Budgetary Control System

8/10/2019 Budgetary Control System

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A Study on Budgetary Control System

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INTRODUCTION

&

OBJECTIVES OF STUD

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INTRODUCTION

BUD"ET#

Budget is essential in every walk of our life national, domestic and Business.

A budget is prepared to have effective utilization of funds and for the realization of

objective as efficiently as possible. Budgeting is a powerful tool to the management

for performing its functions i.e., formulation plans, coordination activities and

controlling operations etc., efficiently. For efficient and effective management

planning and control are tow highly essential functions. Budget and budgetary control

provide a set of basic techniues for planning and control.

A budget fi!es a target in terms of rupees or uantities against which the actual

performance is measured. A budget is closely related to both the management function

as well as the accounting function of an organization.

As the size of the organization increases, the need for budgeting is

correspondingly more because a budget is an effective tool of planning and control.

Budget is helpful in coordinating the various activities "such as production, sales,

purchase etc# of the organization with result that all the activities precede according to

the objective. Budgets are means of communication. $deas of the top management are

given the practical shape. As the activities of various department heads are

coordinated at the much needed for the very success of an organization. Budget is

necessary to future to motivate the staff associated, to coordinate the activities of

different departments and to control the performance of various persons operating at

different levels.

Budgets may be divided into two basic classes. %apital and operating budgets.

%apital budget are directed towards proposed e!penditure for new projects and often

reuire special financing.

&he operating budgets are directed towards achieving short'term operational

goals of the organization for instance, production or profit goals in a business firm.

(perating budgets may be sub'divided into various departmental of functional

budgets.

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OBJECTIVES OF STUD

T%E STUD %AS T%E FOO'IN"#

&o provide the material frame work of budget and budgetary control

&o describe the profit of the organization as a backdrop for undertaking a

study of budgetary control system.

&o analyze the budgetary system in practice in )esoram %ement $ndustries

*imited with particular reference to their objectives and phases of

organizational and re'appropriation.

$n addition to the analysis of the conventional budgetary system in practice in

)esoram %ement $ndustries *imited. &he study aims at evaluation and

modification to the current budgetary system with reference to the various

types of budgets. &he scope in the formulation of performance budget is also

studied.

SOURCES OF DATA#

&he data of Basanth +agar )esoram %ement $ndustries *imited, have been

collected mainly from secondary sources viz.,

Form the concerned officers of the )esoram %ement $ndustries *imited

)esoram %ement $ndustries *imited journals.

Accounting books, records.

)ey books of concerned title.

tatistical records

)esoram %ement $ndustries *imited library.

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OR"ANISATION +ROFIE

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$n $ndia cement was produced for the first time in 01?> by outh $ndia

$ndustries *imited in 3adras. &his :nit had capacity of @? tons per day was based on

lime from sea.

By 010@, however three units started their operations with a combined

installed capacity of 7/,??? tons per annum. $n 010>, indigenous production fees for

short of domestic demand necessitating an import of 0,8/,72@ tones shipment

difficulties and foreign trade relations during the first world war years acted as a

catalyst for the development of indigenous industry, and by 012> the total installed

capacity grew to /,/1?? tons per annum.

$n 018@, all the %ement %ompanies with the e!ception of (+- A**-


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%ement is @ types.

+U//OANTIC CE)ENT#

$t consists of mi!ture of silicate %alcium and Aluminum. hows the hydraulic

property when it is in the form of powder and being mi!ed with suitable proportion of

lime. &he rate of hardening is much slower and the comprehensive strength developed

is about a half of


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+ORTAND CE)ENT#

0. (rdinary


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ince it will not be possible to conduct a micro level study of all cement

industries in Andhra


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)esoram cement industry is one of the leading manufacturers of cement in

$ndia. $t is a day process cement plant. &he plant capacity is .28 lakhs tones per

annum. $t is located at Basanth +agar in )arim +agar district of Andhra


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process. amples are sent regularly to the bureau of $ndian standards. +ational council

of construction and building material for certification of derived uality norms.

&he company has vigorously undertaking different promotional measures their

product through different media which includes the use of newspapers, magazines,

hoardings etc.

)esoram cement industry distinguished it self among all the cement factories

in $ndia by bagging the +ational productivity Award consecutively.

For two years the year 01/'017. the federation of Andhra


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)esoram cement bagged prestigious awards like national awards for

productivity and technology and conversation and several state awards for year 01>.

)esoram cement is best family planning effort 5in the federation of Andhra


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CO)+ANCement 6a7a68ty

8n T+A

Cement 9

o: sales

*A4-+ G &(:4B( 02.? 2?

A%% 00.@ 1@

E4A$3 1.7 2

$+=$A+ %-3-+& 8.8 12

E:;A4A&9 A3B:;A 8./ 0??

'EA3NESSES#

a. &he per capita consumption of the cement in $ndia is very low.

b. &he transport costs in $ndia are very high.

c. &he cement industry is facing with acute power shortage and raw material

problem.

d. &he industry is also facing major packaging problems.

O++ORTUNITIES#

a. &he industry has tremendous potential for growth in $ndia.

b. $n near future cement is going to replace tar for the construction of roads.

c. &here are good prospects for e!port with cement e!port promotion council.

d. &he government polices of reduction in e!cise duty and e!empting cement

from the just packaging may act as boon to the industry.

T%REATS#

1,


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STATE 'ISE CE)ENT +ANTS

S;NO STATE NO; OF CE)ENT+ANTS


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D8re6tors o: 3esoram 8ndustr8es l8m8ted

C>a8rman

yt. B.). Birla

D8re6tors

mt. ).E. maheshwari

hri.


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Aud8tors

3essrs


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INTRODUCTION OF BUD"ET &

BUD"ETAR CONTRO

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INTRODUCION T BUD"ET BUD"ETIN" BUD"ETAR CONTRO

&he management is efficient if it is able to accomplish the objective of the

enterprise. $t is effective when it accomplishes the objectives with minimum effort

and cost in order to attain long'range efficiency and effectiveness management must

chat out its course in advance. A systematic approach to facilitate effective

management performance is profit planning and control or budgeting. Budgeting is

therefore an integral part of management in a way, a budgetary control system has

been described as a historical combination of a 5goal setting machine for increasing

an enterprises profits and a goal achieving machine for facilitating organizational co

ordination and planning while achieving the budgeted targets6.

)EANIN" OF BUD"ET#

$t is a financial and uantitative statement, prepared and approved prior to a

defined period of time of policy to be pursued during that period for purpose of

attaining a given objective. $t may include income, e!penditure and employment

capital.

$n other words is a pre'determined detailed plan of action developed and

distributed as a guide to current operations and as a partial basis for the subseuent

evaluation of performance.

)EANIN" OF BUD"ETIN"#

&he process of planning all flows of financial resources into with in and from

an entity during some specified future period. $t includes providing for the detailed

allocation of e!pected available future resources to projects, functions, responsibilities

and time periods.

From above definition it is clear that budgeting is the actual act of preparing

the budget. $t is the process of evolving the final statement. Budget is the end product

of budgeting.

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)EANIN" OF BUD"ETOR CONTRO#

$t is the process of establishing of departmental budgets relating the

responsibilities of e!ecutives to the reuirements of a policy, and the continuous

comparison of actual with budgeted results, either to secure by individual action the

objectives of the policy a firm basis for its revision.

First of all budgets are prepared and then actual results are the comparison of

budgeted and actual figures will enable the management to find out discrepancies and

take remedial measures at a proper time. &he budgetary control is continuous process,

which helps in planning and co ordination. $t provides a method of control too. A

budget is a means and budgetary control is the end result.

$n the word of ;.A olt 5budgetary control is the system of management

control and accounting in which all operations are forecast and so as possible planned

ahead and actual results compared with the forecast and the planned ones.

ESSENTIAS OF BUD"ETAR CONTRO#

Budgeting, or the process of preparing the budget, is the starting point for

budgetary control =istribution of budgets pertaining to each function to all the

relevant section within organization.

%ollection of actual data pertaining to till budgeted activities. %ontinuous comparison

of actual performance with budgeted performance. $nitiation of corrective action to

ensure that actual performance is in line with budgeted performance 4evision of

budgeted if it is felt that the budgets prepared are no longer relevant on account of

unforeseen developments.

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OBJECTIVES OF BUD"ETAR CONTRO#

&he primary objective of budgetary controlDs to help the management issystematic planning and in controlling the operations of the enterprise. &he primary

objective can be met only of there is proper communication and coordination amongst

different within the organization. &hus the objectives can be stated asI

1; +ANNIN"#

Businesses reuire planning to ensure efficient and ma!imum use of their

resources. &he first step in planning is to define the broad aims and objectives of thebusiness. &hen, strategies to achieve the desired goals are formulated and tentative

schedule of eh proposed combinations of the various factors of production, which is

the most profitable for the defined period. Budget influences strategies that need to be

followed by the originations. $t cultivates forced planning aiming managers.

!; COORDINATION#

%o'ordination is managerial functions under which all factors of production

and all departmental activities are balanced and integrated achieve the objectives of

the organization. Budgeting provides the basis for individual in all department to

e!change ides on how best the organizations objectives can be realized. -!ecutives

are forced ot think of the relationship between their department and the company as a

whole. &his removes unconscious bases against other departments. $t also helps to

identify weaknesses in the organization structure.

$; CO))UNICATIONS#

All people in the organization must know the objectives, policies and

performances of the organizations. &hey must have a clear understanding of their part

in the organizations goals. &his is made possible by ensuring their participation in the

budgeting process.

(; CONTROS AND +ERFOR)ANCE EVAUTION#

%ontrol ensures control by continuous comparison of actual performance with

the budgeted performance. ariances are highlighted and corrective action can be

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initiated. BudgetDs also from the basis of performance evaluation in an organization as

they reflect realistic estimates of acceptable and e!pected performance.

BUD"ET BUD"ETIN" AND BUD"ETAR CONTRO#

A budget is B*:-


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BUD"ET OFFICER#

&he chief e!ecutive appoints budget officer. uch budget officer also called as

5budget controller or budget director6. 9is rank should be eual to other functional

managers.

&he budget officer does not have the direct responsibility of preparing the

budgets. &he various functional managers prepare the budgets. 9is role is that of a

supervisor. &he budget officer has the specific duty of administering the budget. 9e is

responsible for timely completion of budgeting activity by various departments and

for co'ordination between them so the t there is a proper link between them. 9e isempowered to scrutinize the budgets prepared by different functional heads and to

make changes in them. $f the situation so demands.

&he budget officer works as a coordinator among different department. 9e

continuously monitors the actual performance of different departments. 9e determines

the deviations in the budgets and takes necessary steps to rectify the deficiencies, if

any. 9e also informs the top management about the performance of different

department.

&he budget officer will be able to carry out his work only if is conversant with

the working of all the departments he must have technical knowledge of the business

and should also possess accounting knowledge.

$; BUD"ET CO))ITTEE#

A budget committee is formed to assist the budget officer. &he heads of all the

important departmentDs are made members of this committee. &he committee is

responsible for preparation and e!ecution of budgets. &he members of this committee

put up the case of their respective departments and help the committee to take

collective decisions, if necessary. &he budget committee is responsible for reviewing

the budgets prepared by various functional heads. %o ordinate all the budgets and

approve the final budgets, the budget officer acts as coordinator of this committee. All

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the functional heads are entrusted with the responsibility of ensuring proper of

ensuring proper implementation of their respective final departmental budgets.

(; BUD"ETS CENTERS#

A budget centers is that part of the organization for which the budget is

prepared. A budget center may be a department, section of a department or any other

part of the department. $deally, the head of every center should be a member of the

budget committee. 9owever, it must be ensured that each budget center at least has an

indirect representation in the budget committee.

&he establishment of budget centers is essential for covering all parts of the

organization becomes easy. Chen different centers are establishment. &he budget

centers are also necessary for cost control purposes.

*; BUD"ET )ANUA#

a# A budget manual is a document that spells out the duties and responsible of the

various e!ecutives concerned it specifies among various functional areas. A

budget manual covers the following matters.

b# A budget manual clearly defines the objectives of budgetary control system. $t

also gives the benefits and principles of this system.

c# &he duties and responsibilities of various persons dealing with preparation and

e!ec ton of budgets are also given in a budget manual. $t enables the

management to know the persons dealing with various aspects to budgets and

provides clarity on their duties and responsibilities,

d# $t gives information about the sanctioning authorities of various budgets. &he

financial powers of different managers are given in the manual for enabling he

spending amount on various e!penses.

e# A proper table for budgets including the sending of performance reports is

drawn so that every work starts in time and systematic control is e!ercise.

f# &he specimen forms and number of copies to be listed for budget repots is also

stated. Budget involved should be clearly stated.

g# &he length of various budget periods and control points is clearly given.

h# &he procedure to the followed in the entire system is clearly stated.

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i# A method of accounting to be used for various e!penditures is also stated in

the manual.

&he budget manual helps in documentation the role of every employee, his

duties, responsibilities the ways of undertaking various tasks etc. thus it also in

reducing ambiguity at any point of time.

,; BUD"ET +ERIOD#

A budget period is the length of time for which a budget is prepared. $t

depends upon a number of factors. &he choice of a budget period depends upon the

following considerations. &he types of budget "longJshort#

&he nature of demand for the products.

&he timings for the availability of the finance.

&he economic situations of the cycles.

All the above mentioned factors are taken into account while fi!ing the period

of budgets. $n this budgeting process the financial manager has to take the financial

decision on the budgets.

&he financial manager usually responsible for organizing this budget, he must

perform the following functions.

&o decide the general policies and guidelines.

&o officer technical advice

&o suggest changes

&o receive and review individual budget estimates

&o reconcile divergent views

&o co'ordinate budgeting activities.

&o approve budgets with or without revisions.

&o scrutinize control reports later on

&o scrutinize budget repots later on

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&o disseminate these guide lines.

CONTINUOUS BUD"ETIN" SSTE)#

A continuous budgeting system is a method of having two different budget

periods with in the same budget. &he purpose of having this system is to have greater

control in terms of operational activities without losing sight is to have greater control

in terms of it results in incorporating the effect of changes in the short term on the

long'term targets of the organization.

DETER)INATION OF 3E FACTOR#

&he budgets are prepared for all functional areas. &hese budgets are interring

dependent and inter'related. A proper co'ordination among different budgets in

necessary for budgetary control to be successful. &he constraints on some budgets

may have an effect on other budgets too. A factor which influences all other budgets is

known as 5key factor or principal factor6.

&he key factor may not necessity remain the same. &he raw materials supply

may be limited at one time but it may be easily available at another time. imilarly,

other factors may also improve at different times. &he key factor highlights are

limitations of the enterprise. &his will enable the management to improve the working

of these departments where scope for improvement e!ists.

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control device by the employees but it should be used as a tool to improve their

efficiency.

*; FEIBIIT#

Fle!ibility in budgets is reuired to make them suitable under changed

circumstances. Budgets are prepared for the future, which is always uncertain, even

though budgets are prepared by considering the future possibilities but still some

adjustment. Fle!ibility makes the budgets more appropriate and realistic.

,; )OTIVATION#

Budgets are to be implemented by human beings. &heir successful

implementation will depend upon the interest shown by the employees. All persons

should be motivated to improve their working so that budgeting is successful. A

proper system of motivation should be introduced for making this system a success.

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T+ES OF BUD"ETS#

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1; ON" TER) BUD"ETS#

&he long'term budgets prepared for a long period of five to ten years. &hey are

concerned with planning the operations of a firm over a considerably long period of

time. &he financial 5controller6 e!clusively for the top management usually prepares

long'term budgets. &hese budgets are very useful in terms of physical units "i.e.

uantities# or percentages, since accrued values may be difficult to forecast over such

long'period. %apital e!penditure, research and development budgets, etc, are

e!amples of long'term budgets.

!; S%ORT TER) BUD"ETS#

hort'term budgets are budgets prepared for a short period of one to two year.

&hey are prepared for those activities the trend in which cannot be for seen easily over

long periods. &hese budgets are very useful incase of consumer goods industries such

as sugar, cotton, te!tiles, etc. they are generally prepared in terms of physical units

"i.e.. uantities# as well as monetary units "i.e. values# materials budget. -ach budget

etc, are e!ample of short'term budget. &hey are useful to lower level of management

for control purpose.

$; CURRENT BUD"ETS#

%urrent budget is a budget, which is established for use over a short period of

time and is related to current conditions. &hus current budgets are essentially short

term budgets adjusted to current "i.e., present or prevailing# condition or

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circumstances. &hey are prepared for a very short period. ay, a uarter or a month.

&hey related to current activities of the budgets.

(; INTERI) BUD"ETS#

$nterim budgets are budgets, which are prepared in between two budget

periods. &hese budgets may get integrated with the budget of the following period.

CASSIFICATION OF BUD"ETS ACCORDIN" TO CONTENT#Budgets may be classified into budgets in physical terms and into budgets in

monetary terms.

A= BUD"ETS IN +%SICA TER)S#

Budgets in physical terms are budgeted that budget in terms uantities only.

&hey do not include corresponding rupee value. *ong'term budgets are usually

prepared in physical terms. -!amples of such budgets are production budgets,

material budget etcK

B= BUD"ETS IN )ONETAR TER)S#

Budgets in monetary terms are budgets that budget in terms of uantities as

well as their corresponding rupee value, sales budget, purchase budget, etc are

e!ample of such budgets. Budgets such as cash budget, capital e!penditure budget,

etc that may not have physical uantities also from part of budgets in monetary terms.

CASSIFICATION OF BUD"ETS ACCORDIN" TO FUNCTION#

Budgets can be classified intoI

0. operating budgets

2. financial budgets

@. master budgets

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4esponsibility areas may be classified under three broad categoriesI

%ost Je!pense center


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According to $%3A *ondon a fle!ible budget is a budget which is designed to

%hange in accordance with the level of activity actually attained. &hus a fle!ible

budget changes according to the change in the level of activity. $n other words it

provides the budgeted costs at any level of activity.

Business activity cannot be accurately predicted on account of uncertainties of

Business environment. A fle!ible budget contains several estimates for different

assumed circumstances instead of just one estimate, it provides for automatic

adjustments with changes in the volume of activity. 9ence, a situations operating in

an unpredictable environment.

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BUD"ET AND BUD"ETAR SSTE) IN

3ESORA) CE)ENT INDUSTRIES TD;

$.


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/ERO BASED BUD"ETIN"#

Lero'based budgeting is the latest techniue of budgeting and it has increased

use as a managerial tool. &his techniue was first used in America in 0182, by the

former president America, ;immy %arter.

As the name suggests, it is starting from a 5scratch6, the normal techniue of

budgeting is to use previous years cost levels as a base for preparing this yearDs

budget. &his method carries previous years inefficiencies to the present year because

we taken last year because we taken last year as a guide, and decide 5what is to be

done this year when this much was the performance of the last year6.

$n zero based budgeting every year is taken as a new year and previous year is

not taken as a base, the budget for this year will have to be justified according to

present situation, zero is taken as a base and likely future activities are decided

according to present situations. $n zero base budgeting a manager is to justify why he

wants to spend. &he performance of spending on various activities will depend upon

their justification and priority for spending will have to be proved that an activity is

essential and the amounts asked for are really reasonable taking into account the

volume of activity.

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BUD"ET AND BUD"ETAR SSTE) IN 3ESORA) CE)ENT

INDUSTRIES I)ITED BASANT% NA"AR 3ARI) NA"AR

&he budgeting process is used in the performance budgeting for the

construction of phase. Chich includes pre'commission activities. Besides meeting the

essential reuirements of managerial control. &he budgeting e!ercise also covers the

long'term capital budgeting, which is presented in the from of annual plan.

OBJECTIVES OF T%E BUD"ETAR SSTE)#

&o prepare annual budgets in such a manner those managers at various levels

in the organization carry out periodical e!ercise in respect of each contact or

responsibility center for physical planning and matching resources broke up

into monthly targets or cash flows.

&o introduce and operate responsible for achievement of specified targets with

the resources allocated for the purpose.

&o bring about effective co'ordination of all activities of the organization of all

activities of the organization and to gear up service divisions to meet

effectively the reuirement of projects.

BUD"ET +ERIOD AND +%ASIN"#

&he budget period or annual budgets should correspond with the financial

year. &he budget should be drawn up for the ensuring financial year in the form of

budget estimates financial year in the form of 4evised -stimates "4.-# in addition, the

budget are to be reviewed on monthly basis by project review teams, in the light of

actual e!penditure and projections in the budget period. Budgets should indicate

monthly phasing of e!penditure and targets for the first and uarterly phasing for the

second half of the year. At the time of review of the budget estimates to frame revised

estimates the uarterly phasing should be broken up into monthly phasing.

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Chile drawing up the actual budget in (ctober every year, the long'term

capital budget for ongoing and new schemes should be formulated as a part of the

e!ercise for preparation of Annual plan. &he long term capital budget should indicate

for a period of si! years following the budget period project wise annual phasing of

the capital e!penditure and physical schedules resource based network.

BUD"ET %EADS#

For uniform accounting, it is essential that costs are collected for each system

of the factory tough this may involve splitting up of payments against contracts which

embrace more than one system. Allocation of the cost as system wise affords a sound

basis for cost accounting, inter'firm comparisons and provides valuable inputs to data

bank. Budget provisions are related to project estimated and monitoring of actual

e!penditure where as control cables for part control and instrumentation system.

Factory piping which include pipelines, for ash water mains, compressed air system

and civil works piping.

Au!iliary pumps for water treatment plant and civil works system. $f there are,

any contracts not covered in the budget heads provision for such contracts should be

shown against the appropriate system head by adding code number.

* T+ES OF BUD"ETS IN 3ESORA) CE)ENT INDUSTRIES

I)ITED#

According to the nature e!penditure budget are classified as under

=irect capital outlay on works

&echnical consultancy

$ncident e!penditure during construction

-mployee cost

Ot>er estal8s>ment e?7enses#

&raining and recruitment


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3isc. brought'out assets

&ownship budget

BRIEF E+ANATION TO T%E NATURE OF E+ENDITURE

INCUDED IN EAC% BUD"ET INDICATED BEO'#

INCIDENTA E+ENDITURE DURIN" CONSTRUCTION

+ERSNNE +A)ENT#

&hese comprises of salaries, wages, allowance, contribution to


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REVIE' OF +ROJECT BUD"ET#

)ONT% REVIE'#

At monthly intervals, the budgets should be reviewed by project review

committee "


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BUD"ET OF SERVICE DIVISION COR+ORATE BUD"ETS#

A review of budgets of service and corporate divisions should be conducted at

uarterly intervals by corporate budget committee "%D%#. for this purpose, corporate

accounts should report actual e!penditure up to the end of the uarter by the 0? thof

the month following uarter to corporate budget and budget co'ordination of the

remaining period of the year should be sent to corporate budget should be sent to

corporate budget should put up a consolidated report division wise and project wise to

corporate budget committee "%B%# by the 0/thof the may, August, +ovember and

February every year.

OBJECTIVES OF T%E CURRENT BUD"ETAR CONTRO

SSTE) IN3ESORA) CE)ENT INDUSTRIES I)ITED;

$n current to corporate budgetary control system operating phase has beencompiled to achieve the following objectives.

&o control actual performance with reference to standards J norms adopted in

the budget, ascertain the deviations analyze and establish the reasons.

&o identify constraints in generation and tamely action for estimation of

constraints.

&o monitor the generation of internal resources so as to ensure availability of

adeuate funds. &o prepare revenue budget so as to forecasting the periodical profitability of

the organization.

&o develop standards J norms of performance in the various areas of operation

and maintenance based on the e!perience.

&o involve managers at various in the process of developing performance

budget so as to introduce the concept of responsibility accounting and

participate management.

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&o ensure effective co'ordinate planning of all activities so the all the inputs

and services necessary for achieving the physical targets are available at

appropriate time.

&o create cost consciousness among the managers responsible for decision

making.

&o provide data regarding operational norms and costs for the purpose of

formulating tariff.

&o provide data a basis for assessment of working capital reuirements.

&o control the working capital particularly book debts, spears and other items

or inventory.

&o improve profitability and internal resources generation.

SCO+E OF T%E +ERFOR)ANCE BUD"ET#

&he budget for operation and maintenance activities will be called

performance budget operation. &his, in effect means that all financial targets in the

budget will be based on performance targets in physical terms.

&he current budgetary control system operation phase envisages generation

and transmission line projects as independents investment centers. $t becomes

applicable to a project in the year in which it plans to commercialize its first

generation unit. 9owever, the budgeting for e!penses "net of revenue# from the date

of synchronization to the date of commercial generation "i.e. during trail run# is to be

taken case of in the capital budget of the respective project. imilarly, in the case of

transmission line project, the system becomes applicable from the year in the date

commercial generation of the first unit of generating project, with which this line is

associated, which ever is later. For subseuent lines, the ( G 3 will be prepared from

the energisation.

&he sum totals of budgets of the cost centers will be the budget for the

investment center. 9ow ever, the budget for the profit center will be worked out by

apportioning the revenue and cost of various cost centers to individualDs profits

centers bases on specified norms.

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&he performance budget operation will consists of following budgets along

with the supporting schedules

A. Budget balance sheet

B. Budget profit and loss account

%. 4evenue budget

$n addition, separate budgets for revenue activities other than operation for

research and development consultancy contracts etc.

&he e!penses in respect of developmental e!penditure for improvements,

additions, replacement, renewals, balancing facilities etc., are of capital nature and

will be budgeted for in the construction budget of budgetary control system

construction phase.

&o facilitate management control the system also envisages, phasing of these

budgets into monthlyJuarterly targets. &he actual performance then will be reasons

for variations will be analyzed and established for taking corrective remedial actions.

&he scope also includes projections of internal resources for a period ranging from /

to 0/ years and updating of /years plan as well as perspective plan of the company.

STA"ES IN T%E FOR)UATION OF +ERFOR)ANCE

BUD"ET#

&he system provides for a two stages formulation for 5performance budget'

operation6 the stages are given below.

(,


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INITIA +RO+OSA#

$n the initial proposal, the project is reuired to indicate yearly targets. $n he

addition, to furnishing basic information like synchronization and commercial

generation dates%onstraints on coal operation at less than the designed specification, calorific

value of raw material and lime stone, material consumption in physical terms for

items whose consumption value in 4s./ lakhs or more, planned shut down for a

maintenance and overhauling and norm for various operation parameters provided for

design specification and in the tariff agreements to the corporate budget committee.

$n the initial proposals is planned to be submitted after considering these

factors and keeping in view the perspective plan of the organization, fi!es as well as

norms for various operating parameters. &hese targets and norms are then

communicated to all stations and transmissions line offices in the last week of ;uly to

be used for formulating detailed budget in the firm of final proposal.

FINA +RO+OSAI

Budgeted balance sheet, budgeted profit G loss account and budgets in the

form of cash budget along with the proposal will consist of detailed supporting

schedules for each of the investment center J cost center. &his final proposal needs to

be submitted to corporate center with in @ weeks of receiving approval for initial

proposal.

&he final proposal, after approval by board, will become the basis of

monitoring performance for cost centers and investment centers.

&he freuency and e!tent review and monitoring will be done is underI

i. &he monitoring of actual performance against budgeted targets for investment

center J profit center on monthly basis and for cost centers on uarterly for

remedial J corrective actions.

ii. &he review of performance budget on uarterly basis to assess the anticipated

profitability.

&he first step in the preparation of performance budget, ( G 3 is formulation of

maintenance and overhauling schedules for Boiler and to which generation, then

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considering the grid demand, the availability or inputs and factory problems. &he

utilization of capacity will be worked out on month'month basis for the budget period

the gross generation targets can be worked and accordingly.

NET "ENERATION#

&he sales value will be determined from uantum of net generation "i.e. gross

generation au!. %onsumption#

AUIIAR CONSU)+TION CONSU)+TION B UTIITES#

&he cement consumption by each of the cost centers for individuals unit

au!iliaries, station au!iliaries as well as transformer losses are to be estimatedseparately based on designed specifications and added in order to workout total

au!iliary consumption rather than fi!ing a overall percentage. imilarly consumption

by utilities will also need to be indicated by concerned cost centers J departments like

township and construction department. &his will be valued at cost net generation to

arrive at the sales values for owns consumptions.

C%E)ICA CONSU)+TION#&he chemical are used by many cost centers for treatment of water. &he

consumption of chemicals will be correlated with volume of water treated and certain

norms will have to be developed for different type of chemicals and different types of

treatment.

Based on these norms, each of the cost centers will indicate consumption of

chemical in uantitative as well as financial terms. &he cost center wise reuirement

will be consolidated to arrive at total chemicals consumption to be charged to profitand loss account. &he valuation of chemical will be done at current prices only.

E)+OEE COST#

&he basis employee cost will be approved manpower budget effective for

respective years of budget period. &he estimation of employee cost is to be done for

each grade considering mid'point of the scale as basis pay and after adding various

allowance like =.A., 9.4.A., %.%.A6 project allowance etc., as admissible in

respective grades. &his is to be worked >1 out or each of the budget period based on

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e!isting strength "at the time of estimation# in each grade and additions during each

uarter "taking 7?M satisfaction for additions#.

&he provisions for *&%, medical reimbursement,


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+ormally budgeting will be done for the former twoI under each activity

separate estimates will be prepared for consumption of materials and maintenance

jobs. &his estimation will be done at each of the sub cost center wise details are

reuired to be mentioned.

&he consumption material for repairs and maintenance will be classified into

spares, lubricants, loose tools and plants, consumables and others.

&he cost center wise total separately for three activities will be added to arrive

at summary of material consumption and maintenance jobs, which will be reflected in

the profit G loss account.

&he material consumption especially of spares can be estimated based on the

e!pected life of various consumption J spears in the installed euipment the freuency

of breakdowns in the past and the reuirement for prevented maintenance and major

overhauls. &he actual life of components may be different from that indicated in the

manufacturerDs specification. &herefore, it is very difficult t estimate reuirements of

spares. But this new station it will be advisable to collect such information from old

stations that have gained e!perience in this field.

+ormally maintenance of euipment through contractors should be avoided.

But in certain areas, if the e!pertise and in house capability or sufficient man power is

not available, maintenance jobs can be got done through contractors. uch contracts

will need to be listed out separately. $f any owner supply items are covered in such

contracts the cost of these items will be included in the material cost.

FACTOR & "ENERA OVER%EADS#

All the items of e!penditures under this head will be estimated based on past

trend with due adjustment for policy changes. &he estimates will be given by cost

center needs for items identified with respective cost centers. &he total administrative

cost of service cost centers will be allocated between construction and ( G 3 in the

ration of capital e!penditure and sales during the respective years.

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DE+RECIATION#

&his is to be charged as per - act from the year following the year in which

assets have been capitalized. &his will be done separately by each of the cost centers

on the basis of capitalized value and rates of depreciation furnished by site finance

and account for different categories of assets. %ost center'wise depreciation will be

added at total depreciation for the investment center.

INTEREST ON FIED CA+ITA#

As per e!isting accounting policy, the interest is to be charged to profit G loss

account based on the loan content in the capitalized assets restricted to total accrued

interest on the actual loans.

For budgeting purposes, interest will be worked on euated loan content or euated

loan which ever is less.

E5UATED OAN CONTENT#

-uated loan content is to taken as /?M if total capital cost and adjusted for

number of operating months in respective years. $n case of both generating factory

and transmission lines with associated factory, the cost for each profit center will be

taker as per actual or anticipated capital cost.

&he euated loan content is to be individual unitDs transmission lines

separately for each of the phases J stages. &he total capital cost will be taken as

proposed in the performance budget construction.

*1


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ANASIS AND INTER+RETATION

*!


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T%E 3ESORA) INDUSTRIES I)ITED

REVENUE BUD"ET

TABEI

S;NO +ARTICUAR

Budgeted

est8mated :or t>e

!01

A6tual :or t>e year

!01

1 Sales

Fi!ed cost recovery 72> 72.> 80 80.

ariable cost recovery >? >.? 7>? 7>.?

Fuel price adjustment recovery 2? 2.? 8@ 8.@

(wn consumption 0@2 [email protected] 0> 0>.

Total o: 1 2/08 2/0.8 2@81 [email protected]

! A@erage 8ntens8@es 0?2 0?.2 1 1.

$ Ot>er 8n6ome /8 /.8 >1 >.1

"RAND TOTA


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INTER+RETATION

&he data pertaining to the generation and consumption of cement at )esoram$ndustries limited have been obtained from the year 2??1'0? and represented in table

'0. &he aspect included are total generation of cement in "crores 4s# and utilization for

au!iliary consumption, raw material consumption and line stone respectively.

=uring the year 2??1'0? the sales, fi!ed costs, variable cost, fuel price, own

%onsumption was decreased. Chen the estimated budgeted so sales consumption is

[email protected] respectively.

=uring the year 2??1'0? the average intensive are decreased 1.M the other

$ncome also decreased >.1M respectively.

Finally with regard to the result in revenue budget of )esoram cement industries

limited totally decreased 2/0.8M in the year 2??1'0? respectively.

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T%E 3ESORA) INDUSTRIES I)ITED

O7erat8onal E?7end8ture Budget :or t>e ear !01

TABE 2 II

Rs 8n 6orers

S;

NO+ARTICUAR

BUD"ETED

ESTI)ATED

FOR T%E !01

ACTUA FOR T%E

EAR !01

A)OUNT RS)T A)OUNT S)T

1 VARIABE COST

4aw 3aterial >2? >2.? >/? >/.?

*ime stone >/? >/.? >7? >7.?

Total o: 1 .- .-; 0! 0!;

!O+ERATIVE

)AINTENANCE COST

%hemical water 0@? 0@.? 0/? 0/.?

4epair G maintenance 2? 2.? @?? @?.?

-mployee cost @2? @2.? @/? @/.?

tationary general e!penses 8/ 8./ ? .?

4ebate 00 0.0 0@ 0.@

hareofoperating e!penses ?. 0? 0.?

Total ! 1,.( 1,.;( 0$ 0;$

$ FINANCE C%AR"ES

=eprecation >2 >.2 0/ 0./

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$nterest on fi!ed capital 0 0. 2? 2.?

Total o: 2 $ , ,; $* $;*

"RAND TOTA /M

increased and the line stone consumption >7M also increased.

$n operating G maintenances cost components chemical G water, repair G

3aintenance, employee cost, stationary G general e!penses, rebate and share of other

e!penses is all are fluctuating with the e!penses of the year 2??1'0?. 9owever the

total operating maintenance costs are 1?.@M decreasing respectively.

$n finance charges depreciation and interest on fi!ed capital, has been included

&he total finance charges recording decreasing of @./M in the year 2??1'0?

respectively.

Finally with regard to the operational e!penditure budget of )esoram cement

$ndustries limited the total profit has increase with 010.8M during the year 2??1'0?

&he overall budgets results of )esoram cement industries limited is earning

3ore profits.

*,


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CAS% FO' STATE)ENT

:or t>e year ended $1st)ar6> !1

For t>e year ended :or t>e year ended

$1st)ar6> !1 $1st)ar6> !0

A; Cas> :loG :rom O7erat8ng A6t8@8t8es

Net +ro:8t e:ore Ta? $(1-.$!.0! . 0! 0!1$!

AdHustments :or#

=epreciation /, @?, />,?22 /0, /7, 08,782

*oss Jprofit on fi!ed assets soldJ discarded /, >/, /, 221 "/, 78, 0/, 772#

*oss on sale of long term investment"other than trade# @,/,1/2 ''''''''

$ncome from long term investments"other than trade# ">,10,>8,/0# "2,80,@7,/27#

$nterest paidJpayable on loans etc. @@,/?,@?,@7/ @2,7/,@7,770

$nterest receivedJreceivable on loans etc. "2,/?,//,/8@# "1,?/,20,>2/#

,1>,2>,80/#

&rade and other receivables "/?,07,>?,@17# 2,12,82,28

&rade payables 8/,80,?2,/1> "2?,?0,@/,@0#

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%ash generated from operations 2,10,7,21,2>? 0,?>,0?,>@,81@

=irect ta!es "paidJ refund "net# "1@,>1,?,870# 8,@0,/7,171

Net 6as> :rom o7erat8ng a6t8@8t8es 10.$-(.*,0 11(!1,-!

CAS% FO' STATE)ENT

:or t>e year ended $1st)ar6> !1

For t>e year ended :or t>e year ended

$1st)ar6>!1 $1st)ar6>!0

Rs Rs

B; Cas> :loG :rom 8n@est8ng a6t8@8t8es

# "2,?0,7,17>#

2,>78 '''''

$ncome from long term investments >,10,>/,0 2,80,@7,/27

*oansJ deposits given "8/,?/,??,???# "0,0/,1?,??,???#

4evision of loans J deposits given 0,??,?,??,??? 0,>,?,2/,???

$nterest received on loans etc. 2,0@,22,877 ,?7,@8,188

Net 6as> used 8n 8n@est8ng a6t8@8t8es 2,@?,>0#

$ncrease in cash credit and overdrafts from banks 2@,@8,27,/7/ 7,88,7/,77?

$nterest paid ">,27,22,/?2# "@@,>,@0,@8?#

=ividends paid "including ta!es# "@/,?8,11,?0# "0@,?/,>2,02/#

Net 6as> :rom :8nan68ng a6t8@8t8es 1-*$00.* ,-(!-1,0(

*.


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+et increase in cash and cash euivalents 2,>0,?,702 /,?>,@1,171

(penings cash and cash euivalents 2>,@,0@,821 01,7,@/,87

%ash and cash euivalents taken over conseuent

:pon amalgamation ''''''''''' @7,7@

Clos8ng 6as> and 6as> eu8@alents !-!(!!$(1 !(.$,1$,!0

+ro:8t and loss a66ount :or t>e year ended $1st)ar6>!1

chedule 4s 2??1'0? 2??'2??1

INCO)E

ales 2/,08,>/,1,@81 0,77,0,//,21>

*essI -!cise duty @,?7,>8,21,?@? 2,8>,8@,?,7/2

+et sales 22,?8,18,8?,@@1 8,0@,07,7>,/>2

(ther income 0@ >1,?>,?8,>0? /@,7>,21,820

!!*.,,-(0 1,,,0!(1*$

E+ENDITURE

4aw materials and finished goods 0> 1,2?,1,@/,87 7,80,0>,/1,122

Administration e!penses 0/ 1,?@,>@,?@,70 7,>?,/0,87,/78

=epreciation

"note 0"c# and 08 on schedules07# /1,/2,@,/?1 /@,?/,88,22/

*essI transfer from capital reserve

4evaluation of fi!ed assets 0,20,7>,>7 0,>,>1,>1@

N+ote 0"c# on schedule 07O /,@?,8>,?22 /0,/7,08,782

$nterest 08 @@,/?,@?,>7 @2,7/,@7,770

101,!!$$.*- 1*.*001!$1

+ROFIT BEFORE TAATION $(1-.$!.0! .0!0!1$!

,??,??,???


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-arning per share /.? 1.11

+ote on the accounts 07

&he schedules referred to above from an integral part of the profit and loss account

&his is the profit and loss account referred to in out report of given data.

Balan6e s>eet as at $1st)ar6> !1

chedule 4s @0.?/.2?0? @0.?/.2??1

1; SOURCES OF FUNDS

a# %apital 0 >/,7>,08,@8/ >/,7>,0/,>?

b# 4eserves and surplus 2 8,?,81,2,278 @,7?,?,>,@??

,*(($((,(1 (1,*1(

2# *oans funds A# ecured loans @ 8,>@,01,7?,08/ >,0@,@8,@,/1?

b# :nsecured loans > 2,21,8?,21,/8/ 2,?7,1,8?,11>

.-!-000-$ ,!1$*((*.(

=eferred ta! liability 0,02,>?,12,@71 0,?7,01,00,02?

1,$0,($-!* 11((*0**.((

!; A++ICATION OF FUNDS

0# F$P-= A-& /

A# gross block 08,71,@0,7/,87? 02,0/,21,@0,7@7 b# *ess depreciation 7,20,1@,>2,/ 8,?,@0,>?,@7

%# net block 1,/>,@,@@,?2 /,@>,17,10,@/1

=# work'in'progress 0,/?,?,8,01/ 2,?,2>,?/,8?

11*101!-- -($!10-$0

2. $nvestment 8 2,7,27,1?7 21,?0,/?,00

@. %urrent loans and advance

a# $nventories 7 @,78,/@,27,777 2,//,0,/2,>>@

b# undry debtors 2,>/,1>,/2,/0 0,/>,@7,2/,2>7

c# %ash and bank 1 27,2>,22,@>0 2>,@,0@,821

d# (ther current asset 0? 00,0,11,>02 0>,>2,8>,0@>

e# *oans and advance 00 2,?8,22,>7,280 0,@?,11,77,07

.,.11(0$-! ,0.1$!,(

*essI current liabilities and

,?80

@,82,/@,?0,@?8 2,@7,>/,2>,8>8

+et current assets /,?/,/,?,?88 @,72,@8,?7,11>

1,$0,($-!* 11((*0**.((

,


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+ote on the accounts 07

&he schedules referred to above from an integral part of the balance sheet

&his is the balance sheet referred to in our even data

CONCUSIONS

AND

SU""ESTIONS

,1


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CONCUSIONS

-very organization has pre'determined set of objectives and goals, but

reaching those objectives and goals only by proper planning and e!ecuting of the

plans economically.

&he )esoram %ement $ndustries *imited is objectives of planning promotingand organizing an integrated development of %ement %ompany.

&he corporation mission of )esoram %ement $ndustries is to make available

and uality cement in increasingly large uantities, the company will spear head the

process of accelerated development of cement sector by e!peditiously.

&he organization needs the capable personalities as management to lead the

organization successfully, the management makes the plans and implement of these

plan are e!pressed in terms of budget and budgetary control.

&he )esoram %ement $ndustries *imited has budget process in two stages.

(ne is the capital e!penditure budget and another is operating maintenance budget,

the capital e!penditure budget shows the list of capital projects selected for

investment along with their estimated cost, operating G maintenance budget refers to

the repairs G maintenance budgets, the special budgets are rarely used in the

organization like long'term budgets, research G development budget and budget for

consultancy.

&he )esoram %ement $ndustries *td. $s to make available and uality cement

efficient resources and implementation of sophisticated technology and cement

generation and also creating ambience of collective working of its employees.

,!


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BIBIO"RA+%

F$+A+%$A* A%%(:+&$+E 4< &4$-=$

F$+A+%$A* 3A+AE-3-+& $.3.

Budgetary Control System

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