LIMITING FACTORS TO BUDGETING

LIMITING FACTORS TO BUDGETING

OBIAGBOSO G.C. (1996:27) said limiting factors to budgeting are those factors whose influence must to an extent be assessed in order to ensure that budgets are reasonable and capable to ensure a favourable fulfillment. These factors include:

1. FINANCE: The financial position of the financial resources of each firms, organization or department must be of keen interest and must be taken into consideration when preparing the firms budget. This has to do with how the firm is going to generate its fund in order to achieve its objectives, here the question of where to get these fund come to mind, is it through subvention or through revenue so that, on the long run there wouldn’t be a problem in the implementation of the budget.
2. RAW MATERIALS: This is another limiting factor to budgeting; it is applicable to a large extent in a manufacturing organization where raw materials play a sensitive role in production. Here proper consideration should be given to availability of raw materials, the supplies and lead time.
3. PRODUCTION CAPACITY: The production capacity of each department must be taken into consideration such that the budgeted output from each department will be seen as a burden to such department i.e. the management should ensure that the production capacity is not exceeded so as to prevent possible breakdown of machines.
4. GRADE OF LABOUR: The execution of budget depends on it to a large extent on the work force of that organization. Therefore, the caliber of workers or employees must be such that can put in their best so as to achieve the set goals. But in a situation where lazy workers are employed, the budgeted output cannot be met and when this happen, the accomplishment of the budget is already in future.