Chapter one
Introduction
1.0 Background of the Study
The Chartered Institute of Management Accountants (CIMA) referred to budget as ‘a financial or qualitative statement prepared and approved prior to a defined period of time for the purpose of attaining a given objective. It may include income, expenditure and the employment of capital’. For budgetary control, CIMA defined as the establishment of budgets relating the responsibilities of executives to the requirements of a policy and the continuous comparisons of actual with budgeted results, either to secure by individual action the objectives of that policy or to provide a basis for its revision.
Budget focuses on a forthcoming accounting period, instead of on the past period on which accounting is based to make records. It therefore shows that, budget planning focuses more on a proper purpose to provide a measure of estimate on what is likely to occur and how organizational resources are allocated to realize future operations. In addition, the other vital aspect of budgeting will be feedback, where both the plan and the action will be compared, providing the opportunity to revise future budget in line with experienced (Hrongren 2002).
It is a quantitative expression of plan of action prepared in advance of the period to which it relates, expressed in money terms approved prior to the period. She further urges that performance is influenced by many factors which includes planning and coordination, clarification of authority and responsibility, effective communication both internal and external, control of resources available, both human and non-human and motivation of both the lower and middle management. Therefore it could be apparently inferred from the forgoing that Budgeting is the driving force behind every organization and of course necessarily unavoidable. These activities; Planning, organizing, directing and controlling of economic resources are schematized to reflect the nature and objectives of the organization and must be tailored towards the attainment of the overall organization’s predetermined objectives. It can be said that budget is a parameter which measures the actual achievement of people, departments, ministries and firms, while budgetary control ensures that actual results are positively or negatively in accordance with the overall financial and policy objectives of the establishment (Lucey 1993).
Maritim (2013) found the budgeting process not to be one off process but that the common practices carried out include budget planning, budget participation, budget participation and budgetary sophistication. These were found to be key determinants of the success of firms’ budgetary process and it is therefore imperative that a firm allocates adequate resources into these functions to realize intended improvement in performance.
1.2 Statement of the problem
WHO (1997) suggested that there are various reasons that require preparations of budgets in any organization. The important of budgeting is majorly brought about by increased competition in today’s business activities. Improper management in organizations and insufficient knowledge to the workers contributes to the interruption of the supply of goods and services. Poor forecasting and quantification processes and poor procurement methods are among the common problems that affect availability and accessibility of products leading to incorrect ordering and invoicing, under stocking or overstocking of products. Overstocking in this case results to high rate of expiry of products, high cost of storing excess stock and high incidences of pilferages of crucial products. Under stocking on the other hand, may lead to decrease in number of inventories which results in stock outs hence inconveniencing customer shopping habits. This study will therefore empirically assess the effects of budgets and budgetary control on financial performance of supermarkets within Nakuru Central Business District.
1.3 Main objective of the study
The main objective of the study is to assess the effectiveness of budgets and budgetary controls on the financial performance of supermarkets within Nakuru Central Business District.
1.4 Specific objective of the study
i. To determine the types of budgets prepared by supermarkets.
ii. To establish approaches used in developing budgets by supermarkets.
iii. To evaluate the relationship between budgetary control systems and the financial performance.
1.5 Research questions
i. What are the types of budgets prepared by the supermarkets?
ii. What are the approaches used in developing budgets by the supermarkets?
iii. What is the relationship between budgetary controls systems and financial performance?
1.6 Research Hypotheses
i. There is no significant relationship between the types of budgets used and financial performance.
ii. There is no significant relationship between budget planning and financial performance.
iii. There is no significant relationship between budgetary controls and financial performance.
1.7 Significance of the study
Budget and budgetary control system are the controlling tools of an institution's operations through establishment of standards and targets regarding income and expenditure, and a continuous monitoring and adjustment of performance against them.
1.8 Limitations, and Delimitations
According to Simon (2011), limitations consist of potential weaknesses in studies that are out of a researcher’s control. This study had a number of limitations that posed a weakness. First, the study was conducted using a sample of customers only in Supermarkets within Nakuru Municipality and are account holders of either of the supermarkets. Second limitation was lack of co-operation by some potential respondents. Some potential respondents did not complete the questionnaire arguing that their corporate policy does not allow release of such information to undergraduates. Though all effort was made to assure them that the information was for academic purposes only and was going to be treated with utmost confidentiality, this did not change their position.
Simon (2011) Delimitations within a study are boundaries in a researcher’s control that address how the study will be narrowed. Having such boundaries is essential in aiding researchers to organize the study. The first delimitation was that the study was confined to one specific geographical area which was within Nakuru Central Business District. Supermarkets from other regions did not participate in the study. The second delimitation was that all participants were account holders of either of the supermarkets. The third delimitation is the population which is delimited to supermarkets only. The study is to cover a period of the first quarter of the 2015 calendar year and lastly, information obtained from the participants of the study was limited to survey questions.
1.8 Operation definition of terms
Budget : it is a financial and quantitative statement prepared and approved prior to a
Defined period of time, of the policy to be pursued during that period for the purpose of attaining a given objective.
Budgetary control: Methodical control of an organization's operations through establishment of
Standards and targets regarding income and expenditure, and a continuous monitoring and adjustment of performance against them.
Supermarkets : is a large form of the traditional grocery store, a self-service shop offering a
Wide variety of food and household products, organized into aisles. It is larger in size and has a wider selection than a traditional grocery store but is smaller than more limited in the range of merchandise than a hypermarket or big-box market.