Summer Training Project Report

On

Budgeting system

AT

VARDHMAN POLYTEX LIMITED , BATHINDA

SUBMITTED TO:

ARYABHATTA COLLEGE OF MANAGEMENT & TECHNOLOGY , BARNALA .

In Partial Fulfillment Of The Degree of Master of Business Administration during the year 2010-11

Submitted By:

MANEHA SHARMA

M.B.A. (FINANCE)

ROLL NO. 105202250519

PREFACE

The management had to depend upon certain relevant information for taking

various strategic decisions. The information is proved useful by its analysis and

interpretation. My project is related to “Analysis of budgeting system of

Vardhman Polytex Ltd.”

This project report is the outcome of my six-week live project in vardhman

Polytex Ltd. My attempt is to analyze the various aspects of budgeting system of

VPL.(Bathinda).

It was found that the (gross operating cycle of the company is bit disturbed) and

is continuously increasing. By adopting various calculation and analysis and then

making interpretation with the solution of specific problem efforts have been put

on giving appropriate suggestion to the company.

The report also consists of qualitative and quantitative analysis of Budgeting

System of VPL.(Bathinda).

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CERTIFICATE

This to certify that Maneha sharma ,bearing roll no.105202250519,has

carried out the research project work presented in this report entitled

“Budgeting system” the results embodied in the report is original & not

submitted to any other university/institute for the award of any degree /

diploma.

Date…..

PROF. S.K. BISHAYEE

H.O.D - MBA

ARYABHATTA COLLEGE OF MGT. & TECH

2

Acknowledgement

The fulfillment of work requires dedication. It also calls for guidance and co-operation

from seniors.

This report is the outcome of six weeks training that I received in the Vardhman Polytex

Limited, Bathinda. This project work would not have been possible without the kind

assistance and guidance of many persons whom indeed were helpful, cooperative and

kind during the entire course of my project. I express my heartfelt appreciation for all

those concerned.

It gives me immense pleasure to acknowledge my deep sense of gratitude to Head of the

Department (MBA) Prof. S.K. Bishayee for his kind guidance & support.

In addition, sincere thanks Mr. Rajiender Pal & Mr.Sandeep Goyal for his guidance,

support and Affection throughout the course of this work.

In last, I express my sincerest thanks and indebtedness to the esteemed organization for

granting me the grand privilege of working on a project under the team of experts in the

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field of finance.

s. no Index Page no.

1 Chapter :- 1 The project

1.1 Title of the project 1.2 Statement of the problem 1.3 Objectives of the study 1.4 Methodology

6778

2 Chapter :- 2 Theoratical prospective

2.1 Definition of buget2.2 Objectives of setting budget2.3 Classifications of budget2.4 Problems in budgeting

101112-1314-18

3 Chapter :- 3 The organization

3.1 Brief history of organization3.2 Organization structure3.3 Products/services3.4 Financial performance

19-2627-3738-4040-44

4 Chapter :- 4 project data

4.1 Data collection 46-55

4

4.2 Data Analysis & Interpretation 56-66

5 Chapter :- 5 inferences

5.1 Findings5.2 Recommendations5.3 conclusion

6869-7070

6 Chapter :- 6

6.1 Limitations of the study6.2 Bibliography

7272

5

6

The project

1.1 Title of the project1.2 Statement of the problem1.3 Objective of the study1.4 Methodology

1.1 Title of the project

“Analysis of Budgeting system of vardhman polytex limited , bathinda ”

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1.2 Statement of the problem

Budgeting system is the important function of the finance department. Every finance department has to make a proper budgeting system . If there is any wrong approach in the budgeting system , which may lead to wrong decisions & it makes cause a serious problem in the organization.

Through the summer training project I have attempted to find out the existing procedure in VPL & then analysis the same to make the system more effective & full proof as far as feasible .

1.3 objective of the study

1. To develop the understanding about responsibility as to why and by whom it is

made.

2. To be familiar with nature, type and purpose of budget to be submitted by the

various department.

3. To have better understanding about the budgetary control system through

different departments of organization.

4. To study and review the present budgetary control system in VPL, Bathinda for

the purpose of better understanding of system and making it more effective.

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1.4 Methodology

Information Requirement:

Since my objective was to analyze the working capital policies & the working capital

management of the company. I was to reduce down their problems and finding the

solutions with respect to the working capital management of the company, for which. I

required the annual report of the company, and its working capital data .With which I could

analyze the position of the company and correlate the theoretical and practical aspects of

working capital management, to analyze the efficiency of the management in managing the

working capital and to find out what are the problems that the company is facing.

Therefore, the company provided me the required information. Then relevant calculations

and analysis were done.

Method used for the Data Collection:

I have to collect the annual report of the company, the working capital information; the

business profile of the company, relevant information related to manage the working capital

management components and the relevant literature on the working capital management.

As well as I collected the required data from various websites and various department of

organization from manufacturing department.

Qualitative analysis required studying the business profile of the company, its nature, its

functioning, the hierarchy and the functioning of the management & the performance of the

company in last few years’ .What policy they adopt and to study what role the working

capital plays in a manufacturing concern.

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Theoretical prospective

2.1 Definition of budget2.2 Objectives of setting budget2.3 Classifications of budgets2.4 Problems in budgeting

Budgets can be prepared for and used by anyone and anything. That is, we can prepare

and use personal budgets and organizations, ministries and non profit making

organizations can all use them.

Budgets, by definition, have to be prepared in advance; and for this reason, they are often

referred to in terms of their being part of a feed forward system. Feedback is a term

frequently heard both in accounting and ordinary use. Feed forward, on the other hand

tends to be less frequently heard, yet this word incorporates the most important aspect of

budgeting: looking at situations in advance, thinking about the impact and implications of

things in advance, attempting to take control of situations in advance.

BUDGET

A budget is quantitative expression of a plan. It is commonly used by business firms,

government agencies, non-profit institutions, and even households. Budget is a financial

statement, prepared prior to a defined period of time of the policy to be pursued during

that period for the purpose of attaining a given objective. Budgets quantity the planned

financial effects of activities aimed at continuous improvement and cost reduction.

Well managed organizations usually have the following budgeting cycle :

1. Planning the performance of the organization as a whole as well as its submits.

The entire management team agree as to what is expect.

2. Providing a frame of reference, a set of specific expectations against which actual

results can be compared.

3. Investigation variations from plans if necessary, corrective action follows

investigation.

4. Planning again, considering feedback and changed conditions.

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OBJECTIVES OF SETTING BUDGET

1. A budget is a blue print of the desired plan of action or operation plans covering

the entire organization and all its functions like purchases, production, sales,

financial requirements, research and development are expressed through budgets.

The budget serves as a declaration of policies and also defines the objectives fro

executives at all levels of management.

2. Budgets provide a means of co-ordination of business as a whole. In the process

of establishing budgets, the various factors like production capacity, sales,

possibilities and procurement of material, labour etc. are balanced and

coordinated so that all the activities proceed according to the objectives. Budgets

inculcate team spirit and are like putting so man people together to solve a

common problem.

3. Budgets are means of communication. Complex plan laid down by the top

management are passed on to those who are responsible for putting them into

action.

4. Budget facilities centralized control with delegated authority and responsibility as

they are grouped according to the responsibilities of different executive levels,

they facilitate decentralization of work.

Hence budgets are instruments of managerial control by means of which the management

can measure performance in every part of the concern and take corrective action as soon

as any variation from budget emerges.

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CLASSIFICATION OF BUDGETS

Budgets are classified according to the different purposes they serve. The budgets can be

classified according to :

1. The coverage they encompass

2. The capacity to which they are related

3. The condition on which they are based

4. The period which they cover

BUDGETs :-

COVERAGE CAPACITY CONDITION PERIOD

1) Financial budgets

a) Sales Budget

b) Production budget

c) Capital Exp. budget

d) Research & Dev.

Budget

e) Cash budget

2) Master Budget

1) Fixed budget

2) Flexible budget

1) Basic budget

2) Current budget

1) Long-term budget

2) Short-term budget

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CHARACTERISTICS OF A BUDGET

A good budget is characterized by the following :

1. Participation: involve as many people as possible in drawing up a budget.

2. Comprehensiveness: embrace the whole organization.

3. Standards: base it on established standards of performance.

4. Flexibility: allow for changing circumstances.

5. Feedback: Constantly monitor performance.

6. Analysis of costs and revenues: this can be done on the basis of product lines,

departments or cost centres.

ADVANTAGES OF BUDGETING AND BUDGETARY CONTROL

There are a number of advantages to budgeting and budgetary control:

1. Compels management to think about the future, which is probably the most

important feature of a budgetary planning and control system. Forces

management to look ahead, to set out detailed plans for achieving the targets for

each department, operation and (ideally) each manager, to anticipate and give the

organization purpose and direction.

2. Clearly defines areas of responsibility. Requires managers of budget centers to be

made responsible for the achievement of budget targets for the operations under

their personal control.

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3. Promotes coordination and communication.

4. Provides a basis for performance appraisal (variance analysis). A budget is

basically a yardstick against which actual performance is measured and assessed.

Control is provided by comparisons of actual results against budget plan.

Departures from budget can then be investigated and the reasons for the

differences can be divided into controllable and non-controllable factors.

5. Enables remedial action to be taken as variances emerge.

6. Motivates employees by participating in the setting of budgets.

7. Improves the allocation of scarce resources.

8. Economies management time by using the management by exception principle.

PROBLEMS IN BUDGETING

Budgets may be an essential part of any marketing activity they do have a number of

disadvantages, particularly in perception terms.

1. Budgets can be seen as pressure devices imposed by management, thus resulting

in :

2. Bad labor relations

3. Inaccurate record keeping

4. Departmental conflict arises due to :

5. Disputes over resource allocation

6. Departments blaming each other if targets are not attained.

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7. It is difficult to reconcile personal / individual and corporate goals.

8. Waste may arise as managers adopt the view, “we had better spend it or we will

lose it”. This is often coupled with “Empire building” in order to enhance the

prestige of a department.

9. Responsibility versus controlling, i.e. some costs are under the influence of

more than one person, e.g. power costs.

10.Managers may over-estimate costs so that they will not be blamed in the future

should they overspend.

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Budgetary Process

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Importance of the study

The study is important because it provide information regarding budgetary

system and all the aspects related to budgetary system.

This project is also important because it guides company what are the lacking

points in company’s budgetary system and how it can improve in these areas.

To state the areas of expense and income.

SCOPE OF THE STUDY

The scope of the study is limited to know the complete budgetary system of Vardhman.

So for this Purpose the study of the concept of budgetary control has been done and for

proper understanding of this concept, the study of annual budget, monthly budget, annual

review, monthly review and commercial review. And then from review, reasons for

variances are found out from control point of view.

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The organization

3.1 Brief history of company 3.2 Company structure3.3 products & services3.4 Financial performance

3.1 HISTORY OF THE COMPANY:-

M/s Punjab Mohta Polytex limited was set up in 1983 and started production in

1984. In1987; it was taken over by Vardhman group and was named Vardhman Polytex

Limited. But after the family settlement in 2002, the unit came under Oswal group.

The group has very good potential and high presence in the textiles industry with

well set manufacturing set up for 100% cotton, Polyester cotton, Tyre cord, 100% Acrylic

and other blended yarns. New qualities of yarn added are Lycra and Slub yarn. All the

group units are well equipped with machinery imported from Europe, Japan, China and

many other countries. Continuous efforts are always being made to further improve the q

uality and match the industry standard to meet the demand of its customers.

OVERVIEW OF OSWAL GROUP

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Oswal Group - A young & energetic player in the textile

Industry

The industrial hub of the northern region - Ludhiana nestles the corporate Headquarters

of the Oswal Group of industries. The Oswal Empire expands from Anshupati Textiles

Limited to Vinayak Textile Mills both situated in Ludhiana to Vardhman Polytex Limited

in Bathinda. The Company has entered into a joint venture agreement with F.M.

Hammerle Group, Austria for setting up a Rs.255 crore green field project for

manufacture of quality yarn & piece dyed shirting fabric with annual capacity of 12

million meters. For this purpose, a new company in the name of 'Oswal F.M. Hammerle

Textiles Ltd.' has been floated which has been set-up at Village Kagal, Dist. Kolhapur

(Maharashtra). This project will definitely decide the success of the group in the future.

Oswal group is earning laurels by selling yarn of international quality both indigenously

and exporting it to several countries. Its market share is increasing day by day. Now

which is fully under the control of Oswal Group as they have bought the 100% shares of

the company.

PROFILE OF THE GROUP:-

The industrial hub of the northern region - Ludhiana nestles the corporate Headquarters

of the Oswal Group of industries. The Oswal Empire expands from Anshupati Textiles

Limited to Vinayak Textile Mills both situated in Ludhiana to Vardhman Polytex Limited

in Bathinda . The Company has entered into a joint venture agreement with F.M.

Hammerle Group, Austria for setting up a Rs.250 crore green field project for

manufacture of quality yarn & piece dyed shirting fabric with annual capacity of 12

million meters. For this purpose, a new company in the name of 'Oswal F.M. Hammerle

Textiles Ltd.' has been floated which hasl set-up its plant at Village Kagal, Dist. Kolhapur

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(Maharashtra). Vardhman Poly will hold a 76% stake in the said joint venture company

and 24% equity is held by F.M. Hammerle Group. This project will definitely decide the

success of the group in the future. Oswal group is earning laurels by selling yarn of

international quality both indigenously and exporting it to several countries. Its market

share is increasing day by day.

Vision : We at Oswal Group will achieve a turnover of Rs 2200 crore by the year 2014

by strengthening its core competencies and capacities in Textiles and diversified

businesses to create value for its Stakeholders.

Mission: Oswal Group on a learning curve will expand capacities in Textiles) and

reinforce Customer-delight by manufacturing world-class quality using state-of-the-art

technology

SWOT ANALYSIS

STRENGTHS

1. Adequate competency and confidence in all dep.

2. Committed team members from top of bottom.

3. Core competency for textiles

4. Capability for troubleshooting and crisis management.

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5. Creative and innovative thinking.

6. Peaceful industrial environment

7. Strong discipline and positive attitude culture

8. Relatively advanced technology and reliable captive power

9. Strong HRD and development tools for work force.

WEAKNESS

1. Economies of scale

2. Slow acceptance to changes / rigidity to some extent

3. Locational factors like away from textile / financial hub.

4. Technology up gradation particularly in engineering end computerization /

communication.

5. Professional depth in few places / areas.

OPPORTUNITIES

1. Globalization

2. Liberalization in govt. policies and tax laws.

3. Availability of latest / state of art technology and know how / communication.

4. Availability of easy finance

5. Availability of good professionals

THREATS

1 WTO

2 Unpredictability about cost of input like raw cotton fuel for CPP, imported spares

3 Shorter life span of imported technology

4 Instability of production work force

5 Squeezing margins of profit in textiles specially in spinning.

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MANUFACTURING PROCESS FLOW CHART

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Issue of Cotton Bales

Laying Down

Blow Room

Card

Finisher Draw Frame

Unilap

Comber

Speed Frame

Ring Frame

Winding

Conditioning

Packing for Single Yarn

Cheese Winding

T.F.O

Conditioning

Packing for Double Yarn

Breaker Draw Frame

THE MANUFACTURING PROCESS

Raw cotton is used as a basic raw material for producing 100% cotton yarn for ring spun.

1. MIXING

The different varieties of cotton are issued as per product mix from the raw material section in bales. The different varieties of cotton and different lots are mixed together as per the requirement of end product and standard recommended mixings. The material is conditioned in mixing for 24 hour

2. BLOW ROOM \

In this process, the cleaning and opening of fibers is done in a sequence of beaters. Main purpose is to reduce tuft size, remove the trash particles and foreign matter etc, which often comes in the bales.

3. CARDING

In this process, further cleaning of fibers is done and the fibers are opened into single fibers extent i.e. the main purpose is further removal of trash in cotton and the industrialization and parallelization of fibers. From the carding machine, the material is delivered in the form of sliver.

4. DRAW FRAME

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Storage & Despatch

The purpose of this process is to reduce the wt/yard in the card sliver 6 to 8 end of card slivers are doubled together in this process to reduce variations and further drafting is done to reduce the wt/yard of delivered sliver. Two passages are given at the draw frame stage.

In case of combed counts, the card sliver is fed to the precombing draw frame. The purpose of combing draw frame is to reduce the wt/yard variations in the card sliver and to parallelize the fibers. Singles passage is given at the precombing stage.

5. LAP FORMER

20-25 precombed draw slivers are fed together to produce a lap sheets of fibers, which is wound on the spools.

6. COMBERS

The laps prepared on lap former are fed to combers. The main purpose of combing process is to remove the short fibers from the material in the form of noil. The average noilpercentage carries from 15% to 18%. The material is delivered in the form of sliver.

7. SPEED FRAME

The finisher draw frame sliver is fed to the speed frames for conversion into the roving form. In this process the wt/yard of the sliver is reduced, slight twist is given to the fleece and the material delivered in the form of roving, wound on the plastic bobbins.

8. RING FRAME

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The roving is fed to ring frame for conversion into yarn. In the process, the weight / yd of roving are reduced as per requirement of ultimate user and the delivered yarn is wound on the plastic bobbins.

9. WINDING

In this process, the yarn is wound on paper cones to produce bigger package, as per requirement of the market. The weight / package vary from 1.2 kilograms to 2.1 Kilograms. During the process, in addition to the formation of bigger packages, the yarn faults are also removed with help of electronic yarn cleaner.

10. DOUBLING

In the case of type cord the process is same up to cone winding. After cone winding the yarn is fed into Cheese Winding. In the process 2 ply or 4 ply is to be done as per requirement. After the yarn is fed into ring doubling and required T.P.I. is given in 2 ply or 4 ply yarn. In the next process in assembly cheese winding is get the package in the package in the required from to be fed into T.F.O. in T.F.O. final yarn is prepared in the form of cheese and required T.P.I. is given to the final yarn in process.

11. PACKING

In this process, the cones / cheese are packed in bags or cartoons as per the requirement

of the market. In addition to the packing the material is checked thoroughly to avoid

mixing of different materials.

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3.2 COMPANY STRUCTURE

VARDHMAN POLYTEX LIMITED:-

A unit based at Bathinda(Punjab) The company has completed its expansion project and

with this, the total capacity of the company has increased to over 1 lakh spindles making

it one of the largest in Northern India. with Present installed capacity of 1,04,592

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OSWAL GROUP

VARDHMAN POLYTEX LIMITED OSWAL F.M HAMMERLE TEXTILE LIMITED

VARDHMAN POLYTEX LTD.,BATHINDA (SPINNING)

VTM,LUDHIANA(SPINNING & DYEING)

ANSHUPATI,LUDHIANA(SPINNING )

A.M.KRYON,LUDHIANA(READYMADE GARMENTS)

spindles, is manufacturing 100% cotton yarn, Polyster cotton yarn, lycra, slub and Tyre

cord yarn with vast range of count selection varies from NE 10 to 40 both in carded and

combed varieties. The Unit is situated in the hub of COTTON BELT and derives the

advantage of procuring its basic raw material of best quality at lower cost from nearby

locations. the Company has also set up an independent Cotton Purchase Office in

Bathinda for the selection & procurement of Cotton to meet out its requirement in all the

Units The company had been awarded the Export House status by the Government of

India. The present capacity in term of production is around 68000 Kg/day.

ANSHUPATI TEXTILES LIMITED, based at Ludhiana (Punjab), was

setup in 1991 with an installed capacity of 8000 spindles to manufacture Grey/Dyed

Acrylic Yarn, Fancy yarn. The Acrylic Yarn is used in the manufacturing of Hosiery &

Knitted Garments. This Unit also manufactures the Acrylic Yarn which is used in

manufacturing of Mink Blankets. Presently it has the capacity of 12000 spindles. The

quality yarn in this unit is manufactured using technology imported from Europe, which

is fully backed with ultra modern R&D equipment for consistent quality. The yarn

manufactured from this unit has demand both in domestic and international market. The

present capacity in terms of production is approximately 7.5 ton/Day.

VINAYAK TEXTILE MILLS:- The Company has setup this Unit in 2004 at

Ludhiana with an installed capacity of 25000 spindles. The Unit has latest state-of-the-

art-technology imported from Rieter (Switzerland), Murata (Japan) & Uster

(Switzerland). The Company has also installed a Dye House at the same location having

capacity of 13.2 MT per day with latest machinery imported from Fongs

(China).Company under this unit is manufacturing 100% cotton yarn with vast range of

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count selection varies from NE 20 to 40 both in carded and combed varieties.Presently,It

has installed capacity of 50000 spindles. The present production capacity is around 30-

mt/Day and 13-mt dyeing /day.

A.M KRYON INTERNATIONAL :

Oswal group operates the garment division under the name of A.M KRYON

INTERNATIONAL which was established in November 1999 under the leadership of

Mr. Adish Oswal located in Ludhiana (hub of knitted and kitting garments).

Product Range - T-shirts, shirts, trousers, cargo, shorts, jackets for men, women and

children. Providing 3rd party shipment of all kind of garments whether in fine knits or

wovens for world renewed brands- Dockers, Wall mart, Arrow, GAP. His own brand is

AO’S. Manufacturing for leading Indian brands- Provogue, Lifestyle, BareTied with

Giny and Jony Ltd. and Apparels Ltd. for manufacturing of children garments and

exports to DVH Inc. (USA)

CURRENT SET UP: Presently the Company has its corporate office situated at

Chandigarh Road, village Mundian, Ludhiana and works at Bathinda &Ludhiana. The

day to day operations are looked after by qualified technocrats/professional at plant/work

as well as at corporate office having experience in their respective fields of management.

Presently Mr.Ashok Goyal is the Chief Executive of Vardhman Polytex limited.

PRESENT CAPACITIES

Location Installed Production Product Range

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Capacity

(spindles)

Capacity

Bathinda (VPL) 1,05000 60000kg/Day Cotton,

Synthetic,

Blended yarn,

Lycra, Slub

Ludhiana

(Anshupati Textile)

12000 7.50 MT/Day Acrylic Yarn

Ludhiana (VTM) (spinning &

dyeing)

50000 30-MT/Day

13-MT

dyeing/Day

100% Cotton

yarn

Presently the group has following production capacity and product range at its

different manufacturing facilities.

The Management

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Mr. Ashok Oswal Mr. Ashok Goyal

Chairman & Managing Director President (Yarn)

Dr. Rakesh Mittal Mr. S. Bhatnagar

CEO - Corporate Head Corporate HR

STRUCTURE OF VPL (Bathinda)

VPL (BATHINDA) is headed by MR. Ashok Goel President of Yarn Business. The

below picture. Depicts the structural departments of the VPL plant at Bathinda.

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33

SECURITY & ADM. DEPT:-

The security department maintains the vehicles with their log books and their averages..

The petrol & diesel reports are with the security supervisor of every 15 days and the

petrol pumps gives the credit for 15 days to the drivers and pumps had been paid through

cheques.

P & IR: -

The department recruits the staff as required by the concerned departments. The overtime

payments and shifts are decided here. The time to time training is been given to the

workers and the staff. The increments, appraisal system with the personal records are

kept here.

ACCOUNTS & COMMERCIAL DEPT:-

1. ACCOUNTS BRANCH:

The accounts department manages the day to day accounting. The proper taxation records

of whole VPL group at are kept at one place.

For the Sales Tax purpose the TIN no. is same for the VPL group VAT is dealt with at Bathinda for the whole group TDS is dealt with at the separate individual units( Returns, Deposits, Refunds)

It maintains the Cash in flow statements- Monthly , Profit & Loss A\C’s -Monthly ,

Balance Sheet- Yearly .Audit is done Quarterly by the Internal Audit team of 3 persons

full time job .They spend 15 to 20 days in every unit for Audit purpose of Oswal group.

The Statuary Audit is done yearly by S. S. Kothari Mehta & Co. of Delhi the visit the

individual units by Dec or Jan and then make up the final audit of the individual units.

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2. COMMERCIAL BRANCH :

Costing: It is mandatory at Textile industry so the costing as daily bases is

maintained and monthly costing accounts are prepared. The Ram Nath Iyar And

Company makes an audit yearly.

Commercial:

3. For Raw Material & Waste Handling

4. Finished Goods handling: - On daily bases Marketing Production and

Transportation of the finished goods are made .

INFORMATION TECNOLOGY: -

Only the Hardware part is too managed here whereas the Software (SAP) is to be

observed in Ludhiana there more then 10 officers are there but at VPL (Bathinda) only 1

officer is there who manage the computers and they had outsourced the hardware

management to Wipro.

STORES DEPARTMENT: -

The Receipt of the Material, Packing, Oil Lubricants, Stores Spares, Consumables. The

quotations of prices are invited from the parties and than the most suitable party are being

given the order. There is centralized purchasing is been made at the corporate office in

regard with Machines and Packing Material. The least inventory is kept in order to avoid

the blockage of money.

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MAINTENANCE DEPARTMENT:-

This department makes a proper schedule of maintenance of the machines. 24 hours

schedule is being prepared and breakdowns are been rectified round the clock duty.

ENGINEERING DEPARTMENT:-

STRUCTURE

RESEARCH & TECHNOLOGY: -

The Research and the technology people ensures that the quality standards are of the

cotton bales in all vehicles are been maintained with which the finished goods also meet

the desired standards. In any case the Trash content is been more then the Debit Note is

been raised against the party. All the material complaints are been taken from the party

as told by the Marketing Department.

PRODUCTION DEPARTMENT: -

The Target of the Production is set in consultation with all the departments and then in

case there is any variation between the Actual Production and the Targeted Production

the reasons are too being considered.

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STRUCTURE

In Bathinda there are 4 units each having separate production departments and all are

headed by GM (TECHNICAL) and the rest of the hierarchy is identical for all the units.

COMPUTERISATION

Presently the unit is operating under “SAP”. The system work completed & come into

working from April 2007. This system is well structured keeping in view the present tax

regime like VAT, SERVICE TAX, and TDS etc. The Server for this is situated at

LUDHIANA. The feature of system is that data related to all units are available at

different units & branches. Each department can access data related to different units at

their own site subject to authorization. Personal computers have also been provided

separately for each department.

I.S.O. CERTIFICATION

The unit had been awarded ISO-9002 certificate by Bureau of India standards. The ISO

certification is an assurance of good quality of the product. At present, unit had been

awarded ISO-9001 – 2000 by bureau of India Standard.

MARKETING

For Marketing of different product, the unit is having a modern marketing department

headed by experienced team that covers all the activities for conversion of finished goods

into cash. It keeps vigil on the market feed-back on the level competition, market, trend,

changing customer needs and modifications. The marketing department deals with

domestic sales, while export department of the group manages export sales. The VPL’s

having the export and domestic ratio is 25:75. The unit is having different channels for

distribution of its products.

1. Selling agents at Ludhiana, Amritsar, Delhi, Mumbai and Tirupur.

2. Branches at Delhi and Ludhiana.

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3. Direct Dispatches are also made by the units.

EXPORTS

The exports at the group level started in 1985-86 due to increased govt. attention during

that period. For promoting the export govt. has also assigned the export house status to

the group in the late eighties. Export and Domestic ratio of VPL is 25:75. VPL exports

yarn to countries like BANGLADESH, HONGKONG, KOREA, MALAYSIA,

PHILLIPINES, SINGAPORE, SRI LANKA, VIETNAM, PORTUGAL

INDIGENEOUS CUSTOMERS

The indigenous customers of VPL, Bathinda; are industries like RAYMOND, SURYA

LAKSHMI, and cities like AHMEDABAD, DELHI AND LUDHIANA in the North,

TRIPURA in the South etc.

COMPETITOR

VPL is in tough competition with VARDHMAN GROUP; NAHAR GROUP,

LUDHIANA; TRIDENT etc.

38

3.3 PRODUCTS & SERVICES

YARN

FABRIC

GARMENTS

YARN

Textile is the basic & one of the most important industries of India. Yarn is vital

ingredient and link in the entire value chain of textiles. Yarn accounts for major share out

of total textile exports of our country.Oswal Group has acquired core competence in yarn

manufacturing and it is regarded as one of the leading, progressive and reliable yarn

manufacturer in the textile industry. The promoters including Shri Ashok Oswal,

Chairman & Managing Director has long experience of about three decades in textiles &

enjoys good representation among business associates both in India and abroad.

FABRIC

39

Oswal Group is primarily engaged in yarn business since its inception. Then gradually

looked for other avenues to integrate the value stream of textile manufacturing for the

need of business growth. Having a core competency in textiles, conversion of yarn to

fabric was a major focus area for this Group. The opportunity in niche market for

premium shirting fabric is ever flourishing. To grab this segment with bountiful of future

business potentials; Oswal Group forays into fabric business through an Austrian Joint

Venture. Oswal F. M. Hammerle Textiles Limited was established in 2008.

The company established itself as a profound mentor by manufacturing and exporting

magnificent textile products since 2003. Through their Total Quality Management

(TQM), they effortlessly display their worth at the quality front and therefore they are

confident to make a big stride in this endeavor.

GARMENTS

Oswal Group operates the garment division under the name of Amkryon was established on November 1999 under the able leadership of Mr. Adish Oswal .Amkryon’s manufacturing facility is located in Ludhiana, which is the hub of kitting and knitted garments. The manufacturing plant is equally balanced for Knitted and Woven Garments and is well laid out with lots of open spaces and good working conditions. They had good team of dedicated professionals for all areas of operations.

40

VARIETY OF YARN PRODUCTS

100% Cotton YarnNE 10s-40s, Carded & Combed, Single & Multifold, Dyed, Processed

Polyester / Cotton Blended Yarns

NE 10s-40s, Carded & Combed, with a capability to offer any blend.

Worsted Spun Yarn 100% Acrylic Yarn for Mink Blanket & Hosiery (Both Grey/Dyed)

Dyed YarnCapacity of Dyeing 100% Cotton Yarn, Acrylic, Polyester

3.4 PERFORMANCE / ACHIEVEMENT REVIEW

Annual review is complete review of the performance of the unit activities and the actual

results are compared with budgets. The variances are noted and analysis is done. Annual

review is divided in to two parts:-

1. Technical Performance

2. Financial Performance

3. Achievement / Activity Performance

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TECHNICAL REVIEW

Technical review includes the following: -

1. BUDGETED UTILIZATION

2. RING FRAME PRODUCTION / PRODUCTIVITY

3. YARN RECOVERY

4. WASTE PERCENTAGE

5. MAN POWER DEPLOYMENT

6. MAN MINUTES PER KG

7. MAINTENANCE COST P/S

8. ENERGY REPORT

9. MOTOR BURNING

In this review, given all the above heads actual cost in each head for whole of the process

is calculated and then compared with budgeted cost in each head assumed at the

beginning to check whether there is any deviation between them or not. If there is any

deviation then required steps are taken to remove that deviation between them.

FINANCIAL REVIEW

In this review first of all actual PBDIT for current year is calculated and then it is

compared with last year’s PBDIT to check whether there is any difference between them

42

or not. If there is any difference between them then what are the reasons for differences

are calculated. For this following steps are taken;

1. SALE

In this total actual sale, domestic as well as export both are calculated at the end

of the period and compared with budgeted sale to check whether there is any

deviation between them or not. If there is any deviation between them then what

are the reasons for the deviations. In this we check whether the deviations are due

to the change in demand or due to the change in sale rate.

2. RAW MATERIAL

In this comparison between actual raw material consumed and budgeted raw

material is done to check whether there is any deviation between them. And if

there is any deviation between them then what are the reasons for the deviations.

The reason may be change in rates or due to change in mixing.

3. MANUFACTURING COST

In this comparison between actual manufacturing cost incurred and budgeted

manufacturing cost is done to check whether there is any deviation between them.

And if there is any deviation between them then what are the reasons for the

deviations. The reason may be change in power rates, due to the shortage of

supply of raw material etc.

4. PERSONNEL EXPENSES

In this comparison between actual personnel expenses incurred and budgeted

personnel expenses is done to check whether there is any deviation between them.

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And if there is any deviation between them then what are the reasons for the

deviations. The reason may be change in basic salary, change in wages, change in

other perks etc.

5. ADMINISTRATION EXPENSES

In this comparison between actual administrative expenses incurred and budgeted

administrative expenses is done to check whether there is any deviation between

them. And if there is any deviation between them then what are the reasons for the

deviations. The reason may be change in insurance charges, change in telephone

expenses, change in traveling expenses etc.

6. SELLING EXPENSES

In this comparison between actual selling expenses incurred and

budgeted selling expenses is done to check whether there is any deviation

between them. And if there is any deviation between them then what are

the reasons for the deviations. The reason may be change in commission

on domestic as well as export sales, change in cash discount, change in

rebate and claim etc.

ACHIEVEMENT & MAJOR ACTIVITIES

Major achievements are highlighted by the respective department. Modifications done for

system improvement or for cost saving are also being discussed during review.

44

DIRECTIONS FOR FUTURE RESEARCH FINDINGS

1. Due to avoidable and non-avoidable circumstances, variance is noted in actual

and budgets.

2. Budgets are prepared on the assumption that certain condition will prevail.

Because of future uncertainties, assumed conditions may not prevail necessitating

the revision of budgetary targets. The frequent revision of targets will reduce the

value of budgets and revisions involve huge expenditure too.

Every department head worries for his departmental goals without thinking of the

business goals. Every department tries to get maximum allocations of funds and this

raises a conflict among different department

45

46

Project Data

Budget Formulation Budget Analysis

4.1 BUDGET FORMULATION

KEY FACTORS

The starting point for preparing budget at unit level is to determine companies limiting

factor e.g. Sales forecasts, raw-material availability. In case of VPL unit, the production

capacity is taken as the limiting factor. Therefore the unit’s production budget is the pivot

around which all functional budgets are prepared. The budget factor constitutes the

starting point for the preparation of many budgets. The budget factor highlights the

limitation of the undertaking as for e.g. Production capacity is the limiting factor of VPL.

INTERPRETATION OF DIFFERENT BUDGETS PREPARED BY VPL

BUDGET AT GLANCE

Budget at glance shows the overall structure of organizations. It shows the sale value of

production for different quarters and its total value. The various expenses like raw

material, manufacturing expenses, personnel expenses, administration expenses, selling

expenses and excise duty are deducted from sale value to arrive the profits. Budget at a

glance shows Quarter wise PBDIT.

MAJOR ASSUMPTIONS

The budget deals with the future, which is full of uncertainties. The major underlying

assumptions forecasted are:

PERIOD ALLOCATION: whole annual budget is divided into four semesters:-

1. April to June.

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2. July to Sept.

3. Oct to Dec.

4. Jan to march.

5. It indicates the utilization %age of various m/cs during four quarters.

6. Sales rate (provided by Central Marketing).

7. Power rate purchased and own generation.

8. Hike in wage rate / salary, manpower recruitment.

9. Working days etc.

10. Cotton and PSF prices.

11. Exchange rate for Exports.

BUDGETED CONTRIBUTION STATEMENT

Budgeted contribution statement shows the sales value minus variable cost. Total variable

cost is calculated by adding raw material cost, wages, power, packing material, selling

expenses and excise duty. This variable cost is deducted from sales to give contribution

per count. To make it more analytical count wise contribution P/S/S is calculated.

RAW MATERIAL BUDGET

Production budget is the base for Raw material budget. On the basis of production and

yarn recovery % raw material requirement is calculated. The estimated quality of raw

material is then multiplied by the pre anticipated cotton prices. For 1st half of the budget

year actual book prices are considered while for 2nd half budgeted rates are considered

which are provided by cotton purchase office.

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BUDGET WASTE REALIZATION STATEMENT

This report shows the various types of cotton waste to be generated by the various cost

centers starting from blow room to packing. Department wise waste percentage is

provided by the production department. Quality wise waste is then multiplied by

expected rate, which are being provided by commercial department.

MANUFACTURING EXPENSES BUDGET

All the variable and fixed expenses, which relates to manufacturing process are

considered under the head of manufacturing expenses in annual budget. The major

expenses covered in this budget are: energy charges, packing charges, and maintenance

charges, which comprises: - machinery repairs, planned replacement, stores consumables,

oil & lubricant and electrical / electronics cost departments.

POWER AND FUEL BUDGET

This report indicates the cost of power and the fuel used for operating D.G. sets keeping

in view the requirement and supply of power, units of power per unit cost of power is

calculated. Similarly keeping in view the use of D.G. sets cost of H.S.D./ HPS is

calculated. Units to be consumed in each department are given by electrical department.

As the unit have 80% power of its own generation. Expenses like maintenance cost, oil &

lubricant of WARTSILA and other D.G set are provided by power house.

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PERSONNEL EXPENDITURE BUDGET

This report shows the fact based on anticipated expenses relating to the personnel. It

comprises department wise wages. Head wise various personnel expenses such as Basic

salary, H.R.A., conveyances, medical, LTA, ESI, P.F., Bonus, welfare expenses and other

incentives etc. Detail department wise manpower is given by respective department to I.R

department. on the basis of department wise personnel budget is being prepared by

Industrial relation department.

ADMINISTRATION EXPENDITURE BUDGET

The expenses relating to general administration are considered under the head of

administration. The expenses comprised in this report are insurance, rent, traveling,

vehicle expenses, printing & stationery, postage & telegraphs, electricity & water

charges, books & magazines, legal & professional, rates & taxes, general repairs, auditor

expenses, charity & donations, general charges, survey fees etc.

INSURANCE EXPENSES BUDGET

Budget would show the sum insured and rate of premium for different type of assets.

Major insurance policies under taken as follows: -

1. Policy of fixed assets: for plant & machinery and building (insurance expenses

allocated to different department on the basis of P & M value and building

expenses. Are allocated on the basis of covered area.)

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2. Marine policy: state of finished goods, purchase of raw material, purchase of

stores, cash in transit and machinery breakdowns etc.

3. Policy of stock: For stock of finished goods, raw material and stores and spares.

4. Other policies: it covers the other misc. policies.

BUILDING REPAIR BUDGET

It is prepared by Civil Department. This report indicates the expenses to be incurred on

building repair. The repairing expenses are divided in three parts:-

5. Factory building repairs

6. Non factory building repairs

7. Colony building repairs.

SELLING EXPENSES BUDGET

All the expenses relating to sales are comprised in this report. The major expenses

covered in this report are:-

1. Commission of sales (exports & domestic)

2. Cash discount and quantity discount

3. Freight, octroi & other forwarding expenses

4. Advertisement and other promotional expenses

5. Rebate & claims

6. Cess on yarn & truck expenses: not on exports but on domestic sales.

7. Cash discount

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8. Quantity discount

FINANCIAL EXPENDITURE BUDGET

It includes the following expenses:

1. Interest on Working Capital – Fixed at Corporate Office, Ludhiana.

2. Interest on Term Loan.

3. Interest on Suppliers – if the payment is made with in 72 hours from time of

pressing of bales the supplier give interest of 24%.

4. Interest on trade deposit and other bank charges.

5. Interest on Head office investment.

BUDGETED CONVERSION COST

This report indicates all the expenses, which are incurred on converting Raw Material

Goods into Finished goods. All the expenses are allocate in following parts.

Manufacturing expenses, Personnel expenses, Administration expenses and spd.

Shift is calculated.

BUDGETED RING FRAME ALLOCATION: -

It comprises the complete production programme for the budgeted period. It indicates the

quarter wise machine allocation for production of various quality of yarn.

BUDGETED PRODUCT MIX

This report indicates the combination of various quality of yarn to be produced during the

budgeted period.

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1. Combed Export

2. Combed Domestic

3. Carded Export

4. Carded Domestic

5. Tyre Cord – Domestic

6. PC – Combed Export as well as domestic PC – Carded

BUDGETED STOPPAGE REPORT

This report indicates the department wise & head wise reasons of stoppage of machines.

All these reason are divided into two parts :

1. Avoidable

2. Non-avoidable.

Each concerned department provides budgeted stoppage of his department. A compiled

report is prepared by production department.

TARGET MAN MINUTES PER KG

Based upon the budgeted production and manpower deployment, budget man-minute are

being calculated. This report shown man-minute required to provide one kg of yarn.

MAINTENANCE BUDGET

As the name implies “maintenance budget”, this is report is concerned with indicating the

total expenses to be incurred on maintenance of machines and parts during the year. It

comprises department wise expenses of various machines.

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STANDARD PACKING MATERIAL COST / KG

This comprises the mode of packing, standard Weight material cost, wages costs, packing

material cost per kg. (With 1% waste)

Different type of packing

Export KH 45.36

CH 45.36

TC 45.36

Domestic KH& CH 46.44

PC 48.30

SALES BUDGET

Sales budget involves a realistic sales forecast. This is prepared in units of each product

and also in sales value. Methods of sales forecasting include:

1. Sales force opinions

2. Market research

3. Statistical methods (correlation analysis and examination of trends)

4. Mathematical models.

In using these techniques consider:

1. Company's pricing policy

2. General economic and political conditions

3. Changes in the population

4. Competition

5. Consumers' income and tastes

6. Advertising and other sales promotion techniques

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7. After sales service

8. Credit terms offered.

SALES BUDGET IN VPL

Sales budget at group level is prepared by the Central marketing department as part of the

annual marketing budget taking into consideration organizational objectives, forecasted

market scenario, capacities and capabilities. The unit sales budget is prepared on the basis

of the group sales plan.

At the unit level in VPL, the planned product mix is arrived at in consultation with

Central Marketing Department. The central marketing at unit level would however jointly

work to finalize the optimal product mix for the unit keeping in view production capacity

and capabilities, expected products, prices, market demand, customer’s requirements.

MAIN POINTS TO BE CONSIDERED:-

Sales budget is prepared by PPC (production planning and control), where EXPORT

MARKETING, LUDHIANA BRANCH and DELHI BRANCH sends their sales

requirement i.e. quantity required, what should be the sales price (in USD) and in Rs. and

they do this by doing sales forecasting through historical data, production constraint,

trends and destinations.

PRODUCTION BUDGET

FOR in quantitative terms only and is geared to the sales budget. The production

manager's duties include analysis of plant utilization.

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If requirements exceed capacity he may:

9. Subcontract

10. Plan for overtime

11. Introduce shift work

12. Hire or buy additional machinery

13.The materials purchases budget's both quantitative and financial.

PRODUCTION BUDGET IN VPL

The production budget is prepared taking into consideration the installed capacity and

new capacity/balancing machines plan during the year with the objective of optimum

utilization of production facilities available in the unit and would include production

programme. Production programme shows count wise spindle speed, front roller speed,

twist per inch, efficiency percentage to calculate production per spindle in gms.

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4.2 BUDGET ANALYSIS

The basic objective of budget analysis is to modulate the goal-oriented behavior of the

units and help them formulate and achieve right objectives. The unit budgets would be

analyzed at the unit / corporate level on the following parameters.

1. PRODUCTION

For determining a unit’s performance production budget is the key variable i.e. the

variable whose performance will have most significant impact on the unit’s working. The

units production budget would be analyzed on the following basis.

2. CAPACITY UTILIZATION

Capacity utilization budged for Ring Frame and other balancing machines Combers and

Autoconers shall be analyzed with respect to

1. Past performance

2. Performance by other units

3. Bench marks

Inconsistencies and deviations would be worked out and reasons there of like power,

labour machine balancing, raw material etc. shall be examined.

3. PRODUCTIVITY

The account wise budgeted productivities of Ring Frame would be analyzed on the basis

of :-

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1. Past Performance

2. Performance By Other Units

3. Productivity Norms

4. Actual count

5. Mixing Composition

6. Health Of Machines

7. Ring Diameter

8. Environment Conditions

4. WASTE

Another key variables for analyzing production budget of a unit is waste budget. The

budgeted waste determine how effectively the process control measures have been

designed by the unit.

The waste budget shall be evaluated keeping in view the following :

1. Department wise process wise waste generation – carded, combed

2. Past performance

3. Other units performance

4. Bench marks

5. Trash content in cotton

5. EXPENSES

The analysis of expenses is essential to determine the impact of these on cost of

production. The parameters to be analyzed are :

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RAW MATERIALS

The raw material cost needs to be closely examined because 70% of total cost is on

account of raw material. The raw material purchase is undertaken at the group level and

the raw material department indicates the budgeted prices. However, at the unit level, the

raw material budget would be analyzed in term of.

1. Raw material mix

2. Yarn realization

3. Waste recovery

4. Clean cotton cost

In analyzing raw material mix, group standards and mixings used by other units &target given

by Corporate can be taken into consideration.

MANUFACTURING EXPENSE

The analysis of various direct expenses budgeted by the unit shall be done to as certain

cost effectiveness.

1. POWER : Power significance as it is the second highest cost of input next to Raw

material cost. Power cost shall be analyzed keeping in view the following

parameters.

2. No. of units per spindle shift

3. Cost of generation of power

4. Proposed hike in P.S.E.B rates.

5. Trends of fuel prices.

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6. Maintenance schedule of own generated set.

The analysis shall be done taking into consideration the previous year consumption and

consumption and consumption levels of other units having similar count patterns.

MAINTENANCE COST

In this analysis of maintenance, engineering and production budget is done.

The analysis of various indirect expenses shall be made to ascertain their impact on

production cost. The various indirect expenses which are to be analyzes are:

A. SELLING EXPENSES

Budgeted cost of advertising, sales promotion, freight and commission shall be studied in

relation to previous year’s expenses and new requirements etc.

B. PERSONNEL EXPENSES

1. WAGES: The total budgeted wage cost shall be analyzed in terms of previous

year’s cost and experience of other units and also other factors like statutory wage

revision and wage agreement etc. The wage cost shall also be analyzed with

reference to process wise, category wise deployment of man power along with

workloads.

2. SALARY : Department wise deployment of officers and staff shall be analyzed

keeping in view the following :

3. Sanctioned strength

4. Past record

5. Deployment in other units

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C FIXED WAGES COST

Wage cost incurred on Overlookers and other personnel engaged in service departments

shall be analyzed on the basis of past experience, per spindle cost and possibility of cost

reduction.

EXPENSES

TRAINING EXPENSES

Budgeted training activities and associated cost like wages during training period, faculty

cost, study material cost, etc. shall be analyzed taking into consideration capacity plan

expansion and normal turnover.

Deployment of trainees shall be studied against bench marks and previous year’s

deployment.

In using budget as an instrument of control, actual result will be compared with the

budgeted on monthly / quarterly basis to prepare periodic performance report and to

identify deviation. An analysis of variances can help understand the problem better and

take appropriate corrective action. The variances can occur on account of the following :

6. Caused by un-controllable facts like government policies, raw material prices,

production, marketing problems etc.

7. Caused by managerial decisions not initially planned e.g. product mix change.

Controllable factors, which need to be carefully investigated.

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BUDGETARY CONTROL

Control activity is fundamental to all living systems. In the context of organization it is

crucial to the achievement of goals and objectives. The control process essentially

involves measurement of the actual state and comparison with desired state. Budgetary

control system is one of the important control system employed in an organization. It

includes preparation of budgets which means the setting out the desired state and

comparison with actual state. (Budgetary Control).

IDENTIFICATION OF KEY FACTORS

In every firm, there are critical factor which sets a limit to its level of activity. Often, the

expected demand, production capacity of the firm, availability of power, raw material

availability and some time finance for the budgeting, as it determines the scope and level

of operations.

Budgetary Control : It is the process of determining various budgeted figures for the

enterprises for the future period and then comparing the budgeted figures with the actual

performance for calculating variance, if any. First of all the budgets are prepared and then

actual are recorded. The comparison of budgeted and actual figures will enable the

management to find out the discrepancies and take remedial measures at a proper time.

The budgetary control is a continuous process which help in planning and coordination. It

provides a method of control too. A budget is a means and budgetary control is the end-

result. Budgetary control refers to the principles, procedures and practices of achieving

given objectives through budgets.

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Definition According to the company

Budgetary control involves the use of budget and budgetary reports, throughout the

period to coordinate, evaluate and control day operation in accordance with the goals

specified by the budget.

Budgetary control involves preparation of budgets and business is divided into various

responsibility centers for preparing the various budgets. The budgeted and actual figures

compared for studying the performance of different cost centers if actual performance is

less than the budgeted norms a remedial action is taken immediately management

information system is used in finance and accounting for budgetary control purposes.

BUDGETARY SYSTEM IN VARDHMAN POLYTEX LTD.

NEED OF BUDGETING IN VPL

1. It integrates the objectives of all sub-units – Marketing, Production, Finance,

Human Resources, Research & Development.

2. Quantify expectations regarding future income, cash flows, financial position etc.

3. Comparing performance with plans

4. Foreseeing and avoiding prospective difficulties

5. Identifying control factors, indicating deviations in resource utilization,

productivity’s expenses, wastages.

6. Locating areas for improvement

7. Communicating, motivating and authorizing actions

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DEVELOPMENT OF BUDGETS

The preparation of individual budget deciding upon scope of budgets, suitable time to

start budgeting scheme, requirement of budgets. In VPL, costing department is

responsible for compilation of the budgets in set forms. All departments prepare their

budgeted requirements and achievements based on the standard norms, past performance,

capacity utilization, guarantee of the supply and many others. The costing department

finally checks the final budgets and send to the corporate Head Office, Ludhiana for its

approval.

PROCEDURE FOR PREPARING BUDGETS IN VPL

1. Functional budgets are prepared at each departmental level. Each head of

department prepares budget estimates of items of expense controllable at its level.

2. After the functional budgets are compiled, master budget is prepared and analysis

by the costing department. Master budget provides an overall view of the

structure of the unit.

3. Master budget is discussed at unit level by unit head alongwith all departments

heads. A representation is made by the costing head. For future analysis the

budgets are sent to corporate MIS, Ludhiana.

4. Actual of last years and budgeted of this year are analysed. The Chairman

thoroughly analysis these budget. The budget is compared with budgeted figures

of other units.

5. A final meeting at the corporate level is held where budget is discussed. The

meeting at Corporate level is chaired by CMD and members from unit level as

well as from corporate also participates in Budget meeting. Finally, it is approved

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and send to Bathinda Unit for its implementations. Any alternations are

recommendations suggested in meeting if necessary are incorporated.

BUDGETARY CONTROL IN VARDHMAN POLYTEX LTD.

In using budget as an instrument of control, the actual results will be compared with the

budgeted an monthly / quarterly basis to prepare periodic performance report and to

identify deviations. An analysis of variations can help to understand the problem better

and appropriate corrective action can be taken. The variances can occur on account of the

following :

6. Caused by uncontrollable facts like Govt. policies, raw material prices,

production, marketing problems etc.

7. Caused by managerial decisions not initially planned e.g. product exchange.

8. Controllable factors, which need to be carefully investigated.

The various analysis also helps and isolate the impact of each important variable leading

to useful insights in the underlying causes and fixing responsibilities.

As I have already mentioned that Vardhman Polytex Limited, Bathinda belongs to Oswal

Group of Industries. The corporate office of the organization is situated at Ludhiana. All

the information relating to various departments flow from units to corporate office. The

corporate office analyze the information and data supplied by the units and convey the

facts to the top management for the purpose of planning, coordinating and controlling. In

Vardhman Polytex Limited, budgets are prepared by different cost centers for the purpose

of budgetary control.

65

Budget preparation and control is done at every level of management. Even though

budgets are finalized at top level but involvement of persons from lower levels of

management is essential for their success.

The budgets are prepared on the basis of key factor, a factor which influences all other

budgets and key factor is sales, and production, raw material and power cost. Budgets are

prepared on the sales factor. Costing department is empowered to scrutinize the budgets

prepared by different functional heads and to make changes them, if the situation so

demands. Annual budget is prepare before the start of every financial year. Then the

actual performance of different departments is collected and analyzed by costing and MIS

Department. He determines the deviations in the budgets and suggests necessary steps to

rectify the deficiencies, if any. He works as a coordinate among different department and

monitor the relevant information.

To prepare budget for next year, a meeting is called to know what to do in future and the

various departments are informed about the meeting. Different department give

information and projections relating to their department. As mentioned periodic reports

are prepared and analyzed by costing department. A presentation on monthly

performance is given by costing department in monthly review. Any deviation found are

highlighted and conveyed to concerned department for corrective action

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BUDGETING SYSTEM IN VPL

MasterBudget

Sales Budget

Production Budgeta)b)c)d)

Expenditure Budget

Raw Material Budget

Manufacturing Expenses

Personal Expenses Administration Exp. Budget

Selling Exp. Budget

Other Income Budgets

Cotton

Polyester

Power Packing

Material Maintenan

ce Bdgt. R&D Exp.

Wages Trainee

Stipend Salary Perks &

Allowances Welfare &

Other exp. etc.

Rent Rates &

Taxes Telephon

e Postage

& telegram Vehicle Local

conveyance Traveling Printing &

Stationery Audit fee Audit

exp. Legal &

profession fee

Freight, forwarding & octroi

Export exp.

Commission Export & Domestic

Cash & Quantity Discount

Scrap sale

DEPB Benefit

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68

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5.1 Findings Recommendations Conclusion

5.1 FINDINGS

After the analysis of various costs, procedures and reports we can find that cost

accounting system adopted by Vardhman Polytex Ltd. Bathinda for reflecting the

accurate cost of production of the final product i.e. yarn is adequate. Here is control cost

by the respective department heads. Budgetary control system is adopted. Budgetary

control includes preparation of for planning and comparison of actual with budgeted

figures for control purposes. Proper presentation and reporting the information to the

Management and Head Office. The reports are filed on the daily, weekly, monthly

quarterly and annually namely :

1. Annual Budget

2. Monthly Budget

3. Annual Review

4. Monthly Review

5. Trends Report

6. Daily Cost Sheet

7. Other reports

Annual review and monthly review are complete reviews of the performance of units

activities. Actual results are compared with budgets. Variances are noted and analysis is

done. These reviews contains various reports. Daily cost sheet monitors the cost and

profitability on daily basis. It reflects the changing in cost and cash profit. Monthly

meeting are held to discuss the monthly reviews. Corrected actions are suggested by

various heads of departments in case of variances. The Head Office also analyses the

reports and sends suggestions.

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5.2 SUGGESTIONS

1. An effective system of communication is required for successful budgetary

control. The flow of information regarding budget should be quick so that these

are implemented. The performance reports of various levels will help top

management in budgetary control.

2. Flexibility in budgets is required to make them suitable under changed

circumstances.

3. The proper organization is essential for successful preparation, maintenance and

administration of budgets. A budgetary committee must be formed which

comprises the departmental heads of various departments.

4. Though annual budgets are prepared and are discussed in length. Monthly budgets

should also be discussed with respective heads and at corporate level.

5. Budgets are normally based on conventional basis. Concept of Zero base

budgeting should be adopted wherever possible.

6. As the actual results are collected from accounts books, which sometimes provide

difficulties in analysis because of common head for difference type of expenses.

7. Activity based costing system should be used where the same can be used to

provide better monitoring.

8. Variance reports are prepared on monthly basis and are being communicated to

respective department head but no action plan is provided by the department to

overcome with variances.

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9. In the present era, rapid changes are being observed on day to day basis. While

preparing annual budget a deep forecasting based on historical data and likely

future trend is required which normally doesn’t happen.

10. Budgeting exercise is confined to arrive at PBDIT only. Other financial expenses

are not being considered to arrive at cash accruals / net profit and depreciation.

5.3 CONCLUSION

Various reports such as annual budget, monthly budget, annual review, monthly review

and commercial review are studied for control purposes. The variances are due to the

assumptions which are considered during the preparation of budgets. Moreover, variances

are there due to change in rate and quantity, staff turnover e.g. as company purchases

cotton in bulk during August to March so the value of raw material gets affected. The

deviation in actual and budgeted reports helps the head of costing and MIS departments

to control over various capital and revenue expenditure and budgetary control aims at the

maximization of profits of the organization. The budgetary control helps in the co-

ordination among different departments of the organization. Reviews are prepared so that

necessary actions are taken at the earliest time and it will help in the determination of

weak spots. Control is continuous process.

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6.1 limitations of study6.2 bibliography

6.1 LIMITATIONS OF THE STUDY

As budgets are prepared for the future period so situation which, is presumed to

prevail in future may change.

Time to study concept of budgetary control is very limited.

Identification of the persons, involved in Budgeting.

Study of functioning of company was limited to Bathinda, so I was not able to study

in detail about inventory management a system that was based at Ludhiana.

6.2 BIBLIOGRAPHY

1. Chandra Prosana, Financial Management, Theory and Practice, McGraw Hill,

Publishing Company, 1993.

2. VAN Hourne, J.C, Financial Management and Policy, Prantice Hill of India, New

Delhi, 1993.

3. FINANCIAL MANAGEMENT SHASHI K. GUPTA

4. PANDEY I.M., FINANCIAL MANAGEMENT; VIKAS PUBLISHING HOUSE

PVT. LTD

5. Websites : www.texprocil.com , www.texmil.nic.in , www.oswalgroup.com

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