budgetary control

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CHAPter1

INTRODUCTION

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1.1 INTRODUCTION

Budgets are an important tool of profit planning. The purpose of this chapter is to present a

general view of budgeting as a device of planning and illustrate the preparation of various

types of budgets. Section 1 of the chapter provides a brief account of the planning process

vis-à-vis budgeting. Section 2 LABOUR rates on the meaning of a budget and the purpose

of budgeting. The important types of budgets are discussed and illustrated in Section 3. The

major points are summarized in the last section

Section 1 - The Planning Process

Budgeting as a tool of planning, is closely related to the broader system of planning

in an organization. Planning involves the specification of the basic objectives that the

organization will pursue and the fundamental policies that will guide it. In operational terms,

it involves four stages: (i) Objectives (ii) Goals (iii) Strategies and (iv) Plans/Budgets

Section 2 Budget – Definition, Meaning and Purpose

A budget is defined as a ‘comprehensive and coordinated plan, expressed in financial

terms, for the operations and resources of an Enterprises for some specified period in the

future. According to this definition, the essential elements of a budget are: (i) Plan, (ii)

Operations and resources (iii) Financial terms (iv) Specified future period, (v)

Comprehensiveness and (vi) Coordination.

It may be recalled that a budget with reference to planning and control refers to a

comprehensive and coordinated budget generally known as master budget. In operational

terms, a comprehensive or overall budget has several components. A master budget

normally consists of three types of budgets: (i) Operating budgets, (ii) Financial budgets and

(iii) Special decision budgets. Another classification of a mater budgets is : (i) Fixed/static

budget and (ii) Flexible/variable/sliding budget. In the discussions that follow we illustrate

the preparation of the various components of a master budget, namely, operating and

financial budgets. The mechanics of the preparation of a flexible budget is also discussed.

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1.2 COMPANY PROFILE

NATURE AND HISTORY OF THE COMPANY

This study has been conducted in Agro Bio-tech Research Centre Ltd, situated in

Kottayam. The company is manufacturing and distributing various types of bio-fertilizers

and bio pesticides, suitable for sustainable and organic agriculture in the country. They

produce different bio fertilizers viz. Rhizobium, Azospirillum, Azotobacter,

Phosphobacteria, V.A.Mycorrhiza, Bio-potash and bio control agents like Trichoderma sp.,

Pseudomonos, fluorescence, Beauveria bassiana, Verticillium lecanii, Paecilomyces

lilacinus, Metarhizium anisopliae, Nomuraea reley and organic manures like Bio-organic

manure, Super organic manure, Super meal, Super organic plus etc. under the trade name

‘ABTEC’. The research and development wing in the company is developing many more

products, which will soon hit the market. The sources of culture are International Crop

Research Institute (ICRISAT), Regional Centre of Organic Farming, and Project Directorate

of Bio control, Indian Institute of Spices Research (IISR), Kerala Agriculture University

(KAU) and Tamil Nadu Agriculture University (TNAU).

Agro Bio Tech Research Centre Ltd was established in 1993 with the main

objective of manufacturing and distributing quality inputs suitable for organic farming and

thus promote eco-friendly and sustainable agriculture. The company utilizes the main

resources like Men, Machine, Material and Money for achieving desired goal.

Agro Bio Tech Research Centre Ltd, the pioneers in the manufacture of Bio

fertilizers and Bio-pesticides in the state of Kerala, India. The company’s Bio-control agent

ABTEC TRICHO (Trichoderma spp) is the only one in Kerala to get CIB registration. To

meet the arduous task of food and fibers requirement, agriculture is to be made efficient,

economical and sustainable. It is our greed and desire for higher productivity, that we incline

ourselves to the usage of chemical fertilizers and pesticides. This has not only resulted in

causing serious environmental hazard but also destroyed the ecological balance, thus

depleting the microbes irrespective of the fact whether they are beneficial or harmful. The

pesticide residue in food also leads to various diseases like cancer and the alarming rate of

increase in such diseases is now shocking the conscience of scientists’ world over. The only

solution that they put forward to protect the universe and our upcoming generation is nothing

but to promote Organic Farming. Bio-fertilizers and Bio-control agents are an integral part

in performing Organic Farming in its real sense.

http://www.indiamart.com/agrobio-techresearchcentre/aboutus.html

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Appreciations from the farmers who use the products and the feedback from the field

through the sales officers have motivated to do further research in the field of agriculture

and thus increase our product range and production capability. Now many of the farmers are

able to avoid chemical fertilizers and pesticides completely by substituting it with bio

fertilizers and Bio pesticides.

PRODUCT PROFILE

The company is producing a host of bio-fertilizers and bio-control agents including

organic manures under our brand name “ABTEC”. The bio inputs are manufactured in our

fully air-conditioned LABOURatory under the technical guidance and supervision of expert

senior Agricultural Scientists using modern bio-technological methods. All our products are

subjected to strict quality check in all stages of production.

Range of Organic products

Bio-fertilizer: Bio-control agents:

Rhizobium Tricho (Trichoderma Sp.)

Azospirillum Pseudo (Pseudomonas fluorescence)

Azotobacter Beauvaria (Beauvaria bassiana)

Phospho bacteria Verticillium (Verticillium lecanii)

Bio-Potash (Frateuria aurentia) Hirsutella (Hirsutella thompsonii)

VAM (V.A Mycorrhizae) Bacillus (Bacillus Subtilis) (BCB 19 -

ICRISAT)

Bacillus thruringiensis (BT)

Paecilomyces (Paecilomyces lilacinus)

http://abtecbiofert.com/products.htm#Tricho

http://abtecbiofert.com/products.htm#Azospirillum

http://abtecbiofert.com/products.htm#Pseudo

http://abtecbiofert.com/products.htm#Azotobacter

http://abtecbiofert.com/products.htm#Beauvaria

http://abtecbiofert.com/products.htm#Phosphobacteria

http://abtecbiofert.com/products.htm#Verticillium

http://abtecbiofert.com/products.htm#BioPotash

http://abtecbiofert.com/products.htm#Hirsutella

http://abtecbiofert.com/products.htm#Bacillus

http://abtecbiofert.com/products.htm#Bacillus

http://abtecbiofert.com/products.htm#Paecilomyces

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ABTEC Azospirillum

ABTEC Azospirillum is available in liquid formulation with a high cell count of 2 X

109 c.f.u. /ml. The bacterium lives in close association with and within the root

system of crop plants and has high Nitrogen fixing capacity.

Recommended crops: Rice, wheat, maize, barley, ragi, other minor millets,

fodder grass, sugarcane, rubber, tea, coffee, coconut, cardamom, pepper, cotton,

grapes, turmeric, ginger, banana, vegetables, fruit plants, flowering plants, vanilla,

etc

Seed Treatment: Mix 100 ml. ABTEC Azospirillum with 1000 ml. of clean

water, mix 20 - 30 kg. seeds in the solution by gentle agitation. Dry the seeds in shade

for 30 min. before sowing.

Benefits of ABTEC Azospirillum

1. Better crop growth and seedling establishment

2. Helps to fix 15 - 20 kg. N/acre/year

3. Increases crop yield by 15 - 20 %

4. Helps to reduce N. fertilizer by 20 - 30 %

5. produces significant quantities of growth hormones like gibberellins,

cytokinins Indole Acetic Acid (IAA) etc.

ABTEC Azotobacter

Formulation : ABTEC Azotobacter is available in liquid form with a high cell count

of 2x 109 c.f.u/ml. cannot tolerate anaerobic condition in soil. Hence, not

recommended for wetland crops.

Recommended crops: All crops except wetland crops

Soil Application : Mix 5ml. of ABTEC Azotobater with 1 kg. organic manure and

apply at the base. For main field/nursery application, (1acre) mix 1 litre ABTEC

Azotobacter with 200kg. organic manure and broadcast when the soil is just wet. For

potted plants also ABTEC Azotobacter is very effective

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Benefits

1 .Better crop growth & seedling establishment

2. Helps to fix 20kg N/acre/year

3. Increases crop yield by 15-20%

4. Helps to reduce N .fertilizers by 25%

5. Plays a minor role in biological control of crop diseases.

ABTEC Phospho bacteria

Formulation: ABTEC Phospho bacterium is available in liquid formulation. It is a

free living bacterium in soil which helps to convert the insoluble inorganic form of

phosphates to simple soluble form.

Benefits

1. Efficient utilization of rock phosphate and a saving of 15 - 20% in fertilizer cost.

2. Increase crop yield by 15 - 25 %.

3. Better nutrient uptake and thereby vigorous crop growth

ABTEC Bio-Potash (Frateuria aurentia)

Formulation: ABTEC Bio- potash is available in liquid formulation with high cell

counts of 2 X 109 c.f.u. /ml. It can tolerate a wide range of soil pH (3.5 - 8.5) and

temperature (15 - 420C). The bacteria help to mobilize the insoluble form of

potassium for crop growth at a faster rate. Seventy percent of insoluble potassium is

made available to the crop plants within 25 days of bio-potash application in soil.

Recommended crops: For all crops in all soil

Soil application: Mix 5 ml. bio-potash with 1 kg. organic manure and apply at the

base, when the soil is just wet.

Benefits

1. Reduces cost of potash application by 50-60 %

2. Improves resistance of crop plants

3. Resistant to a wide range of soil pH and temperature.

4. Suitable to apply for all crops.

5. Improves crop growth and yield by 20-30%

6. Compatible with other bio-fertilizers

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ABTEC Tricho (Trichoderma Sp.)

Formulation: ABTEC Tricho is available in liquid form with a high spore count of

3 X 109 c.f.u./ml. It is an eco-friendly bio-fungicide containing spores, different

enzymes and antibiotics

Recommended for: Quick wilt of black pepper, foot rot of betel vine, soft rot of

ginger, turmeric, Galinga, safed musli, capsule rot of cardamom, clumprot of

cardamom, Panama wilt of banana, fusarium wilt of cotton, guava, pigeon pea,

vanilla, grapes, etc,

ABTEC Beauvaria (Beauvaria bassiana)

Formulation: ABTEC Beauvaria is available in liquid form with a high spore count

of 3 X 108 c.f.u/ml. It is an entomopathogenic fungus used for controlling insect

pests.

Recommended crop pests: Pests belonging to Lepidoptera, coleoptera, Hemiptera,

Hymenoptera and Diptera. (Leaf eating caterpillars of rice, vegetables, vanilla,

cotton, tobacco etc,

ABTEC Verticillium (Verticillium lecanii)

Formulation: ABTEC verticillium is available in liquid form with a high spore

count of 2 X 109 c.f.u/ml. It is an entomopathogenic fungus with mycoparasitic action

on rust and powdery mildew fungi

Recommended crop pests: Aphids, scales, whiteflies, thrips, red spider mites,

nematodes, etc.

ABTEC Hirsutella (Hirsutella thompsonii)

Formulation: ABTEC Hirsutella is available in liquid form with a high spore count

of 2 X 109 c.f.u/ml. It is an acaropathogenic fungus which can kill several eriophyid

mites including the coconut mites.

Recommended crop pests: Coconut eriophyid mites (Aceria guerreronis) and other

mites of vegetable and fruit crops.

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Method of application: Mix 250 ml. ABTEC Hirsutella in 50 litres of water and

spray on the coconut bunches at bimonthly intervals.

ABTEC Bacillus (Bacillus Subtilis)

Formulation: ABTEC Bacillus is available in liquid formulation with high Cell

count of 2 X 109 c.f.u./ml. It is an aerobic spore forming bacteria.

Recommended Crops: Cardamom, pepper, vanilla, vegetables, mulberry, coffee,

tea, ornamentals, cotton, grape, potato, tomato, cucurbite, etc.

ABTEC Paecilomyces (Paecilomyces lilacinus)

ABTEC Paecilomyces is available in liquid form with a high spore count of 2 X 109

c.f.u./ml. It is a soil inhabiting fungi, pathogenic to several root parasitising

nematodes (Nematopathogenic fungi). They are pathogenic to root knot nematodes

of Jasmine, Potato, tomato, chillies, brinjal, bhindi, cowpea, cucurbits, cardamom,

pepper, rice cyst nematode, lesion nematodes of cocunut, arecanut, banana, pepper,

etc. Attack both the egg masses and cysts of these nematodes.

ABTEC Pseudo (Pseudomonas fluorescence)

ABTEC Pseudo is available in liquid form with a high count of 2 X 109 c.f.u./ml.

They are a group of gram negative rod shaped, soil inhabiting bacteria coming under

plant growth promoting Rhizobacteria(PGPR) group. They are characterised by their

twin properties, i.e. disease suppression and plant growth promotion. They are

antagonistic to several root pathogenic fungi, bacteria, nematodes and several foliar

fungal and bacterial pathogens.

Recommended for: Quick wilt and pollu disease of Black pepper, soft rot of ginger,

turmeric, rot diseases of vanilla, foot rot, leaf spot of betelvine, sheath blight, sheath

rot and blast of paddy, capsule rot and chenthal disease of cardamom, shoot tip rot

of rubber seedling, fungal viral diseases of vegetables, etc

Soil application: Mix 1 litre ABTEC Pseudo (for 1 Acre) with 200 kg. organic

manure and apply in moist soil/base of trees @ I kg./potted plants @ 250 g.

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Foliar spraying: Mix 250 ml. ABTEC pseudo in 50 litres of water and spray on the

foliage during evening hours.

Btk (Bacillus thuringiensis serovar kurstaki) : Btk are highly specific, eco friendly

and with no effect on humans, wild life, pollinators and other beneficial ansects.

Formulation: Btk in the form of Powder 2 X 107 c.f.u/gm

Method of application : Mainly used for foliar spraying. Mix 10-20gm powder

in1ltr. Water and spray on the spoilage.

These are the main products produces in this company they are more

beneficial to the farmers.

Kottayam-686008 LIST OF DIRECTORS

Name Address Designation

1. K.J.Jacob KOCHETT, Thazhathangady.P.O

Kottayam-686005 Managing Director

2. Dr. D.Clarson ‘Dev Dale’, Poovanthuruthu. P.O,

Kottayam-686012 Director

(Technical)

3. B.Mohan Das Kuttakkattu House

Krishna Krupa,

West Kodungallur, Aluva-10 Director

4. K.M.Mathen Kayalakkakathu,

Gandhinagar P.O,

Kottayam-686008. Director

5. Bibin.Jacob.K KOCHETT, Thazhathangady.P.O

Kottayam-686005 Director

6. Leela Chandrakamma Kayalakkakathu,

Gandhinagar P.O Director

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1.3INDUSTRY PROFILE

GLOBAL SCENARIO

Fertilizer demand has historically been influenced by changing and often interrelated factors

such as population and economic growth, agricultural production, prices and government

policies.

However, three developments distinguish the current state of agricultural markets from past

fluctuations, namely

That the hike in world prices concern nearly all major food and feed commodities,

That record prices are being achieved at a time not of scarcity but of abundance, and

That links between agricultural commodity markets and other markets are

strengthening.

Such phenomena already manifest in 2006 strengthened in 2007 a year characterised by

persistent market uncertainty, record prices and unprecedented volatility in grain markets.

The magnitude and nature of these changes have led some observers to refer to a paradigm

shift in agriculture away from decreasing real food prices over the past thirty years. Given

the inextricable link between food production and fertilizer use, it is opportune to consider

such changes when reviewing prospects for fertilizer demand and supply balances until

2011/12.

MACRO FACTORS AFFECTING GLOBAL AGRICULTURE AND

FERTILIZER DEMAND

Economic context

After solid and broad-based growth for three consecutive years the world economy

decreased slightly in 2007 with anticipated GDP growth back to 2005 levels at 4.9% and

3.3% forecast for 2008 by the World Bank (2007). Developing countries and economies in

transition continued their strong economic performance though with a mild reduction in

2007 growth rates when compared with the previous year, i.e. 5.9% for developing countries

and 6.5% for countries in transition. Among developing countries it sustained high though

slightly decreasing growth was shown in China and India engendered endogenous growth

through increasing South-South trade and financial linkages. This is reflected in, among

other things like continued strong demand and higher prices for energy and primary

commodities including food. Notwithstanding the strong performance by most developing

countries they remain vulnerable to any slowdown in major developed economies and to the

volatility of international commodity and financial markets.

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High oil prices contributed to price increases for most agricultural crops by raising input

costs on the one hand, and by boosting demand for agricultural crops used as feedstock in

the production of alternative energy sources (bio-fuels) on the other. The combination of

high oil prices and the desire to deal with environmental issues is driving the rapid expansion

of the bio-fuels sector. This is likely to boost the demand for feed stocks mainly maize, sugar,

rapeseed, soybean, palm oil and wheat for many years to come. However, much will also

depend on the supply and demand fundamentals of the bio-fuel sector itself. High oil prices

could depress the use of oil-based fertilizers which have been behind much of the increase

in farm production during the past half century.

Trade

World trade expanded rapidly in the recent three years driven by increased trade of both oil

and non-oil commodities as well as capital goods. Growth of world exports is more than

double that of global output indicating a further deepening of global economic integration.

The growth of world trade is expected to moderate to approximately 10% in 2015.

Freight rates

Freight rates have become a more important factor in agricultural markets than in the past.

Increased fuel costs, stretched shipping capacity, port congestion, and longer trade routes

due to altered trade patterns, have pushed up shipping costs. The Baltic Exchange Dry Index,

a measure of shipping costs for bulk commodities such as grains and oilseeds, has recently

passed the 10,000 mark for the first time with freight rates up 154 percent in November 2007

from a year earlier. High though decreasing freight values influence the geographical pattern

of trade as countries opt to source their import purchases from nearer suppliers to save on

transport costs. High freight rates are expected to last till 2009 when a large number of ships

are expected to be launched. The impact of transport costs on fertilizer prices will grow as

fertilizer is produced in fewer localities close to raw materials and ample energy availability.

Exchange rates

Exchange rate swings play a critical role in all markets including agricultural markets. Yet,

rarely have currency developments been as important in shaping agricultural prices as in

recent months. The decline in the United States dollar against most currencies since 2005

has made imports from the United States cheaper and lessens the true impact of the rise in

world prices. This is a major reason behind the brisk world import demand that, in spite of

high prices, shows little sign of retreat.

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Overall

Medium term perspectives point to a slowing down of the world economy with a smoothing

of the upward trend in emerging economies. Global growth is seen as remaining sufficiently

robust to sustain demand for food (especially high value foods such as meat, fruit and

vegetables) in emerging economies thereby strengthening demand for fertilizers.

INDIAN SCENARIO

The green revolution brought impressive gains in food production but with insufficient

concern for sustainability. In India the availability and affordability of fossil fuel based

chemical fertilizers at the farm level have been ensured only through imports and subsidies.

Dependence on chemical fertilizers for future agricultural growth would mean further loss

in soil quality, possibilities of water contamination and unsustainable burden on the fiscal

system. The Government of India has been trying to promote an improved practice involving

use of bio-fertilizers along with fertilizers. These inputs have multiple beneficial impacts on

the soil and can be relatively cheap and convenient for use.

Consistent with current outlook, the government aims not only to encourage their use in

agriculture but also to promote private initiative and commercial viability of production.

This project analyses available industry side data to find only a limited extent of success till

date. There has been no accelerated growth in distribution with time, inadequate spatial

diffusion and despite entry of small private units into the industry there is no clear indication

of the success of privatization. The project however argues that considering the social

benefits promised the government has ample grounds to intervene to set up an effective

market for the new product while encouraging private players. But the policy and the

instruments of intervention need to be designed with care.

Promoting Bio-fertilizers in Indian Agriculture

Failure of a market to build up calls for public intervention when the expected social gains

from a relatively new product outweigh the costs whereas the private gains do not.

Uncertainty about the product performance coupled with long periods of learning involved

can lead to poor demand from end users who are farmers. Even in the context of market

liberalization, the government has some role to play to induce a socially optimal investment

level and set up an effective market so long as market information is imperfect. However the

exact nature of the role and the policy instruments to be used must be decided with a clear

understanding of the strengths and weakness of agents involved (Stieglitz, 1989).

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Bio fertilizers make nutrients that are naturally abundant in soil or atmosphere usable for

plants. Field studies have demonstrated them to be effective and cheap inputs, free from the

environmentally adverse implications that chemicals have. Bio fertilizers offer a new

technology to Indian agriculture holding a promise to balance many of the shortcomings of

the conventional chemical based technology. It is a product that is likely to be commercially

promising in the long run once information becomesavailable adequately to producers and

farmers through experience and communication.

There is an ongoing attempt to promote bio fertilizer in Indian agriculture through public

intervention, and in keeping with the spirit of the times, the policy motivates private sector

and profit motive to propel the new technology. The question raised in this paper is how

successful has the intervention policy been in Indian agriculture. The Government of India

and the various State Governments have been promoting the nascent bio fertilizer market

both at the level of the user-farmer and the producer-investor through the following

measures:

(i) farm level extension and promotion programmes

(ii) financial assistance to investors in setting up units

(iii) subsidies on sales

(iv) direct production in public sector and cooperative organizations and in universities

and research institutions

Over time as the industry emerges from infancy with public guidance, the following

observations will be expected:

(a) increasing sales volumes and diffusion across the country

(b) greater role of profit motivated private enterprise. Since information on farm level usage

of bio fertilizers or profitability of units are not reported till date, one way to get about is by

following the secondary indicators

Government Intervention in Bio fertilizer Market

To attain production targets, the Government of India implemented a central sector scheme

called National Project on Development and use of Bio fertilizers (NPDB) during the Ninth

Plan for the production, distribution and promotion of bio fertilizers. A National Bio

fertilizer Development Centre was established at Ghaziabad as a subordinate office of the

Department of Agriculture and Cooperation with six regional centres. The purpose of the

scheme covered organization of training courses for extension workers and field

demonstrations and providing quality control services.

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Production and distribution of different bio fertilizers were also undertaken but subsequently

discontinued as the centres redefined their role towards R&D and HRD related activities.

Capacity creation and production was however encouraged through one time grant for new

units.

The financial assistance, given as grant-in-aid to the tune of Rs 13 lakhs and now increased

to Rs 20 lakhs per unit and thrown open for all, was routed through the State governments

but owing to delays in release of grants the onus is transferred to NABARD/NCDC. The

public sector organizations form a bulk of the units in the industry, while similar units in the

private sector are also coming forward. Different State governments also provide subsidies

sometimes up to 50% of the sales realization but the manner of subsidization is rather

unsystematic. In many cases the discrimination and manipulation in subsidizing lead to a lot

of intra industry variation in prices. The government also plays a dominant part in marketing

bio fertilizers in three possible channels:

(a) State government via District level Officers and Village level workers to farmers,

(b) State Marketing federation via cooperative bodies to farmers and

(c) State Agro-industries

The next Government in power may well have to decontrol urea prices or allow sharp farm

gate price increases if the fertiliser subsidy target for 2014-15 set in the interim budget is to

be met.

For 2013-14, the total subsidy on all fertilisers has been contained at ₹67,971.5 crore, as per

the revised estimates.

The fertiliser industry, on the other side, has pegged the total subsidy requirement for the

current fiscal at ₹1.07 lakh crore. In other words, there would be a carry over of around

₹39,028 crore to the coming fiscal.

However, the subsidy for 2014-15 has been budgeted at ₹67,970.30 crore, which after

accounting for the carryover of the current fiscal would leave hardly ₹28,942 crore. On top

of this, the industry estimates that the Government’s proposed raising of domestically

produced natural gas from an average of $4.2 per mmbtu to $8.4 levels would straightaway

lead to higher urea production costs of ₹10,000 crore. “It is clear from this that the only way

to keep the subsidy within the budgeted levels is to decontrol urea prices or allow a sharp

hike in prices,” an industry source said.

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The scope for raising the prices of non-urea complexes such as di-ammonium phosphate

(DAP) is limited given the already declining consumption levels. In the April-September

period, consumption of non-urea complexes was down 17 per cent, while the urea sales were

up 11 per cent. Commenting on provisions made by Finance Minister P Chidambaram in his

interim budget for 2014-15, Satish Chander, Director General of the Fertiliser Association

of India, said “The subsidy provided in interim budget is inadequate and not realistic. We

will still have a huge carry forward.”

A Group of Ministers (GoM) was set up last year to suggest a suitable hike in urea price to

neutralise increase in energy cost, so that subsidy can be reined in. The Government,

however, has categorically ruled out any increase until general elections.

The maximum selling price (or MRP) of urea has been under control since 1957. Until the

late 70s — a period of low inflation and low feedstock price — the MRP was higher than

the cost of production and distribution. Hence, there was no subsidy.

Since 1977, equation was reversed, with cost exceeding selling price. The Government had

to give subsidy to manufacturers. From ₹266 crore in 1977-78, subsidy rose to ₹5,796 crore

in 1992-93 and further to ₹35,398 crore in 2012-13.

An increase in urea MRP holds the key to curtailing a ballooning fertiliser subsidy bill and

reducing the imbalance in nutrient use ratio. The government recognises this, yet is unwilling

to act. The fact remains that all political parties consider urea MRP as a ‘holy cow’.

In pampering mode

With effect from June 1, 1974, MRP was increased from ₹1,050 per tonne to ₹2,000 per

tonne — almost 100 per cent. This was propelled by an ‘oil crisis’ in the early 70s, which

led to a steep increase in the international price of urea and feedstock, that is, naphtha used

in its production.

This was followed by series of reductions viz., ₹1,850 from July 18, 1975; ₹1,750 from

March 16, 1976; ₹1,650 per tonne from February 8, 1977; ₹1,550 per tonne from October

12, 1977 and ₹1,450 per tonne from March 10, 1979.

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The initial reduction in July 1975 led to a spurt in ‘nitrogen’ consumption by 21.6 per cent.

Thanks to favourable weather conditions in later years, consumption would have continued

to grow even without further lowering of prices.

The price reductions were essentially political moves as various parties tried to outsmart

each other in wooing farmers. After Congress having done its bit in March 1976 and

February 1977, the Janata Party followed up with another reduction in October 1977.

The second bout of the ‘oil crisis’ came in 1979-80. Faced with balance of payments (BOP)

problems, the Government approached the IMF for help and was forced to increase the price

of urea to ₹2,000 per tonne from June 8, 1980 and further to ₹2,350 per tonne from July 11,

1981.

Despite these hikes, ‘N’ consumption increased from 3.498 million tonnes in 1979-80 to

3.678 million tonnes in 1980-81 and further to 4.068 million tonnes in 1981-82. Clearly, the

higher MRP was absorbed by farmers. Yet, Government relapsed into a pampering mode.

In June 1983, it adopted an ingenious method of wooing farmers by asking industry to give

a discount of 7.5 per cent. When industry refused, the price was reduced to ₹2,150 per tonne

from June 29, 1983. From January 31, 1986 however, this was restored to ₹2,350 per tonne.

At the start of the 1990s, India faced an unprecedented BoP crisis. Again, Government had

to approach the IMF. The latter insisted on stiff conditions. One of these was to eliminate

fertiliser subsidy in three years.

With effect from July 25, 1991, Government increased the MRP of all fertilisers, including

urea, by 40 per cent. However, within 2 weeks, it backtracked and from August 14, 1991,

price hike was truncated to 30 per cent. Small and marginal farmers were fully exempt.

Continuing along the same course, from August 25, 1992, it decontrolled all P (phosphorus-

based) and K (potassium-based) fertilisers and abolished subsidy. However, considering the

political sensitivities associated with urea, it reduced its MRP by 10 per cent from ₹3,060

per tonne to ₹2,760 per tonne.

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After two small steps forward (June 10, 1994 and Feb 20, 1997) taking price to ₹3,660, the

new NDA Government under Vajpayee increased the price by ₹1,000 per tonne from June

1, 1998. The objective was to rein in subsidy and improve the NPK use ratio.

This led to such a political storm that Government was forced to roll back 50 per cent of the

hike on the very next day. The balance was reversed in less than a fortnight. The ruling

dispensation, fearing a backlash, made another attempt by increasing the price to ₹4,000 per

tonne i.e. 9.6 per cent with effect from January 29, 1999. The timing of the move was such

as to avoid Parliament pandemonium.

From February 29, 2000, the price was increased to ₹4,600 per tonne and further to ₹4,830

per tonne from February 28, 2002. It remained stuck at this level for 8 years. From April 1,

2010, price was raised to ₹5,310 per tonne, a mere 10 per cent. The current MRP is ₹5,360

per tonne is the result of a negligible ₹50 per tonne — less than 1 per cent — increase in

October, 2012!

Reverse the trend

Between 1981 and 2012, urea price increased from ₹2,350 to ₹5360 per tonne, or 2.2 times.

In contrast, price of gas (main feedstock in urea production) went up from ₹0.32 per cubic

metre to ₹8.4 per cubic metre, or 26 times.

The price of naphtha went up from around ₹600 per tonne to ₹50,000 per tonne, or 83 times.

This led to a ‘widening’ gulf between cost of production and realisation from sales, and a

skyrocketing subsidy. Given the political resistance to even a slight increase in urea price,

only the heavens can help us.

18

1.4 SCOPE OF THE STUDY

The scope of the study is limited to collecting financial data published in the annual reports

of the organization every year. This analysis is for recommend the possible solutions to the

company.

Using the budget analysis calculation, past, present and future performance of the

company can be analyzed and can evaluate the result. The company should obtain enough

revenue not only to meet the expectation of owner, but also for the expansion activities.

This study reveals the scope of budget analysis and various applications.

19

1.5 OBJECTIVES OF THE STUDY

To help the organization to prepare various budgets.

To evaluate the performance of the unit by comparing actual results with budgeted

result.

To analyses the deviation from actual figure with budgeted figure.

Take corrective action on the base of deviation from budgeted result to actual result.

To plan future action on the base of budget.

20

1.6 LIMITATIONS OF THE STUDY

The inexperience makes the study less precise than professionals

The tools used for budgetary control are limited

In depth budgetary control could not be done to time constraints

21

CHAPTER ii

REVIEW OF

LITERATURE

22

2.1REVIEW OF LITERATURE

Budgets are an important tool of profit planning. The purpose of this chapter is to

present a general view of budgeting as a device of planning and illustrate the preparation of

various types of budgets. Section 1 of the chapter provides a brief account of the planning

process vis-à-vis budgeting. Section 2 LABOUR rates on the meaning of a budget and the

purpose of budgeting. The important types of budgets are discussed and illustrated in Section

3. The major points are summarized in the last section.

Section 1 - The Planning Process

Budgeting as a tool of planning, is closely related to the broader system of planning

in an organization. Planning involves the specification of the basic objectives that the

organization will pursue and the fundamental policies that will guide it. In operational terms,

it involves four stages: (i) Objectives (ii) Goals (iii) Strategies and (iv) Plans/Budgets

Objectives

The first stage in the planning and control system is setting the objectives which are

defined as the broad and long – range desired state or position in the future. They are

motivational or directional in nature and are expressed in qualitative terms. Examples of

fundamental objectives are identification of the line of business, customer satisfaction,

employee welfare and so on. Thus, they are the basic policies.

Goals

The second stage in the planning process is specifying the goals. The terms goal, as

an element in planning, represents targets, specific in quantitative terms, to be achieved in a

specific period of time. The timing of introducing new products, purchase of new plant and

machinery and expected rate of return are examples of time and quantity – oriented goals.

Strategies

The next step involves laying down the strategies. Strategies denote specific

methods/courses of action to achieve the goals, for instance, promotion of sales through price

reduction or aggressive advertisement, financial alternatives and so on.

23

Plans/Budgets

The final step is the preparation of budgets/profit plans. Basically, budgeting is the periodic

planning to implement the alternatives during a particular fiscal period, usually one year. It

converts, in other words, goals and strategies into annual operating plans.

According to this definition, the essential elements of a budget are: (i) Plan, (ii)

Operations and resources (iii) Financial terms (iv) Specified future period, (v)

Comprehensiveness and (vi) Coordination

Plan

The first ingredient of a budget is its plan. The term ‘plan’ with reference to

budgeting has a specific connotation. It includes two aspects which have a bearing on the

operations of an enterprise. One set of factors, which determine a firm’s future operations

are wholly external and beyond

its control. Included in this category of factors are general business conditions, government

policy and size and composition of population. The second set of factors affecting future

activities are within the firm’s control and discretion hat is, they are internal. The

promotional programmes and manufacturing process are illustration of these factors.

Budgeting, as a plan, covers both these aspects. In other words, budgeting not only suggests

what should happen but should also make things happen. In brief (plan) is an expression

partly of what the management expects to happen and partly of what the management intends

to happen.

Operations and Resources

A budget is a mechanism to plan for the firm’s operations and resources. The

operations are reflected in revenues and expenses. This means that a budget should quantify

the revenues to be realized from products/services and the expenses to be incurred on

goods/services used in generating revenues.

The plan also covers the recourses of the firm. The planning of recourses means the

planning of the various assets and the sources of

Capital to finance these assets. The assets could be fixed assets as well as current assets.

24

Financial terms

Budgets are prepared in financial terms, that is, in terms of monetary value such as

the rupee, collar, and so on. The reason is that the monetary unit is a common denominator.

The various activities and operations are expressed sin different units, for example, material

in terms of weight, labour in terms of number/man-hours, sales in terms of territories,

advertisement in terms of magazine space, and so on. If they have to be integrated in a plan,

they must be expressed in comparable units of measurement. Monetary units provide such a

measure.

Specified Future Period

A budget relates to a specified period of time, usually one year. If it is not related to

a time horizon, it will be meaningless. Planning merely for a given amount of, say

sales/profits will not constitute a budget unless a time dimension is added, that is the budget

sales/profit if planned to be achieved in a predetermined time framework.

Comprehensiveness

A budget is comprehensive in that all the activities and operations of an organization

are included in it. It covers the organization as a whole and not only some segments. The

modus operandi is that budgets are prepared for each segment/facet/activity/division of an

organization. These are integrated into an overall budget for the entire organization. The

overall budget is referred to as the master budget.

Budgets – Purpose

As a tool, budges serve as a guide to the conduct of operations and a basis for

evaluating actual results. The main objectives of budgeting are (i)

Explicit statement of expectations, (ii) Communication, (iii) Coordination and (iv)

expectations as a framework for judging performance.

Explicit Statement of Expectations

One purpose of budgeting is to state expectations in formal terms so that most of the

underlying assumptions may be identified. A firm has the basic objective of optimizing long-

run profit. It long-range goals also include survival, consumer satisfaction, employee

welfare, personal power and prestige and so on. These long – range objectives can be

achieved in successive phases over a period of time. In other words, long – range objectives

have to be split into short-term operational plans. Thus, a budget can be said to be a device

to express goals which are sought to be achieved in a short period of time.

25

In other words, it is a means to establish congruence between short – term goals and

the long –term objectives of the firm. Therefore, budgets formulate targets expected

performance. The advantage is that by laying down targets, budgets contain an explicit

statement of expectations. These targets help direct their operations, identify problems, help

motivate lower – level employees and clarify the Relationship between current activities and

future policies. Another implication is that budgets explicitly state the underlying

assumptions and goal and/or the means of attaining it. To illustrate, if the sales target

(projected sales) for any given period is Rs.5,00,000, the budget will not only indicate this

figure but will also give details about the assumed prices, quantity, sales efforts and so on.

This explicit statement of assumption is one of the most important contributions of budgeting

for managerial planning and control.

However, a budget does not lay down a statement of expectations in rigid terms.

Budgets, as observed earlier, are based on factors which are either uncertain or are beyond

the control of management. Some of these are economic, social and business conditions;

supply and demand; competitions; consumer taste; technological innovations; and so on. A

budget should be modified when necessary in the light of the changes in the

factors/assumptions on which the original estimates were based.

Communication

Another purpose of budgeting is to communicate or inform others of the goals and

methods selected by top management. Since budgeting deals with fundamental policies and

objectives, it is prepared by top management. A formal budget by itself will not ensure that

a firm’s operations will be automatically geared to the achievement of the goals set in the

budget. For this to happen, the managers and lower-level employees have to understand the

goals and support them and coordinate their efforts to attain them. In other words, the

employees should be aware well in advance of the level of performance expected of them.

It is for this reason that a budget is viewed as a means of communicating to the employees

the level of performance expected of them so that the goals set out in the budget can be

accomplished.

26

Coordination

Yet another purpose of budgeting is coordination. The term ‘coordination’ refers to

the operation of all departments of an organization in such a way that there is no bottleneck

or imbalance. In other words Coordination implies a harmonious relationship between

various departments to ensure smooth and uninterrupted operation of each of them.

If an organization is to achieve its long – run goals coordination in the activities of

all its departments is necessary. If there is no coordination, imbalances will be created which

hinder smooth operation and stand in the way of the accomplishment of the goals of the

budgets.

To illustrate, one type of imbalance may be between the manufacturing/production

and sales departments. The manufacturing department may be producing goods, which the

sales department may not be able to sell. Conversely, the sales department may like the

production department to produce goods which the production department is incapable of

producing. Another example of lack of coordination is the purchasing – manufacturing

imbalance when the production schedule is not related to the raw materials purchases.

Further, the production schedule may not be based on the capability of employees and

capacity of plant and machinery.

In view of the above, coordination is a major function of budgeting. Budgets should

be drafted in such a way that the operations of the various departments are related to each

other for the achievement of the overall goal. Apart from the interdepartmental

reconciliation, budgets also provide for flexibility to accommodate plans and operations to

unexpected situations.

Expectations as Framework for Judging Performance

Finally, a budget establishes expectations as a framework for judging employee

performance. A budget, as observed earlier, defines the goals, the means of implementing

them and the level of performance by the employees. The extent to which employees have

succeeded in the task assigned to them, can be judged on the basis of a comparison of the

actual performance equals or exceeds the budgeted level, it may be termed satisfactory,

otherwise not. Thus, a budget can serve as yardstick to judge employee performance or as a

control device.

27

To conclude, budgeting, as a tool of planning and control, serves as a guide to

conduct operations and a basis for evaluating actual results. Actual

results can be judged satisfactory or unsatisfactory in the light of the relevant budgeted data

and also in the light of changes in conditions. However, a budget should not be regarded as

a rigid requirement of performance. Many of the factors upon which a budget is based are

beyond the control of management and all of them are uncertain.

The budget should, therefore, be regarded as a plan, not an immutable commitment of

performance; it is a means of control, but not a straitjacket on operations. In view of its

significance as a managerial tool, the preparation of a budget is illustrated.

Section 3 Preparation/Types of Budgets

It may be recalled that a budget with reference to planning and control refers to a

comprehensive and coordinated budget generally known as master budget. In operational

terms, a comprehensive or overall budget has several components. A master budget normally

consists of three types of budgets: (i) Operating budgets, (ii) Financial budgets and (iii)

Special decision budgets. Another classification of a mater budgets is: (i) Fixed/static budget

and (ii) Flexible/variable/sliding budget. In the discussions that follow we illustrate the

preparation of the various components of a master budget, namely, operating and financial

budgets. The mechanics of the preparation of a flexible budget is also discussed.

Operating Budgets

Operating budgets relate to the physical activities/operations of a firm such as sales,

production, purchasing, debtors collection and creditors payment schedules. In specific

terms, an operating budget has the following components.

1. Sales budget

2. Production budget

3. Purchase budget

4. Direct labour budget

5. Manufacturing expenses budget, and

6. Administrative and selling expenses budget and so on

28

Financial Budget

Financial budgets are concerned with expected cash receipts/disbursements, financial

position and results of operations. In other words, a financial budget has the following

components.

1. Budgeted income statement

2. Budgeted statement of retained earnings

3. Cash budget, and

4. Budgeted balance sheet

29

CHAPTER III

RESEARCH

METHODOLOGY

30

3.1 RESEARCH METHODOLOGY

3.2DATA COLLECTION

Data plays a very vital role in any research program. Source of data are of mainly two

types i.e., primary and secondary. The data used in this study were collected from the

published annual reports and magazines of relevant periods of the company.

PERIOD OF STUDY

The period covered by the present study based on the financial year 2014.

CASH BUDGET

The principal of the cash budget, as a tool of planning, is to ascertain whether, at any

time, there is likely to be an excess or shortage of cash. The preparation of a cash budget

involves various steps.

The first element of a cash budget is the selection of the period of time to be covered

by the budget. Alternatively, it is referred to as the ‘planning horizon’. The planning horizon

means the time span and the sub-periods within that time span over which the cash flows are

to be projected. There is no hard and fast rule. The period coverage of a cash budget will

differ from firm to firm depending upon its nature and the degree of accuracy with which

the estimates can be made. As a general rule, the period selected should be neither too long

not too short. If it is too long, it is likely that the estimates will be upset as we cannot visualize

them at the time of the preparation of the budget. If on the other hand, the time span is too

small, the disadvantage are: (i) Failure to take into account important events which lie just

beyond the period covered by the budget; (ii) Heavy workload in preparation; and (iii)

Abnormal factors that may be operative.

The planning horizon of a cash budget should be determined in the light of the

circumstances and requirements of a particular case. For instance, if the flows are expected

to be stable and dependable, such a firm may prepare a cash budget covering a long period,

say, a year and divide it into quarterly intervals. In the case of a firm whose flows are

uncertain, a quarterly budget divided in to monthly intervals may be appropriate. Where

flows are affected by seasonal verifications, monthly sub-divided into weekly or even daily

budgets may be necessary.

31

If the flows are subject to extreme fluctuations, a daily budget may be called for.

The idea behind sub – diving the budget period into smaller intervals is to highlight the

movement of cash from one sub – period to another. The sub – division will provide

information on the fluctuations in the cash reservoir level during the time span covered by

the budget.

The second element of the cash budget is the factors that have a being on cash flows.

The items included in the cash budget are the cash only, non- cash items such depreciation

are excluded. The factors that generate cash flow are generally divided, for purposes of

constricting a ash budget, into two broad categories: (a) Operating and (b) Financial. This

two–fold classification of cash budget items is based on their ‘nature’. While the former

category includes cash flows generated by the operations of the firms and are known as the

‘operating cash flows’ the latter consists of the ‘financial cash flows’.

SPECIAL DECISION BUDGETS

The third category of budgets are special decision budgets. They relate to inventory

levels, breakeven analysis, and so on. These are discussed comprehensively in other

operators of this volume. The long – term capital budgets are covered in detail in chapters

10 and 11.

FLEXIBLE BUDGETS

The discussion of the master budget and its components in the preceding section was

based on the assumption of fixed level of activity. In other words, the budgets were related

to a specific level of operation implying thereby that a firm can accurately and precisely

forecast the level of its behavior/operations in a given period of time. If the business

environment is capable of accurate prediction, this approach to budgeting is likely to yield

dependable results. It however, changes take place during the budget period, the budget will

serve no useful purpose. Such a budget is technically referred to as a fixed/static budget. In

other words, budgets prepared at a single level of activity, with no prospect of modification

in the light of the changed circumstances, are fixed or static budgets. The alternative to fixed

budgets is flexible/variable/sliding budgets. The term ‘flexible’ is the most apt description

of the essential features/characteristics of these budgets and is used here to refer to such

budgets.

32

A flexible budget estimates costs at several levels of activity. The merit of a flexible

budget is that instead of one estimate it contains several estimates/plans in different assumed

circumstances. Since business activities cannot be accurately predicted as the

conditions/environments are uncertain, it is a useful tool in real business situations, that is,

an unpredictable environment. In view of its significance as a more realistic basis of

budgeting, the setting up of a flexible budget is demonstrated in the discussions that follow.

It may at the outset be noted that the construction of a flexible budget is similar to

that of a fixed budget except in one respect. While the fixed budget is based on costs and

other business operations/activities at one level, the flexible budget considers several

alternative/levels/volumes of activity. The term volume/level of activity refers to the usage

of capacity. In other words, volume/level of activity signifies the percentage use of capacity.

The term capacity means the installed capacity of plant and personnel, that is, the fixed

amount invested in these. For instance, if a plant when fully operated can produce 5,000

units, its capacity is 5,000 units of production. Assuming 2,500 units of production in a given

period, the volume/level of activity is 50 per cent.

Thus, the essence of a flexible budget is the presentation of estimated cost data in a

manner that permits their determination at various levels of volume. This means that all costs

must be identified as to how they behave with a change in volume – whether they very or

remain fixed. The conceptual framework of flexible budgeting, therefore, relates to: (i)

Measure of volume and (ii) Cost behavior identified with change in volume.

Measure of Volume

The volume measure selected for any given department/firm should be that quantity

which displays the greatest degree of correlation with those costs that very with the level of

operating.

33

CHAPTER iv

DATA ANALYSIS AND

INTERPRETATION

34

TABLE 4.1

DETAILS OF FINISHED GOODS

Particular Product I Product II

Units sold 6,000 9,000

Selling Prince / unit 75 80

Opening Stock 1,000 2,500

Closing stock 500 1000

INTERPRETATION

In the case of finished goods the product1 actually sold 6000 units and the final closing

stock was 500 units. The product 2 sold with 9000 units and the closing stock at ending

was 1000 units.

35

DETAILS OF FINISHED GOODS

6000

75

1000500

9000

80

2500

1000

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Units Sold Selling Price Opening stock closing Stock

Product 1 Product2

36

TABLE 4. 2

DETAILS OF INVENTORY

Type of material Grade I Grade II

Unit requirement 12 units / finished product 4 units / product A

2 units/ product B

Cost profit 1.50 2.50

Closing stock 3,000 500

Opening stock 4,000 300

INTERPRETATION

The grade 1 material had the cost profit was 1.50 and grade 2 was 2.50, due to this

variations the closing stock for grade 1 is 3000 units and 500was grade 2.

37

DETAILS OF INVENTORY

12150

3000

4000

0250

500300

50

500

1000

1500

2000

2500

3000

3500

4000

4500

Unit requiremnet Cost profit Closing stock Opening stock

Grade 1 Grade 2 Column1

38

TABLE 4.3

DETAILS OF LABOUR COST

Particular Product I Product II

Direct LABOUR per unit 7 10

Budget cost / Low 2 2

INTERPRETATION

The product one has the LABOUR cost of 7 per unit and product 2 occurred 10 per unit,

but the budgeted cost was RS:2, for both product

39

DETAILS OF LABOUR COST

7

2

10

2

0

2

4

6

8

10

12

Direct labour per unit Budgetcost/Low

Product 1 Product 2 Column1

40

TABLE4.4

DIRECT SELLING EXPENSE

Salesmen’s salary 15,000

Salesmen’s commission 4,500

Travelling expense 21,000

Total 40,500

INTERPRETATION

In the case of selling expenses the salesmen salary was 15000, and salesmen commission

was 4500.the travelling expenses occurred the amount of 21000.

41

DIRECT SELLING EXPENSE

1500

45500

21000

40500

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

salesmen"s salary salesmancommission travelling expenses total

Column1 Column3 Column2

42

TABLE 4. 5

DISTRIBUTION EXPENSE

Ware house wages 4,000

Ware house rent, rates, electricity 5,500

Lorry expense 12,000

Total 21,500

INTERPRETATION

In the case of distribution expenses the total cost occurs during the year was 21500

43

DISTRIBUTION EXPENSE

.

4000

5500

12000

21500

0

5000

10000

15000

20000

25000

Warehouse wages Warehouserent,retes,electricity

Lorry expense Total

44

TABLE 4. 6

SALES OFFICE EXPENSE

Salaries 16,000

Rent, rate, electricity 12,000

Depreciation 2,000

Stationary , postage, telephone 12,500

General expense 3000

Total 45,500

INTERPRETATION

In the case of sales office expenses the total cost was 45500, out of this the salary were

16000 and rent rate was 12000

45

SALES OFFICE EXPENSE

.

12000

2000

12500

3000

45500

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

46

TABLE 4.7

ADVERTISING

Press 4,500

Radio And Television 18,500

Shop window display 4,000

Total 27,000

INTERPRETATION

The companies advertising cost was 27000 .18500 for radio and television and shop window

display cost was 4000.

47

ADVERTISING

18500

4000

27000

0

5000

10000

15000

20000

25000

30000

Radio and T.V Shop window display Total

48

TABLE 4. 8

SALES BUDGET FOR THE YEAR ENDING MARCH, 31ST ,2014

UNITS SELLING PRICE

Per unit(Rs.)

TOTAL

(Rs.) Product I 6,000 75 4,50,000

Product II 9,000 80 7,2,0000

TOTAL 11,70,000

INTERPRETATION

In the case of sales budget the product 1 selling price is 75 per unit and the total cost was

450000. In the case of product 2 the total units was 9000 and selling price per unit was 80

so the total cost was 720000.

49

SALES BUDGET FOR THE YEAR ENDING MARCH, 31ST ,2014

0

200000

400000

600000

800000

1000000

1200000

1400000

Product I 6000 Poroduct II 9000 Total

Selling price Total Column1

50

TABLE 4. 9

PRODUCTION BUDGET IN UNITS FOR THE YEAR ENDING MARCH,31st 2014

PARTICULARS PRODUCTS I PRODUCTS II

Budgeted sales 6,000 9,000

Add: Desired closing 500 1,000

Total quantity required 6,500 70,000

Less : Opening stock 1,000 2,500

Units to be produced 5,500 7,500

INTERPRETATION

In the case of production budget the budgeted sales was 6000for product 1 and 9000 for

product 2, the actual production was 5500 for product 1 and 7500 for product 2.

51

PRODUCTION BUDGET IN UNITS FOR THE YEAR ENDING MARCH,31st 2014

6000

500

6500

10005500

9000

1000

70000

2500

7500

0

10000

20000

30000

40000

50000

60000

70000

80000

Budgeted sales Add:Desired Closing Total Quantityrequired

Less : Opening stock Units to beproduced

Product1 Product2 Column1

52

TABLE 4.10

DIRECT MATERIAL PURCHASED BUDGET FOR THE YEAR

ENDING MARCH 31st 2014

PARTICULAR MATERIALS

X

MATERIALS

Y

TOTAL

Desired closing stock (units) 3,000 500

Units required for production 1,56,000 52,000

Add: total needs 1,59,000 52,500

Less: opening stock (units) 4,000 300

Units to be purchased 1,55,000 52,200

Unit price (Rs.) 1.50 2.50

Purchase cost( Rs.) 2,32,500 1,30,500 3,63,000

INTERPRETATION

In the case of direct material the total purchase cost was 232500 for material x and material

y have 130500, so total cost were 363000.

53

DIRECT MATERIAL PURCHASED BUDGET FOR THE YEAR

ENDING MARCH 31st 2014

156000 159000

4000

155000

1.5

232500

52000 52500

300

52200

2.5

130500

5

363000

0

50000

100000

150000

200000

250000

300000

350000

400000

Units requiredfor production

Add:total needs less:openingstock

Units to bepurchased

Unit price Purchase cost

3000 500 Column1

54

TABLE 4. 11

DIRECT- LABOUR COST BUDGET FOR YEAR ENDING MARCH

31st,2014

Units

purchased

Direct LABOUR

hour, per unit

Total hours Total budget cost

(Rs.)@ Rs. 2 per

hour

Product A 5,500 7 38,500 77,000

Product B 7,500 10 75,000 1,50,000

Total 1,13,500 2,27,000

INTERPRETATION

In the case of direct labour cost the product A have total cost of 77000and product B have

the cost of 150000 and the total cost were 227000.

55

DIRECT- LABOUR COST BUDGET FOR YEAR ENDING MARCH

31st,2014

0

20000

40000

60000

80000

100000

120000

140000

160000

Product A Product B

Units purchased Direct labor hour, per unit Total hours Total budget cost (Rs.)@ Rs. 2 per hour

56

TABLE 4. 12

ENDING – INVENTORY BUDGET MARCH 31st ,2014

Units Units cost Amount Total (Rs.)

Direct materials

Grade I 3,000 1.50 4,500

Grade II 500 2.50 1,250 5,750

Finished goods

Grade I 500 49.00 24,500

Grade II 1,000 53.00 53,00 77,500

Total 83,250

INTERPRETATION

In the case of inventory budget the grade 1 materials total cost was 5750and the finished

goods total cost was 77500, and the total cost for inventory is 83250.

57

ENDING – INVENTORY BUDGET MARCH 31st ,2014

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

Units

Unit cost

Amount

Total

Column1

58

TABLE 4.13

COST OF GOODS SOLD BUDGET FOR THE YEAR ENDING MARCH 31ST 2014

PARTICULARS AMOUNT

Direct material 3,64,000

Direct LABOUR 2,27,000

Factory overhead 1,18,000

Total manufacturing costs 7,09,000

Add: finished goods(opening) 1,81,500

8,90,500

Less : finished goods (closing) 77,500

Total cost of goods sold 8,13,000

INTERPRETATION

In the case of cost of goods sold the total cost was 813000.it includes the

manufacturing cost and other factory overheads

59

COST OF GOODS SOLD BUDGET FOR THE YEAR ENDING MARCH 31ST 2014

.

0100000200000300000400000500000600000700000800000900000

1000000

Amount * Column2

60

TABLE 4.14

ADMINISTRATIVE EXPENSES BUDGET FOR THE YEAR ENDING

MARCH 31st, 2014

PARTICULAR AMOUNT

Salaries of clerical staff 28,000

Executive salaries 8,000

Audit fee 600

Depreciation on office equipment 800

Insurance 250

Stationery 1,250

Postage and telegrams 950

Telephones 850

Miscellaneous 5,300

Total administrative expenses 46,000

INTERPRETATION

In the case of administrative expenses the salaries was high and the executive salaries were

8000, the depreciation cost was 800 and the insurance , stationery postage and telegram,

telephones miscellaneous were 250,1250,950,850,5300 respectively .so the total cost

occurred for administrative expenses were 46000

61

ADMINISTRATIVE EXPENSES BUDGET FOR THE YEAR ENDING

MARCH 31st, 2014

0

10000

20000

30000

40000

50000

Amount

62

CHAPTER-V

FINDINGS, SUGGESTIONS AND CONCLUSION

63

5.1FINDINGS

Budgeted sales in 2014 are Rs 1170000.

Required budgeted production unit in 2014 is 13000 units.

Budgeted raw material requirement in 2014 is Rs 363000.

Budgeted labour cost in 2014 is Rs 227000.

Budgeted factory overhead in 2014 are Rs 118000.

Cost of finished goods produced per unit of product 1 is 49and product 2 is 53.

64

5.2 SUGGESTIONS

After preparing the budget it should make confirm that budget is not too high or not

too low from actual.

After preparing various budgets it should inform to concerned department.

After informing the budget proper feedback is made to analyze whether the actual

performance is comply with the budgeted result.

While comparing the actual result with budgeted result if there were any variations

in these two corrective actions are taken for eliminating the same.

If the budgeted result is too high or too low revised budget is prepared.

The responsibility of the person who prepare budget is identified.

Material order is placed in accordance with production budget.

Collection from debtors is compared with cash collection budget and proper step is

taken if there was any shortage in collection.

Quarterly sales are compared with quarterly budgeted sales and attain the targeted

sales.

Budget related to all expense are compare which will help to reduce the cost.

65

5.3 CONCLUSION

An attempt was made with an idea of studying the budgetary control of Agro Biotech

Research Centre, Kottayam. For this purpose, the various budgets of the company has been

prepared. By this study, a control is exercised by comparing the actual results with

budgeted results frequently. The suggestion offered by me may be considered by the

company for the further improvement of financial performance. I conclude that the budget

help the company to make proper control in their operation.

66

BIBLIOGRAPHY

BOOKS:

Dr. S.N. Maheswari - Financial Management Principles and Practices, 10th

Edition, Sultan Chand and Sons Publishers, New Delhi.

R.K. Sharma and S.K. Gupta - Management Accounting Principles and

Practices, 8th Edition Kalyani Publication.

C.R. Kothari - Research Methodology, 2nd Edition, New Age International

(P) Ltd.

P.R. Vittal - Business Mathematics and Statistics, 6th Edition, Margham

Publications, Chennai.

Website

www.google.com

www.wikkiepedia.com

http://www.google.com/

http://www.wikkiepedia.com/

67

ANNEXURE

68

BALANCE SHEET -2014 Rs in ‘000

SOURCE OF FUNDS

Capital 29.85

Reserves 11.63

Net worth 130.5

Secured loans 129.79

Un secured loans 10.00

Total Debt 139.79

Total Liabilities 311.77

APPLICATION OF FUNDS

Fixed assets 113.78

Capital Work In progress 3.10

Inventories 95.00

Sundry Debtors 167.4

Cash and Bank Balances 5.03

Total Current Assets 270.53

Total CA, Loans & Advances 270.53

Loans & Advances 22.39

(Current Liabilities) 94.93

(Total CL & Provision) 94.93

Net Current Assets 197.99

Total Assets 311.77

69

COMPARATIVE BALANCE SHEET FOR THE YEAR 2012-2013

Rs in ‘000

SOURCE OF FUNDS AMOUNT

2012

AMOUNT

2013

INCREASE/

DECREASE

Capital 29.85 29.85 0

Reserves 11.63 11.63 0

Net worth 141.48 130.5 -10.98

Secured loans 70.51 129.79 59.28

Un secured loans 10.00 10.00 0

Total Debt 80.51 139.79 59.28

Total Liabilities 221.99 311.77 89.78


Gross Block 137.89 -137.9

(Less Accum Depreciation) 25.60 -25.6

Net Block 112.29 -112.3

Capital Work In progress 2.89 3.10 0.21

Investments 4.58 -4.58

Inventories 98.53 95.00 -3.53

Sundry Debtors 75.60 167.4 91.8

Cash and Bank Balances 6.56 5.03 -1.53

Total Current Assets 180.69 270.53 89.84

Loans and Advances 10.00 22.39 12.39

Fixed deposits 0.85 -0.85

Total CA, Loans & Advances 191.54 270.53 78.99

(Current Liabilities) 75.89 94.93 19.04

(Provision) 13.42 -13.42

(Total CL & Provision) 89.31 94.93 5.62

Net Current Assets 102.23 197.99 95.76

Total Assets 221.99 311.77 89.78

70


Rs in ‘0000


2011

AMOUNT

2012

INCREASE/

DECREASE

Capital 29.85 29.85 0

Reserves 96.60 11.63 -84.97

Net worth 126.45 141.48 15.03

Secured loans 26.25 70.51 44.26


Total Debt 26.25 80.51 54.26



Gross Block 90.11 137.89 47.78

(Less Accum Depreciation) 18.83 25.60 6.77

Net Block 71.28 112.29 41.01

Capital Work In progress 25.77 2.89 -22.88

Investments 11.36 4.58 -6.78

Inventories 35.86 98.53 62.67


Cash and Bank Balances 3.50 6.56 3.06


Loans and Advances 38.47 10.00 -28.47

Fixed deposits 0.59 0.85 0.26



(Provision) 42.27 13.42 -28.85



Total Assets 152.69 221.99 69.3

71


Rs in ‘0000


2010

AMOUNT

2011

INCREASE/

DECREASE

Capital 29.85 29.85 0

Reserves 87.99 96.60 8.61

Net worth 117.84 126.45 8.61

Secured loans 35.92 26.25 -9.67


Total Debt 35.92 26.25 -9.67

Total Liabilities 153.76 152.70 -1.06


Gross Block 59.02 90.11 31.09


Net Block 43.77 71.28 27.51


Investments 15.00 11.36 -3.64

Inventories 43.41 35.86 -7.55





Fixed deposits 35.55 0.59 -34.96

Total CA, Loans & Advances 149.16 127.17 -21.99


(Provision) 32.41 42.27 9.86


Net Current Assets 79.45 44.28 -35.17

Total Assets 153.75 152.69 -1.06

72


Rs in ‘0000


2008

AMOUNT

2009

INCREASE/

DECREASE

Capital 21.40 29.85 8.45

Reserves 16.78 87.99 71.21

Net worth 38.18 117.84 79.66

Secured loans 36.07 35.92 -0.15


Total Debt 36.07 35.92 -0.15



Gross Block 48.99 59.02 10.03


Net Block 37.07 43.77 6.7


Investments 0.00 15.00 15

Inventories 30.99 43.41 12.42





Fixed deposits 0.15 35.55 35.4



(Provision) 13.03 32.41 19.38



Total Assets 74.23 153.75 79.52

73

PROFIT AND LOSS ACCOUNT FOR THE YEAR -2014

Rs in ‘0000

INCOME

Sales 764.51

Other Income 5.07

Stock Adjustments 32.28

Total Income 801.86

EXPENDITURE

Raw Materials 552.41

Power And Fuel 2.91

Employee Cost 37.48

Other Manufacturing Expenses 3.99

Selling and Admin Expenses 122.26

Miscellaneous Expenses 3.55

Total Expenses 722.60

Operating Profit 74.19

PBDIT 79.26

Interest 12.22

PBDT 67.04

Depreciation 7.94

Profit Before tax 59.10

Extra Ordinary items 0.00

PBT (Post Extra Ord. Items) 59.10

Tax 16.47

Reported Net profit 42.64

74

COMPARATIVE PROFIT AND LOSS ACCOUNT FOR THE YEAR 2012-2013

Rs in ‘0000

INCOME AMOUNT

2012

AMOUNT

2013

INCREASE/

DECREASE

Sales 479.11 764.51 285.4

Other Income 1.12 5.07 3.95

Stock Adjustments 52.00 32.28 -19.72

Total Income 532.23 801.86 269.63

EXPENDITURE

Raw Materials 354.44 552.41 197.97

Power And Fuel 2.85 2.91 0.06

Employee Cost 26.81 37.48 10.67

Other Manufacturing Expenses 2.83 3.99 1.16

Selling and Admin Expenses 89.93 122.26 32.33

Miscellaneous Expenses 2.86 3.55 0.69

Total Expenses 479.72 722.60 242.88

Operating Profit 51.39 74.19 22.8

PBDIT 52.51 79.26 26.75

Interest 5.83 12.22 6.39

PBDT 46.68 67.04 20.36

Depreciation 7.15 7.94 0.79

Profit Before tax 39.53 59.10 19.57

Extra Ordinary items (0.04) 0.00 0.04

PBT (Post Extra Ord. Items) 39.49 59.10 19.61

Tax 14.00 16.47 2.47

Reported Net profit 25.47 42.64 17.17

75


Rs in ‘0000

INCOME AMOUNT

2011

AMOUNT

2012

INCREASE/

DECREASE

Sales 340.23 479.11 138.88

Other Income 3.28 1.12 -2.16

Stock Adjustments (10.03) 52.00 62.03

Total Income 333.48 532.23 198.75

EXPENDITURE

Raw Materials 205.53 354.44 148.91


Employee Cost 19.06 26.81 7.75




Total Expenses 298.08 479.72 181.64


PBDIT 35.40 52.51 17.11

Interest 5.08 5.83 0.75

PBDT 30.32 46.68 16.36



Extra Ordinary items 0.00 (0.04) -0.04


Tax 8.93 14.00 5.07


76


Rs in ‘0000

INCOME AMOUNT

2010

AMOUNT

2011

INCREASE/

DECREASE

Sales 299.83 340.23 40.4

Other Income 30.29 3.28 -27.01

Stock Adjustments 12.94 (10.03) -22.97

Total Income 343.06 333.48 -9.58

EXPENDITURE

Raw Materials 201.65 205.53 3.88






Total Expenses 282.06 298.08 16.02


PBDIT 61.00 35.40 -25.6

Interest 5.10 5.08 -0.02

PBDT 55.90 30.32 -25.58


Profit Before tax 52.43 26.27 -26.16

Extra Ordinary items 0.00 0.00 0

PBT (Post Extra Ord. Items) 52.43 26.27 -26.16

Tax 15.01 8.93 -6.08

Reported Net profit 37.42 17.35 -20.07

\

77


Rs in ‘0000

INCOME

AMOUNT

2009

AMOUNT

2010

INCREASE/

DECREASE

Sales 234.57 299.83 65.26

Other Income 5.37 30.29 24.92

Stock Adjustments 9.16 12.94 3.78

Total Income 249.10 343.06 93.96

EXPENDITURE

Raw Materials 152.56 201.65 49.09






Total Expenses 216.75 282.06 65.31


PBDIT 32.35 61.00 28.65

Interest 4.00 5.10 1.1

PBDT 28.35 55.90 27.55



Extra Ordinary items 0.03 0.00 -0.03


Tax 7.20 15.01 7.81


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