Methods of establishing Control

1. Budgeting: A budget is a statement of anticipated results during a designated time period

expressed in financial and non-financial terms. Budgets cover a designated time period – usually
a year. At stated intervals during that time period, actual performance is compared
directly with the budget targets and deviations are quickly detected and acted upon. E.g.
of Budgets: Sales budget, production budget, capital expenditure budget, cash budget,
master budget etc.

2. Standard Costing: The cost of production determines the profit earned by an enterprise.
The system involves a comparison of the actuals with the standards and the discrepancy is
called variance. The various steps involved in standard costing are:
(a) Setting of cost standards for various components of cost e.g.: raw materials, labour
etc.
(b) Measurement of actual performance.
(c) Comparison of actual cost with the standard cost.
(d) Finding the variance of actual from the standard cost.
(e) Findings the causes of variance.
(f) Taking necessary action to prevent the occurrence of variance in future.

3. Responsibility Accounting: Responsibility accounting can be defined as a system of

accounting under which each departmental head is made responsible for the performance
of his department.

4. Reports: A major part of control consists of preparing reports to provide information to

the management for purpose of control and planning.

5. Standing Orders, Rules and Limitations: Standing orders, rules and limitations are
also
control techniques used by the management. They are issued by the management and
they are to be observed by the subordinates.

6. Personal Observation: A manager can also exercise fruitful control over his subordinates
by observing them while they are engaged in work.