Question

Budgetary control system helps the management to eliminate _________.

• A. Undercapitalization
• B. Overcapitalization
• C. Both
• D. Subjective matter

Answer 1

Answer: (C)

Both

Budgetary Control is a technique of managerial control in which actual results are compared with budgetary standards. Budgeting is a forward planning. It serves basically as a tool for management control. Budgeting ensures planned use of all resources and funds available for a business.

Under-capitalization refers to any situation where a business cannot acquire the funds they need, whereas overcapitalization occurs when a company has issued more debt and equity than its assets are worth. These two conditions are eliminated by proper budgeting as budgetary control helps in optimum utilisation of resources and required funding is anticipated in advance.