Budgetary Control at Kesoram Cements

PROJECT REPORT ONBUDGETARY CONTROL SYSTEM

A

PROJECT REPORT ON BUDGETARY CONTROL SYSTEMINKESORAM CEMENT INDUSTRIES LIMITED

PROJECT SUBMITTED IN PARTIAL FULFILLMENT FOR THE AWARD OF

THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

HYDERABAD

2011-2013

TABLE OF CONTENTS

S.NOCHAPTER NONAME OF THE CHAPTERPAGE NUMBER

1CHAPTER -IINTRODUCTION:

-Introduction

-Need for budget

-Objectives of the study

-Methodology of the study

-Limitations 1-14

2CHAPTER IIPROFILE OF THE ORGANISATION15-24

3CHAPTER IIIREVIEW OF LITERATURE:

-Essentials of budgetary control

-Requisites for a successful budgetary control system

-Types of budgets25-38

4CHAPTER - IVBUDGETING AND BUDGETARY SYSTEM IN KESORAM CEMENT 3INDUSTRIES LTD.

39-51

5CHAPTER VANALYSIS AND INTERPRETATIONS52-64

6CHAPTER VICHARTS65-71

7CHAPTER -VIIANNEXURES72-77

8CHAPTER - VIIICONCLUSIONS & SUGGESTIONS78-80

9- BIBLIOGRAPHY81

CHAPTER-I

INTRODUCTION

INTRODUCTION:

It is well recognized that budget are among the essential tools of management of any organization unlike other management aids, budgets are made use of practically by all functionaries in the organization. Budgets not only reflect the plan of action for different levels of management but are also useful to monitor various activates and initiate mid course corrective actions. Budgets just do not reduce the managerial function to a mere formula but aids as a managerial tool.

Henceeffective use of this art as well science. Thus it needs continuous budget education and creation of evaluation and performance through budgets. Budgets provide management summarized picture of the results to be expected, also forms the proposed plan of operations. They enable the management to determine whether the plan is satisfactory. Budgets serve as a guide to executives and departmental heads. They measure performance since Budget Deviations reflect either the organization failure to achieve the planned standards of performance or its ability to better them.Thus budgeting is a means of obtaining the most productive and profitable use of the companies resources through planning and control. Budgets are helpful in coordination the various activities (Such as production, sales, purchase etc) of the organization with the result that the activities precede according to the objective.

Budgets are means of communication. Ideas of the top management are given the shape of the budget and are passed on the subordinates who are to give them the practical shape. As the activities of various departmental heads are coordinated at the preparation of budget, it is helpful in developing a team work which is very much needed for the very success of an organization. Thus, a budget is necessary to plan for the future, to motivate the staff associated, to coordi9nate the activities of different levels. A budget is an overall blue print of a comprehensive plan of action expressed in physical and financial terms; it includes plan for each of the activity responsibility centers of the business and provides a link between the physical and financial plans of various departments of a company. It is also a document to serve as control for monitoring and review. The budget system should be such that it makes it imperative for management to establish goals and objectives, define policies, develop programmers both long term and short term, measure performance against the targets and in the process, revises the part of management. In a way of budgetary control system has been increasing an enterprises profits, and a goals-achieving machine for facilitating organizational coordination and planning while achieving the budgeted targets.

NEED FOR BUDGETS

The rationales for budgets have five aspects:

1. Authorization: The budget is used to authorize the expenditure and activities contained in it.

2. Evaluation of performance: The planned activities and expenditures contained in the budget provide a standard against which the actual achievement of the firm can be measured and evaluated.

3. Coordination of activities: The piecemeal budgets of the subunits of the firm are so framed that each sun-unit is made to contribute to the achievement of the overall budget.

4. Control: The setting up of organizational machinery to direct efforts towards the planned aims. The budgets sets out the planned activity, subsequent deviations between achievement and plan will indicate the need for investigation and corrective action.

5. Motivation: The budget is so constructed as to move employees form one target goal to another; indeed it is bound up with the reward punishment type of organization environment and bureaucratic decision processes, where employees are given incentives to work towards the achievement of the firms targets.

WHY COMPARE ACTUAL AND BUDGET?

One of the objectives of budgeting is to provide a base against which actual performance can be measured. This is only worth doing if action will be taken as a result.

In too many organizations the production of results compared to budget is seen as the end of the process. If no action is taken on the basis of management accounts then there is little point in producing them and even less point is wasting management time discussing them.

By identifying progress we are better informed regarding the effects of our actions and have a clear understanding of the effect of any future action we take. Knowing how much is being spent each month enables a manager to consider whether action needs to be taken to spend more or less in the future. This process is only worthwhile if the budget is realistic. Analyzing variances against an unrealistic budget is pointless.

However in a well runs organization the comparison between actual and budget is used as the basis for deciding the appropriate action. This paper sets out how the analysis is used to maximum effect. The process is really part of the normal control process.

WHAT CAUSES BUDGET VARIANCESThere are four key reasons and it is important that good managers recognize the differences, because the action required is may be completely different in each case.

The four reasons are:

1. Faulty Arithmetic in the Budget figures.

2. Errors in the Arithmetic of the Actual Results

3. Reality is wrong

4. Differences between Budget Assumptions and Actual Outcome

Each of these will be examined in turn.

1) Faulty Arithmetic in the Budget Figures

It is perfectly to have an error in the budget. This includes errors of commission or duplication as well as pure arithmetic. One action is to make a note to ensure it does not happen again when the next budget is being done. Other action depends on the error.

Assume the budget stated no overdraft would necessary and it now appears one is required because the sales forecast was used to predict cash inflows rather than the debtor payments. There are two options: Go to the bank and ask for an overdraft, or take some other action to improve cash flow to stay within the budget cash figure. The original budget numbers will need to be changed to reflect the new circumstances and future reporting should be against the revised budget (often called a reforecast or latest estimate.) Action is required but it may not be within the area where the error was made.

AVOID: The Accounts figures are always different from ours so we ignore them and keep our records.

2) Errors in the arithmetic or the actual results

It is perfectly possible for the actual results to be reported wrongly. This includes the use of the wrong category omission of costs; double counting of income etc. one well known way of staying within budget is to throw away any invoices received from Suppliers, or charge them someone elses account code. This sort of deliberate action makes nonsense of budgetary control and must be avoids. The corrective action once this is discovered is to prevent it happening again. Improvements in management education and control procedures are recommended.

One extra consideration is that in order to correct the error the cumulative results will need to be corrected. This means either putting through a correction in the next period, which will then also be wrong, or adjusting the past results to correct the error.

Failing to note that the correction can cause misleading results can lead to wrong decisions being made.

AVOID: The accounts figures are always different from ours so we ignore them and keep our own records. 3) Reality is wrong.Sometimes the actual results are useless as an indicator. A strike or natural disaster will have an impact on results. This does not mean that the budget process in future should include an allowance for this happening again. (However in large organizations it is normal to allow for the impact of a disaster centrally as a contingency even if it is not budgeted at operating unit level.) If necessary, insurance should be taken out. If business is disrupted for two weeks, then it is pointless to compare the remaining two weeks of the month against a full months budget. Produce a realistic budget for only two weeks and compare against that to establish true performance under normal circumstances.

AVOID: The variances are distorted because of ..So its not my fault.

4) Differences between budget assumptions and actual outcome

This is the key issue and the one which involves the use of variance analysis techniques. Remember that all budgets contain errors in the assumption No one knows the future outcome for certain. The important thing is not to apportion blame by looking backwards, but to look forwards and take action to improve the future in the light of experience. The action to be take action to be taken depend s on circumstances. However, punishing deviation from the budget is the best way of destroying the budget process.

Manages will spend up to budget, conceal data, make the actual fit the budget in order to avoid blame. This is particularly true in large multi-national organizations. The emphasis must be on what can we do about it, rather than why the results are different.

AVOID: We are under budget, who can we blame?

HOW ARE VARIANCES CALCULATED

There are two important rules:

1) The level of variance analysis should be decided by the needs of the decision maker, not the convenience of the reporter.

2) The budget must always be flexed for volume changes to produce realistic Variances.

EXAMPLE:

PARTCULARSBUDGETTOTAL

SALES VOLUME10090

SALES VALUE1000990

VARIABLE COSTS500495

FIXED COSTS200210

PROFIT300285

The budget committee wishes to blame someone for the fact that profit is down by 15.

It is obvious who is to blame sales are below target and fixed costs have not been controlled.

PROPER VARIANCE ANALYSIS

The require some through and some simple calculations. It has 4 Stages:

1) Flexing the budget.

2) Analyzing the variances.

3) Identifying the causes.

4) Taking appropriate action.

Since only the last of these is a value adding activity, the first three are only worth doing if step 4 is taken in time to help future results. This may mean the first three steps have to be done fast even if that reduces their accuracy.

FLEXING THE BUDGET

In the example it is futile to compare the actual variable costs with the budget. To do so suggests that the manager is doing better than budget, but actual volume is below budget so costs should be lower. It is vital to produce a revised budget to use for comparison. This does not mean that the original budget is useless. It merely means that in order to analyze the 15 difference it is important to start by removing the impact of volume changes on the various headings which are by it.PARTICULARSORIGINAL BUDGETREVISED BUDGETACTUAL

SALES VOLUME1009090

SALES VALUE1000900990

VARIABLE COSTS500450495

FIXED COSTS (LESS)200200210

PROFIT300250285

This recalculates the budget using actual volume but budget prices and shows that the expected profit for 90 units is 2502. Thus the impact on profit is a reduction of 50 and this can be identified as SALES VOLUME VARIANCE Rs. (50). A common convention is to put unfavorable variances in brackets.

Now the other variance can be calculated.

ANALYSING THE VARIANCES:

PARTICULARSORIGINAL BUDGETREVISED BUDGETACTUALVARIANCES

SALES VOLUME1009090-

SALES VALUE100090099090

VARIABLE COSTS500450495(45)

FIXED COSTS (LESS)200200210(10)

PROFIT30025028535

The valid set of budget data is to compare against actual. The variance on sales can be due to price. This is the SALES PRICE VARIANCE of Rs. 90.

The variable costs require further investigation.

Assume that the original budget was to use 2.50 meters of material for each sales unit and that each meter was expected to cost Rs. 2.00. This gave a budget figure 100 X 2.50 X Rs.2.00=Rs.500.

The Actual result included a price of Rs. 2.75 per meter but only 2.00 meters were used per sales unit. This gave an actual figure of 90 x 2.50 x Rs.2.00 = Rs. 450.To identify the cause of the variance of Rs. 45, we need to separate the price impact from the usage impact.PriceWe expected to pay Rs. 2.00 per meter; we did pay Rs. 2.75 per meter.

Each of the 180 meters we bought cost 0.75 extra .180 x (2.00-2.75) = Rs. (135) this is the MATERIALS USAGE VARIANCE Rs. (135).

Usage

We expected to use 225 meters in total to make 90 units; we did use 180.

At the budget price of Rs. 2.00 we saved ..Rs.2.00 x (180-225) = Rs.90

This is the MATERIAL USAGE VARIANCE Rs.90.

On fixed costs we expected to spend Rs. 200 but we did spend Rs. 210.

The FIXED COST VARIANCE IS Rs. (10).

SUMMARISING THE VARIANCES

SALES VOLUME

(50)

SALES PRICE

90

MATERIALS PRICE

(135)

MATERIALS USAGE

90

FIXED COSTS

(10)

-----------

(15) ======

IDENTIFING THE CAUSES

This is where politics and blame apportionment must be avoided. Consider these possible Comments on the above figures.

The price of the raw materials went up so we asked the factory to be careful about waste and told the manufacturing force to put prices up.OBJECTIVES OF STUDY:

To provide a theoretical framework of budget, and budgetary control. To describe the profile of the organization as a backdrop for undertaking a study of budgetary control system. To analyze the budgetary system in practice in Kesoram cement Industries Limited (hereafter Kesoram) with particular reference to their objectives and phases of organizational and re-appropriation. In addition to the analysis of the conventional budgetary system in practice in Kesoram cement Industries limited. The study aims at evaluation and modification to the budgetary system with reference to the various types of budgets. The scope in the formulation of performance budget is also studied METHODOLOGYSOURCES OF DATA:

A).SOURCES OF THE DATAThere are mainly two important sources through which the whole data is collected.

Primary dataThe primary data of the topic is collected by personal interaction with the officials of the finance and accounting department and also from annuals of the company. The financial data relating to the organization has been collected for the 5 years

Secondary dataThe data collected from the other sources.SCOPE OF THE STUDY:The data of basanthnagar, kesoram cement industries limited, have been collected mainly from secondary sources via

1.From the concerned officers of the kesoram cement industries limited.

2.Kesoram cement industries limited-journals.

3.Accounting books, records.

4.Key books of concerned title.

5.Statically records.

6.Kesoram cement industries limited library.

LIMITATIONS OF THE STUDY Estimates are used as basis for budget plan and estimates are based on available facts and best managerial judgment

Budgetary control cannot reduce the managerial function to a formula. It is only a managerial

Tool which increase effectiveness of managerial control

The use of budget may lead to restricted use of resources.

Efforts may therefore not be made to exceed the performance beyond the budgeted targets.

Frequent changes may be called for in budgets due to fast changing industrial climate.

In order that a system may be successful, adequate budget education should be imparted at least through the formative period. Sufficient training programs should be arranged to make employees gibe positive response to budgetary activities.

The study is the limited up to the date and information provided by Kesoram cement industry Limited and its annual reports

CHAPTER-II

PROFILE OF THE ORGANIZATION

PROFILE OF THE INDUSTRY:

The 85-year old Indian cement industry is one of the cardinal and basic infrastructure industries which enjoys core sector status and played 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-II. When government of India announced the partial decontrol manufacturing cement became increasingly attractive and the industry experienced substantial expansion. As the supply in response to the 1982 partial decontrol was significant in March 1989, price and distribution control were finally dispensed with .It was one of the first Major industries in the country to be so deregulated.

OVERVIEW OF THE INDUSTRY: The word cement means any substance applied for sticking things. But cement is most vital and important material for modem construction as a binding agent .In the ancient times ,clay ,bricks and stones have been used for construction work.

The Romans were using a binding or a cementing material that would harden under water. The first systematic effort was made by SMEATION who under took the erection of a new lighthouse in 1756.he observed that the production Obtained by burning limestone was the best cementing material for work under water.

After eighty years branch chemist produced hydraulic cement by burning finely ground delay used in the form of paste .cement invented by JOSEPH ASPDIN in 1824. Since hardened Cement paste resembled Portland stone found in England be named it a s Portland cement A name that has ensured even Portland cement was list manufactured in USA in 1975 In Portland cement was produced for the rust time in 1940. By south India industries limited Madras. This unit had capacity of 30 tonnes per day.

By 1913 however three units started their operations with a combined installed capacity Of 75000 tones per annum. In 1914 indigenous production fees for short of domestic demand necessitating an import of 1,65,723 tones .Shipment difficulties and foreign Trade during the first world war acted as a catalyst for the development of indigenous Industry and by 1924 the total installed capacity grew to 5,59,800 tones per annum.

In 1963 all the cement companies with the exception of SONE VALLEY PORTLAND CEMENT COMPANY LIMITED merged to form the ASSOCIATED CEMENT COMPANIES LIMITED. This has more facilitated a cost reduction as well as uniformly in quality. By 1947 the installed capacity of the industry raised to 2.2million tones per annum. After partition 5 of the cement producing units in the country went to Pakistan And total installed capacity of 18 units that remained in India was 1.5 million tonnes per Annum . This is increased to 3.8million tones by 1950-51. In the three decades between 1950-1980 the capacity expansion was between 7-8 million tonnes per decade the target set in respect of additional capacity generation was released with impetus given by the partial decontrol announced in 1982. Several units locked up project for expansion of capacity and modernization which contributed towards increased production.

DEFINITION OF CEMENT:

Cement may is defined as a mixture of calcium sulfate and aluminates which have the property of setting and hardening under water .The amount of silica which is present on each crust are sufficient to combine with calcium oxide to form the corresponding calcium silicate and aluminates

CLASSIFICATION OF CEMENT:

Cement is of 3 types

1. Puzzolantic cement

2. Nature cement and

3. Portland cement

Puzzolantic cement:It consists of mixture of silicate of calcium and aluminum .it shows the hydraulic properties when it is in the form of powder and being mixed with suitable proportions of suitable Proportion of lime

The rate of hardening is much slower and the comprehensive strength developed is about half of Portland cement .it is found more resistant to the chemical action than others.

Natural cement:This is nature occurring material it is obtained from cement rocks these cement rocks are claying lime stones containing silicates and aluminates of calcium the Selling property of this cement is more than the Portland cement but the comprehensive is half of it.

Portland cement: This is of various kinds 1. ordinary Portland cement

2. rapid hardening Portland cement

3. low heat cement

4. white colored cement

5. water proof Portland cement

6. Portland slang cement

7. port land puzzling cement

8. sulfate resisting

INDIAN CEMENT INDUSTRY PRESENT STATUS After the dealing of the industry in July 1991 it reacted positively to the policy changes new capacities created and the volume of production increased from a situation of importing cement the country started exploring due to high quality and cost effectiveness after liberalization the black market in cement also disappeared currently India stands second largest in the cement production worldwide after china on the other hand per capita consumption in India is only books as compared To the world average of 260kgs the industry has S9 companies owning 11S plants in the matters of exports the government considers cement as a extreme Focus area. However Indian cement in the global market is not very competitive Due to high power and full costs. in order to improve its position in the international market technological up gradation is essential in terms of process

Product diversification cost reduction quality control and energy saying.

ABOUT THE INDUSTRY

This chapter examines a profile of cement industries ltd. i.e. .its history location organization structures etc.

LOCATION

Kesoram cement industry is one of the leading manufacturer of cement in India it is a day process cement plant the plant capacity is 8.25 lakh tones per annum .it is located at basanthnagar in karimnagar district of Andhra Pradesh Basanthnagar is 8km away from the Ramagundam railway station linking madras to new Delhi. The chairman of the company is syt.B.K.Birla.

HISTORY OF THE KESORAM

The first unit at Basantnagar with a capacity or 2.1 lakh tons per annum in corresponding suspension-preheated system was commissioned during the year of 1969 the second unit Was setup in year 1971 with a capacity of 2.1 tones per annum and the third unit with a capacity of 2.5lakh tons per annum went on stream in the year 1978 the coal for this company is being supplied iron singareni collories and the power is obtained from

APSEB the power demand for the factory is about 21MW kesoram has got 2DG sets of 4MW each installed in the year 1987.

Kesoram cement industry has set up a 15kw capacity power plant to facilitate for uninterrupted power supply for manufacturing of cement starts at 24 august 2008 per hour 12 mw, actual power is 15mw.

Birla supreme in popular brand of kesoram cement from its prestigious plant of Basantnagar in A.P which has outstanding track record in performance and productivity serving the nation for the last two and had decades It distinction by Bagging several national awards .It also has the distinction optimum capacity utilization.

Kesoram offers a choice of top quality portioned cement for light heavy constructions and allied applications quality is built every fact of the operations.

The plant layout is rational to begin with the limestone is rich in calcium carbonate a key factor that influence the quality of final product the day process technology used in the latest computerized monitoring overseas the manufacturing process samples are sent regularly to the bureau of Indian standards national council of constructions and Building material for certification of derived quality norms

The company has vigorously undertaking different promotional measures their product through different media which includes the use of newspapers ,magazines ,hoardings etc

Kesoram cement industry distinguished itself among all the cement factories in India by bagging the national productivity award consecutively for two years and the year 1985 -1987.the federation of Andhra Pradesh chamber of commerce and industries also conferred kesoram cement an award for the best Industrial promotion expansion efforts in the year 1981.kesoram also bagged FAPCCI Awarded for best family planning effort in the state for the year 1987-1988.

One among the industrial giants in the country today serving the nation on the industrial front kesoram industrials Ltd has a cheque red and eventful history dating Back to the twenties when only a textile mill under its banner 1924 it grew from Strength to spread and activities 10 newer fields like Rayan pulp Transport paper spun pipes refractivites types and other products

Looking to the wide gap between the demand and supply of a vital commonly cement Which plays UI important role in national building activity the government of India had de-licensed the cement industry in the year 1966 with a view to attract private entrepreneurs to augment the cement industry production kesoram rose to the occasion And divided to setup a few cement plants in the country

Kesoram cement undertaking marketing activities extensively in the states of Andhra Pradesh, Karnataka, Tamilnadu, kerala, Maharastraha, and Gujarat. In AP sales depots are located in different areas like karimnagar Warangal Nizambad Vijayawada and Nellore In other states it has opened around 10 depots.

AWARDS WON BY KESORAM

Kesoram cement bagged prestigious awards like national awards for productivity and technology and conservation and several state awards for year 1984 kesoram cement is best family planning effort in the federation of Andhra Pradesh chamber of commerce And industry and also national award for two successive years 1985-86&1986-87.It has also bagged the national award for energy efficiency for the year 1989-90 for the performance among all cement plants in India .thus award stall-by national council

For cement and building material in association with the government of India.

Kesoram bagged the prestigious Andhra Pradesh state productivity award in 1987-1989 also Annexed state award for industrial management in 1988-1989.and also Best Industrial promotion expansion efforts in the state and yajamanya ratna and best efforts an industrial unit in the state to develop rural economy was bagged for its contribution towards the year 1991.

it also bagged the may day award of the government of India For the best management and the Pandit Jawaharlal Nehru silver rolling trophy for the industrial productivity effort in the state of Andhra Pradesh by FAPCCI and also the Indira Gandhi memorial national award of the government of Andhra Pradesh for the year 1993.

During the last 3 years the government of Andhra Pradesh has given the following awards Best awards for the year 1994.

Best industrial relation award for 1994.

To keep the ecological balance they have also undertaken massive tree plantation in the economy and government of India has nominated township areas and them for VRIKSHMITHRA award Best effort of an industrial unit in March 1996.In the year March 2008 Best management award 2008 for the best management practices in kesoram cement industry presented by chief minister.

CEMENT PRODUCTION WORLDWIDE

Country 19811983198619891990World ranking

China 831081062102101

Japan88857382872

U.s.a65617170723

India 21253645484

Italy4340364415

Germany30282427406

Today in the cement industry is producing 58.3 million tones per annum indication surplus conditions while its demand is 56.7 million tones lies per annum Now The cement market has become buyer market which was

A selling market till 1970s and so the quality &brand taken an upper edge for cement marketing.

Today installed at the India cement industry is 771lakh tones But in India 106 Major plants are producing 583lakh tones leaving the balance for exports.INDIAS LARGEST CEMENT COMPANIES POST ACQUISITION

CompanyCement capacity

In TPA

Cement % of

Sales

Larsen& turbo12.020

ACC11.393

GRASIM9.728

INDIAN CEMENT6.692

GUJRATHI AMBHUJA6.5100

WEAKNESSES:

The per capita consumption of the cement in India is very low

The transport costs in India are very high

The cement industry is facing with acute power shortage and raw material problem

The industry is also facing major packaging problems

OPPORTUNITIES:

The industry has tremendous potential for growth in India

In near future cement is going to replace tar for the construction of roads

There are good prospects for export with cement export promotion council

The government polices of reduction in excise duty and exempting cement from the just packaging may act as boon to the industry. THREATS:

The surplus levels are increasing as the production of the cement is much greater than the consumption.

In the present scenario of stiff competition there is a declining trend of price

The performance of the smaller unit is badly hit by major takeovers

The crisis situation in south east Asian countries may create problem to the exports of the industry.

CHAPTER-III

REVIEW OF LITERATUTRE

INTRODUCTION TO BUDGET AND BUDGETARY CONTROL:

The management is efficient if it is able to accomplish the objectives of the enterprise It is effective when it accomplish the objectives with minimum effort and most in attain long-range efficiency and systematic approach in facilitate effective management performance is profit planning and control or budgeting .Budgeting is therefore an integral part historical combination of a goal setting machine for increasing an enterprises profits and a goal achieving machine for facilitating generational coordination and planning while achieving the budgeted gets

MEANING OF BUDGET:

It is a financial and quantitative statement prepared and approved or to a defined period of time of policy to be pursued during that period purpose of attaining a given objective it may include income expenditure and employment capital

In other words it is a pre-defined detailed plan of action development distributed as a guide operations and as a partial basis for subsequent evolution of performance

PLANING OF BUDGETING:The process of planning all flows of financial resources into within from an entity during some specified future period it includes providing detailed allocation of available future resources to projects ,responsibilities and time periods From above definition I it clear that budgeting Is the actual act of caring the budget it is the process of evolving the final statement yet is the end product of budgetingESSENTIALS OF GOOD BUDGET:1. it is prepared prior to a defined period of time

2. it is prepared for the definite future period

3. the policy to followed to attain the given objectivities must be laid before the budget is

4. It is monetary and/or quantitative statements of the policy.

MEANING OF BUDGETARY CONTROL:

It is the process of establishing of departmental budget relating the responsibilities of executives to the requirements of a policy and the continuous comparison of actual with budgeted results either to secure by individual action the objectives of that policy or to provide a firm basis for revision First of all budgets are prepared and then actual results are the comparison of budgeted and actual figures will enable the management to out discrepancies and take remedial measures at a proper time the budgetary control is a continuous process which helps in planning and coordination it provides a method of control too .A budget is means and budgetary control is the end result.

In the words of J.A.scolt budgetary control is the system of management control and accounting in which all operations are forecast so as possible planned ahead and actual results compared with the forecast and the planned ones

ESSENTIALS OF BUDGETARY CONTROL:

1. Budgetary of the process of preparing the budget is the starting point for budgetary point for budgetary control.

2. Distribution of budgets pertaining. To each function to all the relevant section with in organization.

3. Collection of actual data pertaining to all budgeted activities.

4. Continuous comparison of actual performance with budgeted performance.

5. Analysis of variances in actual performance and budgeted performance

6. Initiation of corrective action to ensure that actual performance is inline with budgeted performance

7. Revision of budgeted if it is felt that the budgets prepared are no longer relevant on account of unforeseen developments

OBJECTIVITIES OF BUDGETARY CONTROL:

The primary objective of budgetary controls to help the management in systematic planning and controlling the operations of the enterprises the primary objective can be met only if there is proper communication and coordination amongst different organization thus the objectivities can be stated as:

1. Coordination: Coordination is a managerial function under which all factors of production and all departmental activities are departmental are balanced and integrated to achieve the objectivities of the organization budgeting provides the basis for organization objectivities can be realized executives are forced to think of the relationship between their department and the company as a whole this removes unconscious biases against other departments it also helps to identify weakness in the organization structure.

2. Communication: All people in the organization must know the objectivities polices and performances of the organizations they must have a clear understanding of their part in the organization goals this is made possible by ensuring their participation in the budgeting process3. Controls and performance evaluation:

Control ensures control by continuous comparison of actual performance with the budgeted performance variances are highlighted and corrective action can be initiated budgets also from the basis if performance evolution in an organization as they reflect realistic estimates of acceptable and expected performance.

BUDGETING AND BUDGETARY CONTROL:

A budget is a blue print of a plan expressed in a quantitative terms budgeting Is a technique budgetary control terms to the principles procedures and practice of achieving given objectivities through budgets.

From the above definitions we can differentiated the three terms as budgets are the individual objectivities of a department etc where as budgeting may be said to act of building budgets budgetary control embraces all and in addition includes the science of

Planning the budgets to effect on overall management tool the business planning and controlESSENTIALS OF BUDGETARY CONTROL

1. Organization for budgetary control: The 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

The chief executive is the overall in the charge of budgetary system he 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 responsible fro their departmental budgets

2. Budget officer: The chief executives appoints the budget officer such budget officer also called as Budget controller or budget Director thus rank should be equal to other functional managers

The Budget officer does not have the direct responsibility of preparing the budgets the various functional managers prepare the budgets his role is that of a supervisor the budget officer has the specific duty of the budgeting activity by various departments and for co-ordination between them so that there is a proper link between them He is empowered to scrutinize the budgets prepared by different functional heads and to make changes in them if the situation so demands The budget officer works as a coordinator among different departments he continuously monitors the actual performance different departments steps to rectify the defiance if any he also informs the top management about the performance of different departments

The budget officer will be able to carry out his work only if he is versant with the working of all the departments he must have technical knowledge of the business and should also process accounting knowledge

BUDGET COMMITTEE:

A budget committee is formed to assist the budget officer. The heads all the important departments are made members of this committee. The committee is responsible for preparation and execution of budgets. The chambers of this committee put up the case of their respective departments to help the committee to take collective decisions if necessary. The budget committees responsible for reviewing the budgets prepared by various functional heads coordinate all the budgets and approve the final budgets. The budget officer acts as a coordinate of this committee all the functional heads are entrusted with the responsibility of ensuring proper implementation of their respective final departmental budgets.BUDGET CENTERS:

A budget center is the part of the organization for which the budget is prepared. A budget creator may be a department section of department or any other part of department ideally, the head of every center should be a member of the budget committee. However it must be ensured that each budget center at least has an indirect representation in the budget committee.

The establishment of budget centers is essential for covering all parts of the organization becomes easy when different centers are established the budget centers are also necessary for cost control purpose.

BUDGET MANUAL:

1. A budget manual is a document that spells out duties and responsible the various executives conquered with it specifies among various functional areas A budget manual covers the following matters.2. A budget manual clarity defines the objectivities of budgetary control systems it also gives the benefits and principles of this system.3. the duties and responsibilities of various persons dealing with preparation and execution of budgets are also given in the budget manual it enables the management to know the persons dealing with various aspects to budgets and provides clarity on their duties and responsibilities it gives the information about the sanctioning authorities of various budgets the financial powers of sanctioning authorities of various budgets the financial powers of different manages are given in the manual for enabling the spending amount on various expenses4. a dropper table for budgets including the sending of performance reports is drawn so that every work starts in the and a systematic control is exercised 5. the specimen forms and number of copies to be lased fro ore oaring budget reports is also stated budget centers involved should be clearly stated.6. the length of various budget periods and control points is clearly given7. The problem follow all in the centre system clearly stated.8. A method of accounting to be used for various expenditures is also stated in the manual... A budget manual helps the documentation the role of every employee his duties responsibilities the ways of undertaking various tasks etc thus it also helps n reducing ambiguity at any point of time

BUDGET PERIOD:

A budget period is the length of time for which a budget is prepared upon a number of factors the choice of a budget period depends upon the following considerations the type of budget (long\short).

The nature of demand for the products

The timing for the availability of the finance

The construction situation of the cycles

All the above mentioned factors are taken into account while fixing the period of budgets

The financial manager usually responsible for organizing this budget he must perform the following functions.

To decide the general polices and guidelines

To offer technical advice.

To suggest changes.

To receive and review individual budget estimates.

To reconcile divergent with or without revisions.

To coordinate budgeting activities.

To approve budgets with or without revisions.

To scrutinize control reports later on

To scrutinize to budget reports later on.

To disseminate these guidelines.

After finalizing the budget proposal the budget committee subjects the final budget to the Board of Directories or Budget Director for approval.

CONTINUOUS BUDGETING SYSTEM:A continuous budgeting system is a method of having two different budget periods within the sane budget the purpose of having this system is to have greater control in terms of operational activities without losing sight is 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

DETERMINATION OF KEY FACTOR:

The budgets are prepared for all functional areas these budgets are dependent and inter-related A proper co-ordination among different budgets is necessary for budgetary control to be successful The constraints some budgets too A factor which influences all other budgets is known as key factor or principal factor.

The key factor may not necessarily remain the same the raw materials may be limited at one time but it may be easily available at another similarly other factors may also improve at different times. The key factor highlights the limitations of the enterprise. This will enable the management to improve the working of those departments we here scope for improvement exists.

REQUISITES FOR A SUCCESSFUL BUDGETARY CONTROL SYSTEM.

Making budgetary control system successful requisites are required.

1) Clarifying objectives.The budgets are used to realize objectives of the business. The objectives must be clearly spelt out so that budgets are properly prepared. In the sense of clear goals, the budgets will also be unrealistic.

2. Proper delegation of authority and responsibilities.Budget preparation and control is done at every level of management. Even though budgets are finalized at top level but involvement of persons. In lower levels of management is essential for their success. This Hesitates proper delegation and responsibility.3. Proper communications system.An effective system of communication is required for a successful budgetary control. The flow of information regarding budgets should be quick so that these are implemented. The upward communication will help in knowing the difficulties in implementation of budgets. The performance reports of various levels will help top management in budgetary control.

4. Budget education. The employees should be educated about the benefits of budgeting system they should be educated about their roles in the success of this system. Budgetary control may not be taken only as a control device by the employees but it should be used as a tool to improve their efficiency.

5. Flexibility.

Flexibility in budgets is required 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 adjustments. Flexible makes the budgets more appropriate and realistic.

6. Motivation

Budgets are too implemented by human beings. Their 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 is introduced for making is system a success.TYPES OF BUDGETS.

Long term budgets:The long-term budgets are the budgets prepared for a long period of five to years. They are concerned with planning the operations of a firm over a considerably long period of time. The financial Controller exclusively for top management usually prepares long-term budgets. These budgets are useful in terms of physical units (i.e... quantities) or percentages, the accurate values may be difficult to forecast over such long period. Initial expenditure, research and development budgets, etc, are examples long-term budgets.Short term budgets.Short term budgets are budgets prepared for a short period of one to two is. They are prepared for those activities the trend in which cannot be seen easily over long periods. These budgets are very useful are very useful in case of consumer goods industries such as sugar, cotton, textiles, etc. they are generally, prepared in terms of physical units (i.e., Quantities) as well as monetary units (i.e., values...) Materials budget, cash budget. Etc are examples of short-term budgets. They are useful to lower level of management for control purpose.

Current budgets.

Current budgets are a budget, which is established for use over a short period of time and is related to current conditions. Thus current budgets are essentially short term budgets adjusted to current (i.e., present or prevailing) conditions or circumstances. They are prepared, for a very short period. Say, a quarter or a month. They relate to current activities of the budgets.

Interim budgets:Interim budgets are budgets, which are prepared in between two budgets periods. These budgets may get integrated with the budgets of the following period.

CLASSIFICATION OF BUDGETS ACCORDING TO CONTENT:

Budget may be classified into budgets in physical terms and into budgets in monetary terms.

A) Budgets in physical terms:

Budgets in physical terms are budgeted that budget in terms of quantities only. They do not include corresponding rupee value. Long term budgets are usually in prepared in physical terms. Examples of such budgets are production budget, materials budget, etc.B) Budgets in monetary terms:Budgets in monetary terms are budgets that budget in terms of quantities as well as their corresponding rupee value. Sales budget, purchase budget, etc are examples of such budgets. Budgets such as cash budget capital expenditure budget, etc that may not have physical quantities also from part of budgets in monetary terms.

CLASSIFCATION OF BUDGETS ACCORDING TO FUNCTION:

Budgets can be classified into:

1. Operating Budgets

2. Financial Budgets

3. Master Budget

1. Operating Budgets.

These budgets relate to different activities or operations of a firm. The number of such budgets depends upon the size and nature of the business, the commonly used operation budgets are:

i) Sales Budgets

ii) Purchase Budget

iii) Raw Materials Budget

iv) Lab our Budget

v) Factory Utilization Budget

vi) Manufacturing Expenses or Works overhead budget

vii) Administrative and Selling Expenses Budget etc.

The operating budget for a film may be constructed in terms of programmers or responsibility areas, and hence may consist of:

A) Programmed Budget

B) Responsibility Budget

A) Programmed Budget:It Consists of expected revenues and costs of various products or projects that are termed as the major programmers 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 required to reduce COST5 ad increase revenues. They are so useful in determining imbalances and inadequacies in programmers so at corrective action may be taken in future.

B) Responsibility Budget:Here the operating of a firm is constructed in terms of responsibility areas. Such a budget shows the plan in terms of persons for achieving them. It is used by the management as a control thus used by the management as a control device to evaluate the performance of executives who are in charge of various cost centers. Their performance is compared to the targets (Budgets), set for them and proper taken for adverse results.

Responsibility areas may be classified under three brand categories:

I. Cost / expense center

II. Profit center

III. Investment center2) Financial budgetsFinancial budgets are concerned with cash receipts and payments, working capital, financial position and results of business. The commonly used financial budgets include Cash budget, Capital budget, and Income statement budget, Statement of earnings budget, Budgeted balance sheet or position statement.

3) Master budget

The Master budget is the summary budget incorporating its functional budgets. All the operational and financial budgets are integrated into the Master budget. The budget officer for the benefits of the top-level management prepares this budget. This budget is used to coordinate the activities of various functional departments. It is also used an effective control devices.

CLASSIFICATION ON THE BASIS OF FLEXIBILITY.

A) Fixed budget According to ICMA London a fixed budget is a budget which is designed to remain unchanged irrespective of the level of activity actually attained. It is based on a fixed volume of activity and shows one volume of output and related cost. It is not adjusted according to the actual level of activity attained.

A fixed 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 fixed budget is not useful for managerial purposes.

B) Flexible variable sliding scale or control type budget:

According to ICMA, London a flexible budget is a budget which is designed to change in accordance with the level of activity) actually attained. Thus, a flexible budget changes according to the change in the level of activity. In 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 flexible budget contains several estimates for different assume circumstances instead of just one estimate, it provides for automatic adjustments with changes in the volume of activity. Hence a situations operating in an unpredictable environment.

CHAPTER-IV

BUDGETING AND BUDGETARY SYSTEM IN

KESORAM CEMENT INDUSTRIES LTD

ZERO BASED BUDGETING:

Zero budgeting is the latest technique of budgeting and it has increased use as a material tool. This technique was first used in America in 1962, by the former president America, Jimmy Carter.

As the name suggests, it is starting from a "scratch, the normal technique of

Budgeting is to use previous levels as a base for preparing this year's budget. This method carries previous years inefficiencies to the present year because we taken last year as a guide, and decide "what is to be done this year when this much was the performance of the last year.

In the zero based budgeting every year is taken as new year and previous year is not as a base, the budget for this year will have to be justified according to present situation, zero is taken as base and likely future activities are decided according to present situations. In zero based budgeting a manager is to justify why he wants to spend. The performance of spending on various activities will depend upon their justification and priority for spending will have to be that an activity is essential and the amounts asked for are really reasonable taking into account the volume of activity.

BUDGET AND BUDGETARY SYSTEM IN KESORAM CEMENT INDUSTRIES LIMITED, BASANTH NAGAR, KARIMNAGAR

The budgeting process is used in the performance budgeting for the construction of phase which includes pre commissioning activities. Besides meeting the essential requirements of managerial control the budgeting exercise also covers the long term capital budgeting, which is presented in the form of annual plan.

OBJECTIVES OF THE BUDGETARY SYSTEM:

To prepare annual budgets in such a manner those managers at various levels in organization carry out periodical exercise in respect of each contact or responsible centre for physical planning and matching resources broke up into monthly targets or cash flows.

To introduce and operate responsible for achievement of specified targets with the recourses allocated for the purpose.

To bring about effective co-ordinate of all activities of the organization and

To gear up service divisions to meet effectively the requirements of project.

BUDGET PERIOD AND PHASING:

The budget period or annual begets should with the financial year. In October every year the budget should drawn up for the ensuring the financial year in the form of Budget estimates financial year in the form of Revised Estimates [R.E]...In addition the budgets are to be reviewed on monthly basis by project review teams, in the light of actual expenditure and projections in the budget period. Budget should indicate monthly phasing of expenditure and targets for the first and quarterly phasing for the second half of the year. At the time of review of the budget estimates to frame revised estimates the quarterly phasing should be broken up into monthly phasing.

While drawing up the actual budget in October every year, the long term capital budget for ongoing and new schemes should be formulated as apart of exercise as preparation of annual plan. The long term capital budget should indicate for a period of six years following the budget period of six years following the budget period of six years following the budget period wise annual phasing of the capital expenditure and physical schedules recourse based network.

BUDGET HEADS:

For uniform accounting, it is essential that costs are collected for each of the factory though 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 the data bank. Budget provisions are related to project estimates and monitoring of actual expenditure where as control variables for part control and instrumentation system. Factory piping which includes pipelines, for ash water mains, compressed air system and civil works piping.

Auxiliary pumps for water treatment plant and civil works system. If there are, any contracts not covered in the budget heads provision for such contracts should be shown against the appropriate system by head by adding code number.

TYPES OF BUDGETS IN KESORAM CEMENT INDUSTRIES LIMITED:

According to the nature expenditure budget are classified under: Direct capital outlay on works

Technical consultancy

incidental construction during construction

Employee cost

Other establishment expenses:

Training and recruitment

Preliminary expenses

misc.brought-out assets

cash budget

Township budget

BRIEF EXPLANATION TO THE NATURE OF EXPENDITURE INCLUDED IN EACH BUDGET IS INDICATED BELOW:

Incidental expenditure during construction personal payment: These comprises of salary,wages,allowance,contribution of PF and other funds and other expenses such as LIC,medical reimbursement, canteen subsidy etc. any provision of areas of salary D.A.

Office and other expenses: Expenses incidental to construction and capital works not traceable directly to incidental expenditure, during contribution equipments, vehicle running expense, office rent.LC and cost of drawings, travelling expenses, printing and stationary, communication expenses, advertisement for tenders etc. are major items in the category.

Training recruitment & other deferred revenue expenditure: The first part of the budget consists of expenses for training executives, and non executive trainees, rent for training halls and expenses for management development courses. The second part consists of expenses for recruitment such as advertisement for recruitment, interview expenses, T.A. candidate etc. the third part combines preliminary expenses including registration fees and research ad development expenses.

Miscellaneous bought out passes: Vehicles, furniture and fixtures equipments, hospital and medical equipment. Miscellaneous assesses township figure in the budget.

REVIEW OF PROJECT BUDGET:

Monthly review: At monthly intervals the budget should be reviewed by project review committee [PRC]. Project budget should report actual expenditure against budget heads. Work heads and corporate budget by the 7th of month following the report month. The monthly review should be examined by project review team[PRC],who should record variations for any variations and proposed for expending works in the minutes of the meetings reasons for any variations in the case of budget heads exceeding 10% of the budget estimates revised estimates or which ever is Rs.5 lakhs should be analyzed and report upon.

Quarterly review:PRT should conduct a quarterly budgets review with a view to projecting anticipated expenditure during the year against approved budget estimates/revised estimates. As time is essence of such review, only a quick review of anticipated expenditure for individual budget heads involving provisions exceeding Rs.50 lakhs in each case should be made and reported in minutes to PRT. For this purpose, project budget should furnish all the relevant data to project manager [project] and planning and system by the 10th, of the month following the quarter project budget committee should review the actual expenditure and assess anticipated expenditure contract co-ordination/engineers in charge. The assessments of anticipated expenditure should be furnished by the project budget committee to General Manager [project] by the 30th of the month following the quarter under review.

BUDGET OF SERVICE DIVISION CORPORATE BUDGETS:

A review of budgets of service and corporate divisions should be conducted at quarterly intervals by corporate budget committee[CS'C].For this purpose corporate accounts should report actual expenditure up to the need of the quarter by the 10th of the month following quarter to corporate budget and budget-coordination of the remaining period of the year should be sent to the corporate budget should put up a consolidated report division wise and project wise to corporate budget committee[CBC] by the 15th of the may, August, November and February every year.

OBJECTIVES OF THE CURRENT BUDGETARY CONTROL SYSTEM IN KESORAM CEMENT INDUSTRIES LIMITED, BASANTH NAGAR:

The current budgetary control system-operating phase has been compiled to achieve the following objectives.

To control actual performance with reference to standards/norms adapted in the budget ascertain the deviations analyze and establish the reasons.

To identify constraints in generation and timely action for estimation constraints.

To monitor the generation of internal recourses so as to ensure the availability of adequate funds.

To prepare the revenue budget so as to forecasting the periodical profitability of the organization.

To develop standards/norms of performance in the various areas of operation and maintenance based on the experience.

To ensure effective coordinate planning of all activities so that all the inputs and services necessary for achieving the physical targets are available at appropriate time.

To create cost consciousness among the managers responsible for decision making

To provide data regarding operational norms and cost for the purpose of formulating tariff.

To provide data basis for assessment of working capital requirements

To control the working capital particularly book debts spares and other items inventory.

To improve profitability and internal resources generation.

SCOPE OF THE PERFORMANCE BUDGET:

The budget for operation and maintenance activities will be called performance budget operation. This in effect means that all financial targets in the budget will be based on performance targets in physical terms.

The current budgetary control system operation pays envisages generation and transmission line projects as independents investment centres. It becomes applicable to a project in the year in which it plans to commercialize its first generation unit. How ever, the budget infer expenses from the date of synchronization to the date of commercial generation is to be taken case of in the capital budget of the respective project similarly in the case of transmission line projects the system becomes applicable from the year in which it plans to commissions its first line along with substation or the date commercial generation of the first unit of generative project with which this line is associated, which ever is later. For subsequent lines, the O&M will be prepared from the case generation of energisation.

The system investigates the preparation of operation and maintenance budget for each of the cost centers as per the requirements of coasting systems.

The performance budget operation will consists of following budgets along with the supporting schedules:

1. Budget balance sheet.

2. Budget profit and loss account.

3. Revenue budget.

In addition, separate budgets for revenue activities other than operation for research and development consultancy contracts etc.

The expenses respect of developmental expenditure for improvements additions replacement, renewals, balancing facilities etc. arc of capital nature and will be budgeted for in the construction budget of budgetary control system-construction pairs.

To facilitate management control the system also investigates, phasing of these budgets into monthly targets. The actual performance then will be reasons for variation s will be analyzed and established for taking corrective remedial actions.

STAGES IN THE FORMULATION OF PERFORMANCE BUDGET:

The system provides for a two stages formulation for performance budget operation the stages are given below:

Initial proposal: In the initial proposal the project is required to indicate yearly targets. In the addition to furnishing basic information like synchronization and commercial generation dates.

Constraints and coal operation at less than the designed specification calorific value of raw material and limestone, material consumptions. In physical terms for items whose consumption value in Rs.5 lakhs or more planned shutdown for a maintenance and overhauling and norms for serious operating parameters provided for designs specifications and in the tariff agreements to the corporate budget committee.

In the initial proposals is planned to be submitted after considering else factors and keeping in view the perspective plan of the organization, as well as norms for various operating parameters. These targets and terms are then communicated to all stations and transmissions line offices of the last week of July to be used for formulating detailed budget in the final proposal.

Final proposal: Budgeted balance sheet. Budgeted profit and loss account and budgets in the form of cash budget along with the final proposal will consist of detailed supporting schedules for each of the investment centre/cost centre. This final proposal needs to be submitted to corporate centre with in three weeks of receiving approval for initial proposal.

The final proposal, after approval by board, will become the basis of monitoring performance for cost centers and investment centers.

The frequency and extent review and monitoring will be done is under:

1. The monitoring of actual performance against budgeted target for investment center/profit center on monthly basis and for cost centers on quarterly for remedial/corrective action.

2. The review of performance budget on quarterly basis to assess the anticipated profitability.

The first step in the preparation of performance budget, O&M is formulation of maintenance and overhauling schedules for boiler and TO with generation, then considering the grid demand, the availability or inputs and factory problems, if any the utilization of capacity will be worked out on month-month basis for the budget period the gross generation targets can be worked and accordingly.

NET GENERATION:

The sales value will be determined from quantum of net generation [i.e., grass generation aux. consumption].

AUXILLARY CONSUMPTION/CONSUMPTION BY UTILITIES:

The cement consumption by each of the cost centers for individual unit auxiliaries, station auxiliaries as well as transformer losses are to be estimated separately based on designed specification and added in order to work out total auxiliary consumption rather than fixing overall percentage similarly consumption by utilities will also need to be indicated by concerned cost centers like township and construction department this will be valued at cost net generation to arrive at the sales values for owns consumption.

CHEMICAL CONSUMPTION:

The chemicals are used by many cost centers by many cost centers for treatment of water. The consumption of chemicals will be co-related with volume of water certain norms will have to be developed for different type of chemicals and different type of treatments.

Based on these norms each of the cost centers will indicate consumptions of chemicals in quantitative as well as financial terms the most centre wise requirement will be consolidated to arrive at total chemicals consumption to be charged to profit and loss account.

EMPLOYEE COST:

The basis of employee cost will be the approved manpower budget effective of respective years of budget period. The estimation of employee cost is to be done for each grade considering mid-point as the scale as basis pay and after reading various allowances like "D.A., H.R.A., C.C.A" project allowance etc. admissible in respective grades. This is to be worked 49 out or each of the budget periods based on existing strength (at the time of estimation) in each grade and additions during each quarter (taking 70% satisfaction for additions).

The provisions of LTC medical reimbursement, PF and other welfare expenses in previous years are taken into account policies changes, if any the details of welfare expenses like liveries and uniforms, safety expenses, accident compensation, games & sports, canteen subsidy etc. are to list out as per chart of account the provisions for incentive, bonus and payments of one time nature are to be shown separately based on total employee cost for executives, supervisors and non-supervisors and total man power in these categories ,separates of cost per employee will be worked out for each of theses categories as under.

1. Salaries and allowance

2. Contribution of PF and other funds

3. Welfare expenses

The cost centre of employee cost will be worked out based on these rates separately for theses executives, supervisors and non-supervisors. This will again be consolidated separately for operations, maintenance and common [service] function. The employee cost of common functions will be appropriated between construction and O&M budgets in ratio of capital expenditure and sales during respective years.

REPAIRS & MAINTAINENCE:

In line, with costing system following three activities can represent major classification of repairs and maintenance.

1. Major overhaul

2. Preventive maintenance

3. Breakdown maintenance

Normally, budgeting will be done for the former two; under each activity separate estimates will be prepared for consumption of materials and maintenance jobs. This estimation will be done at ach of sub cost centre wise details are required to be mentioned.

The consumption material for repairs and maintenance will be classified into spares, lubricant loose tools and plants, consumables and others. The cost centre totals separately for three activities will be added to arrive at summary of material consumption and maintenance jobs, which will be reflected in the profile & loss account.

The material consumption, especially of spares, can be estimated based on the expected life of various components/spares in the installed equipment the frequency of breakdowns in the past and the requirement for preventive maintenance and major overhauls. The actual life of components may be different from that indicated in the manufacturer's specification. Therefore, it is very difficult to estimate requirements of spares. But this estimation will become gradually accurate as more experience is gained. For new stations it will be advisable to collect such information from old stations that have gained experience in this field.

Normally, maintenance of equipment through contractors should be avoided. But in certain areas, if the expertise and in house capability or sufficient man power is not available, maintenance jobs can be got done through contractors. Such contracts will need to be listed out separately .If owner supply items are covered in such contracts the cost of theses items will be included in the material cost.

FACTORY & GENERAL OVERHEADS: All the items of an expenditures under this head will be estimated based on past trend with due adjustment for policy changes. The estimates will be given by cost centre needs for items identified with respective cost centers. The total administrative cost of service cost centers will be allocated between construction and O&M in the ratio of capital expenditure and sales during respective years.

Depreciation: This is to be charged as per ES act from the year following the year in which assets have been capitalized value and, rates of depreciation furnished by the site finance and account for different categories of assets. Cost centre-wise depreciation will be added to arrive at total deprecation for the investment centre.

Interest on fixed capital:

As per existing accounting policy, the interest is to be charged to profit & loss account based on the loan content in the capitalized assets restricted to total accrued interests on actual loans.

For budgeting purposes, interest will be worked on equated loan content or equated loan which ever is less.

CHAPTER-V

ANALYSIS AND INTERPRETATION

Kesoram Industries Limited Revenue Budget (2008-09)

Table-I

S.noParticularsBudget

Estimated Amount(Rs. Crores)Actual Amount(Rs. Crores)Variance

Sales

1Fixed and recovery68959990

2Variable cost recovery74565293

3Fuel price adjustment recovery784823-39

4Own consumption116128-12

5Total of (14)23342202132

6Average intensives98917

7Other income51438

Grand total(5+6+7)24832336147

Interpretation: The data pertaining to the generation and consumption of cement at kesoram Industries Limited have been obtained from the year 2008-09 and presented in Table-1.The aspect included are total generation of cement in (cores Rs) and utilization for auxiliary consumption, raw material consumption and line store respectively.

During the year 2008-09 the sales, fixed cost, variable cost, fuel price, consumption was decreased. Sales decreased by 132 crores to the estimated budget.

During the year 2008-09 the average intensives are decreased by 7 crores., there income also decreased by 8 crores respectively.

Finally, with regard to the result in revenue budget of kesoram cement industries limited, totally decreased by 147 crores in the year 2008-09 respectively. Kesoram Industries Limited Operational expenditure budget for the year 2008-09

Table-II



Variable cost

1 Raw material40042323

2Lime stone43045020

3Total of (1,2)83087343

Operative maintained cost

4Chemicals and water12014020

5Repairs & maintenance

24027535

6 Employee cost29033545

7Stationary & general expenses 557015

8Rebate 10122

9 Share of operating expenses 8102

10Total of(4..9)723842 119

Finance charges

11Deprecation 3811-27

12Interest on fixed capital 1820 2

13Totalof-3 56 31-25

Gland total (3+10+13) 16091746137

Interpretation: Observed from the above table that the "Operational Expenditure Budget" of kesoram cement industries Limited in the year 2008-09. In the year 2008-09 variable cost components, Raw material consumption 23 crores increased and the lime stone consumption 20 crores also increased. In operating & maintain aces cost components, chemicals & water, repair & maintenance, employee cost, stationary & general expenses rebate and share of other expenses in all are fluctuating expenses of the year 2008-09.how ever the total operating maintenance costs are 119 crores increasing respectively. In finance charges depreciation and interest on fixed capital, has been included, the total finance Charges recording decreasing 25 crores in the year 2008-09 respectively.


Table-I

S.noParticulars Budget

Estimated Amount(Rs. Crores)Actual Amount(Rs. Crores) variance

Sales

1Fixed and recovery 689 617 72

2Variable cost recovery 829 735 94

3Fuel price adjustment recovery 815 856 -41

4 Own consumption 110 132 -22

5Total of

(14) 2443 2340 103

6Average intensives 93 86 7

7Other income 49 38 11

8Grand total(5+6+7) 2585 2464 121

Interpretation: The data pertaining to the generation and consumption of cement at kesoram Industries Limited have been obtained from the year 2009-10 and presented in Table-1.The aspect included are total generation of cement in (cores Rs) and utilization for auxiliary consumption, raw material consumption and line store respectively. During the year 2009-10 the sales, fixed cost, variable cost, fuel price, consumption was decreased. Sales consumption is deceased by 103 crores respectively. During the year 2009-10 the average intensives are decreased by 7 crores and there income also decreased 11 crores respectively. Finally, with regard to the result in revenue budget of kesoram cement industries limited, totally decreased by 121 crores in the year 2009-10 respectively.

Kesoram Industries Limited Operational expenditure budget for the year 2009-10

Table-II


Estimated Amount(Rs. Crores)Actual Amount(Rs. Crores)variance

Variable cost

1 Raw material 41944930

2Lime stone42046545

3Total of(1,2)83991475


4Chemicals and water121148 27


232289 57

6 Employee cost314348 34

7Stationary & general expenses597718

8Rebate11132

9Share of operating expenses8102

10Total of(4..9)745885140

Finance charges

11Deprecation3814-24

12Interest on fixed capital 18202

13Total of(11,12) 5634-22

Grand total (3+10+13) 16401833193

Interpretation: Observed from the above table that the "Operational Expenditure Budget" of kesoram cement industries Limited in the year 2009-10.

In the year 2009-10 variable cost components, Raw material consumption 30 crores increased and the lime stone consumption 45 crores also increased.

In operating & maintain aces cost components, chemicals & water, repair & maintainance,employee cost, stationary & general expenses rebate and share of other expenses in all are fluctuating expenses of the year 2009-10.how ever the total operating maintenance costs are 140crores increasing respectively.

In finance charges depreciation and interest on fixed capital, has been included, the total finance charges decreasing by 22 crores in the year 2009-10 respectively.


Table-I

s.noParticulars Budget

Estimated Amount(Rs. Crores)Actual Amount(Rs. Crores) Variance

Sales





5Total of (14) 2467 2294 173

6Average intensive 97 92 5


8Grand total(5+6+7) 2617 2434 183


During the year 2010-11 the sales, fixed cost, variable cost, fuel price, consumption was decreased. Sales consumption is decreased by 173 crores respectively.

During the year 2010-11 the average intensives are decreased by 5 crores and there income also decreased 5 crores respectively.

Finally, with regard to the result in revenue budget of kesoram cement industries limited, totally decreased by 183 crores in the year 2010-11 respectively.

kesoram industries limited operational expenditure budget for the year 2010-11Table-II



Variable cost

1Raw material41844527

2Lime stone44246523

3Total o(1,2)86091050




26529631


7Stationary & general expenses 638017

8Rebate 11132

9Share of operating expenses 7103

10Total of(49) 790897107

Finance charges



13Total of(11,12) 5834-24

Grand total (3+10+13) 17081841133



In operating & maintain aces cost components, chemicals & water, repair & maintenance, employee cost, stationary & general expenses rebate and share of other expenses in all are fluctuating expenses of the year 2010-11.how ever the total operating maintenance costs are increasing by 107 crores respectively.

In finance charges depreciation and interest on fixed capital, has been included, the total finance charges recording decreasing by 24 crores in the year 2010-11 respectively.

Finally with regard to the operational expenditure budget of kesoram cement industries limited the total profit has increased by 133 crores during the year 2010-11. The overall budget results of kesoram cement industry is industries limited is earning more profits.

Kesoram cement industry Revenue Budget (2011-12)

Table-I

S.noParticulars Budget


Sales





5Total of (14) 2516 2369 147

6Average intensives 102 98 4


8Grand total(5+6+7) 2674 2516 158


During the year 2011-12 the sales, fixed cost, variable cost, fuel price, consumption was decreased. Sales consumption is decreased by 147 crores respectively.

During the year 2011-12 the average intensives are decreased by 4 crores and, their income also decreased 7 crores respectively.

Finally, with regard to the result in revenue budget of kesoram cement industries limited, totally decreased by 158 crores in the year 2011-12 respectively

Table showing operating expenditure of for the year 2011-2012Table-II


Estimated amount

(Rs. Crores)Actual amount

(RS. Crores)Variance

Variable cost

1Raw material42045030

2Lime stone45047020

3Total of (1,2)87092050



5 Repairs & maintenance28030020


7Stationary & general expenses658015

8Rebate11132

9Share of operating expenses8102

10Total of(4...9)81490389

Finance charges



13Total of(11,12) 6035-25

Grand total (3+10+13) 17441858114



In operating & maintainaces cost components, chemicals & water, repair & maintainance,employee cost, stationary & general expenses rebate and share of other expenses in all are fluctuating expenses of the year 2011-12.how ever the total operating maintenance costs are 89 crores increasing respectively.

In finance charges depreciation and interest on fixed capital, has been included, the total finance charges recording decreasing by 25 crores in the year 2011-12 respectively finally with regard to the operational expenditure budget of kesoram cement industries limited the total profit has increased by 114 crores during the year 2011-12.

The overall budget results of kesoram cement industry is industries limited is earning more profits.

CHAPTER-VI

CHARTSSALESTable showing total sales of Kesoram cement industry

2008-092009-102010-112011-12

BE2334244324672516

ACT2202234022942369

Figure showing on sale of kesoram cement industry

Interpretation

In the year 2008-09 the actual amount is less compared to budgeted amount as the budget is accurate. In the 2008-09 it shows a slight change between budgeted amount and actual. In the year 2011-12 budgeted amount is more compared to actual. It shows that the quantity is more comparing to market. Selling of cement product less than the estimates. AVERAGE INTENSIVES

Table shown on average intensives of kesoram cement industry

2008-092009-102010-112011-12

BE989397102

ACT91869298

Figure showing on Average I

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Budgetary Control at Kesoram Cements

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