Balancing And Budgeting Control In A Manufacturing And Marketing Organization (A Case Of Study Of Total Nigeria Ltd)

Project and Seminar Material for Accountancy / Accounting

Balancing And Budgeting Control In A Manufacturing And Marketing Organization (A Case Of Study Of Total Nigeria Ltd)


Total (Nig) PLC is a well-known oil and gas company. The company has been operating at a very high level and its profits have been steadily growing in spite of unanticipated changes in the environment. This study is aimed at determining the quality of budget and budgetary control in the company over the period covered by the study. The study was conducted via person-to-person interview questionnaires, review of annual reports and accounts for the years 1993 – 97 and other relevant documents. The findings strongly indicate that the company has a good budgetary system.

Chapter One


1.1 Background of the Study

The use of budget in government long preceded its application in business or the business sector. In the stable economic environment of the period before world war, few large companies in U.S.A and U.K used budgets. The result of the use of budget conflicted, some pioneer companies reported it was a significant tool to management but reported it has an ill or even a negative effect on efficiency and productivity. In order to avoid the conflicting result of the large segment still straddled the fence awaiting further information and a more definite result. The world depression of the 1929 and its attendant business worries and trouble made the use of budgeting imperative in order to plane the growth of the enterprise. The population of budgeting was the direct outcome of two inquiries conducted to assess the benefit or otherwise as budget as applied of for the industry. The national industrial conference board sat in U.S.A while the international management institute worked in Geneva. Both were inaugurated in 1930.

The concept of business budgeting is even more resent in Nigeria. It was introduced by the first foreign multinational that operated in Nigeria and gradually a small firm adopted it.

The ultimate goal of any business organization is to maximize profit, which can result fo4rm the management conscious effort to increase sale/render efficient service and reduce cost. In the attainment of this subsidiary goal, management must have a careful prepared and articulated business and organizational plane, a rational plane commitment of the scarce resources and a thorough scanning of the environment in which it exist. In the other word, the enterprise was plane and controls its operation for the attainment of the organizational goal.

In a total business environment, business operation is complex and subject to heavy competitive pressure. In such an environment, many kinds of charge occur like frustration in the economy, which call for adjustment in the enterprise. In addition, the ingestible find are scarcer and the cost of such fund is estimably prohibitive. All this complexity put a wedge between business form and attainment of its set objective. But the firm must take a positive action in regarded to the difficulties in order not to go under. The firm must plane ahead. Planning ahead entailed articulation of cooperate mission, determine where a firm is at the moment, deciding on where it want to go and how fast, how to get there and what to do along the way to reduce uncertainty and to mange the risk and changes. Planning ahead entails internal scanning to determine the enterprise strength and weakness which can provide the management with a better understanding of the firm operation n relation to the general environment which increase understanding and leading to a faster reaction of the unfolding events.

Environmental scanning is also carried out which form the basis for the environmental assumption. The business objective must by clearly set out and disseminated t all level of business organization and management, personnel effectively sensitized towards their achievement also essential is the internal co-ordination of the personnel and function. But most importantly, the enterprise must forecast its need for fund over a giving period of time, secure them on very competitive terms and utilize the fund in the most rational ways.

Indeed the survival of modern business involve wise management even more than that, it needs scientific technique and such technique of the budgeting and budgeting control, variance accounting and other high Techniquecal forecasting device have all come to the aid of management to increase the performance of the firm.

Budget according to management of institute of chattered accounting (CIMA) is simply a plane management of money and which is prepared and improve prior to the budget and may show under the expenditure and capital employed. On ht other hand, institute of certified management of accountant define it as a financial statement prepared and approve prior to the define period of time of the policy to be pursued during that period for the purpose of archiving a set objective. It serves as a quantitative expression of a planed action and can aid in coordination and implementation. It could be formulated of the organization as a whole or for a small sub – unit.

Once a budget has been prepared and is approved, its usefulness depends upon the wiliness of the company executive to follow up to determine if the cost are been controlled and if the desired income is been earned in accordance with he plane of the operation.

Controlling operating involves management in a number of processes and requires several different kinds of information. It involves converting to management planes into an operating pattern w8ich match the planes into which a company is divided. This change the overall detailed lane into an operating plane, which rates to the management structure of the company, and this thus leads to budgeting

Budgets are drowned up for control purpose. It ia an attempt to control the direction and plane the company is taking. This brings up the issue of budgeting control. Budgeting control is the means of deterring the extent to, which the planed goal and objective are attain. It involves assigning responsibilities for the achievement of the budget, measuring the actual performance and compare them with the estimate. Control ensures that the action is taking where necessary and possible to reduce the gap between budgeting and actual performance. That entails taking action in variance and close supervision of the workers in the organization.

Budgeting control can also be said to be the use of budget for assigning responsibility, planning and controlling performance and guiding the managerial and other activities of the firm toward the achievement of the organizational objective

1.2 Statement of the Problems

In the light of the confusion tumult of the modern business as identified and describe above, some firm have gone under while the others are just managing to exist. It is however interesting phenomena that yet other enterprise does not survive only but go ahead to make super profit. This detail point out to the fact that companies should solves their problem in different ways, which in turn account for success or failure of such firm. Total oil Nigeria plc, the focal point of this study started operation (20) twenty years ago. It was formally a subsidiary of the French multinational company with head quarters in Paris but now in Merger and is now known as the total fianelf. The business of the total oil is the marketing of petroleum and manufacturing and sale of lubricants. Its overriding business objective is maximization of profit. The oil and gas industry is a high-risk business where distribution has not control over price level which is inturn subjected to violent fluctuation.

Amid this vagaries, total oil has continue to make stable progress as judged by the parameter of profit over the years, what specific strategies are employed by total oil to guarantee profit

1.3 Objective of the Study

The main objective of the study is to examine the organizational structure, the management and financial tool of total oil to assertion;

  1. Whether profitability is the direct result of proper budgeting and budgeting control
  2. Dose the beget makes possible congruence and co-ordination of the department effort.
  3. Is the company reward penalties based directly on variance

1.4 Hypothesis

  1. Hi: budgeting are effective guide to business growth
    Ho: budgeting are means to control and synchrony organization personnel’s and function
  2. Ho: budget are more effective when reward/penalties are based on goal attainment
    Hi: budget is more effect when reward/penalties are not based on goal attainment.

1.5 Scope and Limitation of the Study

This study is a five years trend analysis (1993 – 1997) although it is aimed at determines the quality if budget and budgetary control in the company over the period. This study will not take a detailed look of the companies budget schedules. The financial statement only will be used. The natures of the research situating sometimes impose some limitation on the work of the researcher. This limitation are listed below

  1. Owing to the use of convenience sample the generalization made in this study are restricted to the interviewees and those responding to the questionnaire. The researcher has no way of determining the amount of bias introduced by the respondent and note what amount of reliability will be place on the answer giving
  2. Time: the short time \available has severally limited the depth and the quality of this study
  3. Non-response: not every person to whom questionnaire was distributed to respond to them. And it was not in all case that response was given to all the questions contained in the questionnaire. The effect of all this is to reduce the representation of the findings.

1.6 Definition of Terms

1. Budget:

This s quantitative expression of plane of action and an aid to co-ordination and implementation

2. Budgetary Control:

It is the establishment of budgeting relating to the responsibility of the executives to the requirement of policy and continues the comparison either to secure by an individual action the objective of that policy or provide a basis for its revision.

3. Data:

Can be defining as a fact observed or information in isolation and relating to the subject of the research.

4. Financial Statement:

These are report on management responsibility over the resources of the organization as a whole.

5. Fixed Cost:

This are cost that dose vary in direct proportion to the production volume archived.

6. Financial tool:

This are instrument used by the company

7. Hypothesis:

Are the ideas believes or assumption put forward by anyone for the purpose of helping and guiding him in arriving at a reasonable conclusion.

8. Model:

Is define a simplified presentation of a real phenomenon

9. Population:

Is the totality of cases (item) in a giving investigation

10. Penny Pending:

Find it difficult to spend money in order to cut down cost.

11. Profit:

This is define as surpluses giving to the owners of the business as a result of a successful trading

12. Pioneer Company:

It is a company which has been legally issued with a pioneer certificate

13. Questionnaire:

A list of question elating to the aim of the study and hypothesis to be verified to which the respondent is required to answer by writing his response.

14. Relevant Range:

This is the range within which fixed cost is accepted or used

15. Sample Size:

This is a process through which a proportion of a population is selected for the study

16. Variance:

Is a different between standard cost and.

17. Variance Cost:

These are overhead costs that vary in direct proportion to the overhead production values archived.

Chapter Five

Summary of Findings, Recommendations and Conclusions

5.1 Summary of Findings:

A thorough study was carried out on the budgetary practices of Total (Nig) PLC and its management and organizational structure. The study was conducted via person-to-person interview questionnaires, review of annual reports and accounts for the years 1993 – 97 and other relevant documents. The following points of knowledge emerged from the study.

  1. Over the period covered by the study the company ran efficient operations and its profits were steadily growing in spite of unanticipated changes in the environment.
  2. That budgeting is a formal activity in Total (Nig) PLC and a very high percentage of managers know that budget is a profit-planning device.
  3. Those budgetary targets affect the work attitude of the managers as it gingers them to action. The result of this motivation they feel is that often times budget targets are met, but where they are missed, the variance does not exceed 10% of he target 92%of the time.
  4. That manager’s are given incentives when they attain the target and it is this reason that most managers work hard. Mostly, managers in top-level management aspire to meet their targets because they feel a sense of fulfillment out of it. Most low-level managers feel that targets set for their departments are often too high.
  5. Managers especially managers at the same level in the organization, compete against each other.
  6. Performance reports are prepared monthly and the reports are received latest one week after the period to which they relate.
  7. That the company feels compelled to revise the budget when there is a change in government policy affecting them or when there are some events in the operating environment which were not anticipated at the time of budget preparation like rising prices and competition.
  8. Those appreciable efforts were made by management to neatly arrange lines of responsibility and authority but there are cases of overlapping authority, which sometimes conflict.

5.2 Recommendations

The findings strongly indicate that the company has a good budgetary system. However, the findings reveal some weaknesses. The ways these weaknesses can be overcome are outlined below;

  1. Management appears to set standards for junior managers that are too difficult to attain. There is the danger of frustrations, distrust and deliberate sabotage of management efforts by these managers, which can erode commitment. Management is advised to take individual managers ability, educations and aspirations into account in setting targets. When the ability has been assessed, management to set standards that are only attainable when the manager, given his ability and education is working under efficient conditions.
  2. It is dangerous for managers in an organization to compete among themselves in a situation of interdependency. it means for instance, that one manager can withhold vital information that another manager needs to make a good decision. This competition obviously is because reward is tied to goal attainment and no manager wants to assist another to get ahead of him All in one, corporate goals lose out to manager’s self-interest, and the work environment is suffused with tension. Management can encourage teamwork among the managers by stressing group reward above individual reward for all managers at a level when each manager achieves the standard or is at a reasonable range of its attainment
  3. Vague and conflicting instructions can impede effective action, and answerability to more than one superior can introduce confusion and make control difficult. This can happen when certain functions are duplicated. The organizational structure of Total (Nig) PLC should be overhauled. Jobs should be thoroughly scheduled and duties precisely defined and described. The superior subordinate relationships need to be re-assessed so that a situation does not arise where a subordinate is answerable to two or more superiors. A Management Consultancy Firm should be engaged to carry out the overhaul.

5.3 Conclusion

Total (Nig) PLC is a private company engaged in marketing of petroleum of petroleum products in order to maximize profit. Total (Nig) PLC has a separate budgetary process and control approximate the ideal. It is a well-managed company and it continues to record considerable growth because managers work. Vigorously to meet budgetary standards.

It is because the company attaches incentives to goal attainments that it has done well. Therefore no business that wants to chart its growth path can ignore the magic of a budget

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