Post on 10-Mar-2015
BUDGET AND BUDGETARY CONTROL
AT
IFFCO-KANDLA
A PROJECT REPORT
Submitted by
KOMAL ADVANI
(10004)
KHUSHBOO BHAMBHANI
(10013)
BATCH: 2010-12
TO
Prof.A.J.BHAMBHANI
Director (PGDM)
In partial fulfilment of the requirements of
Tolani Institute of Management Studies,Adipur
for the award of the degree of
Post Graduate Diploma in Management
Tolani Institute of Management Studies
PB No.11,Lilashah Kutiya Road,Adipur-370205(Kachchh).
Ph:(02836)261466,262187 Email:tims@tolani.org,www.tolani.org/tims
JULY 2011
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ACKNOWLEDGEMENT
“Debts can be repaid, but co-operation extended and the guidance given by someone can never be repaid.”
It was a great pleasure to work at IFFCO-KANDLA. We take this opportunity to extend our gratitude towards all those officials who have directly or indirectly contributed to this project.
We are indebted to Shri L.Murugappan, Sr.Executive Director, who gave us an opportunity to undertake this project at IFFCO-KANDLA.
Further, we are grateful to Mr.A.E.Kadu, Jt. General Manager (T/S) and Mr.H.H.Chauhan, Sr.Manager (Training) who gave us an opportunity to undertake this project at IFFCO-KANDLA, and also for their help and tips whenever needed.
We would like to thank Mr.V.J.Mankodi, Jt. General Manager (F&A) & Mr. D.C.Maheshwari, Dy.General Manager (F&A) for preparing training schedule for us.
We take this opportunity to express our sincere appreciation and gratitude to Mr.H.T.Bhambhani, Manager(Accounts) and Mr. Dushyant Chauhan, ,Assistant Manager(Accounts) whose friendly co-operation made this analysis and study of project data information regarding IFFCO-KANDLA more fascinating and interesting experience.
We also appreciate the supportive attitude of all the staff members of Training Centre and F&A Department of IFFCO-KANDLA ,who briefed the procedures and practice in the sections by sparing their valuable time from their heavy work schedule and busy working hours.
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EXECUTIVE SUMMARY
Indian Farmers Fertiliser Co-operative Limited (IFFCO) today is a leading player in India’s fertiliser
industry and is making substantial contribution to the efforts of Indian Government to increase food
grain production in the country. Indian Farmers Fertiliser Co-operative Limited, popularly known as
IFFCO emerged as a pioneer venture on the horizon of fertiliser production and marketing with the
objective of attaining self-sufficiency in food grain production. Nowadays, there are 40000 co-operative
societies associated with IFFCO. They have diversified their business in the field of insurance, power
plant and raw material production.
This report is a study of “BUDGET & BUDGETARY CONTROL AT IFFCO KANDLA”. It contains
detailed information regarding various types of budgets pertaining to IFFCO KANDLA. We have also
studied the procedures and steps for preparing the budget and steps taken to control it. In this report we
have covered all types of budgets prepared at IFFCO KANDLA namely Revenue budget, Purchase
budget, Capital budget, Loans and Advances to employees. We have also mentioned various formats
and tables Showing the Budget and Budgetary Control procedure.
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INTRODUCTION TO IFFCO
During mid- sixties the Co-operative sector in India was responsible for distribution of 70 per cent of
fertilisers consumed in the country. This Sector had adequate infrastructure to distribute fertilisers but
had no production facilities of its own and hence dependent on public/private Sectors for supplies. To
overcome this lacuna and to bridge the demand supply gap in the country, a new cooperative society
was conceived to specifically cater to the requirements of farmers. It was a unique venture in which the
farmers of the country through their own Co-operative Societies created this new institution to safeguard
their interests. The number of co-operative societies associated with IFFCO has risen from 57 in 1967 to
40000 at present.
Indian Farmers Fertilizer Co-operative Limited (IFFCO) was registered on November 3, 1967 as a
Multi-unit Co-operative Society. On the enactment of the Multistate Co-operative Societies act 1984 &
2002, the Society is deemed to be registered as a Multistate Co-operative Society. The Society is
primarily engaged in production and distribution of fertilisers. The bylaws of the Society provide a
broad framework for the activities of Indian Farmers Fertilizer Cooperative Limited as a Co-operative
Society.
IFFCO commissioned ammonia - urea complex at Kalol and the NPK/DAP plant at KANDLA both in
the state of Gujarat in 1975. Ammonia - urea complex was set up at Phulpur in the state of Uttar Pradesh
in 1981. The ammonia - urea unit at Aonla was commissioned in 1988. In 1993, IFFCO had drawn up a
major expansion programme of all the five plants under overall aegis of IFFCO VISION 2010. The
expansion projects at Aonla, Kalol, Phulpur, Paradeep and KANDLA have been completed on schedule.
Thus all the projects conceived as part of Vision 2010 have been realized without time or cost overruns.
All the production units of IFFCO have established a reputation for excellence and quality.
A new growth path has been chalked out to realize newer dreams and greater heights through Vision
2015 which is presently under implementation. As part of the new vision, IFFCO has acquired fertiliser
unit at Paradeep in Orissa in September 2005. As a result of these expansion projects and acquisition,
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IFFCO's annual capacity has been increased to 3.69 million tonnes of Urea and NPK/DAP equivalent to
1.71 million tonnes of P2O5.
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Head office
KANDLA Kalol Aonla Phulpur
Aonla -1 Aonla-2 Phulpur-1 Phulpur-2
Paradeep
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IFFCO has made strategic investments in several joint ventures. Godavari Fertilisers and Chemicals Ltd
(GFCL) & Indian Potash Ltd (IPL) in India, Industries Chimiques du Senegal (ICS) in Senegal and
Oman India Fertiliser Company (OMIFCO) in Oman are important fertiliser joint ventures. Indo
Egyptian Fertiliser Co (IEFC) in Egypt is under implementation. As part of strategic diversification,
IFFCO has entered into several key sectors. IFFCO-Tokio General Insurance Ltd (ITGI) is a foray into
general insurance sector. Through ITGI, IFFCO has formulated new services of benefit to farmers.
'Sankat Haran BimaYojana' provides free insurance cover to farmers along with each bag of IFFCO
fertiliser purchased. To take the benefits of emerging concepts like agricultural commodity trading,
IFFCO has taken equity in National Commodity and Derivative Exchange (NCDEX) and National
Collateral Management Services Ltd (NCMSL). IFFCO Chattisgarh Power Ltd (ICPL) which is under
implementation is yet another foray to move into core area of power.
IFFCO is also behind several other companies with the sole intention of benefiting farmers. The
distribution of IFFCO's fertilizer is undertaken through over 40,000 co-operative societies. The entire
activities of Distribution, Sales and Promotion are co-coordinated by Marketing Central Office (MKCO)
at New Delhi assisted by the Marketing offices in the field. In addition, essential agro-inputs for crop
production are made available to the farmers through a chain of 158 Farmers Service Center FSC).
IFFCO has promoted several institutions and organizations to work for the welfare of farmers,
strengthening cooperative movement, improves Indian agriculture. Indian Farm Forestry Development
Cooperative Ltd (IFFDC), Cooperative Rural Development Trust (CORDET), IFFCO Foundation,
Kisan Sewa Trust belongs to this category. An ambitious project 'ICT Initiatives for Farmers and
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Cooperatives' is launched to promote e-culture in rural India. IFFCO obsessively nurtures its relations
with farmers and undertakes a large number of agricultural extension activities for their benefit every
year.
At IFFCO, the thirst forever improving the services to farmers and member co-operatives is insatiable,
commitment to quality is insurmountable and harnessing of mother earths' bounty to drive hunger away
from India in an ecologically sustainable manner is the prime mission. All that IFFCO cherishes in
exchange is an everlasting smile on the face of Indian Farmer who forms the moving spirit behind this
mission. IFFCO, to day, is a leading player in India's fertilizer industry and is making substantial
contribution to the efforts of Indian Government to increase food grain production in the country.
Major Investment of IFFCO in other firms:-
IFFCO has started the joint venture in all below mentioned firms in INDIA as well as in other countries.
1. Oman Indian Fertilizer Project2. IFFCO And National Commodity And Derivatives Exchange Limited3. IFFCO-Tokio General Insurance Company Limited
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Units of IFFCO
KANDLA UNIT
PHULPUR UNIT
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KALOL UNIT
AONLA UNIT
PARADEEP UNIT
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Market share of IFFCO
MARKET CAPTURED BY IFFCO
IFFCO50%
KRIBHCO24%
GNFC21%
OTHERS5%
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S.R. NO. COMPETITORS MARKET CAPTURED IN%
1 IFFCO 50
2 KRIBHCO 24
3 GNFC 21
4 OTHERS 05
Total 100
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VISION AND MISSION
VISION
To augment the incremental incomes of farmers by helping them to increase their crop productivity
through balanced use of energy efficient fertilizers, maintain the environmental health and to make
cooperative societies economically & democratically strong for professionalized services to the farming
community to ensure an empowered rural India.
MISSION
To provide to farmers high quality fertilizer in right time and in adequate quantity with an
objective to increase crop productivity
To make plants energy efficient and continually review various schemes to conserve energy.
Commitment to health, safety, environment and forestry development to enrich the quality of
community life.
Commitment to social responsibility for a strong social fabric.
To institutionalize core value and create a culture of team building, empowerment and
innovation which would help in incremental growth of employees and enable achievement of
strategic objectives.
Building a value driven organization with an improved and responsive customer focus. A true
commitment to transparency, accountability and integrity in principle and practice.
To acquire, assimilate and adopt reliable efficient and cost effective technology and sourcing raw
materials for production of phosphate fertilizers at economical cost by entering into joint venture
outside India.
To ensure growth in core and non-core sector.
A true cooperative society committed for fostering cooperative movement in the country
Foster a culture of trust, openness and mutual concern to make working a stimulating and
challenging experience for stakeholders
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Emerging as dynamic organisation, focusing on strategic strengths, seizing opportunities for
generating and building upon past success, enhancing earnings to maximize the shareholders
value
COMPANY PROFILE
KANDLA Unit – Location
State Gujarat, India
State Capital Gandhinagar
District Kutch
Distance from New Delhi Approx. 1100 kilometers by rail
Distance from Mumbai Approx. 800 kilometers by rail
Nearest Airport KANDLA Airport, Near Gandhidham ,and
BHUJ Airport 65 KM from Gandhidham.
Railway Station Gandhidham (12 Km from plant and 3 Km
from IFFCO's township at Gandhidham)
and KANDLA (3 Km from the plant)
Road Adjacent to KANDLA Port Trust on National
Highway 8-A, 365 Km. from Ahmedabad
Area under Plant 70.61 Hectares
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Area under Township 79.65 Hectares
Temperature ( o C ) 47 (Max.) in summer to 7 (Min.) in winter.
Rainfall (mm) Scarcity
Longitude 70o 13'26" E
Latitude 23o 00'00" N
Address IFFCO, KANDLA Unit, Post BoxNo.12,
Gandhidham - 370201, KANDLA (Kutch),
Gujarat, INDIA
Phones :91-2836-270381,-270382,-270539 ,-270639,
-270641.
FAX
Website
: 91-2836-270642, -270658, -270685.
: www. Iffco.nic.in
E-Mail : iffco_KANDLA@iffco.in
IFFCO’s NPK Plant is located on the water front adjacent to KANDLA Port Trust Oil Jetty. The plant
was built at a cost of about Rs. 30 crores with two streams (called train A and train B) and with the
licensed capacity of 127000 tonnes of P2O5. This plant was designed by M/s Door Oliver-Inc to
produce three grade of NPK & DAP. The plant was commissioned on 26th November, 1974 and its
commercial production started on 1st January, 1975.
With increase in demand for complex fertilizers, the capacity of NPK has been doubled at a cost of
about Rs. 28.6 crores. Two more streams (train C and train D) had been added with the increased
licensed capacity from 127000 MT P2O5 to 260000 MT P2O5 per annum. The new two streams are
called KANDLA Phase-II and was completed one month ahead of the projected schedule. This is a rare
phenomenon not only in India but in entire South East Asian region. KANDLA Phase- II commissioned
on 4th June 1981 with the production record for IFFCO. The production of KANDLA Phase II was
started from 6th September 1981.
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ACHIEVEMENTS OF IFFCO KANDLA UNIT
Nineteen Safety Awards from National Safety Council - U.S.A.
Fourteen Safety Awards from the National Safety Council, Bombay, government of India.
Twenty-six Safety Awards from Gujarat Safety Council, Baroda.
Six Fertilizers Association of India (FAI) Awards for the best overall production performance
during the years 1981, 1982, 1996-97, 1997-98, 1998-99 & 2002-03.
One National Productivity Council (NPC) Best Productivity Award for the year 1997-98 in the
category of Fertilizers Industry - Phosphatic Sector presented in August'00.
One Safety award from FAI for Excellence in Safety for 1999-2000.
One Safety award from Directorate General Factory Advice Service & Labour Institutes,
Ministry of Labour, Government of India Runner, National Safety award – 1999.
One Labour, Government of India Runner, National Safety award - 1999".
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INTRODUCTION TO F & A DEPARTMENT OF IFFCO
Finance is the lifeblood of the business. According to Howard and Upton “Finance is that administrative
area or set of administrative function in an organization which relate with the arrangements of cash and
credit so that the organization may have the means to carry out of its objective as possible.”
FUNCTIONS OF FINANCE AND ACCOUNTS DEPARTMENT
Finance & Accounts Department of KANDLA Unit is controlled by Head of the Department i.e. JGM
(F&A). His main function is to co-ordinate all activities related to Finance & Accounts and report to
Head Office’s Finance & Accounts Department / Finance Director as well Unit Head. Finance &
Accounts Department function various type of activities as per the Guidelines issued by Head Office,
Purchase Procedure, Service Rules, Powers of officer etc.
At present to carry out all the related activities, following three sectional heads are reporting to him for
work connected to their Sections. All the three sectional heads independently report to Departmental
Head. However, in case, Departmental Head happens on tour or on leave, the next senior sectional head
takes the charge of the department and remaining here sectional head will report to him for all the work
connected to their Sections.
Finance department comprises of :
Pay roll section
Raw materials
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Misc Bills payable Section
Works Bills Payable Section
Purchase Bills Payable Section
Finance Concurrence Section
Books & Budget Section
PAY ROLL SECTION
Pay roll section takes care of all the financial issues of employees in co-ordination with Administrative
& Personnel Department. Its functions includes management of salaries, TA/DA, loans & advances,
misc payment related to employees, Perk/There allowance payments etc. Here records of each employee
are maintained regarding basic pay, leave encashment, medical, salary, increments, promotion based
perks , etc.
RAW MATERIALS SECTION
Different types of Raw Materials that are required at IFFCO KANDLA Unit are as follows :
P2O5 – Imported
Ammonia – Imported & Indigenous
Potash - Imported
MAP - Imported
Urea – Imported & Indigenousl
Filler
Raw Material section in F & A department does the accounting of above mentioned raw material which
includes receipt of raw material purchased, monthly consumption as per Monthly Consumption figures
reported by Technical Department and payment to the suppliers.
MISCELLANEOUS BILLS PAYABLE SECTION
The miscellaneous bills payments can be broadly divided into following categories:
Passing of bills of miscellaneous nature;
Accounting of cash imprest and advances for expenses;
Miscellaneous recoveries from outside agencies.
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Miscellaneous bills includes rates contracts for service contract for air conditioner, water coolers,
weighing machines, franking machines, knitting of chairs, etc. Others miscellaneous bills includes
telephone rentals, STD calls, local calls, teleprinters, fax, service bills, advertisement bills, electricity
bills, printing and block making bills, bills of travel agents, bills of canteen purchases, etc. Annual
Contracts and Hiring of taxi, motors, etc. is also included in this.
WORKS BILLS PAYABLE SECTION .
Work bills section is entrusted with the task of checking and authentication of APF received from
various departments such as Civil, Plant, and Township etc. They have to keep record and maintain
account. They have to verify W.R.T. measurements, Tax provisions like TDS and other deductions like
EMD, Security and penalty etc.
PURCHASE BILLS PAYABLE SECTION
In purchase bill, treatment is given to the bills on purchase of machinery and tools and spares etc. for
accounting requirements and book keeping as well as record maintenance and tax deductions and
authentication of AFP on purchase of Goods and Services.
FINANCIAL CONCURRENCE
Financial concurrence deals with crosschecking and green signaling the requisition for purchases made
by various indent departments of the unit. They check for the availability of budget and ascertain its
necessity and critically for regular and smooth operations of the plants and activities of various
departments.
BOOKS & BUDGETS
Books and budget deal with revenue budget compilation, monitoring and control, reconciliation of inter
unit accounts, maintenance of books of accounts and submission of monthly / quarterly / annual reports,
COP processing and attending internal / statutory / tax auditors.
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OBJECTIVES
Management student has to apply his theoretical knowledge in the practical field and compare with
the results. He has to find out new ways for further improvement in the practical field. Industrial
training for management student is the first stage towards the industrial exposure which tells him
what difficulties he has to face while entering into Corporate World.
The main idea was to know the methods followed in IFFCO-KANDLA for preparation of budget,
methods of budgetary control and to compare the same with the actual expenditures.
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RESEARCH METHODOLOGY
The research methodology which, we had adopted at IFFCO was conducting exploratory research
and personal interviews. Exploratory research design is the unstructured and informal research
undertaken to gain background information about the organization. Under this, the method adopted
here was conducting experience survey. Experience survey had been conducted in order to gather
information from the knowledgeable person on the issues relevant to the research project.
Research methodology defines the purpose of the research, how it proceeds, how to measure
progress and what constitute success with respect to the objectives determined for carrying out the
research study.
The appropriate research design formulated is detailed below:-
Exploratory research: this kind of research has the primary objective of development of
insights into the problem. It studies the main area where the problem lies and also tries to
evaluate some appropriate courses of action.
The research methodology for the present study has been adopted to reflect these realities
and help reach the logical conclusion in an objective and scientific manner.
The present study contemplated an exploratory research.
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DATA COLLECTION
Sources of data:
Primary data which included the input received from directly from the employees through interview /
interaction.
Secondary data from the books, journals and internet.
Method of collecting data:
Interview method.
Personal enquiries
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DATA COLLECTION SOURCES
EXPLORATION
Management document Magazine
Financial document Web Source
Human resources document Head office
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MANAGEMENT QUESTION
RESEARCH QUESTION
INTERNAL SOURCES EXTERNAL SOURCES
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and database
BUDGET
AND
BUDGETARY
CONTROL Budget & Budgetary Control
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Introduction
For effective running of business, management must know:
Where it intends to go i.e. its organizational objectives How it intends to accomplish its objective i.e. its plans Whether individual plans fit in the overall organizational objective i.e. coordination Whether operations conform to the plan of operations relating to that period i.e. control
“Budgetary control is the device that a company uses for all these purposes”
WHAT IS A BUDGET?
“A plan expressed in money. It is prepared and approved in prior to the budget period and may show income, expenditure and the capital to be employed. May be drawn up showing incremental effects on former budgeted or actual figures, or be complied by zero-based budgeting ”.
WHAT IS BUDGETARY CONTROL?
Budgetary control is the use of comprehensive system of budgeting to aid management in carrying out its functions like planning, coordination and control
This system involves:
Division of organisation on functional basis into different sections known as budget centre.
Preparation of separate budgets for each “budget centre”.
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Consolidation of all functional budgets to present overall organizational objectives during the forthcoming budget period.
Comparison of actual level of performance against budgets. Reporting the variances with proper analysis to provide basis for future course of action.
The Objectives Of Setting the Budgets
A budget is blue print of desired plan of actions or operations. Plans covering the entire organization and
all its functions like purchase, production, sales, financial management, research & development are
expressed through budget.
1. The budget serves as a declaration of policies and also defines the objective for executives at
all levels of management.
2. Budgets provide a means of co-ordination of the business as a whole. In the process of
establishing budgets, the various factors like production capacity, sales possibilities, are
procurement of material, labor, etc. are balanced and co-ordinate so that all the activities
proceed according to the objective.
3. The budgets inculcate team spirit and are like putting so many heads together to solve a
common problem.
4. Budgets are means of communication. Complex plans lead down by the top management are
passed on to those whole are responsible for putting them into action.
5. Budgets facilitate centralized control with delegated authority and responsibility. Group
according to the responsibilities of different executive levels, they facilitate decentralization
of work.
6. Budgets are instruments of managerial control by means of which the management can
measure performance in every part of the concern and take corrective actions as soon as any
deviations from budgets come to light.
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CLASSIFICATION OF BUDGETS
ACCORDING ACCORDING ACCORDING
TO TO TO
TIME FUNCTION FLEXIBILITY
1. Long term budget 1.Sales budget 1. Fixed budget
2. Short term budget 2. Production budget 2. Flexible budget
3. Current budget 3.Cost of production budget
4. Rolling budget 4. Purchase budget
5. Personnel budget
6. R & D budget
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7. Capital Expenditure budget
8. Cash Budget
9. Master Budget
SALES BUDGET:-
Sales budget is the most important budget based on which all the budgets are built up. The budget is a forecast of quantities and values of sales to be achieved in budget period.
PRODUCTION BUDGET:-
Production budget involves planning the level of production which in turn involves the answer to the following questions:
What is to be produced? When is it to be produced? How is it to be produced? Where is it to be produced?
COST OF PRODUCTION BUDGET:-
This budget is an estimate of cost of output planned for a budget period and may be classified into-
Material cost budget Labour cost budget Overhead cost budget
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PURCHASE BUDGET :-
This budget provides information about the materials to be acquired from the market during the budget period.
PERSONNEL BUDGET:
This budget gives an estimate of the requirements of direct labour essential to meet the production target.
This budget may be classified into-
a. Labour requirement budgetb. Labour recruitment budget
RESEARCH & DEVELOPMENT BUDGET:-
This budget provides an estimate of expenditure to be incurred on R & D during the budget period.
R & D budget is prepared taking into consideration the research projects in hand and new R & D projects to be taken up.
CAPITAL EXPENDITURE BUDGET:-
This is an important budget providing for acquisition of asset necessitated by the following factors:
a. Replacement of existing assets.b. Purchase of additional assets to meet increased production.c. Installation of improved type of machinery to reduce costs.
CASH BUDGET:-
This budget gives an estimate of the anticipated receipts and payments of cash during the budget period.
Cash budget makes the provision for minimum cash balance to be maintained at all times.
MASTER BUDGET:-
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CIMA defines this budget as, “The summary budget incorporating its component functional budget and which is finally approved, adopted and employed,”
Thus master budget is a summary of all functional budgets in capsule form available in on report.
FIXED BUDGET:-
This is defined as a budget which is designed to remain unchanged irrespective of the volume of output or turnover attained.
This budget will, therefore, be useful only when the actual level of activity corresponds to the budgeted level of activity.
FLEXIBLE BUDGET:-
CIMA defines the budget as one “which, by recognizing the difference in behaviour between fixed and variable costs in relation to fluctuations in output, turnover or other variable factors such as number of employees, is designed to change appropriately with such fluctuations”.
CONTINUOUS BUDGET:-
In continuous budget the period is fixed. For eg. If the budget is for January to December, then it will always remain the same. And then if the budget is revised after 6 months, the revised budget will be for July to December.
ROLLING BUDGET:-
Rolling budget duration is fixed i.e if in the budget period some months have passed then they will be deleted a same number of new months will be added.
For eg. If the budget duration is 12 months and the budget is prepare for January to December and in the budget period Jan ,Feb, march have passed then the revised budget will be prepare for the April-March.
PERFORMANCE BUDGETING:-
These days budgets are established in such a way so that each item of expenditure is related to specific responsibility centre and is closely linked with the performance of that standard.
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ZERO BASED BUDGETING:-
The zero base budgeting is not based on the incremental approach and previous figures are not adopted as the base.
Zero is taken as the base and a budget is developed on the basis of likely activities for the future period.
A unique feature of ZBB is that it tries to help the management answer the question, “Suppose we are to start our business from scratch, on what activities would we spent out money and to what activities would we give the highest priority?”
RESPONSIBILITY ACCOUNTING:-
Responsibility accounting fixes responsibility for cost control purposes by establishing responsibility centres namely-
a. Cost centreb. profit centrec. Investment centre
Principles of responsibility accounting are as follows:1. Fixation of targets for each responsibility centre2. Actual performance is compared with the target3. The variances therein are analyzed so as to fix the responsibility of centres.4. Taking corrective action.
CONCLUSION:-
Preparation of budgets is the first step in the budgetary control system. Implementation of budgets is the second phase. But preparation and implementation of budgets alone will not achieve much unless a comparison
is made regularly between the actual performance and the budgeted performance. Continuous and proper reporting makes this possible To ensure the success of budgetary control system, proper follow up action has to be taken
immediately for the reports submitted.
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STEPS IN FIXATION OF BUDGET:
At IFFCO the following steps are followed for compilation of Budgeting procedure:
1. FIXATION OF TARGETS
a. While initiating the budgeting exercise at the head office level, sale targets are fixed in
consultation with marketing division.
b. Production targets are fixed in consultation with Unit Head after giving due consideration to
various constraints some of which are given below:
Plant capacity i.e. production and storage capacities for raw materials, finished stock etc.
Capacity utilization.
Availability of raw materials particularly imported raw materials like phos. Acid, Ammonia,
Potash etc.
Availability of power and related policy of Gujarat Electricity Board.
Availability of water and related policy of state water supply board.
Availability of packing materials.
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Industrial relation position.
Availability of railway wagons and other transportation media for distribution of finished
products form plants etc.
2. COMMUNICATION OF TARGETS :
After taking into consideration the above parameters and constraints, Units are advised to
communicate their production plan, consumption norms and other proposals which are reviewed at
Head Office. Having due regard to other constraints and parameters within the knowledge of top
management, production targets are fixed for individual production units and same are communicated
to concerned units. Norms of consumption of raw materials, utilities, fuel and other items proposed
by the units are also reviewed and after obtaining approval of the top management, the same are also
communicated to the concerned units.
Detailed circular for initiating the budget exercise is issued to all the units by Executive Director
(Finance) from Head office. The circular contains necessary information and guidelines required for
the purpose of preparation of budgets. Commercial Department at Head office intimates anticipated
rates and quantities of major raw material for adopting the same in the units budgets proposals
particularly in respect of the following items:
Imported Phosphoric Acid (P2O5)
Imported Ammonia
Imported MOP (Potash)
Bags and other packing materials.
Part of ammonia requirement for KANDLA unit is met from Kalol unit. Balance requirement is either
imported or procured indigenously from KRIBHCO, GNFC and other suppliers. Quantity
requirements to be met for ammonia from different sources are intimated by Head Office. Commercial
department consults to Head Office finance department. Urea requirement for KANDLA unit is
partially fulfilled from Kalol / Aonla Plants & Partially by way of Import.
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3. DELEGATION OF RESPONSIBILITY FOR FORMULATING REVENUE
Budget proposals at unit level.
On receipt of the communication from Head office regarding formulation of budget, a meeting is
arranged by Unit Head with all Head of the Departments to explain various important aspects of
budget to be prepared. The compilation of revenue budget is coordinated by Head of Finance and
Accounts Department, who is responsible for collecting the required data from all the concerned and
compiled budget proposals, discusses the same with the unit head and submits the budget proposal
to Head Office within the scheduled date prescribed in the Head office circular/communication.
Budgeting process at unit level:
Based on the preliminary discussion, detailed circular is issued by the Unit Head for initiating
budgeting exercise at unit level to all the Head of Department. The budgeting exercise at unit level
to all the concerned departments like sanctioned budget and actual expenditure up to the period of
the year and other particulars/information are furnished to the concerned departmental Heads and
they are advised to formulate the budget requirements for their activities on “Conventional
Budgeting Concept” i.e. not by adopting percentage increase or decrease on the past data but all
activities proposed to be taken up for the ensuring budget period, are required to be identified and
budget requirements are required to be furnished accordingly with complete details and working
separately item wise for each activity proposed to be taken in the ensuring budget period.
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CONTRIBUTION OF VARIOUS DEPARTMENTS IN BUDGETING PROCESS
Contribution of various Departments for the purpose of compilation of budget is as described below:
1. PRODUCTION DEPARTMENT
Production Department is responsible for calculation the requirement in terms of the quantity for the
budgeted level of production based on approved consumable items In respect of the following major
inputs:
Raw materials
Chemicals
Water
Fuel oil- LSHS
Packing materials- bags & stitching threads
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In addition to the above, production department is also responsible for furnishing the following
information:
Transportation cost of various raw materials and utilities e.g. transportation cost of urea form
Kalol to KANDLA, cost of transportation of potash from jetty to plant site, transportation of
fuel oil from oil installation to plant site etc.
Cost of hose handling for raw material receipts
Cost of internal movement of potash
Cost of internal movement of the finished product within Plant.
Cost of product bag handling including empty bags.
Survey fees for Ammonia and P2O5 and other cost for Raw Material, packing materials,
utilities etc.
Consumption of chemicals & deformer.
While estimating the budgeting requirement of various raw materials, utilities, packing materials etc.
the following points are considered:
Quantities for various raw materials, utilities, and packing materials etc. Rehired for production of
finished products are calculated by applying the approved norms of consumption.
In case of raw materials and utilities having more than one source of supply for example, receipt of
Ammonia, this has more then three sources viz. Kalol unit, Import and Indigenous supply form
GNFC, KRIBHCO etc, the total production is first ascertained. Then the total requirement is broken
into various sources as per Head Office guidelines /price considerations. If abnormal variations are
observed in the consumption norms as compared to the earlier periods actual, details/justifications are
recorded for the same.
2. MAINTENANACE DEPARTMENT:
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Maintenance Department is responsible for estimating the expenditure of repairs and maintenance of
plant and machinery equipments for mechanical maintenance, instruments maintenance & Electrical
maintenance. The Electrical section of the maintenance department for plant & Township power
requirement also estimates consumption of power for the budgeted level of production. Estimated
power cost is worked out for the ensuing budget period by Electrical Maintenance Department.
Detailed budget proposals for repairs and maintenance of plant & Machinery equipment is worked
out item wise by the maintenance department under the following broad heads:
Consumption of Stores and Spates
Maintenance works to be done through contractors
Procurement budget requirement for purchases of non-stock items of stores and spares for
maintenance.
3. TECHNICAL SERVICE DEPARTMENT:
a. PROCESS ENGINEERING SECTION
Process engineering section of technical services department which is responsible for compiling
record of Daily Production, production reporting, Monitoring the consumption of Raw materials,
Fuels and other process parameters, is also responsible for compiling actual consumption norms of all
the raw materials, utilities fuel and other inputs consumed in the production process on day to day
basis. Budgeted norms of consumption of various inputs are compiled and intimated by process
engineering department which are adopted while preparation of budget after approval of top
management.
b. GENERAL ENGINEERING SERVICES SECTION:
The General Engineering services section is responsible for introducing new and improved
equipments and instruments coming out as a result of technological development for increasing
efficiency and decreasing cost of production. Hence many of the budget requirements of engineering
service departments are of capital nature. However, for routine management works of Technical
Service Department, drawing, photocopying and other facilities, revenue budget requirements are
worked out and furnished by engineering services section.
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c. SYSTEMS SECTION
This section is responsible for furnishing budget requirement for EDP charges, repairs and
maintenance expenditure for systems and resultant procurement budget for the same.
d. LABORATORY SECTION
This section is responsible for furnishing budget requirement for laboratory for testing of input and
finished product and R&D activities carried out at Plant level.
4. CIVIL DEPARTMENT
Civil section under the Technical Service Department is responsible for civil maintenance in plant and
township. Their budget requirement for maintenance of buildings, roads, drains and culverts, railway
siding and other facilities of civil nature in plant and township are worked out and item wise details
are furnished under the following break up:
Consumption of stores spares and steel consumption.
Contractual jobs
Procurement budget for non-stock items of spares and Stores.
a. FIRE & SAFETY SECTION:
Expenditure on Fire & Safety Services are estimated by Fire & Safety Section.
b. TRAINING SECTION:
This section compiles budget requirement for training activities for in house/outside training
programmes and corporate training programmes to be conducted at unit level and furnished budget
requirements for the same and other related activities.
5. PERSONNEL & ADMINISTRATION DEPARTMENT
Repairs and Maintenance for furniture, fixtures and office equipments and other appliances
at Plant and at Guest House and other location s in Township under their charge.
Expenditure on maintenance and up keep of township properties.
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Estimation of salaries, wages, allowances, overtime, medical and other welfare expenses,
awards etc expenditure on direct and indirect and indirect employees.
Other establishment expenses like communication expenses printing & stationery, rents,
rates & taxes vehicles hire charges and running expenses, courtesy and entertainment
expenses, legal expenses, legal expenses celebration expenses, traveling and conveyance
expenditure, professional charges and such other expenditure, which are directly controlled
by personnel & administration department.
6. MATERIALS DEPARTMENT :
Materials Department is responsible for furnishing budget requirement for stores overheads expenses.
It also controls the expenditure on purchase of stock items to be kept in main stores for which
procurement budget is furnished by materials department after working out normal stock levels and
estimated consumption for stock items within the budget period.
7. FINANCE & ACCOUNTS DEPARTMENT :
In addition to coordinating compilation and submission of the annual budget, Finance & Accounts
Department is responsible for estimating the following:
INCOME/OTHER REVENUE
In respect of receipts from employees e.g. Interest on house building Loan, conveyance advance etc.
The budget estimate is prepared in consultation with Personnel & Administration Department. Other
revenue items are estimated based on the past data and operation estimated for the ensuing budget
period.
INSURANCE EXPENSES
This is estimated in consolation with the Engineering Services Department
PROCEDURE FOR USING THE BUDGET APPROVED:
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After approval of budget by board of directors same is intimated to Unit Head and concerned
Finance Head of the Unit. In turn finance Head inform the Budget allocation to respective
Departmental Heads/Section Heads.
An entry for each individual department is made with their respective code provided to the
individual department in FAS (Financial Accounting System) Department wise/Section wise. After
receiving intimation/ allocation of Budget from Finance all actual user/indenting department make
their requirement on monthly basis. All stock items are controlled by Stores Section of Materials
Department. Where as Non-stock items are purchased by respective section/department through
Materials Department (Purchase Section).
Stores Section raise MPR based on Safety Level / Re-Ordering level. Other user sections raise
MPR based on as & when on requirement basis. All Work of Indent (WOI) is raised by actual user
only. Based on MPR received by Materials Departments (Purchase Section) take action for sending
enquires to Approved Vendors, receive Quotation, prepare QCS (Quotation Comparative Statement)
& place Purchase/Work Orders after obtaining Financial Concurrence & Budget availability.
All MPR/WOI related to Capital nature are routed through Finance by obtaining Budget Availability
Certification, where as all MPR/WOI related to Revenue nature items are directly forwarded to
purchase section. At the time of placing order/Financial Concurrence Finance Department assures &
made entry in FAS for control of Budget.
REVISION OF BUDGET ESTIMATES
After approval of budget estimates for the ensuing period, actual expenditure vis-à-vis budget
allocations are reviewed on monthly basis and quarterly report is submitted to Head Office as above.
Due to various factors like raw materials constraints, economic factor, marketing factors and other
variable factors, generally necessity arises for revision of the approve budget estimates based on the
actual trend observed, sine budgeting process for the ensuing period normally start about 5/6 months
before start of the budget period.
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Accordingly, there is a system of revision of the budget proposals. Normally actual expenditure for
the first 6 months are reviewed and based on the same, revised estimates for the next six months are
compiled. Budgeting process for revised revenue budget is more or less same as of compiling the
revenue budget. The following steps are taken:
Revised production plan, consumption norms and other parameters based on actual for the first
six months along with revised estimates for next 6 months are worked out and communicated
to Head Office for approval.
On receipt of approval from Head Office, actual for first six months are compiled by Finance
& Accounts Department costs and fixed cost and overheads is furnished to the concerned
departments to work out their revised budget proposals for next six months period.
Concerned departments are arranging review of actual performance against budget provision for the
first six months and rework the requirements for the next six months based on approved revised
production level and other norms. The revised budget requirements if any along with the complete
justifications are furnished by the concerned departments to Finance & Accounts Department.
Wherever, actual expenditure against budget requirement is very much on positive or negative side,
detailed justification/reasons of the same along with the revised budget requirements, if any, are to
be furnished. Commercial Department of Head Office is furnishing quantitative requirement and
estimated rates of raw materials utilities, packing materials etc. Applicable for the next six months,
Kalol unit from where part of ammonia requirements and total urea requirements for production
process of KANDLA unit are met intimates revised transfers quantity price in respect of ammonia
and urea to be adopted for revised budget proposals.
Based on the above, revised budget proposals are compiled. The fixed cost and overheads are
thoroughly discusses with concerned HODs and with Unit Head and after approval, the following
documents are prepared and submitted to Head Office.
1. Revised Revenue Budget.
2. Revised Purchase Budget.
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On approval of the revised budget, monthly break-up of fixed cost and variable cost are also worked
out and submitted to Head Office for approval. On approval, budgetary control is exercised on
monthly basis based on the revised monthly budget allocations.
Budget Committee
The responsibility for the preparation of budgets lies with the budget committee, which includes the
following executives:
Chief executives, who will be the chairman of the committee.
Production manager
Materials manager
Standards and control manager
Finance manager
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Other department heads
The main functions of the budget committee are as follows:
Assisting the managers in making budget by giving them information about past
performances.
Circulating broad outline of the policies framed by the top management, which should be
taken under consideration while preparing budgets.
Reviewing the budget estimates prepared by the various departments and suggesting
modifications, if necessary.
Preparing the master budget after the functional budgets are approved.
Comparison reports of actual performance with the budgets and initiating follow up action.
Making changes in the budget policies and procedures,
Assisting in preparing the budget manual.
The management accountant performs the role of secretary to the committee, and assists in
coordinating the tasks of various departments in the budget preparation.
Budget Center
Department for which budget is prepared is known as budget center.
Budget Period:
A budget period is the length of time for which a budget is prepared and remains operative. No
definite indication can be given as to what should be the period for which the budget for a particulars or
business will be established.
However, the budget period depends upon the following:
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1. The type of budget, i.e. sales, production, capital expenditure, cash etc.
2. General economic situation and the growth & stability of the product market.
3. Nature of demand for the products of the undertaking.
4. Length of trade cycle of the business (length of cycle in the case of seasonal various.
5. Timing of the availability of finance.
6. Extent of control required over the operations.
7. Probability of changes in products or product mix.
BUDGET AND BUDGETARY CONTROL AT IFFCO: KANDLA UNIT
METHOD OF BUDGETING AT IFFCO-KANDLA:
IFFCO-KANDLA follows ‘Zero Based Budgeting’ system to prepare its budgets
What is Zero Based Budgeting ????
The technique of Zero Based Budgeting starts with the premise that the budget for next period is “Zero”
so long the demand for a function, process, project, or activity is not justified for each rupee from the
first rupee up. The assumption is that without such a justification, no sending will be allowed. The
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burden of proof thus shifts to each manager to justify why the money should be spent to all and to
indicate what would happen if the proposed activity is not carried out and no money is spent. In this
way, he is required to carry cost-benefit analysis of each of the activities etc. under his control for which
he is responsible. Such analysis would reveal that some activities may be eliminated or curtailed or
made into productive and profitable ones. Thus Zero Based Budgeting affords a choice amongst the
alternatives so that the activities would be selected in the order of their importance.
However, Zero Based Budgeting is particularly suitable discretionary cost areas such as marketing,
administration, production services, research, etc. and in Govt. departments where the decision for the
extent of spending rest with the management or authorities and it is here that each rupee of the budget
had to be justified.
ZERO BASED BUDGETING AT IFFCO
IFFCO as whole follows Zero Based Budgeting system. As IFFCO-KANDLA is a manufacturing Unit
and it is also cost centre so in the process of conversion of raw material into finished goods cost cannot
be zero because for the manufacture of goods for sale cost have to incurred for:
Purchase of raw material like:
Phosphoric Acid
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Potash
Ammonia
Urea
Sulphuric Acid
Filler
MAP
Utilities (power, fuel oil, water)
Bagging
Such situations are met by IFFCO by asking the managers to determine the minimum or basic
requirements for running their departments; any cost above the basic requirement would be treated as
added increments which would be critically reviewed and justified, they are to be eliminated resulting in
cost saving to IFFCO. At KANDLA Unit, budget is prepared, got approved from Head Office and
controlled at Plant level cost. Being Manufacturing Unit, budget is prepared only for “Production
activities”.
At KANDLA unit following types of budgets are prepared.
1. Revenue & Purchase Budget
2. Capital Budget
3. Loans to Employees Budget
We can break the Budget Process into following stages.
1. Proposal to be sent to Head Office for approval of Board of Directors.
2. Approved budget to be allocated amongst actual user / indenters.
3. Monthly / Quarterly / Yearly control on actual expenses v/s budget.
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We will see the above aspects in detail of various budgets in following pages.
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REVENUE,
PURCHASE BUDGET
&
BUDGETARY CONTROL
BRIEF DESCRIPTION OF REVENUE BUDGET
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Revenue Budget is also called as Production Budget / Consumption Budget. All type of expenses
pertaining to the concerned year and related to production activity whether direct expenses or indirect
expenses are estimated in this budget. Budget is prepared for next financial year commencing from
April to March.
PROCESS FOR PREPARATION OF BUDGET:
Intimation from H.O. to send proposals for next financial year.
Collection of various estimates from indenters / H.O.
Collection of various data in specially designed statement / annexure.
Put-up to Unit Head for consideration
Meeting by unit Head with various HODs / SHs.
Final proposal to be sent to H.O.
1. INTIMATION FROM H.O. TO SEND PROPOSALS FOR NEXT
FINANCIAL YEAR:
Generally in Oct / Nov, intimation is received from Finance Director, Head Office asking all
manufacturing units / marketing offices to send their respective budgets. In this intimation all concerned
are asked to submit data to respective Head of Finance at unit level. The Head of Finance of respective
unit can compile the budget and sent it to Head Office through respective Unit Head. In this intimation,
general guidelines and specific instructions are also issued to all units so that all units can keep
uniformity in submitting their data.
2. COLLECTION OF VARIOUS ESTIMATES FROM INDENTORS / H.O:
On receipt of intimation from Head Office, Unit Head of KANDLA Unit is intimating Finance and
Accounts Department to compile Revenue Budget & put up the same to him for review and final
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decisions. On receipt of intimation from Unit Head, Finance and Accounts Department came into action
to get all related details from various department / Head Office.
Following are major information’s which are to be collected from various Departments / Head Office:-
Production Targets.
C& F Price of imported Raw Materials.
Rates to be adopted for packing material.
Exchange rates to be adopted for US $.
Norms of actual input Qty of various raw material, utilities and
Packing materials.
Stream day’s estimates for production targets.
All estimates of various types of direct / indirect expenses related to production activities.
I. PRODUCTION TARGETS
On receipt of above referred intimation from Head Office through Unit Head, Tech Department of
KANDLA Unit works out the production estimates for next financial year. Production Targets are
estimated based on licensed capacity of production in terms of P2O5 output.
At KANDLA Unit, three type of fertilizer is produced
1. NPK (10:26:26) (Grade I)
2. NPK (12:32:16) (Grade II)
3. DAP (18:46:00)
Production is estimated in bulk keeping in the mind the term P2O5 ratio. In above fertilizer N stands for
Nitrogen P stands for Phosphorous and K stands for Potash. DAP stands for Dia Ammonium Phosphate.
Technical Department estimates grade wise production which normally equals for 100% capacity
utilization in terms of P2O5 output. Technical Department before estimating estimate of production
target keeps in mind the estimate of shut down of Plant due to shortage of raw material , shut down of
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plant due mechanical maintenance, power failure etc. This production estimates are sent by them to
Tech service, H.O. through Unit Head for approval.
Since production Targets are to be approved by Head Office, Head Office at the same time get sales
estimates from their respective Central Marketing Office .Production Targets are reviewed by H.O. in
consideration with sales Targets . Since production of various grades is to be done as per Market
demand, Head Office is the final authority to approve Production Targets. On receipts of Production
Target from Head Office, Tech services Department intimate the final Production Target to F&A
Department.
II. C& F PRICE OF IMPORTED RAW MATERIALS
To manufacture all the three type of Fertilizer, following Raw Materials are required:-
1. Phos Acid (P2O5)
2. Ammonia (NH3)
3. Potash (MOP)
4. Urea
5. MAP
6. Filler
Since major Raw Materials like Phos Acid, Ammonia, Potash, Urea, MAP is imported by Head Office
from various countries, Head Office is to provide the estimated C&F rate of above 5 Raw Materials
(SrNo.-1 to 5) to KANDLA Unit. Head Office intimate C&F cost per MT in US $ to KANDLA Unit
after considering long term contract with major suppliers, upward / downward trend of major Raw
material cost in Global Market . C&F cost varies with various suppliers distance of loading port from
KANDLA Port & Credit facility for payment of C & F cost.
III. RATES TO BE ADOPTED FOR PACKING MATERIAL
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Like major Raw Materials, Head Office also Procure / finalize Purchase Orders for purchase of packing
material from indigenous suppliers. At KANDLA Unit bags are procured in various sizes depending
upon the general demand of packing materials i.e. HDPE Bags:-
HDPE Bags: 50 Kgs
HDPE Bags: 40 Kgs
HDPE Bags: 25 Kgs
Head Office intimate per bag rate of above sizes to KANDLA Unit after considering long term contract
with major suppliers, upward / downward trend of above bags.
IV. EXCHANGE RATES TO BE ADOPTED FOR US $:
At KANDLA, major raw materials are imported and the C&F rate for above raw material is
communicated by Head Office to KANDLA Unit. All foreign exchange payments are done by Head
Office, they intimate the Foreign Exchange Rate of US $ to be adopted for conversion of US $ into
Indian Rupee. Head Office estimates the exchange rates in consultation with various Foreign Exchange
Trading Banks, RBI Bulletin and also upward / downward trend of foreign exchange rate. This
exchange rate is communicated to all units so that a uniform exchange rate can be applied to Foreign
Exchange payments in respect of purchase of imported raw materials, Major Equipments , Spare Parts
etc.
V.NORMS OF ACTUAL INPUT QUANTITY OF VARIOUS RAW MATERIAL,
UTILITIES AND PACKING MATERIALS:
To ascertain the requirement of the input of the various Raw Materials, utilities and Packing Materials,
norms are communicated by Tech Services Department to Head Office. Input norms means the Qty of
input to get exact output results like Nitrogen, Phosphorous, Potash etc. as per ratio of individual grade.
Also utilities norms indicate the respective units to be consumed for mixing of above raw material and
packing norms means exact bags required to be packed for one MT fertilizer.
Based on above, norms are estimated by Tech Services for following
1. Raw Materials
Phosphoric Acid
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Ammonia
Potash
Filler
MAP
Urea
2. Utilities
Power
Water
Fuel Oil
3. Packing Materials
HDPE Bags: 50 Kg
HDPE Bags: 40 Kg
HDPE Bags: 25 Kg
V. STREAM DAY’S ESTIMATES FOR PRODUCTION TARGETS
KANDLA Plant runs all the days in three shifts. To achieve the production target, Technical
Department estimate the actual running of plant considering holidays, Shortage of raw materials, shut
down of plant due to electrical maintenance, mechanical maintenance, power failure etc. These stream
days figures are required for allocating various fixed expenses amongst total cost to grade wise cost.
Stream Days varies with each grade wise production.
VI. ALL ESTIMATES OF VARIOUS TYPES OF DIRECT / INDIRECT
EXPENSES RELATED TO PRODUCTION
To produce the targeted Production Raw Material, Utility and packing cost is derived based on
production, norms and per MT / KL cost. Other than this direct cost, many fixed cost are involved to run
plant. For this, all actual users / indenter estimate their area cost based on estimated requirement and
previous / last 3 years actual expenses. Such type of expenses is booked in various account codes and
further into respective fixed cost groups.
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3. COLLECTION OF VARIOUS DATA IN SPECIALLY DESIGNED
STATEMENT / ANNEXURE.
The various data collected from various sources are compiled in specially designed Proforma’s /
Annexures to derive profitability of Plant, total cost of production, grade wise cost of production and
further per MT cost of production.
Following are the main proforma / Annexures for compilation of various data:-
Sr No. STATEMENT /
ANNEXURE
reference
Particulars
1 STATEMENT – I Production And Sales Targets
2 STATEMENT – II Profitability Statement
3 STATEMENT – III Total Cost Of Production
4 STATEMENT – IV Purchase Budget
5 ANNEXURE- I Break –up of Unit price of Raw Materials / Utilities /
Packing Materials
6 ANNEXURE- II Norms of consumption for raw materials /utilities/packing
material
7 ANNEXURE- III Township recoveries and other revenues
8 ANNEXURE- IV Consumption of raw materials / Utilities / packing
materials
9 ANNEXURE- V Employees remuneration & benefits
10 ANNEXURE- VI Repairs and maintenance expenses
11 ANNEXURE- VII Chemicals
12 ANNEXURE- VIII Insurance expenses
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13 ANNEXURE- IX a) Factory overheads & b) R & D expenses
14 ANNEXURE- X Grade wise cost of production
4. BRIEF EXPLANATIONS OF STATEMENTS / ANNEXURES :
A. STATEMENTS
STATEMENT– I: PRODUCTION AND SALES TARGE T
In this statement the data relating to plant’s installed capacity in terms of P2O5, stream day’s estimates,
production target in bulk & in terms of P2O5 is estimates. Based on plant capacity and estimates
production capacity utilization in % is derived. Sales estimate figures are shown by H.O. after sending
this budget proposal to Head Office for approval. Also for comparison purpose last three years actual,
current year budget and revised budget estimates are also shown in this statement. Based on this
statement, Total cost of production is estimated / derived.
Production & Sales Target Statement-I
ACTUAL ORIGINAL BUDGET
REVISED ESTIMATES
ITEMS UNIT
BUDGET
2005-06 2006-07 2007-08 2008-09 2008-09 2009-10
INSTALLED CAPACITY
P2O5
LAKH
TE
STREAM DAYS DAYS
PRODUCTION
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NPK- 10:26:26
NPK- 12:32:16
DAP- 18:46:00
LAKH TE
LAKH
TE
LAKH TE
TOTAL NPK/DAP LAKH TE
IN TERMS OF P2O5
LAKH TE
CAPACITY UTILIZATION
STATEMENT– II: PROFITABILITY STATEMENT
It states about the income and expenditure for the next budget year.
Revenue
It shows the detail about the income that will generate by sale of fertilizer and other income from various sources such as government subsidy etc.
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Expenditure
It shows about expenditure that will incur for running the plant. It includes the cost of production, distribution expenses, selling and distribution expenses, etc.
By deducting the expenditure from the revenue we can come to know about the profit or loss for the budgeted period.
Budgeted profitability
Statement showing budgeted profitability:-
ACTUAL ORIGINAL BUDGET
REVISED ESTIMATES ITEMS BUDGET
2009-10
2007-08 2008-09 2009-10 2010-11 2010-11
A. REVENUE
1. SALES (NET OF REBATES & DISCOUNTS)
Products
2.PRODUCT SUBSIDY FROM GOI
3.FREIGHT SUBSIDY FROM GOI
4.TOTAL TURNOVER
(SALES+SUBSIDY)
5.OTHER REVENUE
A. Plant
B.Share Of Head Office & Marketing
Total other revenue
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3. Other revenue
A. Plant
B. Share of HO & MKTG
Total Other Revenue
6.EXCHANGE RATE VARIATION
7.INCREASE/(DECREASE)IN STOCKS
8.TOTAL REVENUE
B. EXPENDITURE
1. Cost of production
2. Distribution expense
a. Freight
b. Handling & Transportation
Total distribution expenses
3.ADMINISTRATION EXPENSES
A. Marketing division
B. Head OFFICE
Total Administration expenses
4.EXCHANGE RATE VARIATION
5.INTEREST COST
a. Long term
b.Short term
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c.Intrest on others
d.net short term(b-c)
Total Interest Cost(a+d)
7.TOTAL EXPENDITURE
C.PROFIT/(LOSS)FOR THE YEAR
D.PRIOR PERIOD & OTHER ADJUSTMENTS
1.PRIOR PERIOD ITEMS(NET)
2.OTHER ADJUSTMENTS
F.PROFIT/(LOSS)
STATEMENT– III: TOTAL COST OF PRODUCTION
In this statement based on Annexure 4 to 10 total cost of production is shown in various groups and final
figure is shown at statement 2.
Cost of production budget is the forecast of the cost of the production which has been planned in the production budget. The physical units in the production budget are broken into the elements, i.e. material quantity and labour time, and the estimated cost of materials, labours, and manufacturing overhead.
Cost of production budget at IFFCO-Kandla:
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Total cost consists of two costs, variable and fixed cost.
Total Cost of Production
Variable cost Fixed cost
Variable cost:
Variable expenses are those which are directly related to the production of fertilizers. These expenses incurred on various inputs of the product. The variable expenses are related to the expenses incurred on
Raw materials Utilities Packing materials
The unit produces the fertilizers under the three grades. They are
Grade- 1 Grade-2 DAP NP
10:26:26 12:32:16 18:46:00 20:20:0
The products produced in the firm are fixed by certain norms. The norms are fixed for producing per metric tonn fertilizer. They are fixed by the technical department. There are separate norms for producing each grade of the product. The quantity of the product will be derived by calculating all the norms used in producing particular grade of the product.
The utilities that are used to produce per metric tonn of the product are also treated as the variable cost. They are power, water and furnace oil.
The head office gives the estimated value in U.S. dollars for imported raw materials as per Foreign exchange rate except Potash. The F&A department of the unit has to calculate the estimates of cost of
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raw materials by including various government levis like custom duty, wharfage and other statutory levis.
The variable cost is derived as:
Production * Norms= Quantity * Rate= Amount.
Fixed cost:
Fixes cost include following items:
1. Chemicals2. Employees remuneration & benefits3. Repairs & maintenance4. Insurance5. R&D expenses6. Other manufacturing and unit administration7. Security expenses8. Depreciation
1. Chemicals
Consumption of various chemicals is also treated as fixed cost because consumption of chemicals remains constant irrespective of the production activity. Chemicals include sum total of all the chemicals to be used by the various departments like plants, tank, labs, etc.
Chemicals are of two kinds stock and non stock. A special attention is paid while preparing the chemicals budget, because the chemicals which are stored are to be procured by the stores department in the budgeted year whereas, the chemicals that are non stock in nature are o be procured directly by the using department.
Chemicals include
Spend Acid Deformer Chemicals Sulphuric acid Ammonia Bi- sulphate
It should be noted here that though sulphuric acid is procured as a chemical presently, it is being used as a raw material. As high quantity of it mixed with the other raw materials.
2. Employees’ remuneration and benefits:
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Employees’ remuneration and benefit are considered to be fixed expenses because number of employees on an average is same in each financial year. It comprises of:
1. salaries and wages2. PF & FPF contribution3. Welfare expense
Salaries and wages:
Salaries and wages comprises of:
Salaries and wages – employeeso Basico Personal pay and allowanceo D/Ao Special allowance- working planto HRAo Kandla allowanceo Stipend to trainees/ D.A.o Railway staff salaryo Employees furnishing allowance
Incentive payments Indirect wages- contract labour Non practicing allowance to MO Canteen subsidy and other expenses LTC employees Shift allowance Washing allowance Children education allowance E.L. encashment Cash handling allowance Overtime VRS expense
All the above items are calculated by keeping in mind number of permanent employees which are further bifurcated into officers and workmen. The salary is calculated grade wise (A-L). The stipend to trainees is also decided in the budgeted year, it includes D/A, HRA, washing allowance. Railway staff is to be given salary as per the MOU with Indian Railways.
Moreover the employees are also given special allowance to work in the remote place like Kandla. And workers working in plant are given special allowance. Where as medical officers are given non practicing allowance.
PF & FPF contribution
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It includes:
a) PF contribution employeesb) FPF contribution/ pension/ employerc) PF admin chargesd) Group gratuity- cum life assurancee) Society’s contribution to insurance
The PF is calculated at 12% of BP+ DA excluding pension fund, where- group gratuity and society’s contribution is provided by H.O.
Welfare expenses
It includes:
a. Reimbursement of medical expenseb. Medical expense: recruitmentc. Hospital suppliesd. Doctors honorariume. Liveries: protective clothingf. Liveries: shoesg. Liveries: stitching chargesh. Liveries: othersi. Staff welfare expensesj. Family planning incentivek. Children transportation subsidyl. Awards to employeesm. Sport expensesn. Celebration expenseso. Club house expensep. Transfer expensesq. School expensesr. Employer contribution to PF
3. Repairs and maintenance:
Repairs and maintenance is broadly divided into
A. Plant & machineryB. Civil maintenance
Factory Township
C. Furniture & fixtures
Repairs and maintenance budget consists of:
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Stores consumption budget
Store consumption budget includes those items which are stocked and are expected to be used for the purpose of maintenance in the budgeted year
Outside maintenance budget
A separate budget is made for the maintenance jobs that are to be done by the outside agencies in the budgeted period. This budget mostly includes the tasks that cannot be met by the unit.
4. Insurance
Insurance expenses are also treated as the fixed costs. As it is well known that in today’s business environment it is very important to cover all the risks, so IFFCO- Kandla prepares a special budget for insurance. This budget shows various insurance policies and the premium to be paid in the budgeted year.
Insurance budget is prepared by the F&A department in association with the technical department and H.O. Following are the major policies to cover different types of risks prevailing at IFFCO- KANDLA.
a. Fire & Allied Peril policy New Admin. Building & furniture and fixtures Township and public utilities/ buildings
b. Marine policy Marine open cover- imported spares Marine open cover- inland transit.
c. Mega policy All the building, plants & machineries, stocks, etc. Loss of profit policy.
d. Misc. policies Cine project at cinema ground, township. Cash in transit, cash in safe. Third party risks of pay loaders. All risks policies for laptop & mobile phones. Vehicles policy Contractors all risk- ammonia tank.
Some of the policies are taken by H.O. for all the plants jointly, these include:
Mega policy Public liability as per public liability act.
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Public liability for industrial risks. Terrorist cover
Policies are taken from the sister concern- M/s IFFCO- Tokyo general insurance company
5. Depreciation:
Depreciation is directly calculated by F&A department by considering assets in books, estimated additions and deductions of assets during the budgeted year. Depreciation is calculated under straight line method at various rates as fixed by Management & company Law/ Income Tax Authorities.
Statement III : Cost of Production
ACTUALS ORIGINAL BUDGET
REVISEDESTIMATES
ITEMS
BUDGET
2004-05
2005-06
2006-07
2007-08
2008-09 2008-09 A. VARIABLE COST 2009-10
1. Raw material consumption
A. Phosphoric Acid
B. Ammonia Imported/ Purchased
Ammonia- own
Ammonia- total
C. Potash
Urea
Filler
Total raw material consumption
2. Power, Fuel & Water
A. Power
B. Fuel oil & Lshs
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C. Water
Total Power, Fuel Oil & Water
3. Bagging/ Packing expenses
A. Bags & Threads
B. Handling Charges
Total Bagging Expenses
4. TOTAL VARIABLE COST
B. FIXED COST
1. Chemicals
2. Employees remuneration & benefits
A. salary, wages & allowances
B. Cont. to pf & other funds
C. Medicals & other welfare expenses
Total employees remuneration & benefits
3. Repairs & Maintenance
4. Insurance
5. Research & Development Exp
6. Other Mfg. & Unit Admin Exp
7. Security expenses
8. Depreciation
TOTAL FIXED COST
TOTAL COST OF PRODUCTION
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STATEMENT– IV: PURCHASE BUDGET
This statement is prepared to estimate the likely purchase of following Raw Material / Utilities /
Packing Material etc based on estimated consumption of items , opening inventory and closing
inventory based on storage capacity :-
1. Raw Materials :-
Phos Acid (P2O5)
Ammonia (NH3)
Urea
Potash
Filler
MAP
Sulphuric Acid
2. Utilities :
Fuel Oil
3. Packing Materials:
HDPE Bags: 50 Kg
HDPE Bags: 40 Kg
HDPE Bags: 25 Kg
4. Others:
1. Stores
2. Spares
3. Tools
4. Cement
5. Steel etc.
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Generally while preparing this estimate inventory of raw material, fuel oil and packing material is
estimated as per maximum level of storage capacity so plant should not be shut down due to any
shortage of raw material. On other hand other items like stores , spares tools, cement, steel are
controllable inventory and it is always tried to keep theses stock at minimum level so unnecessary fund
is not blocked and there should not be increase in inventory carrying cost.
ANNEXURES:
ANNEXURE– I: BREAK-UP OF UNIT PRICE OF RAW MATERIALS /
UTILITIES / PACKING MATERIALS:
In this statement, landed cost is derived by taking all possible expenses for purchasing the material.
Landed cost is derived for all raw materials / utilities / packing materials taking into consideration of
following elements.
1. C & F price / basic price
2. Insurance
3. Stamp Duty
4. Service Charges
5. Freight (in case of indigenous items)
6. Custom Duty
7. Excise Duty
8. Wharfage / Port Expenses etc.
9. Sales Tax
10. Thread
11. Miscellaneous bank charges directly related to Purchase.
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Landed cost so derived is further considered at statement -4 (purchase budget) to ascertain total
purchases to be made during the financial year to produce the targeted production. Based on purchase
Qty / rate and opening stock of Qty / rate, weighted average rate is derived for applying the same to
consumption Qty.
ANNEXURE- II: NORMS FOR CONSUMPTION FOR RAW MATERIAL /
UTILITIES / PACKING MATERIALS
In this annexure the norms received from technical services department is incorporated. As already
explained earlier norms are the input Qty for getting targeted output Qty in case of raw materials,
required Qty to mix / produce the targeted production Qty in case of utilities and bags required to pack
the bulk production in case of packing materials . Since per MT cost of production can be kept at the
minimum level when norms are kept in minimum level norms are to be derived very carefully. These
norms figures are further utilized at annexure -4 to derive quantity requirement of all raw materials,
utilities and packing materials.
ANNEXURE– III: TOWNSHIP RECOVERIES AND OTHER REVENUE
Kandla Unit is manufacturing unit only and all sale of production is made at marketing office and sale
proceedings are accounted at Head Office, However, at plant level there are some incomes which are
detailed as under
Township Recoveries: from staff
Rent
Electricity
Water
2. Other Revenue: Interest from staff
HBL (House Building Loan)
Conveyance Loan
Hire Charges (pay loader, cranes etc.) & Interest.
Insurance Claim Realized.
Sale Of Scrap
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Transport Recoveries Fro Staff, Contractor.
Interest Received on Deposits
Income from Liquid Cargo Jetty.
Provision No Longer Required Written Back
Tender Fee / Sale Of Tender Forms
Depreciation Charges
Sundries / Miscellaneous Income
Rental Income : from township , from plant
Profit On Sale Of Asset
Unclaimed Amount Written Back
Penalty Recovered
Other Claims
Lease Charges Under Own Your Own Wagon
Miscellaneous Recoveries from Staff
All above income are estimated by individual actual receiver based on past experience and future
activities. The total of this revenue is shown at statement -2 (profitability statement) on revenue side.
ANNEXURE– IV: CONSUMPTION OF RAW MATERIALS, UTILITIES AND
PACKING MATERIALS
At Kandla Unit cost of production is estimated in two categories as under
Variable Cost.
Fixed Cost
Variable cost is the cost which generally varies with the production activity. Variable cost consists of
following three items.
1. Raw Materials
2. Utilities
3. Packing Materials
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Since variable cost is linked directly with production figures there is no control on the cost of variable
cost. In case of nil production, variable cost will also be nil. In this statement grade wise cost of
production and total cost of production is derived based on production targets, norms and average unit
rate. Production Targets are taken from statement –1, norms are taken from annexure -2 and average
unit rate is taken from statement -4. Based on above grade wise Qty (production x norms) and grade
wise cost (Qty x Average rate) is derived. By totaling of all the three grades cost , total cost of individual
raw material , utilities and packing material is derived. By totaling all Raw Materials, utilities and
packing materials total cost of production is derived. This total cost of production is shown at statement
-3 items wise. Raw materials are shown under A: raw material cost, utilities are shown at B: operating
expenses & packing materials are shown at C: bagging expenses: bags & thread.
ANNEXURE– V: EMPLOYEES REMUNERATION AND BENEFITS
Employee’s remuneration and benefits is a fixed cost type expenses. Fixed cost is cost which generally
not varies with the production activities. Whether there is any production or not, this types of expenses
occur. Here employee’s remuneration and benefits remains constant irrespective of production.
In this group all type of expenses are covered which directly or indirectly pertains to the employees
including railway staff. Budget estimates are given by personal & administration department for almost
expenses:
To simplify the format expenses are shown under following groups:-
Salaries & Wages
PF & FPF Contribution
Welfare Expenses.
Following are the major budget head & their respective user / indenter:-
Sr No. Particulars Indenter
A-1 Salaries & Wages
1 Basic Personal & Administration
2 Personal pay / Allowance Personal & Administration
3 DA (Dearness Allowance) Personal & Administration
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4 Special Allowance Personal & Administration
5 House Rent Allowance(HRA) Personal & Administration
6 EL Encashment on Actuarial Basis Personal & Administration
7 Kandla Allowance Personal & Administration
8 Stipend To Trainees / DA Personal & Administration
9 Railway Staff Salary Transportation Section
10 Employees Furnishing Allowance Personal & Administration
A-2 Incentive Payments Head Office
A-3 Indirect Wages Contractor / Labour Personal & Administration
A-4 Provision For Salary Revision Head Office
A-5 Non Practicing Allowance To
Medical Officers
Personal & Administration
A-6 LTC Employees Personal & Administration
A-7 Shift Allowance Personal & Administration
A-8 Washing Allowance Personal & Administration
A-9 Children Education Allowance Personal & Administration
A-10 EL Encashment Personal & Administration
A-11 Cash Handling Allowance Personal & Administration
A-12 Overtime Personal & Administration
A-13 VRS Expenses Personal & Administration
B PF & FPF Contribution
B-1 PF Contribution Personal & Administration
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B-2 FPF Contribution / Pension Employer Personal & Administration
B-3 PF Administration Charges Personal & Administration
B-4 Group Gratuity-Cum-Life Assurance Head Office
B-5 Society’s Contribution To Insurance Head Office
C Welfare Expenses
C-1 Reimbursement Of Medical Exp. Personal & Administration
C-2 Medical Expenses : Recruitment Personal & Administration
C-3 Fixed Medical Assistance Personal & Administration
C-4 Hospital Supplies Personal & Administration
C-5 Doctor’s Honorarium Personal & Administration
C-6 Livenies –Protective Clothing Personal & Administration
C-7 - Shoes Personal & Administration
C-8 - Stitching Charges Personal & Administration
C-9 - Others Personal & Administration
C-10 Staff Welfare Expenses Personal & Administration
C-11 Family Planning Incentive Personal & Administration
C-12 Children Transport Subsidy Personal & Administration
C-13 Awards To Employees Personal & Administration
C-14 Cinema Show Personal & Administration
C-15 Celebration Expenses Personal & Administration
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C-16 Club House Expenses Personal & Administration
C-17 Transfer Expenses Personal & Administration
C-18 School Personal & Administration
C-19 Employees Contribution To
Benevolent Fund
Personal & Administration
C-20 Honorarium To Staff Personal & Administration
Above budget estimates are given by concerned section based on last 3 years actual, present strength of
employees, next year retirement cases, transfers, natural death of employees & new recruitment etc. As
mentioned above at Sr Nos A-2, A-4, B-4 and B-5 since payments are made by Head Office directly
estimates are asked from Head Office and incorporated in Kandla Unit’s budget. The total of above
three groups is shown at B-3 statement –III (Cost of Production) under operating expenses.
ANNEXURE- VI: REPAIRS AND MAINTENANCE EXPENSES
Repairs and maintenance expenses are also a fixed cost type expenses. Repairs & maintenance expenses
remains constant irrespective of production.
In this group all type of expenses are covered which directly or indirectly pertains to Repairing &
Maintenance of Plant & Machinery, Equipments, Civil Works, Jetty, Furniture, Fixtures etc. Budget
estimates are given by all departments for their areas or where they are custodian of the equipments.
Repairs & Maintenance expenses are covered under 2 categories: - (1) Consumption of stores, spares etc
& (2) Job done by outside agencies. For any items issued from stores for particular work is charged to
consumption of stores , spares where as for any type of Repairs and Maintenance job is done by outside
agencies are booked against contractor’s job .
To simplify the format expenses are shown under following groups
oPlant Machinery
oCivil Maintenance –Factory, Township
oFurniture & Fixtures
Following are the major budget heads & their respective user / indenters:
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A. Plant Machinery
Sr No Particulars Indenter
1. NPK Maintenance Department / NPK
2. Offsite Maintenance Department /Offsite
3. Bagging And Handling Maintenance Department /Bagging &
Material Handling
4. Electrical Installation: Factory Electrical Department
5. Electrical Installation: township Electrical Department
6. Mobile Equipments Auto Section / Maintenance Department
7. Rolling Stock Maintenance Department
8. Air Conditioner & Cooler etc AC Section / Maintenance Dept.
9. General Maintenance Department
10. Emergency DG Plant Electrical Department
11. Water Supply Installation Maintenance Department /Civil Section.
12. Computer System EDP System Department
13. Workshop Equipments Workshop Section
14. Weighing Equipments Instrumentation Section
15. Instrumentation Instrumentation Section
16. Laboratory Equipments Lab / R & D Section
17. Other Non Plant Equipments Maintenance Department
18. Audio Visual Equipments Instrumentation Section
19. Communication Equipments Electrical Section
20. Guest House Equipments Personal & Administration
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21. Stores Equipments Stores Section / Maintenance Department
22. Canteen Equipments Personal & Administration
23 R & D Equipments Lab / R & D Section
24. Hospital Equipments Personal & Administration / Medical Section
25. Fire & Safety Equipments F & S Section / Tech Services
26. R & M –Stores (ERF) Stores Section
27.
Provision for non slow moving items
Stores Section
B. CIVIL MAINTENANCE –FACTORY, TOWNSHIP
Sr. No Particulars Indenter
1. Factory –Liquid Cargo Jetty Civil Section
2. Factory- Railway Siding Civil Section
3. Factory- Office Building Civil Section
4. Factory- Factory Building Civil Section
5. Factory- Roads ,Culverts Civil Section
6. Township : Buildings Civil Section
7. Township: Roads, Culverts &
Drains
Civil Section
C. FURNITURE & FIXTURES
Sr. No Particulars Indenter
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1. Furniture & Fixtures Personal And Administration
2. Office Equipments Personal And Administration
Above budget estimates are given by concerned sections based on last 3 years actuals , present volume
of assets , next years additions , deletion of assets etc . The total of above three groups is shown at B .4.
a) Of statement 3 (cost of production) under operating expenses.
ANNEXURE-VII: CHEMICALS
Consumptions of various chemicals are also treated as fixed cost expenses. Consumption of various
chemicals remains constant irrespective of production activities. In this group all types of chemical
are covered which directly or indirectly pertains to consumption of chemicals to be used in plants, tanks,
lab etc. Budget estimates are given by all departments for their area or where they are custodian of
particular chemicals.
In this group some chemicals are of stock item in nature & some chemicals are of non – stock type
items. Stock type items of chemical are being procured through stores & non stock type of chemicals are
being procured directly by actual users.
Following are major budget heads & their respective users / indenters :-
Budget & Budgetary Control
Sr. No Particulars Indenter
1. Spent Acid Utilities
2. Defoamer Production Dept/Stores
3. Chemicals Lab/R & D
4. Sulphuric Acid Utilities
5. Ammonia Bi-Sulphate Utilities
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sulphuric Acid was procured 2-3 years back under consumption of chemical group , but at present
sulphuric acid is being procured as a raw material item due to heavy Qty of this sulphuric Acid is mixed
with other raw material for nutrient purpose.
Above budget estimates are given by concerned sections based on last 3 years actuals and present
requirement of respective chemicals. The total of above chemicals is shown at B-1 of Statement –III
(cost of production) under operating expenses.
ANNEXURE- VIII: INSURANCE EXPENSES
Insurance expenses are also treated as fixed cost expenses. Insurance expenses remains constant
irrespective of production activity since insurance expenses are to be incurred to cover all type of risk
for material and loss of profit in case of any incident occurs due to major fire or natural calamity etc. To
cover all type of risk, budget is estimated by finance & Accounts Department in consultation with
technical service department .Since technical service department is the custodian of main plant &
machinery.
Following are the major policies to cover different types of risks prevailing in day to day transactions:
1. Fires & Allied Peril Policy
a. New admin building & furniture & fixtures.
b. Township &public utilities / buildings
2. Marine Policies
a. Marine open cover- imported spares
b. Marine open cover- Inland (rail / road) Transit
3. Mega Policy
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a. All buildings, plant and machinery, stocks, jetty, Pipelines etc. (Everything which is on
the ground.
b. Loss of profit policy
4. Miscellaneous Policies
a. Cine project at cinema ground, township
b. Cash in transit, case in safe / burglary
c. All risk policy for laptop & mobile phones
d. Vehicle policy
e. Cordet pantia farm
f. Contractor all risk-ammonia tank
Some policies are taken by Head office for all the plants jointly & proportionate expenses are to be
accounted by Kandla Unit. Following are some policies taken by H.O.
Public liability as per Public Liability Act
Public liability for industrial risk
Terrorist cover.
All above policies are taken by Kandla Unit from their sister concern –M/S IFFCO Tokio general
insurance Co.LTD. Above budget estimates are estimated by F & A Dept based on last 3 years actuals &
re-instate value of the assets. The total of insurance expenses is shown at of Statement –III (cost of
production) under operating expenses.
ANNEXURE-IX: FACTORY OVERHEADS & RESEARCH AND
DEVELOPMENT EXPENSES
Factory overheads & research & development expenses are also treated as fixed cost expenses. These
types of expenses are remaining constant irrespective of production activities. In this group those fixed
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cost type expenses are covered which are not covered in Annexure 5 to 8 budget estimate are given all
departments for their area or where they are custodian of particular items . However in this group major
expenses are of service nature.
Following are the major budget heads & their respective user / indenters
Sr.No Particulars Indenter
1. Travelling Expenses Personal And Administration
2. Local Conveyance Personal And Administration
3. Fixed Local Travel Concession Personal And Administration
4. Ground Rent Personal And Administration
5. Rent , Rates & Taxes Personal And Administration
6. Postage Charges Personal And Administration
7. Telephone Charges Personal And Administration
8. Telex / NIC / Lease Charges Personal And Administration
9. Courier Charges Personal And Administration
10. Printing & Stationery Personal And Administration
11. Periodicals, Books& Newspapers Personal And Administration
12. Subscription to membership fees for
society
Personal And Administration
13. Seminar Expenses Training Section
14. Vehicle Running Expenses Personal And Administration
15. Advt. for tender &recruitment Personal And Administration
16. Legal Expenses Personal And Administration
17. Professional &Consul Charges Personal And Administration
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18. Entertainment expense Personal And Administration
19. Courtesy Expenses Personal And Administration
20. Laboratory Expenses Laboratory / Technical Services
21. Bank Charges F & A Department
22. Pocket Expenses (Auditors) F & A Department
23. Other Sundry Expenses Personal And Administration
24. Stores Overheads Materials Dept
25. EDP Charges System Department
26. Product Advertisement Personal And Administration
27. Vehicle Hire Charges Personal And Administration
28. License Fees Personal And Administration
29. Loose Tools Written Off Stores Section / Material Dept.
30. Horticulture Expenses Personal And Administration
31 Electricity Expenses Electrical Department
32. Water – Township Personal And Administration
33. Guest House Expenses Personal And Administration
34. Training Expenses Training Section
35. Provision For Bad Debt Finance & Accounts Dept
36. Loss on Disposal of asset Finance & Accounts Dept
37. Assets Written Off Finance & Accounts Dept
38. Emp. Contribution To KSF Personal And Administration
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39. Honorarium To Visitor’s Training Section
40. Township Expenses-Others Personal And Administration
41. Vehicle Maintenance Auto Sec. / Maintenance Dept
42. Cost of Diesel for Pay loader /
Mobiles
Auto Sec. / Maintenance Dept
43. Gifts Expenses (Emp / Others) Personal And Administration
44. IRDP Expenses Personal And Administration
45. R & D Expenses Laboratory / R &D Dept
46. Security Expenses Personal And Administration
Above budget estimates are given by concerned section based on last 3 years actuals & normal increase
in activity as well as normal like in rates of various procurement & services etc. The total of above
groups is shown at of Statement –III (Cost of Production) under operating expenses.
ANNEXURE X: GRADE WISE COST OF PRODUCTION
This Annexure X is prepared to derive grade wise cost of production and further to Per MT cost of each grade. In
this Annexure total variable cost and fixed cost is appropriated as per norms & stream hours respectively. Grade
wise stream hours based on budgeted production is given by technical service department. Fixed Cost is divided
by total stream hours run & multiply by grade wise Stream hours run. Thus grade wise fixed cost is derived.
Once grade wise cost is derived, the same is divided by grade wise production. All raw materials, utilities,
packing material & fixed cost are divided by grade wise production to get Per MT cost. In this statement first we
get cost of bulk production and subsequently by adding bagging expenses we get total cost of bagged production.
This is an important statement to take final decision about profitability of the organization.
GENERAL:
Following type of expenses directly taken at statement –III for which no annexure are prepared.
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1. Depreciation which is directly calculated by finance & accounts department by considering assets in
books , estimated additions & deletion of the assets during the budgeted year.
2. Bagging expenses – cost of diesel –loco which is estimated by production department based last 3 years
consumption of diesel used for running of locomotives for moving of railway wagons etc.
3. Bagging expenses – cost of demurrage which is also estimated by production department based on last 3
years demurrage incurred for loading of railway wagons.
6. BUDGET TO PUT-UP TO UNIT HEAD FOR CONSIDERATION:-
Once budget estimation as given by various sections / departments / is compiled in statement –I to IV and in
annexure 1 to 10 , same is put-up to Unit Head by departmental head of Finance & Accounts assuming all
estimates are covered in respective groups.
I. Meeting by Unit Head with various HODs / SHs:-
After receiving complete budget proposals from F & A Dept, Unit Head review the same & call a budget review
meeting with all Head of Department / Sectional Heads. In this meeting Unit head discuss all the points related to
budget estimates with respective HODs / SHs , Unit Head once is satisfied with budget estimates, he give
clearance to F & A Dept to send the proposal to Head Office through him.
7. FINAL PROPOSAL TO BE SENT TO H.O .:-
Once Unit Head gives clearance to send the budget estimation to Head office , F & A Dept prepare final proposals
with changes , if any, as suggested / agreed by unit Head. Revenue budget proposal are sent to Head Office. Head
office further add Head Office expenses, Marketing expenses etc, compile all other Unit’s budget, marketing
departments budget & put-up a consolidated budget to the Board of Director’s through Finance Director and
Managing Director’s. In due course once budget proposals are approved by Board of Directors, Head Office
intimates all Units and Marketing department about the approval of budget of respective Units.
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REVENUE / PURCHASE BUDGET CONTROL
After receiving the copy of approved Revenue / purchase budget, F & A Dept intimate all departments / sections
about the approval of their areas budget. Budget for each & every account code is entered in the budget module
meant for budget control in Financial Accounting System. Each type of expenses has separate account code.
All commitments made vide purchase order / work orders are entered against respective account heads while
giving financial concurrence of proposed po/wo. At the same time all payments which are not against any
purchase order / work order are entered against respective budget Heads / Codes. It is to be ensure that no
payments or commitments exceeds to sanctioned budget.
In case of commitments / payments are required to be made beyond sanctioned amount , necessary action is to be
initiated by indentor / actual user to get it re-appropriate from other budget head of same group with the approval
of unit head & from other budget head of another group with the approval of Head Office / Competent Authority.
To further review of budget sanctioned & commitment made a monthly report is generated for actual expenses
versus budget sanctioned. This report is prepared to control the budget on monthly basis. Here total budget
sanctioned is shown as per estimated monthly budget. Wherever monthly actual expenses are higher than monthly
budget, justifications / reasons are asked from intender & further steps are taken to control the budget in
subsequent months. At Head office level, quarterly meeting is arranged to review/discuss about the budgetary
control & measures taken at Unit level to control the budget.
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CAPITAL BUDGETING
Capital budgeting is a decision situation where large funds are committed (invested) in the initial stages of the project and the returns are expected over a long period of time. These decisions are related to allocation of investible funds to different long-term assets.
Capital budgeting is a continuous process and it is carried out by different functional areas of management such as production , marketing ,engineering, financial management.
BASIC FEATURES OF CAPITAL BUDGETING
Capital budgeting decisions have long-term implications. These decisions involve substantial commitment of funds. These decisions are irreversible and require analysis of minute details. These decisions determine and affect the future growth of the firm.
The projects are undertaken under capital budget may be for any of the following purposes:
Non profit projects, i.e. the projects to meet legal and safety requirements. Non measureable profit projects, i.e. the projects with intangible and long term advantages. Capital replacement project, i.e. the projects undertaken to replace worn- out or obsolete equipment. Expansion projects, i.e. the projects undertaken to add to the company’s working capacity.
CAPITAL BUDGETING DECISION INVOLVES THREE STEPS:-
1. Estimation of costs and benefits of a proposal or of each alternative.2. Estimation of the required rate of return, i.e., the cost of capital.3. Selection and applying the decision criterion.
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DECISION CRITERIA
TECHNIQUES OF EVALUATION
TRADITIONAL TIME-ADJUSTED
OR OR
NON-DISCOUNTING DISCOUNTED CASH FLOWS
1) PAYBACK PERIOD 1) NET PRESENT VALUE2) ACCOUNTING RATE OF RETURN 2) PROFITABILITY INDEX
3) INTERNAL RATE OF RETURN
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TRADITIONAL OR NON-DISCOUNTING TECHNIQUES
1. PAYBACK PERIOD The payback period is defined as the “the number of years required for the
proposal’s cumulative cash inflows to be equal to its cash outflows” The payback period is the length of time required to recover the initial cost of the
project. The payback period may be suitable if the firm has limited funds available and
has no ability or willingness to raise additional funds.
2. ACCOUNTING RATE OF RETURN (OR) AVERAGE RATE OF RETURN (ARR) The ARR may be defined as “the annualized net income earned on the average funds
invested in a project. The annual returns of a project are expressed as a percentage of the net investment in the
project.
COMPUTATION OF ARR
Average profit (after tax)ARR= __________________________________*100 Average Investment in the project
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DISCOUNTED CASH FLOWS OR TIME ADJUSTED TECHNIQUES
These are based upon the fact that the cash flows occurring at different point of time are not having same economic worth.
I. NET PRESENT VALUE (NPV) METHOD:
The NPV of an investment proposal may be defined as the sum of the present values of all the cash inflows less the sum of present values of all the cash outflows associated with the proposal. The decision rule is “Accept the proposal if its NPV is positive and reject the proposal if the NPV is negative.”
II. PROFITABILITY INDEX METHOD:
This technique is a variant of the NPV technique is also known as benefit-cost ratio or present value index
PI= Total present value of cash inflows ________________________________ Total present value of cash outflows.
Accept the project if it is PI is more than 1 and reject the proposal if the PI is less than 1.
III. INTERNAL RATE OF RETURN (IRR) METHOD: The IRR of a proposal is defined as the discount rate which produces a zero NPV, i.e.,
the IRR is the discount rate which will equate the present value of cash inflows with the present value of cash outflows.
The IRR is also known as Marginal Rate of Return or Time Adjusted Rate of Return.
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The time-schedule of occurrence of future cash flows is known but the rate of discount is not.
The discount rate calculated will equate the present value of cash inflows with the present value of cash outflows.
CAPITAL BUDEGTING PRACTICES IN INDIA
Capital budgeting decisions are undertaken at the top management level and are planned in advance. The Corporates follow mostly top-down approach in this regard.
Discounted cash flow techniques are more popular now.
High growth firms use IRR more frequently whereas Payback period is more widely used by small firms.
PI technique is used more by public sector units than by private sector units.
Capital budgeting decisions are of paramount importance as they affect the profitability of a firm, and are the major determinants of its efficiency and competing power.
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PROCESS FOR PREPARATION OF CAPITAL BUDGET:-
A. Intimation from Head Office to send proposals for next F.Y.
B. Collection of various estimates from Indentors.
C. Compilation of various data in specially designed Proformas.
D. Put-up to Unit Head for consideration.
E. Meeting by Unit Head with various Head of Departments / Sectional Heads.
F. Final proposals to be sent to Head Office.
A. Intimation from Head Office to send proposals for Next F.Y. :-
Generally, in Oct/Nov, intimation is received from Finance Director, Head Office asking all manufacturing
Units / Marketing Offices to send their respective budgets. In this intimation all concerns are asked to submit data
to respective Head of Finance at Unit level. The Head of Finance of respective Unit can compile the Budget &
send it to Head Office through respective Unit Head. In this intimation general guidelines and specific
instructions are also issued to all Units so that all Units can keep uniformity in submitting their data.
B. Collection of various estimates from Indentors :-
The F&A department intimate all the department head to send their proposals for capital budget estimates for the necessary items required. For preparing the budget estimates the head office has given specific groups. The required items should be listed in that group only. The groups are:
Energy saving system/ schemes Operational necessity Reliability improvement Safety Replacement of ageing equipments
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Statutory requirements/ government directions Minor modifications Inspection facility R&D equipments Administrative office buildings, furniture, etc. Associated areas like welfare, township, etc. Computer and computer system.
C. Compilation of various data in specially designed Pro-forma: -
Capital Budget proposals are to be compiled in following Pro-forma-
1. Proposals for “New Items”.
2. Proposals for “On going items”
3. Completed items of current year Budget.
4. Dropped items of Current year Budget.
5. RE-appropriated items.
6. Reconciliation of current year Budget.
1. Proposals for “New Items ” :-
All proposals received from various Departments / Sections are thoroughly checked by Finance & Accounts
Department and same is financially concurred before incorporating the same in the Performa for “New Items”.
Estimates are checked with Budgetary Quotations received from Suppliers or with Previous Procurements.
Summary of new items – Kandla unit
Sr. No Items Cost Estimates Expenditure
2009-10 20010-11 2011-12
N-I Energy saving system /scheme
N-II Operational necessity
N-III Reliability improvement
N-IV Safety equipments
N-V Replacement of agening equipments
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N-VI Statutory requirements of Govt. directives/requires of input supplies
N-VII Minor modifications
N-VIII Inspection Facilities
N-IX Research & development equipments
N-X Admn. Office building, furniture, colony amenities, etc.
N-XI Associated areas like welfare, colony amenities, etc.
N-XII Computer and computer systems
N-XIII Security and Intelligence
GRANT TOTAL
Following are some assets which are to be procured / Capitalized under each group:-
N-I: Energy Saving System / Schemes:-
Against t this group those items are to be estimated which are meant for introducing a new schemes to save
energy or any equipment which relates to saving of energy.
Example: - 1. Replacement of Energy efficient street lighting fixtures
2. Lighting Transformer with stabilizer for K-1 Plant.
3. Installation of economizer in Boilers.
N-II: Operational Necessity:-
Against this group those items are to be estimated which are meant for running of plant smoothly or necessary
operation of the plant.
Example: - 1. Diesel operated Fork Lifts.
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2. Voltage Stabilizers
3. Flame Photometers.
N-III: Reliability Improvement:-
Against this group those items are to be estimated which are meant for increasing / improvement in reliability of
plant operation / plant equipments.
Example: - 1. Retrofitting of Air circuit breaker of Voltas make at C-D Load Centre
2. Retrofitting of MOCB by VCB.
3. Replacement of Raw Material feeders.
N-IV: Safety Equipments:-
Against this group those items are to be estimated which are meant for protection against Fire & keep the safety
of Plant, its employees, contract labours etc.
Example: - 1. Installation of sliding / barriers type gate system for Railway Crossings in the Plant.
2. Multi purpose encapsulated protection suit for Handling Acids & Ammonia.
3 . Fire Extinguishers.
N-V: Replacement of Ageing Equipments:-
Against this group those items are to be estimated which replace the old aged equipments in Plant who have
completed their useful life or are beyond economical repairs.
Example: - 1. Diesel operated Fork lift.
2. Pay loaders.
3. Copying Machines.
4. Lathe Machines.
5. Air Coolers, Air Conditioners, Fridges etc.
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N-VI: Pollution Control / Environmental Protection Schemes:-
Against this group those items are to be estimated which are to be kept in Plant as per Statutory requirement or as
per directives of Central Government or state government increasing / improvement in Pollution Control /
Environment Protection Schemes.
Example: - 1. Spiro meter.
2. Construction of Check dams etc.
N-VII: Minor Modification:-
This group is used for procuring those minor capital items which are not covered in other groups. Normative
budget of Rs. 15 lakh for Plant and Rs. 5 Lakh for Township is sanctioned for these groups.
Example: - 1. Lawn Movers.
2. Mobile Phones
3. Two wheelers, cycles etc.
N-VIII: Inspection Facilities:-
Against this group those items are to be estimated which are meant for inspection of various equipments, metals,
atmosphere etc.:-
Example: - 1. Induction heater.
2. Machine condition Analyzer.
3. Measuring Instruments & Tools.
N-IX: Research & Development Equipments:-
Against this group those items are to be estimated which are meant for Laboratory and Research & Development
equipments:-.
Example: - 1. Chemistry Modules.
2. Multi purpose Pilot Plan
3. Misc R & D Equipments like PH Meter, KF Titrator etc.
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N-X: Admn. Office Building, Furniture, Fixtures, and Vehicles etc.:-
Against this group those items are to be estimated which relates to run Administration Building Office, Furniture,
Fixtures etc.
Example: - 1. Xerox Machines.
2. Franking Machines.
3. Cars
4. Security items
N-XI: Associated Areas Like Welfare Colony Amenities, G.H.etc.
Against this group those items are to be estimated which relates to welfare of employees, township, Public
Buildings, Guest House etc.
Example: - 1. Horticulture Equipments.
2. Barat & Associate works.
3. Playing Gadgets in the Gardens.
N-XII: Computer & Computer System:-
Against this group those items are to be estimated which are directly or indirectly relates to Computer Systems /
Information Technology System.
Example: - 1. PCs / Printers.
2. Back up devises.
3. Web / Network Application Servers.
4. Fire wall for oracle database.
Proforma :-
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Sr. no
Items
Cost Estimates Commitments Expenditure
Approved Present Est. up to
31-03-2009
Balance to be made
Est. Up to 31-03-2009
2009-10
2010-11
2011-12
1. Energy saving system /scheme
2. Operational necessity
3. Reliability improvement
4. Safety equipment
5. Replacement of ageing equipments
6. Statutory requirements of Govt. directives/requires of input supplies
7. Minor modifications
8. Research & development equipments
9. Admn. Office building, furniture, colony amenities, etc.
10. Associated areas like welfare, colony amenities, etc.
11. Computer and computer systems
12. CISF facility
Total ON- Going Items
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2. Proposal for on-going items:
While proposing new items to be proved in next budgeted year, all section/Departments are requested to review
the physical progress of current year budget items. After reviewing physical progress of current year budget, if
they feel that the scheme/ procurement shall not be completed during this year. They may propose to carry
forward their budget to the next budget year with same estimate or revised estimate. However, all efforts should
be taken to complete the budget during the year, but in some exceptional care, if it is not possible to complete,
than only those items to be carry forward to next year.
Here indenter shall provide the expected budget to be utilized during current year & balance to be utilized during
the next year, with all justification for carry forward of the budget to next year. Here also for ongoing items, same
groups of new items are to be used for presentation in preformed prescribed for the purpose.
2. Completed items of current year:-
While proposing new items to be procured in next budgeted year, all section/ Departments are requested to review
the physical progress of current year budgeted items. After reviewing physical progress of current year budget, if
they feel that the scheme/procurement shall be completed during this year they may propose to show this scheme/
procurement as ‘completed’ during the budget year. Such schemes/procurement shall be shown in this proforma
with final cost. Any utilized amount/ savings shall be surrendered.
PROFORMA
Sr. No
Year of approval
Budget ref.
Items Approved budget Final Cost Amount surrendered (cost overrun) Remarks
FC IC Total FC IC Total
3. Dropped items of current year:-
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In this pro-forma those items/schemes are shown which were not required/ to be implemented after due
re-consideration. Some times to reduce cost or to cut down expenditure, less priority items are reviewed and
dropped.
PROFORMA
Sr. No
Year of approval
Budget ref.
Items Approved cost Reason for dropping
FC IC Total
3. Re-appropriated items:-
Many a times it happens that there is a short fall of budget for any item or a new item is to be purchased which do
not cover in approved budget. In this situation budget can be re-appropriated from one head to another head with
the approval of competent authority. In this proforma, items are to be shown which were re-appropriated to/from
another budget heads for information of competent authority.
4. Re-conciliation
In this proforma a statement is prepared to show re-conciliation of current year budget as under:-
a. New items.
b. Ongoing items
___________
Total Budget
____________
1. Ongoing items
2. Completed items.
3. Dropped items.
___________
Total Budget
__________
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This proforma help top management about the utilization of budget already sanctioned.
Pro-forma (V)
Any item that is included in capital budget has to go through a lot of screening. For e.g.. : Item’s usefulness in the business, cost- benefit analysis, loss to unit of item is not included; ROI, etc are to be carefully taken.
Pro-forma(v) for new items/ capital expenditure likely to cost more than Rs. 50 Lacs each is as follows:
Proposal No.
Imported/ Indigenous
Cost of proposal
01 Name of proposal :
02 originating department :
03. Location :
04. The proposal :
a. Detailed description of the proposalb. Are there any ancillary facilities needed?c. Time required for completion (in months)
05. Justification :
a. Category of the proposal.b. Present statusc. Financial benefits/ advantages expected to be
Derived out of the proposal
d. Details of alternatives available and why this Alternative is the best one
e. Disadvantages, if the proposal is notImplemented
f. If the proposal is one of replacement, please indicate the following.
- Cost of original equipment.- Year of installation- Terminal value- Residual/ resale value
06. Financial :
A. Total cost of proposal- F.C. Rs.
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- I.C. Rs.- Total Rs.
B. Have budgetary quotations been obtainedC. Basis of cost estimateD. Break up of cost estimate ( enclose
Statement giving activity wise purchase/
Job order-wise details giving scope of work)
E. Financial requirement of the proposal (give Year-wise break up of cash inflows & outflows)
07. Import formalities :
08. Evaluation :
A. IRRB. ROI (on cash flows discounted @ 16.5%p.a.)C. Pay Back Period (on discounted cash flows)D. Net present value.
09. Risk Analysis :
10. Ranking in term of priority :
D. Put-up to unit head for consideration:-
Once budget estimation as given by various section/ Department is complied in all proforma 1 to 6,
same is put-up to unit head by Departmental head of Finance & Account assuring all items are covered
in respective groups.
E. Meeting by Unit Head with various HODs/SHS:-.
After receiving complete capital Budget proposals from F & A Department, Unit Head review the
same & call a budget review meeting with all Heads of Department/ Sectional Heads. In this meeting
Unit Head discuss all the items & their estimates with respective Department Heads/Sectional Heads.
Unit Head once is satisfied with Capital items to be procured/ capital nature jobs to be awarded, he gives
clearance to F & A Dept to send the proposal to Head office through him.
F. Final proposal to be sent to Head Office: -
Once Unit Head give clearance to send the capital budget estimation to Head Office, Finance &
Accounts Department prepare final proposals with changes, if any, as suggested/agreed by Unit Head.
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On receiving Capital Budget proposals from all unit of the organization, Head office prepare
consolidated budget of all the Units including marketing & Head Office & put up to the Board of
Directors through Finance Director and managing Director.
In due course, once capital Budget proposals are approved by Board of Directors, Head Office intimate
all units and marketing Department about the approval of Capital Budget of respective Unit.
CAPITAL BUDGET CONTROL
After receiving the copy of approved Capital Budget, Finance & Accounts Department intimate all
Departments/Sections about approval of items related to their area. Budget for each & every item is entered in the
Budget Module meant for Budget Control in Financial Accounting Systems. Each items of capital budget is given
10 digit code where first two digit indicate group, next two digit indicate Rs No. of item in that particular group &
last 4 digit indicate the year in which budget is sanctioned. Example 02 0010 0910, Here, 02 indicate group II,
0010 indicate Sr No of item of group II, 0708 indicate year 2009-10 in which budget is sanctioned.
After receipt of intimation of sanctioned budget & these 10 digit code, indenter raise MPR/WOI (Material
Purchase Requisition / work of indent) and send it to F & A Department through Materials Department for
Budget Availability Certification. F & A Department certify Budget Availability after scrutiny of MPR/W01
comparing the same with Budget sanctioned & sent it to materials Department for further action for procurement.
Once material Department completes all formalities for placing of order on supplier/contractor, proposal sent to
F&A for entering the landed cost in Budget Module. F&A dept is responsible to assure that the material is not
procured/contract is not placed beyond the sanctioned budget.
To control Capital Budget commitment, monthly meetings are held under the Chairmanship of Unit Head with
all HODs / SHs and measures are taken to utilize the budget timely. For this monthly commitment/expenditure
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report is prepared by F & A Dept & is circulated to all HODs/SHS. To appraise Head office about the progress of
capital Budget, Quarterly report for high value items are sent to Head Office in prescribed proformas.
BUDGET
FOR LOANS & ADVANCES
TO EMPLOYEES
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BRIEF DESCRIPTION OF LOANS & ADVANCES TO EMPLOYEES
As per service rules of IFFCO, employees are given following type of loans / advances from time to
time and as per employee’s requirements:-
House Building Loan
Conveyance Loan
Personal Loan /One month salary advance
House Building Loan
All permanent employees are given House Building Loan as per their entitlement. This Loan is given only once
during tenure of employee’s service period.
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Loan is given for-
a. Purchase of plot
b. Purchase of ready build house
c. Construction of house on plot
d. Additional work is to be done on present house property.
Administration Section of P & A Department is responsible to get budget sanctioned from Head Office through F
& A Department. For this, they send the estimate amount / budget required for budget period based on various
data of employee who have yet not availed HBL.
Conveyance Loan
All permanent employees are given conveyance loan as per their entitlement. This loan is given more than once
during tenure of employee’s service period.
Loan is given for-
a. Purchase of car
b. Purchase of scooter / motor cycle / moped.
P & IR Section of Personal & Administration Department is responsible to get budget sanctioned from Head
Office through F & A Department. For this, they send the estimated amount / budget required for budget period
based on various data of employees who are entitled to avail this facility.
Personal Loan /One month salary advance:-
All permanent employees are given one month salary advance (personal loan) one in a year. This advance is
recovered in a year. This advance is recovered in ten equal monthly installments from employee’s salary. Here
also, P & IR section of Personal & Administration Department is responsible to get budget sanctioned from Head
Office through F & A Department. For this they send the estimated amount / budget required for budget period
based on present employees strength & their yearly basic + D.A.
After getting budget estimates from P & A Department for above 3 type of loans / advance, F & A Department
prepare data in following format and send it to H.O. for approval of competent Authority :-
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Sr no HBL Conv loan Personal Loan
1 Op. Balance
2 Commitment(Budget)
3 Total
4 Less:Estimate Recoveries
5 Cl. Balance
Head office get this budget proposals approved from competent authority and intimate F & A Department about
the approval of the budget.
Pay roll section & P & A Department are jointly control this budget.
BRIEF DESCRIPTION OF SALES BUDGET
The marketing division after receiving the intimation from the Head Office asks the zonal offices to prepare the
sales estimations, the State Offices asks the Area Offices and the area offices asks the Co-operative societies to
prepare the sales estimations for the next financial year. This way after completing all the procedure the sales
estimates are prepared and forwarded by the Co-operative societies to the marketing division and the marketing
division forwards it to the Head Office for the approval.
The Head Office co-ordinates the budgets prepared by the marketing division (Sales Budget) and the budgets
prepared by the Manufacturing Units (Production Budget). If in the case the sales budget increases the
production budget the Head Office imports the goods from the other countries to fill up the gap. This way the
Head Office co-ordinates the production budget and sales budget.
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Usually the first of all budgets to be compiled is the sales budget: this particular budget will be dependent for
creating the other budget proposals. These figures will have been calculated by multiplying the expected number
of sales by selling price of the product. Perhaps the most important of all budgets is the sales budget. It is a
statement of planned sales in terms of quantity and value, and analyzed into different grades of products. The area
officer with his intimate knowledge will gather the information from the Govt. office at particular area about the
previous record of rainfall, Demand and Utilization of the fertilizer and also current years projection for rainfall in
that area. All information gathers are sent to higher authority of marketing officer on that basis the higher
authority prepare the rough estimate for next year sales.
They also prepare separate sale budget according Grade wise production and also shown State wise sales to be
achieved.
BRIEF DESCRIPTION OF CASH BUDGET
The budget is the link between all the individual budgets and the master budget. Cash budget forms the
core of budgetary control. If adequate cash resources are available, even the best schemes are bound to
fail. This budget is prepared on the basis of all the above budgets ad summaries the estimated receipts
for each month from debtors, is receivable and other incomes along with opening balances shows the
total receipts. It should also indicate month-wise disbursement for wages and salaries, purchases of
materials and overheads charges, etc.
On the basis of this budget, the financial controller is able to determine the need for additional funds and
bank borrowings, if any, and also plan the allocation of working capital. If proper care is not exercised
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in preparing this budget, serious troubles are likely to arise at anytime during the year, particularly if
long-term cash forecast is not properly made, future progress may be frustrated due to lack of funds.
AT IFFCO THE PROCEDURE OF CASH BUDGET:
All the units of IFFCO will make forecast there expenditure such as Capital Expenditure, Revenue Expenditure, Loans & Advances etc. for whole year and the same is divided into monthly requirement and send to the Head Office. Head Office will combined all the forecast of all Units (at KANDLA, PHULPUR, KALOL, ANOLA, PARADEEP<Marketing and his own) and prepared Master Cash budget for the year. Where it shows details all the sources of income and where it will be disturbed for expenditure full detail planning is made monthly wise for whole year.
BUDGETARY CONTROL
Budgetary control is defined as the establishment of budgets relating the responsibilities of executives to the requirements of a policy and the continuous comparison of the actual with the budgeted results. It follows that a budgetary control system secures control over performances and related costs in different parts of the business,
1. By establishing budgets.2. By comparing actual attainments against budgets.3. Taking corrective actions and remedial measures or revision of budgets, if necessary.
The budgets put a concrete form and follow up action to see that the plan is adhered to complete the system of control. In other words, while budgeting is the art of planning, budgetary control is the act of adhering to the plan.
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The advantages of a budgetary control system which arises from the achievement of the objective of budgeting are as follows:
Budgetary control aims at maximization of profit through effective planning and controlling of the income and expenditure- directing capital and resources to the best and most profitable channel.
It provides a clear definition of the objective and policies of the concern and a tool for subjecting these policies to periodic examination.
The function and performance of the various branches and sphere of the organization is closely co-ordinate in a well knit pattern.
Deviation from budget, points out the weak spots and efficiencies so that proper remedial measures can be taken.
As the budgets are set for each item of expenditure against departments and against each executive, they provide a motivating force urging all concerned to work efficiently.
Budgeting ensures sufficiency of working capital in the business during the budget period. It creates in management a habit of thinking ahead- making careful study of the problems in advance
before taking decisions. It stabilizes the condition in industries which are subject to seasonal or cyclic fluctuations.
Preliminaries for adoption of budgetary control.
For the successful implementation of a system of budgetary control certain pre-requisitions are to be fulfilled. They are summarized as follows:
There should be an organizational chart laying out clear terms the responsibilities and duties at each level of executive, and the delegation of authority to the various levels.
The objectives, plans and policies of the business should be defined in clear cut terms. The areas to be covered by the budgetary scheme should be clearly laid down.
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The output level for which budgets are fixed, i.e. the budgeted output should be stated.
There should be an efficient system of accounting to record and provide data line with the budgetary control system. It is actually the effort of the management and the accountant that make a budgetary control system successful.
For the establishment and the efficient execution of the plan, a budget committee should be set up.
There should be proper system of communication and reporting between the various levels of management.
There should be a charter of the programme. This is usually in the form of a budget manual where in all details regarding the plan and its procedure of operation are given. The manual will also specify the length of the budget period.
The budget should primarily be prepared by those who are responsible for the performance.
The budgets should be complete, continuous and realistic.
When the budget is approved, a master budget entry is made in FAS (Financial Accounting System), where each and every item is given a special 10 digit item code.
There should be an assurance from the top management executive of co-operative and acceptance of the budgetary system. This requirement is so obvious that it is often missed, resulting in failure of the scheme due to disagreements which arises later.
Budgetary control at IFFCO- Kandla
At IFFCO- Kandla budgetary control has been implemented at every step which can be summarized as:
In this 10 digit code first two numbers indicate the group; next four digits indicate serial number of item in that particular group and last four digits indicate the year in which the budget was sanctioned.
For e.g.: 0200100910
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Where, 02 indicates group 2
0010 indicates serial number of the item of group 2
0910 indicates year of sanctioning, i.e. 2009-10
Then the amount sanctioned in the budget for that item is recorded.
When as intender sends a request for the item to the purchase department. Purchase department verifies it with the items in the stock.
If the item is not available the purchase department sends the enquiry to the various suppliers, the order goes to that supplier who fulfills all technical specifications and who bids the lowest price.
When the order is placed, this information is passed on to F&A department with all the papers to be recorded properly.
An entry is made in FAS to check whether the amount asked for, does not exceed the amount sanctioned.
As IFFCO- Kandla is a huge unit it is not possible to verify numerous transactions so, a cut off is set at the level of rupees one lakh and all the items with amount equal to or less than rupees one lakh are sanctioned without scrutiny if the budget is available.
If the amount is more than one lakh it goes to financial concurrence, where a deep study is done and the amount is sanctioned only if everything is found to be correct.
Budgetary control is again seen at the payments to various parties, at this stage it is verified that the bills received from third parties match with the amount specified in the contract.
IFFCO- Kandla also implements the budgetary control by dividing the annual budgets into monthly budgets.
Progress report for each item of revenue budget as well as for capital budget is prepared monthly.
Quarterly progress report of capital budget for the items valuing more than Rupees fifty lakhs is sent to H.O to report the stages of high value items.
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IFFCO- Kandla also prepares the monthly variance report to ensure the controllability of different items.
Moreover to control the capital budget commitment, monthly meetings are held under the chairmanship of unit head with all the HOD’s. In this meeting measures are to timely utilize the budget.
Variance
The comparison of actual performance with the standard performance reveals some deviation; these deviations are known as variances. Variances can be either favourable or unfavourable. However, whether a variance is favourable or unfavourable is ultimately determined with reference its impact on profit.
Variance Analysis
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Variance analysis is an exercise which involves efforts to isolate the cause of variance in order to report to management those situations which can be corrected and controlled with timely action. A variance analysis should be continuous process for the following reasons:
Labour rate, salary levels, etc. changes the union negotiations, policy decisions or changes in composition of work force.
Selling price changes.
In a multi-product company, product mix changes and different lines have different margins, the overall profit position will change.
Improvement in the system can bring about reduction in costs.
Change in the level of efforts of operators, supervisors, management and clerical can affect the existing cost levels.
Investment in the new equipment and scrapping of old equipment/ processes can affect the operating cost level.
The prices of bought out materials vary.
Changes in the product design may change cost- inputs.
Policy decisions of various kinds, for example, changes in the organization structure, may affect the cost levels.
The amount of ideal time may change due to holdups, strikes, lockouts and power failures.
Causes of variances
i. A)Material price variance
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Changes in market price. Change in quality or specification of material purchased. Failure to obtain cash or trade discount or change in discount rates. Incorrect shipping instructions Emergency purchases. Uneconomic size of purchase order. Acceptance of orders requiring special purchase, high
transportation. Changes in taxes, duties, etc. Inefficient purchase system. Failure to take advantage of seasonal purchase. Use of substitute materials of different prices. Changes in material price, upkeep and storekeeping cost, if such costs are treated as direct
material cost.
ii. B)Material usage variance Poor quality of material. Changes in material mix. Changes in the production methods. Change in the specification or design of the product. Careless holding Faulting machine processing. Excessive wastes. Defective machines, tools, equipments. Improper standards. Poor inspection. Labour inefficiency. Improper engineering or technical specification. Theft of materials. Accounting errors.
iii. C)Direct wage rate variance Revision of pay scales Establishment of incorrect standards by personnel department. Use of non standard grade employees. Payments of wages at higher rates Changes in methods of remuneration. Payment of guaranteed wages to the workers who are unable to earn their normal wages, if such
wages are part of direct labour. Payment of wages at lower rate to casual or temporary workers employed to meet seasonal
demand. Over time and night shift payment.
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New workers not been allowed full normal wages.
iv. Direct labour efficiency variance Poor working conditions. Poor/stick supervision than specified. Incorrect scheduling of production process Insufficient training to workers. Poor repairs and maintenance of machines. Abnormal idle time. Use of sub standard material Use of employees with low efficiency. Work on new machines requiring less time than provided for. Setting incorrect standards Go slow techniques of workers. Increase in labour turnover. Incorrect record of performance.
IV. Overhead expenditure variance Seasonal conditions. Improper use of available facilities. Inefficiency in the various services. Use of different services. Improper standards. Change in the level of activity. Change in the working time.
v. Overhead efficiency variance Same as labour efficiency variance
vi. Overhead volume variance
Calendar variations. Abnormal idle time. Change in scheduling of the production process. Shortage of material. Labour shortage. Slump in customers demand
Disposition of variance
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A wide degree of opinion exists among accountants regarding disposition of variances. It is very difficult to lay down hard and fast rules to be followed for this purpose. It is commonly recognized that disposition of various variances is a very important decision, which affects both inventory valuation and income valuation. Following are the important consideration relevant for disposition of variances:
Materiality of variances. Cost of inefficiency. Cost of the product.
The choice of method depends on:
Types of variances i.e. material, labour, overhead. Size of variances. Past experience of using standard costing. Causes of variance. Timing of variances.
Methods of variance disposal
Transferring them to Profit and loss account. Prorating over cost of sales and closing inventory of WIP and finished goods. Writing of controllable variance to P&L and uncontrollable variance to prorated over cost of
sales and closing inventory of WIP and finished goods. Setting up a reverse.
Reporting of variances:
Variances are not the end in themselves. They communicate signals for the future analysis, investigation and action. Variance analysis will lose its utility and objective if variance reports are not promptly made to the appropriate level of management. The report on variance analysis should be made assuming three levels of management, i.e. top management, middle management and operating management. Variance report should be made keeping in view the ultimate view of the report and the periodicity of reports. The cost account should make vivid reports highlighting-
- Essentials cost variations.- Possibilities of improvement.
The variance report should be prepared with due regard to the following points:
The executive concerned should be informed about, what the cost performance should have been.
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How close actual performance was with reference to standard cost performance.
The analysis of causes of variances to enable the control action to be taken appropriately.
Reporting activity should be guide by the principle of ‘management by exception’ based on this principle, accost accountant communicates to appropriate level of management only essential facts from the great mass of his cost data.
The magnitude of variances.
Variance analysis at IFFCO- Kandla
At IFFCO- Kandla variance report is prepared every three months in order to know the deviations between the actual and budgeted cost of production. Variance report is prepared for variable costs and for fixed costs. The actual figures are compared with the budgeted as well as the actual of the previous corresponding period.
For variable costs IFFCO- Kandla prepares following variances reports:
Rate variance Usage variance
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Whereas for fixed overheads actual cost incurred are compared with the budget for that period and the actual of the previous corresponding period.
All the monthly variance reports are sent to H.O. with the reasons for variance for the purpose of review.
LIMITATIONS OF THE STUDY
This study has been carried out only based on information obtained by interviewing personals in F
& A Department IFFCO KANDLA.
Information received was based on secondary data and on the primary guidance given by the
employees there at IFFCO KANDLA. So any Error in source data that may change the Actual
Scenario.
This study has been carried out in a period of 60 days which is very less to know and understand
an organization like IFFCO KANDLA.
Major sources of structured information and data or Records up to last 10 Years have been used.
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Also to evaluate and ascertain financial position correctly of organization like IFFCO, a student
like me of 22 years age is too less.
We were interested to study following topics but couldn’t make it, in absence of any information,
as is handled by Head Office, New Delhi.
o cash budget
o sales budget
It was advised to go through only in procedural information & not to use any financial data
pertaining to IFFCO as a whole or for IFFCO KANDLA UNIT. However at many places figures
shown are as sample/Estimate figures & not the actual figures.
FINDINGS:
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CONCLUSION.
We have carried out our training period of Two months in Finance and Accounts Department
(F&A), IFFCO KANDLA. During this period we have studied in brief and have taken overview of the
activities of each section of F&A Department at IFFCO KANDLA. And after the study we conclude
that practices and procedures followed here at par with the industry standard and comply with legal
and regulatory requirements.
During our training we have studied and analyzed IFFCO’s annual report for the financial
year 2010-11 and found that IFFCO is financially very strong due to its large reserves and has good
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credit in market, due to its high share of equity. It has paid 20% dividend which is ever highest by
any P.S.U. or co-operative society in India.
Successful realization of VISION 2010 and MISSION will definitely made the society to
emerge at top position in India. Also this would solve to its objective of being a socially responsible
organization and work for welfare of farmers not only in India but also in abroad.
IFFCO is also Socially Responsible Organization who does not only look after the wellbeing
of their employees and share holder only but they also look after the welfare of farmers by many
promotional programmers carried out under the schemes of IFFCO Kisan Sewa Trust and by the
Indian Farm Forestry Development Cooperative (IFFDC).
RECOMMENDATIONS
We undersigned, have no experience and my age is too less to valuate any industry giant like
IFFCO. Also the training period of two months is too less to understand and analyze the vast
functions procedure and regulatory requirements that needs to be carried out in cash section of
finance and account department of IFFCO KANDLA. Yet we have tried our best and declare that
the below mentioned few suggestions that can be better coated that recommendations are no way an
attempt or intention to criticize organization like IFFCO & its management or employees, but only
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they are to serve as indicators of level of our understanding of the activities carried out in various
sections of Finance and Account Department of IFFCO KANDLA.
The whole process of implementing zero based budgeting is not only a tedious job, but also a
costly affair. Moreover, the insight of experience gained in several years of preparing budget
is not being used.
All the cost are allocated to a single factory overhead. Moreover, budget for Township is
combined with Plant which doesn’t give a clear picture of the expenses to be incurred in the
budgeted year for the plant only.
Trend of re-appropriation of budgets is not a healthy task
BIBLIOGRAPHY.
Books:
Name Author
Financial management I. M. Pandey
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Cost Accounting George Foster
Annual reports of IFFCO- Kandla
Magazines : SAHYOG, IFFCO KANDLA
Website : www.iffco.nic.in
Internet : www.investopedia.com
www.businessdictionary.com
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