X2 table value, using 5% Level of significant as an assumption.
41
Degree of freedom is K-1

i.e. d.f = 5-1

=4

Check d.f. = 4 against 0.05 level of significant

X2 table value = 9.48773.

CONCLUSION

Since X2 cal > X2 tab i.e. 1230.78 > 9.48773, Accept the alternative hypothesis (Hi) and reject

the Null Hypothesis (Ho) that Budget preparation and Budget control play significant role

towards achieving the organization goals and objectives.

4.4 Discussion of finding

From the above analysis, majority of the respondents expressed views that Budget preparation and

Budget control play significant role towards achieving the organization goals and objectives.

The findings have however established the fact that Budgeting preparation and control is thus not only

significant in achieving the organization goals and objectives but also improving the managerial

performance.

42
 CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary

This chapter is concerned with the stage of the study of budgeting and budgetary control as an

effective management for decision making in the manufacturing industry with Unilever Nigeria

Plc, as case study. At the end of the study, a number of finding have emerged which indicates the

place of budgeting in the whole process of achieving the long term goals of an organization.

To start with, Unilever Nigeria a well established budgeting process which is in built in the

establishment over all planning and control activities. Budgeting as practiced and utilized in the

company, has been revealed as one of the best know management tools for the integrating the

complementing plans. It makes provisions for the development and qualification of objectives

and plans for each sub-division of the organization and thus steers the organization towards long

term objectives defined in the corporate plan. The finding also indicate that for budgeting

process there is need a well-devised and complete accounting system and the need co-operation

and support of executive and employees. It also revealed that inflation is the greatest hindrance

to budget practice. There is general instability in the price of goods and services, which throw the

budget estimates out of reality. Unilever has a budgetary practice and budgetary control

procedures.

Unilever makes use of zero based budgeting technique. They make use of planning programming

technique and a little aspect of incremental budgeting. Also there is consistency in the budgetary

control in use budgetary constraints in Unilever are both political and behavioral. Political

constraint on the way the government fixed the foreign exchange rate and the regulations thereto.

Behaviorally, the workers in the organization might not have adequate budgetary knowledge and

non-involvement in the operational budget planning an preparation which has constituted a

constraint in the budget implementation in Unilever Nigeria Plc. It was also noted that a well-
43
 prepared budget does not automatically bring benefits to the management, especially if

insensitivity is applied. It can bring benefit only if it is well prepared and properly implemented.

The study also revealed that budgeting can serve as a motivational tool for managers, officer and

other categories of workers. It was noted that management through budgeting can prevent or

control waste thereby making maximum use of available resources to obtain output. Form the

study, it was found that, most respondents are aware of the importance of preparing and

implementing management decision making. However, some of them expressed their

reservations about its use to achieve organizational objectives.

5.2 Conclusion

It is necessary to emphasis the importance of managers and other staff if budget target is to be

achieved. The budget committee or department has to provide the necessary technical advice and

assistance in the operation of the budgeting system. With facts and figures that will allow

managers to make decisions and help them in the performance of their duties. This will go a long

way in the achievement of target.

Finally, it should be noted that budgeting is “just a tool for management decision making and

external factors like government intervention, rate of inflation and political factors greatly

influenced budgeting practice and implementation.

5.3 Recommendations

On the basis of the finding from this study, a number of recommendations could be offered to the

management of Unilever for informed budget service. Organization of Unilever should know

that in a period of technological revolution socio-economic changes and uncertainties, it is

important to make a realistic forecast, sound planning and prepare a good budget which should

be followed with proper and careful implementation so that it does not bring about dysfunctional

affect.

44
The management should ensure the introduction of adequate accounting records and also the

introduction of an information system to communicate to the users, the objectives, uses, benefit

of budgeting. The management should also formulate policies and strategies that can enable them

to monitor and maintain effective control of their operation and attain the optimal level of

performance. In doing this, Management should take into consideration of factors, which are

likely to stand in its way to reduce its level of performance evaluation of departmental managers

should be done with caution and care .This is to avoid the tendency to strive to operate strictly,

within accounting estimates of the department to obtain favourable evaluation which may

include avoiding making some expenses that are if interest to the organization as a whole. This is

a clear example of sub optimality. For budgeting to achieve its purpose in the establishment, it is

necessary that the formal budget should not be too restorative and managers as well as

supervisors are allowed more flexibility to make operational decisions. There is need to educate

the personnel on budget and their purpose. It is also necessary to prepare a budget manual which

everyone in the establishment can refer to for guidance and information about the budgetary

process.

45
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