A Study on Budgetary Control System

INTRODUCTION & OBJECTIVES OF STUD

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 techni ues 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 re uire 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.

OBJECTIVES OF STUD

T%E STUD %AS T%E FO&&O'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.

&I)ITATIONS#
-stimates are used as basis for budget plan and estimates are based mostly on available facts and best managerial judgment Budgetary control cannot reduce the managerial function to a formula. $t is only a managerial. &ool which increase effectiveness of managerial control. &he use of budget may be to restricted use of resources. Budgets an often taken as limits. -fforts may therefore not be made to e!ceed the performance beyond the budgeted targets. Fre uent changes may be called for in budgets due to first changing industrial climate. $n order that a system may be successful, ade uate budgets education should be imparted at least through the formative period. ,ufficient training programs should be arranged to make employees give positive response to budgetary activities. &he study is the limited up to the date and information provided by )esoram %ement $ndustries *imited and its annual reports.

OR"ANISATION +ROFI&E

+ROFI&E OF T%E INDUSTR

&he ./'years old $ndian cement industry is one of the cardinals and basic infrastructure which enjoys core sector status and play a crucial role in the economic development and growth of a country. Being a core sector this industry was subject to price and distribution controls almost uninterruptedly from world war'$$ when government of $ndia announced the partial decontrol of price and distribution as the market price of cement began to raise response to decontrol manufacturing cement became increasingly attractive and the industry e!perienced substantial e!pansion. As the supply in response to the 01.2 partial decontrol was significant in 3arch 01.1, price and distribution control were finally dispensed with it was one of the first major industries in the country to be so deregulated.

OVERVIE' OF T%E INDUSTR

&he word cement means any substance applied for sticking things. But cement is the most vital and important material for modern construction as a binding agent. $n the ancient times, clay, bricks and stones have been used for construction work. &he 4omans were using a binding or cementing 3aterial that would harden under water. &he first systematic effort was made by 5,3-A&$(+6 who under took the erection of a new lighthouse in 07/8. 9e observed that the production obtained by burning limestone was the best cementing material for work under water. After Fifty years :$%A& a French %hemist, produced hydraulic cement by burning finely ground clay and clay and used it in the paste. %ement invented by ;(,-<9 A,<=$+ in 0.2>. ,ince hardened cement paste resembled <ortland stone found in -ngland in color, he named it as 5<ortland %ement6 a name, which has carried over the century. <ortland cement was first manufactured in :nited ,tates of America in 017/.

$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 ,(+- AA**-B <4(&*A+= %-3-+& %(3<A+B *$3$&-= merged to from the A,,(%$A&-= %-3-+& %(3<A+$-, *$3$&-=. &his has more facilitated a cost reduction as well as uniformity in uality. By 01>7 the installed capacity of the $ndustry raised to 2.2 million tones per annum. After partitions, five of the cement producing units in the country went to <akistan and total installed capacity of the eighteen units that remained in $ndia was 0./ million tones per annum. &his increased to @.. million tones by 01/?'/0. $n the three decades 01/?'.?, the capacity e!pansion was between 7 to . million tones per decade. &he targets set in respect of additional capacity generation was released with the impetus given by the partial decontrol announced in 01.2, several units lockup project for e!pansions of capacity and modernization which contributed towards increased production.

DEFINITION OF CE)ENT#
%ement may be defined as 5it is a mi!ture of calcium silicate and aluminates6. Chich have the property of setting and hardening under water. &he amount of silica, Alumina who is present in each crust is sufficient to combine with calcium, o!ide "%ao# to from the corresponding calcium silicate and aluminates.

C&ASSIFICATION OF CE)ENT#

%ement is @ types.

+U//O&ANTIC 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 <ortland cement. $t is found more resistant to the chemical action than others.

NATURA& CE)ENT#
&his is natural occurring material. $t is obtained from cement rocks. &hese cement rocks are claying limestone containing solicits, aluminates of calcium. &he selling property of this cement is more than the <ortland cement but is comprehensive strength is half of its.

+ORT&AND CE)ENT#
0. (rdinary <ortland cement. 2. 4epaid hardening <ortland cement. @. *ows heat cement. >. Chite or colored cement. /. Cater proof <ortland cement. 8. <ortland slag cement. 7. <ortland pozzolana cement. .. ,ulfate 4esisting cement.

)ET%ODO&O" #
&he proposed study is carried with the help of both primary and secondary sources of data.

+RI)AR DATA#
&he primary data is collected by interacting with the finance manager and other concerned e!ecutives at the administrative office of the company.

SECONDAR DATA#
All the secondary data used for the study has been e!tracted from the annual reports, manuals and other published material of the company.

SCO+E OF T%E STUD #

11

,ince it will not be possible to conduct a micro level study of all cement industries in Andhra <radesh, the study is restricted to )esoram %ement only.

&I)ITATIONS OF T%E STUD #

&he following are the limitations of the study 0. &he study is limited based on data provided by the companyDs financial statements. ,o the limitations of the statements are e ually applicable of this study. 2. &he study is limited for a period of / years i.e., from 2??@'2??..

INDIAN CE)ENT INDUSTR 2 +RESENT STATU

After the declining of the industry in ;uly 0110 it reacted positively to the policy changes. +ew capacities created and the volume of production increased. Form a situation of improving cement, the country started e!porting due to high uality and cost effectiveness. After liberalization the black market in cement also disappeared. %urrently $ndia stands second largest in the cement production worldwide after %hina. (n the other hand per capita consumption in $ndia is only books as compared to the world average of 28?kgs. &he industry has , 1 companies owning 00 , plants. $n the matters of e!ports the government considers cement as an e!treme focus area. 9owever $ndian cement in the global market is not very competitive due to high power and full costs. $n order to improve its position in the international market, technological up gradation is essential in terms of process, product diversification cost reduction, uality control and energy saving.

ABOUT T%E INDUSTR

&hese chapter e!aminers a profile of )esoram %ement $ndustries *td.i.e., its history, location organization structure etc.,

&OCATION# 11

)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 <radesh, Basanth +agar is .km away from the ramagundem railway station linking madras to +ew =elhi. &he chairman of the company is sty. B.) Birla

%ISTOR
&he first unit at Basanth +agar with a capacity or 2.0 lakhs tones per annum incorporating suspension'preheated system was commissioned during the year 0181. the second unit was setup in year 0170 with a capacity of 2.0 tens per annum and "he third unit with a capacity of 2./ lakhs tons per annum went on stream in the year 017.. the coal for this company is being supplied iron ,ingareni collieries and the power is obtained from A<,-B. &he power demand for the factory is about 20 3C. )esoram has got 2 =E, set of > 3C each installed in the year 01.7. )esoram cement has set up a 0/)C capacity power plant to facilitate for uninstall power supply for manufacturing of cement start at 2> August 2??7 per hour 023C, actual power is 0/3C. Birla ,upreme in popular brand of )esoram %ement from its prestigious plant of Basanth +agar in A<, which has out standing track record. $n performance and productivity serving the nation for the last two and half decades. $t has proved its distinction by bagging several national awards. $t also has the distinction of achieving optimum capacity utilization.

)esoram offers a choice of top uality portioned cement for light, heavy constructions and allied applications. Fuality is built every fact of the operations.

&he plant layout is rational to begin with. &he limestone is rich in calcium carbonate a key factor that influences the uality of final product. &he day process technology used in the latest computerized monitoring overseas the manufacturing

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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 $ndia by bagging the +ational productivity Award consecutively. For two years the year 01./'01.7. the federation of Andhra <radesh %hamber G commerce and industries "FA<<%%$# also conferred on )esoram %ement. An award for the best industrial promotion e!pansion effort in the state for the year 01.>. )esoram also bagged FA<%%$ awarded for 5Best Family <lanning -ffort in the state6 for the year 01.7'01... (ne among the industrial giants in the county today, serving the nation on the industrial front. )esoram industries *td has a che ue red and eventful history dating back to the twenties when the industrial 9ouse of BirlaDs ac uired it. Cith only a te!tile mill under its banner 012> it grew form strength to strength its activities 0? newer fields like transparent paper, spun pipes, refractories, tires and other products. *ooking to wide gap between the demand and supply of a vital commodity cement, which plays, :$ important role in national building activity the Eovernment of $ndia had de'licensed the cement industry in eh year 0188 with a view to attract private entrepreneurs to augment the cement production. )esoram rose to the occasion and divided to set up a few cement plants in the country. )esoram cement undertaking marketing activities e!tensively in the states of Andhra <radesh, )arnataka, &amilanadu, )erala, 3aharashtra and Eujarat. $n A< sales depots are located in different areas like )arim +agar, Carangal, +izamabad, Aijayawada and +ell ore. $n other states it has opened around 0? depots.

T%E A'ARD 'ON ARE#

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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 <radesh chamber of commerce and industry and also national award for two successive years 01./ and 01.8. +ational award for mines safety for two years 01./'.8 G 01.8'01.7. $t has also bagged the national award for energy efficiency for the year 01.1'011? for the performance among all cement plants in $ndia. &hus award stall by national council for cement and building material "+%%B3# in association with the government of $ndia. )esoram bagged the prestigious Andhra <radesh state productivity award in 01.7'01.1 also anne!ed state award for industrial management in 01..'.1 and also 5Best industrial promotion e!pansion efforts6 in the estate and Bajamanyza 4atna and best efforts of an industrial unit in the state to develop rural economy was bagged for its contribution towards the responsibility of rural and community development programmers of the year 0110. $t also bagged the 3ay =ay award 5of the government of Andhra <radesh for the best management and the <andit ;awaharlal +ehru silver rolling trophy for the industrial productivity effort in the state of Andhra <radesh by FA<%%$ and also the $ndia Eandhi memorial national award for e!cellence. Best management award of the government of Andhra <radesh for the year 011@. =uring the last @ years the government of Andhra <radesh has given the following awards Best awards for the year 011>. &o keep the ecological balance they have also undertaken massive tree plantation in the factory and government of $ndia has nominated township areas and them for A4$),93$&4A award. Best effort of an industrial unit in the state for rural development 01>>'1/ presented by chief minister in 3arch 0118. $n the year 3arch, 2??1 5Best 3anagement award 2??16 for the best 3anagement practices in )esoram %ement, <resented by %hief 3inister.

CE)ENT +RODUCTION 'OR&DS 'IDE

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&o day in $ndia cement industry is producing /..@ million tones per annum indication surplus conditions while its demand is /8.7 million tones lies, per annum. +ow the cement market has become Hbuyer marketD which was a Hselling markerD till 017?Ds and so the uality G brand taken an upper edge for cement marketing. &o day installed at $ndia cement industry is 770 lakhs tones. But in $ndia 0?8 major plants are producing /.@ lakhs tones while a $ndia cement demand is /81 lakhs tones leaving the balance for e!ports.

INDIA4S &AR"EST CE)ENT CO)+ANIES +OST AC5UISITION

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CO)+AN *A4,-+ G &(:4B( A%% E4A,$3 $+=$A+ %-3-+&

Cement 6a7a68ty 8n T+A 02.? 00.@ 1.7 8.8

Cement 9 o: sales 2? 1@ 2. 12

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'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,

 &he surplus levels are increasing as the production of the cement is much greater than the consumption. $n the present scenario of stiff competition there is a declining trend of price. &he performance of the smaller unit is badly hit by major takeovers. &he crisis situation in ,outh -ast Asian countries may create problem to the e!ports of the industry.

AI)S#
%ontinuous effort too improving productivity. -valuating individual skill trough training and motivations. &otal involvement through participantDs management activities. %reating healthy and safe environment. ,ocial development.

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STATE 'ISE CE)ENT +&ANTS

S;NO ?0 ?2 ?@ ?> ?/ ?8 ?7 ?. ?1 0? 00 02 0@ 0> 0/ 08 07 0. Assam Andhra <radesh Bihar =elhi Eujarat 9aryana

STATE

NO; OF CE)ENT +&ANTS<&AR"E= 0 01 7 0 0@ 2 > 0 1 0 0 . 2@ @ 0/ . / 2 1!$

9imachal <radesh ;ammu and )ashmir )arnataka )erala 3eghalaya 3aharastra 3adhya <radesh (rissa 4ajasthan &amilnadu :ttar <radesh Cest Bengal TOTA&

1.

D8re6tors o: 3esoram 8ndustr8es l8m8ted C>a8rman

,yt. B.). Birla

D8re6tors
,mt. ).E. maheshwari ,hri. <ramod )haitan ,hri. B.<. Bajoria ,hri. <.). %hokesy ,mt. +eeta 3ukerji "+ominee of $.%.$.%.$.# ,hri. =.+ 3ishra "+ominee of *.$.%.# ,hri Amitabha Ehosh "+ominee of :.&.$.# ,hri <.) 3alik ,mt 3anjushree )haitan

Se6retary
,hri ,.). <arilk

Sen8or E?e6ut8@es
,hri ).%.;ain "3anager of the company# ,hri ;.=. <oddar ,hri (.<. <oddar ,hri <.). Eoyenka ,hri =.&andon

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Aud8tors
3essrs <rice Caster house

SuAs8d8ary Com7an8es o: 3esoram Industr8es

Bharat Eeneral G &e!tile $ndustries *imited )$%3 $nvestment *imited Assam %otton 3ills *imited ,oftshree -states *imited

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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 subse uent 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 re uirements 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.

ESSENTIA&S 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 is systematic 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 re uire 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 the business. &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.

!; COBORDINATION#
%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. (; CONTRO&S AND +ERFOR)ANCE EVA&UTION# %ontrol ensures control by continuous comparison of actual performance with the budgeted performance. Aariances 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"ETC BUD"ETIN" AND BUD"ETAR CONTRO&#

A budget is B*:- <4$+& of a plan e!pressed in a uantitative terms.

Budgeting is a techni ue for formulating budgets. Budgetary control relates to the principles, procedures, and practice of achieving given objectives thorough budgets. From the above definitions we can differentiated the three terms as budgets are the individuals objectives of a department, etc, where as budgeting may be said to be the act of building budget. Budgetary control embraces all and in addition includes the science of planning the budgets to effect on overall management tool for the business planning and control.

ESSENTIA&S OF BUD"ETAR CONTRO&#

&he proper organization is essential for the successful preparation, maintenance and administration of budgets. A budgetary committee is formed which comprises the departmental heads of various departments. All the functional heads are entrusted with the responsibility if ensuring proper implementation of their respective departmental budgets. &he chief e!ecutive is the overall in charge of budgetary system. 9e constitutes a budget committee for preparing realistic budgets. A budget officer is the convener of the budget committee who co'ordinates the budgets of different departments. &he managers of different departments are made responsible for their departmental budgets.

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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 e ual 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 is empowered 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" S STE)#

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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RE5UISITES FOR A SUCCESSFU& BUD"ETAR CONTRO& S STE)

For making a budgetary control system successful re uisites are re uired.

1; C&ARIF IN" OBJECTIVES#

&he budgets are used to realize objectives of the business. &he objective must be clearly spelt out to that budgets are properly prepared. $n the absence of clear goals, the budgets will also be unrealistic.

!; +RO+ER DE&E"ATION OF AUT%ORIT AND RES+ONSIBI&IT #

Budget preparation and control is done are every level of management. -ven though budgets are finalized at top level but involvement of persons from lower levels of management is essential for their success. &his necessitates proper delegation of authority and responsibility.

$; +RO+ER CO))UNICATION S STE)#

An effective system of communication is re uired for a successful budgetary control. &he flow of information regarding budgets should be uick so that these are implemented. &he upward communication will help in knowing the difficulties in implementation of budgets. &he performance reports of various levels will help top management in budgetary control.

(; BUD"ET EDUCATION#
&he employees should be educated about the benefit of budgeting system. &hey should be the benefits of budgeting system they should be educating about their roles in the success of this system. Budgetary control may not be taken only as a

$1

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

*; F&EDIBI&IT #
Fle!ibility in budgets is re uired 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.

$1

T +ES OF BUD"ETS#

$!

1; &ON" BTER) 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

$$

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.

C&ASSIFICATION 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.

C&ASSIFICATION OF BUD"ETS ACCORDIN" TO FUNCTION#

Budgets can be classified intoI 0. operating budgets 2. financial budgets @. master budgets

$(

1= O+ERATIN" BUD"ET#
&hese budgets relate to different activities or operations of a firm. &he number of such budgets depends upon the size and nature of the business, the commonly used operating budgets areI 0# ,ales budgets 2# <urchase budgets @# 4aw material budgets ># *abour budgets /# Factory utilization budget 8# 3anufacturing e!penses or works overhead budget 7# Administrative and selling e!penses budget etc. &he operating budget for a firm may be constructed in terms of programmes or responsibility areas, and hence may consist ofI <rogramme budget 4esponsibility budget A= +RO"RA))E BUD"ET# $t consists of e!pected revenues and costs of various products or projects that are &ermed as the major programmes of the firm, such a budget can be prepared for each product line or project showing revenues, cost and the relative profitability of the various in locating areas where efforts may be re uired to reduce costs and increase revenues. &hey are also useful in determining imbalance and inade uacies in programmes so that corrective action may be taken in future. B= RES+ONSIBI&IT BUD"ETS# Chere the operating budget of a firm is constructed in terms of responsibility Areas, such a budget show the plan in terms of persons responsible for achieving them. $t is used by the management as a control them. $t is used by the management as a control device to evaluate the performance of e!ecutives who are in charge of various cost centers. &heir performance is compared to the targets "budgets#, set for them and proper action is taken for adverse results.

$*

4esponsibility areas may be classified under three broad categoriesI %ost Je!pense center <rofit center $nvestment center

!= FINANACIA& BUD"ETS#
Financial budgets are concerned with cash receipts and disbursements, working %apital, financial position and results of business operations. &he commonly used financial budgets include cash budget, working capital budget and income statement budget, statement of retained earnings budget, budgeted balance sheet or position statement budget.

$= )ASTER BUD"ETS#
&he master budget is the summary budget incorporating its functional budgets. All &he operational and financial budgets are integrated into the master budget. &he budget officer for the benefit of the top level management prepares this budget. &his budget is used to coordinate the activities of various functional departments. $t is also used as an effective control device.

C&ASSIFICATION ON T%E BASIS OF F&EDIBI&IT #

A= FIDED BUD"ET# According to $%3A *ondon a fi!ed budget is a budget which is designed to 4emain unchanged irrespective of the level of activity actually attained it is based on a fi!ed volume of activity and shows one volume of output and related cost. $t is not adjusted according to the actual level of activity attained. A fi!ed budget is useful only when the actual level of activity corresponds with the budgeted level of activity. But this generally does not happen as such a fi!ed budgets is not useful for managerial purposes. B= F&EDIBI&E VARIAB&E S&IDIN" SCA&E OR CONTRO& T +E BUD"ETS#

$,

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.

$-

BUD"ET AND BUD"ETAR S STE) IN 3ESORA) CE)ENT INDUSTRIES &TD;

$.

/ERO BASED BUD"ETIN"#

Lero'based budgeting is the latest techni ue of budgeting and it has increased use as a managerial tool. &his techni ue 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 techni ue 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.

$0

BUD"ET AND BUD"ETAR

S STE) IN 3ESORA) CE)ENT

INDUSTRIES &I)ITEDC BASANT% NA"ARC 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 re uirements 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 S STE)#

&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 re uirement 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.

(1

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 estaAl8s>ment e?7enses#

&raining and recruitment <reliminary e!penses

(1

 3isc. brought'out assets &ownship budget

BRIEF ED+&ANATION TO T%E NATURE OF ED+ENDITURE INC&UDED IN EAC% BUD"ET INDICATED BE&O'# INCIDENTA& ED+ENDITURE DURIN" CONSTRUCTION +ERSNNE& +A )ENT#
&hese comprises of salaries, wages, allowance, contribution to <F and other funds and welfare e!penses such as *$%, 3edical reimbursement, canteen subsidy etc., and provision for areas of salaryJ=.A.

OFFICE AND OT%ER ED+ENSES#

-!penses incidental to construction and capital works not traceable directly to incidental e!penditure, during contribution e uipments, vehicle running e!pense, office rent. %ost of drawings, traveling e!penses, printing G stationery, communication e!penses, advertisement for tenders etc., are major items in this category.

TRIANIN" RECRUIT)ENT & OT%ER DEFFERED REVENUE ED+ENDITURE#

&he first part of the budget consist of e!penses for training e!ecutives, and non'e!ecutive trainees, rent for training halls and e!penses for management development courses. &he second part consists of e!penses for recruitment such as advertisement for recruitment, interview e!penses for to candidate etc., the third part combines preliminary e!penses including share registration lees and research and development e!penses.

)ISCE&&ANEOUS BOU"%T OUT +ASSESS#

Aehicles, furniture and fi!tures e uipments, hospital and medical e uipment, miscellaneous assesses town ship figure in this budget.

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REVIE' OF +ROJECT BUD"ET# )ONT%& REVIE'#

At monthly intervals, the budgets should be reviewed by project review committee "<4%#. <roject budget should report actual e!penditure against budget heads. Corks heads and corporate budget by the 7th of the month following the reporting month. &he monthly review should be e!amined by project review team "<4&#, who should record reasons for any aviations and action proposed for e!pending works in the minutes of the meetings reasons for any variations in the case of budget heads e!ceeding 0?M of the budget estimates revised estimates or which ever is lower 4s./ lakhs should be analyzed and reported upon.

5UATER& REVIE'#
<4& should conduct a uarterly budget review with a view to projecting anticipated e!penditure during the year against approved budget estimatesJ revised estimates. As time is essence of such review, only a uick estimate of anticipated e!penditure for individual budget heads involving provisions e!ceeding for individual budget heads involving provisions e!ceeding 4s /? lakhs in each case should be made and reported upon in minutes of <4&. For this purpose, project budget should furnish all the relevant data to general manager "project# and planning and systems by the 0? th of the month following the uarter project budget committee should review the actual e!penditure and assess anticipated e!penditure contract co ordinationJengineers in charge the assessments of anticipated e!penditure should be furnished by the project budget committee to general manager "project# by the @? th of the month following the uarter under review.

($

BUD"ET OF SERVICE DIVISION E 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? th of 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/th of the may, August, +ovember and February every year.

OBJECTIVES OF T%E CURRENT BUD"ETAR

CONTRO&

S STE) IN 3ESORA) CE)ENT INDUSTRIES &I)ITED;

$n current to corporate budgetary control system operating phase has been compiled 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 ade uate 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.

((

 &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 re uirements. &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 subse uent 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.

(*

&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 monthlyJ uarterly 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 BUD"ET#

IN

T%E

FOR)U&ATION

OF

+ERFOR)ANCE

&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 re uired 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+OSA&I
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 fre uency 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

(-

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.

NEDT "ENERATION#
&he sales value will be determined from uantum of net generation "i.e. gross generation au!. %onsumption#

AUDI&IAR CONSU)+TION E CONSU)+TION B UTI&ITES#

&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 estimated separately 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 re uirement will be consolidated to arrive at total chemicals consumption to be charged to profit and loss account. &he valuation of chemical will be done at current prices only.

E)+&O EE 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

(.

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, <F and other welfare e!penses are to be made based on trend of e!penses in previous years and taking into account polices changes, if any. &he details of welfare e!penses like liveries and uniforms, safety e!penses, accident compensation, games G sports, canteen subsidy etc., are to list out as per chart of account. &he provisions for incentive, bonus and payments of one time nature are to be shown separately based on total employee cost for e!ecutives, supervisors and non'supervisors and total man power in these categories, separate rates of cost per employee will be worked out for each of these categories as under. 0. ,alaries and allowance 2. %ontribution to <F and other funds @. Celfare e!penses &he cost center of employee cost will be worked out based on these rates separately for e!ecutives, supervisors and non'supervisors. &his will again be consolidated separately for operations. 3aintenance and common service function. &he employee cost of common function will be appropriated between construction and ( G 3 budgets in the ratio of capital e!penditure and sales during the respective years.

RE+AIRS & )AINTANANCE#

$n line, with costing system following three activities can represent major classification of repairs and maintenance. 0. 3ajor overhaul 2. <reventive maintenance @. Break down maintenance

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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 re uired 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 e uipment the fre uency of breakdowns in the past and the re uirement 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 re uirements 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 e uipment 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 FIDED 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 e uated loan content or e uated 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 e uated 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.

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ANA& SIS AND INTER+RETATION

*!

T%E 3ESORA) INDUSTRIES &I)ITED REVENUE BUD"ET TAB&EBI

Budgeted est8mated :or t>e !110B11

S&;NO

+ARTICU&AR

A6tual :or t>e year !110B11

Sales Fi!ed cost recovery Aariable cost recovery 72> .>? 72.> .>.? 80. 7>? 80.. 7>.?

Fuel price adjustment recovery

.2?

.2.?

.8@

.8.@

(wn consumption Total o: 1 ! $ A@erage 8ntens8@es Ot>er 8n6ome "RAND TOTA& <1F!F$=

0@2 2/08 0?2 /8 !,-(

[email protected] 2/0.8 0?.2 /.8 !,-;(

0>. 2@81 1. >1 !*1,

0>.. [email protected] 1.. >.1 !*1;,

*$

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 !110B11

TAB&E 2 II
Rs 8n 6orers BUD"ETED +ARTICU&AR ESTI)ATED FOR T%E !110B11 A)OUNT 1 VARIAB&E COST 4aw 3aterial *ime stone Total o: 1 ! O+ERATIVE )AINTENANCE COST %hemical water 4epair G maintenance -mployee cost ,tationary general e!penses 4ebate ,hareofoperating e!penses Total B! $ FINANCE C%AR"ES =eprecation >2 >.2 0/ 0./ 0@? 2.? @2? 8/ 00 . 1,.( 0@.? 2..? @2.? 8./ 0.0 ?.. 1,.;( 0/? @?? @/? .? 0@ 0? 01$ 0/.? @?.? @/.? ..? 0.@ 0.? 01;$ >2? >/? .-1 >2.? >/.? .-;1 >/? >7? 0!1 >/.? >7.? 0!;1 RSE)T

S&; NO

ACTUA& FOR T%E EAR A)OUNT !110B11 SE)T

**

$nterest on fi!ed capital Total o: 2 $ "RAND TOTA& <1F!F$=

0. ,1 1-((

0.. ,;1 1-;((

2? $* 101,

2.? $;* 101;,

INTER+RETATION
(bserved from the above table that the operational e!penditure budget of )esoram cement industries limited in the year 2??1'0?. $n the year 2??1'0? variable cost components the raw material consumption >/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.

*,

CAS% F&O' STATE)ENT

:or t>e year ended $1st )ar6>C !111 For t>e year ended $1 )ar6> !111 A; Cas> :loG :rom O7erat8ng A6t8@8t8es Net +ro:8t Ae:ore Ta? AdHustments :or# =epreciation *oss Jprofit on fi!ed assets soldJ discarded *oss on sale of long term investment"other than trade# $ncome from long term investments"other than trade# $nterest paidJpayable on loans etc. $nterest receivedJreceivable on loans etc. <rovision for doubtful debts J deposits"net# =ebts J advances J deposits written off *ong term investments"other than trade# written off *iabilities no longer re uired written back :nrealised lossJgain on foreign currency <rovision for distribution in value of investments (perating profit before working capital changes AdHustments :or# $nventories &rade and other receivables &rade payables "0,20,81,7/,@@># "/?,07,>?,@17# 8/,80,?2,/1> "2>,1>,2>,80/# 2,12,82,28. "2?,?0,@/,@0.# /., @?, />,?22 /, >/, ./, 221 @,/.,1/2 ">,10,>8,/.0# @@,/?,@?,@7/ "2,/?,//,/8@# ''''''' /,@>,/?,87? 7,7?? "2, ?1, 7@,.2.# "2,1/,18,?7@# ''''''''' (C!.C1$C(!C$-/0, /7, 08,782 "/, 78, 0/, 772# '''''''' "2,80,@7,/27# @2,7/,@7,770 "1,?/,20,>2/# '''''''' 1@,>>,@1> //,77,@1> '''''' ">, >7,12,@1?# 01,0/,?7/ 0,0?,?1,2@2 1C(,C1$C(1C$$. $C(1C-.C$!C.0! .1C 0!C 0!C1$!
st

:or t>e year ended $1st )ar6> !110

<rovision for doubtful debtsJadvancesJdepostits written back "@,.2,0/,001#

*-

%ash generated from operations =irect ta!es "paidJ refund "net# Net 6as> :rom o7erat8ng a6t8@8t8es

2,10,.7,21,2>? "1@,>1,.?,870# 1C0.C$-C(.C*,0

0,?>,0?,>@,81@ 8,@0,/7,171 1C11C(!C11C,-!

CAS% F&O' STATE)ENT

:or t>e year ended $1st )ar6>C !111 For t>e year ended $1st )ar6>C!111 Rs B; Cas> :loG :rom 8n@est8ng a6t8@8t8es <urchase of fi!ed assets ,ale of fi!ed assets <roceeds from sales of refractory unit ",old in 2??>'?/# $nvestments in shares <roceeds from sale of share etc. $ncome from long term investments *oansJ deposits given 4evision of loans J deposits given $nterest received on loans etc. Net 6as> used 8n 8n@est8ng a6t8@8t8es C; Cas> :loG :rom :8nan68ng a6t8@8t8es 3oney refused "including securities premium# <roceeds from *ong term borrowings ,hort term borrowings <ayments for debentures 4epayments of *ong term borrowings ,hort term borrowings $ncrease in cash credit and overdrafts from banks $nterest paid =ividends paid "including ta!es# Net 6as> :rom :8nan68ng a6t8@8t8es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or t>e year ended $1st )ar6>C!110 Rs

*.

+et increase in cash and cash e uivalents (penings cash and cash e uivalents %ash and cash e uivalents taken over conse uent :pon amalgamation Clos8ng 6as> and 6as> eIu8@alents

2,>0,?.,702 2>,.@,0@,821 ''''''''''' !-C!(C!!C$(1

/,?>,@1,171 01,7.,@/,.87 @7,7.@ !(C.$,C1$C,!0

+ro:8t and loss a66ount :or t>e year ended $1st )ar6>C!111
,chedule INCO)E ,ales *essI -!cise duty +et sales 2/,08,>/,.1,@81 @,?7,>8,21,?@? 0.,77,.0,//,21> 2,8>,8@,.?,7/2 4s 2??1'0? 2??.'2??1

22,?8,18,8?,@@1 0@ >1,?>,?8,>0? !!C*.C11C,,C-(0

8,0@,07,7>,/>2 /@,7>,21,820 1,C,,C0!C1(C1*$ 7,80,0>,/1,122 7,>?,/0,87,/78 /@,?/,88,22/ 0,>.,>1,>1@

(ther income ED+ENDITURE 4aw materials and finished goods Administration e!penses =epreciation "note 0"c# and 08 on schedules07# *essI transfer from capital reserve 4evaluation of fi!ed assets N+ote 0"c# on schedule 07O $nterest

0> 0/ /1,/2,@.,/?1 0,20,7>,>.7

1,2?,1.,@/,87. 1,?@,>@,?@,7.0

/.,@?,8>,?22 08 @@,/?,@?,>.7 10C1,C!!C$$C.*-

/0,/7,08,782 @2,7/,@7,770 1*C.*C00C1!C1$1 .1C0!C0!C1$! @>,??,??,??? 0,22,??,??? (*C-1C0!C1$! >/,7?,12,0@2 0@,72,21,1/> 0,12,>8,/?0 ''''' ''''' /?,??,??,???

+ROFIT BEFORE TADATION <rovision for ta!ation Nnote 0/ on schedule 07O <rovision for benefit ta! "e!cluding 4s 0@1717 4eferred to the note 07 on schedule 07#
+ROFIT AFTER TADATION <4(F$& AAA$*AB*- F(4 A<<4(<4$A&$(+

$C(1C-.C$!C.0! 7/,??,??,??? 0,0?,??,??? !C,*C,.C$!C.0! 2,8/,8.,@2,.12 '''' '''' 0.,21,7@,272 2,/8,82,??0 @?,??,??,??? /?,.8,@/,27@ !C(1C.1C0-C,10

A++RO+RIATIONS <roposed dividend &a! on proposed dividend 4etain dividend &a! on remain dividend Eeneral reserve Balan6e 6arr8ed to s6>edule !

2?,8>,7?,>// !*C1,C1*C,--

*0

-arning per share +ote on the accounts 07

/..?.

1.11

&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>C !111

,chedule 1; SOURCES OF FUNDS a# %apital b# 4eserves and surplus 2# *oans funds A# ,ecured loans b# :nsecured loans 0 2 4s @0.?/.2?0? @0.?/.2??1 >/,7>,0/,.>? @,7?,.?,.>,@?? ,C*(C($C((C,(1 @ > 8,>@,01,7?,08/ 2,21,8?,21,/8/ .C-!C-0C00C-$1 =eferred ta! liability 0,02,>?,12,@71 1,C$0C,(C$-C!*1 !; A++&ICATION OF FUNDS 0# F$P-= A,,-&, / A# gross block 08,71,@0,7/,87? b# *ess depreciation 7,20,1@,>2,/.. %# net block 1,/>,@.,@@,?.2 =# work'in'progress 0,/?,.?,8.,01/ 11C1*C10C11C!-2. $nvestment 8 @. %urrent loans and advance a# $nventories 7 b# ,undry debtors . c# %ash and bank 1 d# (ther current asset 0? e# *oans and advance 00 2.,.7,27,1?7 @,78,/@,27,777 2,>/,1>,/2,/.0 27,2>,22,@>0 00,.0,11,>02 2,?8,22,>7,280 .C,.C11C(0C$-! *essI current liabilities and <rovisions a# %urrent liabilities b# <rovisions +et current assets 02 2,28,.2,12,?./ 0,@/,7?,>1,220 @,82,/@,?0,@?8 /,?/,/.,?.,?88 1,C$0C,(C$-C!*1 0,80,2@,@?,/./ 78,20,1>,?80 2,@7,>/,2>,8>8 @,72,@8,?7,11> 11C((C*0C**C.(( (C1,C1*C11C1(1 >,0@,@8,.@,/1? 2,?7,1.,8?,11> ,C!1C$*C((C*.( 0,?7,01,00,02? 11C((C*0C**C.((

>/,7>,08,@8/ 8,?.,81,2.,278

02,0/,21,@0,7@7 8,.?,@0,>?,@7. /,@>,17,10,@/1 2,?.,2>,?/,8.? -C($C!1C0-C1$0 21,?0,/?,.00 2,//,0.,/2,>>@ 0,/>,@7,2/,2>7 2>,.@,0@,821 0>,>2,8>,0@> 0,@?,11,77,0.7 ,C10C.1C$!C,(1

,1

+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

CONC&USIONS AND SU""ESTIONS

,1

CONC&USIONS
-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 promoting and 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.

,!

SU""ESTIONS

<lanning has become the primary function of management most of the planning relates to individual and individual proposals. Budgets are nothing but his e!pressions, largely in financial terms, budgetary control has, therefore become and essential tool of management for controlling and ma!imizing profits. &he company objectives of the organization and how they can be achieved through budgetary control &ime tables for all stages of budgeting follow 4eports, statements, forms and other record to be maintained %ontinuous comparison of actual performance with budgeted performance.

,$

BIB&IO"RA+%

F$+A+%$A* A%%(:+&$+E F$+A+%$A* 3A+AE-3-+&

4< &4$A-=$ $.3. <A+=-B

..&9 A++:A* 4-<(4& (F )-,(4A3 %-3-+& $+=:,&4$-, *$3$&-= F:+=A3-+&A* (F F$+A+%$A* 3A+AE-3-+& <4A,A++A %9A+=4A

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