a study on budgetory control

8/11/2019 A Study on Budgetory Control

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A STUDY ON BUDGETORY CONTROLAT

KESORAM CEMENT

1. INTRODUCTION TO BUDGET & 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-rang 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 forincreasing an

enterprises profits and a goal setting machine for facilitating generation coordination and planning while

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 gaining a given objective it may include income

expenditure and employment capital.

In other words it is a predefined detailed plan of action development distributed as a guide operation and

as partial bases for subsequent evolution of performance

MEANIING OF BUDGETORY

The process of planning all flows of financial resources into within form a entity doing some specified

future period it includes providing detailed allocation of available future resources to projects

responsibilities and time period form above definition I it clear that budgeting is the actual act of carrying

budget it is the process of evolving the final statement yet is the end product of budgetary

ESSENTIAL OF GOOD BUDGET: It is prepared prior defined period of time.

It is prepared for the definite future period.

It is monitory and /or quantitative statements of the policy.

MEANIING OF BUDGETORY CONTROL:

It is the process of the establishing of the 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 frame bases for revision. First of

all budgets are prepared and then actual results are the comparison of budgeted and actual figures will


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enable management to out discrepancies and take remedial measure at a proper time the budgetary

controls a continuous process which helps in planning and coordination it provides method of control to a

budget is means and budgetary control is the end results.

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 a head and actual results compared with the forecast

and the planned once

OBJECTIVES OF BUDGETORY CONTROL:The primary of budgetary controls to help the management a systematic planning controlling the

operations of enterprises the primary objective can be meat only if there is proper communication and

coordination among different organization. Thus the objectives can be stated as;

Coordination

Communication

Controls and performance evolution.

BUDGET, BUDGETING AND BUDGETORY CONTROL:A budget is a blue print of a plan expressed in a quantitative terms budgeting is a technique budgetary

terms to the principles procedures and practice of achieving given objectivities through budgets. Form the

above definition 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 control.

OBJECTIVES OF THE STUDY: Also studied 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 controlsystem.

To analyze the budgetary system in practice in kesoram cement industries limited with particular

reference to their objectives and phases of organizational and re-appropriation.

RESEARCH METHODOLOGY

A).SOURCES OF THE DATA

There 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 Prasanna Chandra & www.google.com,.


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SCOPE OF THE STUDY:The data of basanth nagar, 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:

1. Estimates are used as basis for budget plan and estimates are based on available.

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

managerial.

3. Tool which increase effectiveness of managerial control.

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

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

targets.

6. Frequent changes may be called for in budgets to fast changing industries climate.

7. In order that a system may be successful, budget education should be imparted at least

through the formative period. Sufficient training programs should be arranged to make employeesgibe positive response to budgetary activities.

8. The study is the limited up to the date and information provided by kesoram cement

industries limited and its annual reports.

2.REVIEW OF LITERATUREEconomic incentives in budgetary control systemsJoel.S.Demski & Gerald. A.Feltham1978


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FINDINGS:

This article explores conventional questions of why and how budgets should be employed for motivation

purposes in an economic setting. The authors focus on the types of employment contracts that are

associated with equilibrium allocations in the labor market. Market incompleteness is a necessary

condition for use of budgets in the employment contract. Beyond this, issues of controllability,

management by exception, and tightness of standards are observed to depend on the contracting

environment faced by the individual agents.

An Examination of the Effects of Budgetary Control on Performance Carolyn M. Callahan, Doris M. Cook Professor, Tammy R. Way mireNovember, 2007

FINDINGS:

This study represents the first which suggests that tight budgetary control may not be as effective in

improving performance as assumed both in public sector and private sector entities. While it would be

premature to conclude that tight budgetary control is not related to Perf ormanc e, it can be conc luded

that the effective Level of budgetary control will vary based on contextual factors. In this study, it appears

that the effective level of budgetary controlis at the net level for the funds within governmental entities.

Budget and Budgetary Control for Improved Performance:AConsideration for Selected Food and BeveragesCompanies inNigeriaIshola Rufus Akintoye, 2007

FINDINGS:

Budget and Budgetary control, both at management and operational level looks at the

Future and lays down what has to be achieved. Control checks whether or not the plans are realized, and

puts into effect corrective measures where deviation or shortfall is occurring. This study examines how

budget and budgetary control can impact on the performance of the selected food and beverages

companies in Nigeria, as considered in this study, being a Sample of the entire population of the firms in

the Nigerian Manufacturing Industry. We reviewed the performance of the Nigeria manufacturing industry

in previous and recent times. We found out that the performance of this industry leaves much to be

Desired due to factors such as neglect of the industry due to over dependence on crude oil, Epileptic

power supply, collapsing infrastructures, unfavorable sectoral reforming among Others and have resulted

in low capacity utilization of the manufacturing industry.


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An empirical investigation was undertaken, using the simple correlation analytics Technique specifically

the Pearson product movement correlation coefficient. In most of the Cases considered, established the

presence of strong relationship between turnover as a Variable of budget and performance indicators

EPS, DPS and NAS, of the selected food and beverages companies.

Following our findings, we advise managers and business Operators (not only in the manufacturing

industry) to pay more attention to their budgetary Control systems, for those without an existing budgetary

control system, they should put One in place, and those with a dummy or passive budgetary control

system, it is time they Re-established a result-oriented budgetary control system as it goes a long way in

Repositioning the manufacturing industry from its creeping performance level to an Improved high

capacity utilization point.

Environmental turbulence and the functions of budgetary controlNicolas Berland01 Oct 2010

FINDINGS:

While budgetary control is a potentially significant tool when the economic environment is unstable and

unpredictable, the analysis of its development demonstrates that its use has dramatically expanded over

the time since companies have been able to run forecasts. In order to help them develop budgetary

control, companies have implemented strategies that have reduced risks and hence improved their ability

to make accurate forecasts. Such strategies have taken many forms and varied from one firm to another.

They materialized as various types of agreement, including cartels, through strategies to effect market

leadership, or via policies of nationalization. In those companies where the environment was stable and

risk limitation was not important, budgetary control could be used for various internal purposes. In thisrespect, the analysis of the management of companies helps us to identify the purposes for which

budgetary control is utilized. It is found that budgetary control allows for greater expansion opportunities

and provides the means to strengthen the control of management within major companies. Our

observations highlight a contradictory aspect of budgetary control: while it is relevant within an unstable

environment, it performs best in an environment which is highly managed.

Budgeting and Budgetary ControlJan F. JacobsApril 29, 2003

FINDINGS:Operational management needs to know the causes of off-standard performance in order to improve

operations. The knowledge of variances (real result versus budget) will aid control, at least if and when

these variances are understood well enough. The only criterion for the calculation of a variance is its

usefulness.
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Of course variances must be calculated immediately after the event and one should act upon them

adequately. Budget processes in many cases actually exemplify what is harming companies instead of

helping them. Jensen, 2001, describes what is happening in practice. Measuring performance, by

whether or not achieving set targets for the period or missing them, is ridiculous.

Budgets and targets mean nothing without thorough detailed budgetary control; how should it be

conducted? Variance analysis, the way it is taught at many schools and universities, in accordance with a

wide variety of textbooks, is put to the test. This paper presents a few examples, with quotes from various

textbooks and examinations. Problem definitions are quoted literally. Working-outs as explained by

famous writers/lecturers/consultants are given where necessary and otherwise they are available at the

quoted places in literature.

The author's opinion is that these working-outs cannot stand the test. Anyway my opinion is not important,

the reader decides. I give my elaboration in full detail, in reaction to the corresponding working-out

published in well-known textbooks/examination papers, and may the best one prevail. Of course the

elaborations of others and me have a lot in common, but the discrepancies are at stake. Wrong,incomplete, unclear analyses will lead to mismanagement.

In literature a so-called Dutch method is advocated versus what is supposed to be the American way to

handle variance analysis i.e. solving the problem of budgeting and budgetary control. The author's

opinion is that only one calculating method can be the right one. Only the best integral working-out is the

essential base to better (operational) management. Of course variance analysis is but a means to an end.

A deeper understanding of the state of the company is the ultimate goal of all representations in

budgeting and budgetary control. Management's task is to find the reasons for the variances and to take

proper action to bring operations into line with the budget. Maybe the variances and trends indicate that

the standards need amendment.

BUDGETARY CONTROL AND QUALITY OF FINANCIAL REPORTS.TURYAHEBWA AGNES

FINDINGS:The study on the budgetary control and quality of financial reports was carried out in Warid Telecom (U)

Ltd. The major objectives of the study were; to assess the budgetary control Systems, quality of financial

reports and to establish the relationship between budgetary control and quality of financial reports. The

study was associational and descriptive in nature, comprising of 40 respondents who included Managers,

Staff, Customers, Competitors, Lenders, Investors, Tax authority and Government. These were selected

using purposive and stratified sampling methods. Respondents were chosen at random to avoid bias in

the study. The primary and secondary data were based on. The data collected was analyzed, interpreted

and presented in light of the findings which were obtained through the use of questionnaires, observation

interview guides and documentary Findings on the budgetary control revealed that Warid Telecom (U) Ltd

is comprised of estimation of the budget, coordination of budget estimates, and communication of the

budget, implementation and evaluation of actual performance in respect to the budget performance as

explained in chapter five. Findings on the quality of financial reports of Warid Telecom (U) Ltd showed

that they are prepared using internally accepted principals relevant but they do not show a true and fair


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view of the operations in the company. The study also revealed that budgetary control systems influence

the quality of financial reports in Warid Telecom (U) Ltd as was explained by the r2 value 58% indicating

that 42% of quality of financial reports is explained by other variables not included in this study. Thus a

need for the company to improve on its budget estimation, coordination ,communication implementations

and evaluation in order to produce true and fair, accurate, timely and relevant financial reports to the

company that can be relied on to make economic conditions. The various recommendations include the

following; improve monitoring, managers should carry out thorough comparison of actual and objectives

should be clear to staff for the betterment of the company goal and objectives and effective

communication and clarification of the budget to the staff and constant follow ups.

3.INDUSTRY& COMPANY PROFILEThe 85-years old Indian 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-II

when government of India 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 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 INDUSTRYThe 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. In the ancient times, clay, bricks and

stones have been used for construction work. The Romans were using a binding or 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 Fifty years UICAT a French Chemist, produced

hydraulic cement by burning finely ground clay and clay and used it in the paste. Cement invented by

JOSEPH ASPDIN in 1824. Since hardened cement paste resembled Portland stone found in England in

color, he named it as PortlandCement a name, which has carried over the century. Portland cement

was first manufactured in United States of America in 1975.

In India cement was produced for the first time in 1904 by South India Industries Limited in Madras. This

Unit had capacity of 30 tons per day was based on lime from sea. By 1913, however three units started

their operations with a combined installed capacity of 75,000 tons per annum. In 1914, indigenous

production fees for short of domestic demand necessitating an import of 1,65,723 tones shipmentdifficulties and foreign trade relations during the first world war years acted as a catalyst for the

development of indigenous industry, and by 1924 the total installed capacity grew to 5,59800 tons per

annum.

In 1963, all the Cement Companies with the exception of SONE VALLEY PROTLAND CEMENT

COMPANY LIMITED merged to form the ASSOCIATED CEMENT COMPANIES LIMITED. This has more

facilitated a cost reduction as well as uniformity in quality. By 1947 the installed capacity of the Industry


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raised to 2.2 million tons per annum. After partitions, five of the cement producing units in the country

went to Pakistan and total installed capacity of the eighteen units that remained in India was 1.5 million

tons per annum. This increased to 3.8 million tons by 1950-51. In the three decades 1950-80, the

capacity expansion was between 7 to 8 million tons per decade. The targets set in respect of additional

capacity generation was released with the impetus given by the partial decontrol announced in 1982,

several units lockup project for expansions of capacity and modernization which contributed towards

increased production.

DEFINITION OF CEMENT:

Cement may be defined as it is a mixture of calcium silicate and aluminates. Which have the

property of setting and hardening under water. The amount of silica, Alumina who is present in each crust

is sufficient to combine with calcium, oxide (Cao) to from the corresponding calcium silicate and

aluminates.

CLASSIFICATION OF CEMENT:

Cement is 3 types.

PUZZOLANTIC CEMENT:

It consists of mixture of silicate Calcium and Aluminum. Shows the hydraulic property when it is in the

form of powder and being mixed with suitable proportion of lime. The rate of hardening is much slower

and the comprehensive strength developed is about a half of Portland cement. It is found more resistant

to the chemical action than others.

NATURAL CEMENT:

This is natural occurring material. It is obtained from cement rocks. These cement rocks are claying

limestone containing solicits, aluminates of calcium. The selling property of this cement is more than the

Portland cement but is comprehensive strength is half of its.

PORTLAND CEMENT:1. Ordinary Portland cement.

2. Repaid hardening Portland cement.

3. Lows heat cement.

4. White or colored cement.

5. Water proof Portland cement.

6. Portland slag cement.

7. Portland pozzolana cement.

8. Sulfate Resisting cement.

INDIAN CEMENT INDUSTRYPRESENT STATUS


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After the declining of the industry in July 1991 it reacted positively to the policy changes. New capacities

created and the volume of production increased. Form a situation of improving cement, the country

started exporting 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 S 9 companies owning 11 S plants. In the matters of exports the government

considers cement as an 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 saving.

ABOUT THE INDUSTRY:These chapter examiners a profile of Kesoram Cement Industries Ltd. i.e., its history, location

organization structure etc.,

LOCATION:Kesoram cement industry is one of the leading manufacturers of cement in India. It is a day process

cement plant. The plant capacity is 8.26 lakhs tones per annum. It is located at Basanth Nagar in

KarimNagar district of Andhra Pradesh, Basanth Nagar is 8km away from the ramagundam railway

station linking madras to New Delhi. The chairman of the company is sty. B.K Birla

HISTORY:The first unit at Basanth Nagar with a capacity or 2.1 lakhs tones per annum incorporating suspension-

preheated system was commissioned during the year 1969. the second unit was setup in year 1971 with

a capacity of 2.1 tons per annum and (he third unit with a capacity of 2.5 lakhs tons per annum went on

stream in the year 1978. the coal for this company is being supplied iron Singareni collieries and the

power is obtained from APSEB. The power demand for the factory is about 21 MW. Kesoram has got 2

DG, set of 4 MW each installed in the year 1987.Kesoram cement has set up a 15KW capacity power

plant to facilitate for uninstall power supply for manufacturing of cement start at 24 August 2007 per hour

12MW, actual power is 15MW.

Birla Supreme in popular brand of Kesoram Cement from its prestigious plant of Basanth Nagar in AP,

which has outstanding track record. In performance and productivity serving the nation for the last two

and half decades. It has proved its distinction by bagging several national awards. It also has the

distinction of achieving 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

influences 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 construction 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


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consecutively. For two years the year 1985-1987. the federation of Andhra Pradesh Chamber &

commerce and industries (FAPPCCI) also conferred on Kesoram Cement. An award for the best

industrial promotion expansion effort in the state for the year 1984. 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 county today, serving the nation on the industrial front. Kesoramindustries Ltd has a cheque red and eventful history dating back to the twenties when the industrial

House of Birlas acquired it. With only a textile mill under its banner 1924 it grew form strength to strength

its activities 10 newer fields like transparent paper, spun pipes, refractorys, tires and other products.

Looking to wide gap between the demand and supply of a vital commodity cement, which plays, UI

important role in national building activity the Government of India had de-licensed the cement industry in

eh year 1966 with a view to attract private entrepreneurs to augment the cement production. Kesoram

rose to the occasion and divided to set up a few cement plants in the country.

Kesoram cement undertaking marketing activities extensively in the states of Andhra Pradesh, Karnataka,

Tamilnadu, Kerala, Maharashtra and Gujarat. In AP sales depots are located in different areas likeKarimnagar, Warangal, Nizamabad, Vijayawada and Nell ore. In other states it has opened around 10

depots.

THE AWARD WON ARE:Kesoram cement bagged prestigious awards like national awards for productivity and technology and

conversation 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 and 1986. National award for mines safety for two years 1985-86 & 1986-1987.

It has also bagged the national award for energy efficiency for the year 1989-1990 for the performance

among all cement plants in India. Thus award stall by national council for cement and building material

(NCCBM) 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 1988-89 and also Best industrial promotion expansion efforts

in the estate and Yajamanyza Ratna 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 1991.

It also bagged the May Day award of the government of Andhra Pradesh 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 India Gandhi memorial national award for excellence.

Best management 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.


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To keep the ecological balance they have also undertaken massive tree plantation in the factory and

government of India has nominated township areas and them for VRIKSHMITRA award. Best effort of an

industrial unit in the state for rural development 1944-95 presented by chief minister in March 1996.

In the year March, 2009 Best Management award 2009 for the best Management practices in Kesoram

Cement, Presented by Chief Minister.

CEMENT PRODUCTION WORLDS WIDE

COUNTRY 1981 1983 1986 1989 1990 RANKS

CHINA 83 108 166 210 210 1

JAPAN 88 85 73 82 87 2

USA 65 61 71 70 72 3

INDIA 21 25 36 45 48 4

ITALY 43 40 36 34 41 5

GERMANY 30 28 24 27 40 6

Today in India cement industry is producing 58.3 million tons 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 marker till 1970s and so the quality & brand taken an upper edge for cement

marketing.

Today installed at India cement industry is 771 lakhs tones. But in India 106 major plants are producing

583 lakhs tones while a India cement demand is 569 lakhs tones leaving the balance for exports.

INDIAS LARGEST CEMENT COMPANIES POST ACQUISITION

COMPANYCement capacity

in TPA

Cement %

of sales

LARSEN & TOURBO 12.0 20

ACC 11.3 93

GRASIM 9.7 28

INDIAN CEMENT 6.6 92

GUJARATH AMBUJA 6.5 100

WEAKNESSES:a. The per capita consumption of the cement in India is very low.

b. The transport costs in India are very high.


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

d. The industry is also facing major packaging problems.

OPPORTUNITIES:a. The industry has tremendous potential for growth in India.

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

c. There are good prospects for export with cement export promotion council.

d. 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.

AIMS:

Continuous effort to improving productivity.

Evaluating individual skill trough training and motivations.

Total involvement through participants management activities.

Creating healthy and safe environment.

Social development.

STATE WISE CEMENT PLANTS

S.NO STATE NO. OF CEMENT PLANTS(LARGE)

01 Assam 1

02 Andhra Pradesh 19

03 Bihar 7

04 Delhi 1

05 Gujarat 13

06 Haryana 2

07 Himachal Pradesh 4

08 Jammu and Kashmir 1

09 Karnataka 9


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10 Kerala 1

11 Meghalaya 1

12 Maharastra 8

13 Madhya Pradesh 23

14 Orissa 3

15 Rajasthan 15

16 Tamilnadu 8

17 Uttar Pradesh 5

18 West Bengal 2

TOTAL 123

DIRECTORS OF KESORAM INDUSTRIES LIMITED

CHAIRMAN Shri. B.K. Birla

DIRECTORS Smt. K.G. maheshwari

Shri. Pramod Khaitan

Shri. B.P. Bajoria

Shri. P.K. Chokesy

Smt. Neeta Mukerji

(Nominee of I.C.I.C.I.)

Shri. D.N Mishra

(Nominee of L.I.C.)

Shri Amitabha Ghosh

(Nominee of U.T.I.)

Shri P.K Malik

Smt Manjushree Khaitan

SECRETARY Shri S.K. Parilk


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SENIOR EXECUTIVES Shri K.C.Jain (Manager of the company)

Shri J.D. Poddar

Shri O.P. Poddar

Shri P.K. Goyenka

Shri D.Tandon

AUDITORS Messrs Price Waster house

SUBSIDIARY COMPANIES OF KESORAM INDUSTRIES Bharat General & Textile Industries Limited

KICM Investment Limited

Assam Cotton Mills Limited

Softshree Estates Limited

4.CONCEPTUAL FRAME WORKBUDGET: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 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 ie. Formulating plans, coordination activities and controlling operations etc.,

efficiently. For efficient and effective management planning and control are two highly essential functions.

Budget and budgetary control provides a set of basic techniques for planning and control. A budget fixes

a target in terms of rupees or quantities against which the actual performance is measured. A budget isclosely 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. Ideas of the top management are given practical

shape. As the activities department heads are coordinated at the much needed for the very success of an

organization. Budget is necessary to future to motive the staff associate, to coordinate the activities of

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

Budgets maybe divided into two basic classes. Capital and operating budgets. Capital budget are

directed towards proposed expenditure for new projects and often require special financing. The

operating budgets are directed towards achieving short-term operational goals of the organization for

instance, production or profit goals in a business firm. Operating budget maybe sub-divided into various

departmental of functional budgets.

DEFINITION OF BUDGET:


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According to ICMA, England, a budget is, financial and/or quantitative statement, prepared and

approved prior to be defined period of time, of the policy to be pursed during the period for the purpose of

attaining a given objective.

BUDGETARY CONTROL:INTRODUCTION: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 to secure by

individual action the objectives of that policy or to provide affirm basis for revision.

MEANING:

In the words of J.A.scolt budgetary control is the system of management control and account in which all

operations are forecast so possible planned ahead and actual results compared with the forecast and

planned ones. No system of planning can be successful without having an effective and efficient system

of control. Budgeting is closely connected with control. The exercise of control in the organization with the

help of budget is known as budgetary control. The process of budgetary control includes.

1. Establishment of budget for each function and section of the organization.

2. Executive responsibility in order to perform the specific tasks so that objectives of the enterprise maybe

attained.

3. Continuous comparison of the actual performance with that of the budget and placing the responsibility of

executives for failure to achieve the desired results a given in the budget.

4. Taking suitable remedial action to achieve the desired objective if there is a variation of the actual

performance from the budgeted performance.

5. Revision of budgets in the light of changed circumstances.

DEFINITION OF BUDGETARY CONTROL:According to the brown and Howard budgetary control is the system of controlling costs which includes

the preparation of budgets, co-coordinating the department and establishing the responsibilities,

comparing the actual performance with the budgeted and acting up on the results to achieve the

maximum profitability.

ESSENTIAL FEATURES OF A BUDGETARY: Budgetary control defines the objective and policies of the undertaking as a whole.

It is an effective method of controlling the activities of various departments of a business unit. It fixed

targets and the various departments have to efficiently to reach the targets. It is an effective method of controlling the activities of various departments of a business unit. It fixed

targets and the various departments have to efficiently to reach the targets.

It secures proper co ordination among the activities of various departments.

it helps the management to fix up responsibility in case the performance is below expectation

it helps the management to reduce wasteful expenditure. this leads to reduction in the cost of production

it brings in efficiency and economy by promoting cost consciousness among the employees.

It facilitates centralized control with decentralized activity.


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It acts as internal audit by a continuous evaluation of departmental results and costs.

ADVANTAGES OF BUDGET AND BUDGETARY CONTROL.

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

Compels management to think about the future, which is probably the most important feature of a

budgetary planning and control system. Forces management to look ahead, to set out detailed plans for

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

the organization purpose and direction.

Promotes coordination and communication.

Clearly defines areas of responsibility. Requires managers of budget centers to be made responsible for

the achievement of budget targets for the operations under their personal control.

Provides a basis for performance appraisal (variance analysis). A budget is basically a yardstick against

which actual performance is measured and assessed. Control is provided by comparisons of actual

results against budget plan. Departures from budget can then be investigated and the reasons for thedifferences can be divided into controllable and non-controllable factors.

Enables remedial action to be taken as variances emerge.

Motivates employees by participating in the setting of budgets.

Improves the allocation of scarce resources.

Economizes management time by using the management by exception principle.

METHODS OR TYPES OF BUDGETS:The analysis and interpretation of budgetary control is used to determine the control operation and results

of operations as well a no. of devices are used to study the relationship between different budgets.

LONG TERM BUDGETS:The long term budgets are the budgets prepared for a long period of five 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... quantitative) or percentage, the accurate values may be difficult to forecast over

such long period. Initial expenditure, research and development budgets, etc, are examples term

budgets.

SHORTTERM BUDGETS:

Short-term budgets prepared for a short period of two is. They are prepared for those activities the trendin which cannot be seen easily over long periods. These budgets are very useful in case of consumer

goods industries such as sugar, cotton, textiles, etc they are generally, prepared in term of physical units

(i.e., quantities) as well as monetary units.(i.e., value..) 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.,


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present or prevailing) con dictions or circumstances. They are prepared, for Avery short period. Say, a

quarter or a month. They relate to current activities of the following period.

INTERIM BUDGETS:Interim budgets are, which are prepared in between two budgets periods. These budgets may get

integrated with budgets of the following period.

ZEROBASED BUDGETING: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 years budget. This method carries previous years inefficiencies to the

present year because we taken last year a guide, and decide what is to be done this year when this

much was the performance of the last year.

BUDGETARY CONTROL AN OVERVIEWThe budgeting process is used in the performance budgeting for the construction of phase which includes

pre commissioning activities. Besides meeting the essential requirements of managements of control.

The budgeting exercises also cover the long term capital budgeting, which is presented in the form of

annual plan.

ANALYING BUDGETORY CONTROLACCORDING TO THE NATURE EXPENDITURE BUDGET ARE CLASSIFIED UNDER:

>> Direct capital outlay on works.

>> Technical consultancy.

>> Incidental construction during construction.

>> Employee cost.

------- KHAN AND P.K.JAIN

PROBLEMS IN BUDGETING

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

disadvantages, particularly in perception terms.

Budgets can be seen as pressure devices imposed by management, thus resulting in:

a) Bad labor relations

b) Inaccurate record keeping

Departmental conflict arises due to:

a) Disputes over resource allocation

b) Departments blaming each other if targets are not attained.

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


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Waste may arise as managers adopt the view, "we had better spend it or we will lose it". This is often

coupled with "empire building" in order to enhance the prestige of a department.

Responsibility versus controlling, i.e. some costs are under the influence of more than one person, e.g.

power costs.

Managers may overestimate costs so that they will not be blamed in the future should they overspend.

LIMITATIONS OF BUDGETARY CONTROL: The preparation of a budget under inflationary conditions and

changing government policies is really difficult. Thus,

the accurate position of the business cannot be estimated.

Accuracy in budgeting comes through expenditure. Hence it should not be relied on too much in the initial

stages.

Budget is only a management tool. It is not a substitute for management. it cannot be replace

management in decision making.

Budgeting involves a heavy expenditure, which small concerns cannot afford. There will be active and passive resistance to budgetary control as it points out the efficiency or in

efficiency of individuals.

The success of budgetary control depends upon wiling co-operation and teamwork. This is often lacking.

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

for a company to keep pace with fast changes, because revision of budgets is expensive exercise.

BUDGET PROCEDURE

Having the budget organization and fix the period, the actual work or budgetary control can be taken up to

the following pattern.

STEPS IN BUDGETARY CONTROL

Organization for budgeting setting up of definite plans of organization is a first a step towards installing

budgetary controlling system in any organization a budget manual should be prepared giving detail of the

powers, duties, responsibilities and areas of operation of each executive in each organization.

BUDGETARY MANUALA budgetary manual lays down the details of an organizational set up, the routine procedures and programmes to be followed for developing

budgets for various items and the duties and responsibilities of the executives regarding the operation of the budgetary control system. CIMAEngland defines a budgetary manual as a document schedule or book let which sets out inter alias, the routine of and the forms and records

required for budgetary control. Thus, it is a document, which guides the executives in preparing various budgets. Budgets are to be drawn

keeping in view the objectives of the organization given the budget manual. Responsibility and functions of each executive in regard to

budgeting are return down in the budget manual to avoid any duplication or overlapping of responsibilities. Steps and the methods

developing various budgets and the methods of reporting performance against the budget are return down in the budget manual. In short it is

a written document, which gives everything relating to the preparation and execution of various budgets. It should be clear and there should

be no ambiguity in it.


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The following are some of the most important matters covered in budget manual.

Introducing and brief explanation of the objects, benefits and principles of budgetary control.

Organization chart giving the titles to different personals with full explanation of the duties of each to

operating system and preparation of departmental and functional budgets.

Length of budget periods and control periods should be clearly stated A method of accounting and

control of expenditure.

A statement showing a responsibility and of authority given to each manager for approval of budgets,

vouchers and all other forms and documents which authorized them to spend money. The authority for

granting approval must be clearly stated.

The entire process of budgeting programme including the timetable for periodically reporting. a schedule

should be drawn for this Purpose, specimen form and other number of copies to be used for each report

and statement. Budget centers should also be clearly stated.

Outline of main budgets and their accounting relationships

Explanation of key budgets.

FIXATION OF BUDGET PERIOD:The budget period mean the period for which a budget is prepared and employed. The budget

period will depend upon the type of business and the control aspect. Budget period mean the

period for which a budget is prepared and employed. The budget period depends upon the nature

of the business and the control techniques. For example, in case of seasonal industries (i.e., food

or clothing) the budget period should be a short one and should cover one season. But in case of

industries with heavy capital expenditure such as heavy engineering works, the budget period

should be long enough to meet the requirements of the business. From control point of view, the

budget period should be a short one so that the actual results may be compared with the budget

each week end or month end and discussed with the discussed with the Budget committee. Long

term budgets should be supplemented by short term budgets to make the budgetary control

successful, as short-terms budgets will help exercising control over day-today operations. In

short, the budget period should not be too long so that there may be sufficient time before budget

implementation.

For most business, annual budget is quite common because it compares with the financial

accounting year. There should be a regular time plan for budget preparation. It may be on the

following lines. Long-term budgets for three to five years should be prepared for expansion and modernization of the

undertaking, introduction of new products or new projects and undertaking heavy advertisement.

Annual budgets coinciding with financial accounting year should be prepared for the operations activities

(i.e., sales, purchases, and production etc., of the business).

For control purposes, short-term budgets-monthly or even weekly budget-should be prepared for watching

progress of actual performance against targets. Short-term budgets are prepared to see that actual

performance is proceeding according to the budgets and early corrective action may be taken if there is

any pitfall.


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The responsibility for preparation and implementation of the budgets may be fixed as under.

BUDGETARY CONTROLLER:Although the chief executive I finally responsible for the budgetary programme. It is better if a large part

of the supervisory responsibility is deluged to an official designated as Budget Controller or Budget

Director. Such a person should have knowledge of the technical details of the business and report

directly to the president or the chief executive.

ROLLING (CONTINUES) BUDGET:This is a budget which is updated continuously by adding a further period ( a month/quarter) and

deducting a corresponding earlier period. Budgeting is a continuous process under these methods of

preparation of budget. Once the first period elapses, the forecast for that period is dropped and the

forecast reliably, this method is useful. However, it is a costly exercise but matched by considerable

reduction in operational variances.

ANNUAL VS CONTINUES BUDGETING SYSTEM:In some organizations budgets are prepared on annual basis. But annual budgets may not help the

management to have control because variances due to rapidly changing conditions affect the sales in

quantity and prices, severe rapidly changing conditions affect the sales in quantity and prices, severe

inflationary conditions exist resulting fast increase in the prices of inputs without reflecting in sales prices

immediately and wide range of products being produced making it not feasible to have precise estimate of

levels of activity for a year. The procedure in continuous budgeting will be that a year will be divided into

four quarters. Monthly budgets for the first quarter and three quarterly budgets for the next year can be

prepared. For the first quarter precise estimates can be drawn up monthly. The budget estimates for the

second quarter may be revised working out separately monthly estimates on more precise basis for

control purposes before the starting of the second quarter. Similarly procedure may be followed for third

and fourth quarters. This method a time which need not be in respect of or coincide with the financial

year. It will enable to evolve a precise plan of action and control of variance functions at the least for the

immediate quarter and a broad tentative one the subsequent three quarters on a continues basis.

PRINCIPAL BUDGET (LIMITING) FACTOR:Principal budget factor is such an important factor that it would affect all the functional budgets to a large

extent. The extent of its influence must be assessed first in order to ensure that functional budgets are

reasonably capable of fulfillment. This is the factor in the activities of an undertaking which at a particular

point in time or over a period will limit the volume of output. It is the governing factor which is a major

constraint on all the operational activities of the organization, so this factor is taken into consideration to

determine whether the budgets are capable of attainment. It is essential to locate the limiting factor may

be any one of the following:

DIFFERENT TYPES OF BUDGET:Different types of budgets have been developed keeping in view the different purposes they

serve. Budgets can be classified according to:

The coverage they encompass;


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The capacity to which they are related;

The conditions on which they are based; and

The periods which they cover.

FUNCTIONAL BUDGET:A functional budget is a budget which relates to any of the functions of an undertaking e.g., sales,

production, research and development, cash etc, the following budgets are generally prepared.

BUDGET PREPARED BY1. Sales Budget including selling and Distribution Cost Budget

2. Production Budget

3. Material Budget

4. Labor and Personnel Budget

5. Manufacturing Overheads

6. Administration Cost Budget

7. Plant Utilization Budget

8. Capital Expenditure Budget

9. Research and Development Cost Budget

10. Cash Budget

Sales Manager

Production Manager

Purchase Manager

Personnel Manager

Production Manager

Finance Manager

Production Manager

Chief Executive

R&D Manager

Finance Manager

SALES BUDGET:Sales budget is the most important budget and of primary importance. It forms the basis on which all the

budgets are built up. This budget is a forecast of quantities and values of sales to be achieved in a

budget in a budget period. Every effort should be made to ensure that its figures are as accurate as

possible because this is usually the starting budget (sales being limiting factor on which all the other

budgets are built up). The sales manager should be made directly responsible for the preparation

and execution of the budget. The sales budget may be prepared according to products, sales territories,

types of customers; salesmen etc., in the preparation of the sales budget, the sales manager should take

into consideration the following factors:

1. Past Sales Figures and Trends.

2. Salesmens Estimation

3. Plant Capacity

4. Availability of Raw Material and other Supplies

5. General Trade Prospects6. Orders in Hand

7. Seasonal Fluctuations

8. Financial Aspect

9. Adequate Return on Capital Employed

10. Competition

11. Miscellaneous Considerations


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PRODUCTION BUDGET:Production budget is a forecast of the total output of the whole organization broken down into estimates of

output of each type of product with a scheduling of operations (by weeks and months) to be performed

and a forecast of the closing finished stock. This budget may be expressed in quantitative (weight, units

etc) financial (rupees) units or both. This budget is prepared after taking into consideration the estimated

opening stock, the estimated sales and the desired closing finished stock of each product. The works

manager is responsible for the total production budget and the departmental managers are responsible

for the departmental production budget.

In preparing the production budget, the following factors are considered. The time lag between the

production in the factor and sales to the customer should be considered so as to allow for the time

required or the dispatch of goods from the factory to the place of the customers. The stock of goods to be

maintained both at the factorys go gown and at the sales centers. The level of production needed to meet

the sales programme. Monthly production targets should be fixed and it should be seen that production is

kept more or less at a uniform level throughout the year. The material labor and plant requirementsshould be ascertained to have the desired production to meet the sales programme. The sales and the

production are inter-dependant because production budget is governed by the sales budget and the sales

budget is largely determined by the production capacity and by production costs.

COST OF PRODUCTION BUDGET:After determining the volume of output the cost of procuring the output must be obtained by preparing a

cost of production budget. This budget is an estimate of cost of output planned for a budget period and

may be classified into material cost budget, labor cost budget and overhead budget because cost of

production includes material, labor and overheads.

MATERIALS BUDGET:In drawing up the production budget, one of the first requirements to be considered is material. As we

know, materials may be direct or indirect. The materials budget deals with the requirements and

procurement of direct materials. Indirect materials are dealt with under the works overhead budget. The

budget should be related to the production budget and the period of the budget should be of short

duration because this budget has an important bearing on the cash budget.

PURCHASE BUDGET:Purchase Budget is mainly dependent on production budget and material requirement budget. This

budget provides information about the materials to be acquired from the market during the budget

period. Purchase budget should be prepared by the purchase manager by getting relevant information

about capital items, tools, general supplies and direct materials required during the ;budget period fromother related departments. Like other budgets, the purchase budget has to be approved by the budget

committee. After approval it becomes the responsibility of the purchase officer to see that purchases are

made as per the purchase budget. Sometimes additional purchases which are not covered by the

purchase budget are made under the following circumstances.

If there is increase in production not anticipated while preparing the purchase budget and purchase of

larger quantities of materials becomes necessary. If accumulation of stock becomes necessary to avoid


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shortage of materials. If overstocking is desired to take advantage of lower prices and there is fear that

price will increase in near future. The purchase manager should get additional sanctions from the higher

authorities for making the additional purchases not covered by the purchase budget.

DIRECT LABOUR BUDGET:This budget gives as estimate of the requirements of direct labour essential to meet the production

target. This budget may be classified into labour requirements budget and recruitment budget. The

labour recruitment budget is developed on the basis of requirement of the production budget given and

detailed information regarding he different classes of labour e.g., fitters, welders, turner, millers, and

grinders and drillers etc., required for each department, their scales of pay and hours to be spent. This

budget is prepared with a view to enable the personnel department to carry out programmers of training

and transfer and to find out sources of labor needed so that every effort may be made to remove

difficulties arising in production the available workers in each department, the expected changes in the

labor force during the budget period due to the labour turnover. This budget gives information about the

personnel specification for the jobs for which workers are to be recruited, the degree for skill andexperience required and the rates of pay. Where standard costing system is applied, the labour cost

budget is developed on the basis of standard labour cost per unit multiplied by the quantity of anticipated

production determined in the production budget. If standard costing system is not being followed in the

organization, the information of labour cost may be obtained from past records or estimated cost.

Sometimes another budget known as Manpower budget is prepared. This budget gives the requirements

of direct and indirect labour necessary to meet the programme set out in the sales, manufacturing,

maintenance, research and development and capital expenditure budgets. The labour terms are

expressed of rupee value, number of labour hours, number and grade of workers etc. this budget makes

provision for shift and overtime work and for the effective training for new workers on labour cost.

MANUFACTURING OVERHEADS BUDGET:This budget gives an estimate of the works overhead expenses to be incurred in a budget period to

achieve the production target. The budget includes the cost of indirect material, indirect labor and indirect

works expenses. The budget may be classified into fixed cost, variable cost and semi-variable cost. It

can be broken into departmental overhead budget to facilitate control. In preparing the budget, fixed

works overhead can be estimated on the basis of past information after taking into consideration the

expected changes which may occur during the budget period. Variable expenses are estimated on the

basis of the budgeted output because these expenses are bound to change with the change in output.

The Cost Account prepares this budget on the basis of figures available in the manufacturing overhead

ledger or the head of the workshop may be asked to give estimates for the manufacturing expenses. A

good method is to combine the estimates of the Cost Accountant and the shop executive.

ADMINISTRATIVE EXPENSES BUDGET:This budget covers the expenses incurred in framing policies, directing the organization and controlling

the business operations. In other words, the budget provides as estimate of the expenses of the central

office and of management salaries. The budget can be prepared with the help of past experience and

anticipated changes. Budget may be prepared be prepared for each administration department so that

responsibility for increasing such expenses. This budget covers the expenses incurred in framing

policies, directing the organization and controlling the business operations. In other words, the budget


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provides an executive. Much difficulty is not experiences in developing such budget as most of the

administration expenses are of a fixed nature. Although fixed expenses remain constant and are not

related to sale volume in the short run, they are dependent upon sales in the long run. With a small

change in output, they do not change. However, if there is persistent fall in output, administration

expenses will have to be reduced by discharging the services of some members of the staff and taking

other economy measures. On the other hand, with persistent increase in output or business activity,

administration expenses will increase but they may lag behind business activity.

BUDGETED INCOME STATEMENT:A budgeted income statement summarizes all the individual budget ie., sales budget, cost of goods sold

budget, selling budget, and administrative sales budget. This budget determines income before taxes. If

the tax rate is available net income after taxes can also be computed.

SELLING AND DISTRIBUTION COSTS BUDGET:This budget is the forecast of the cost selling and distribution for budget period and is clearly related to

the sale budget. All expenses related to selling and distribution of the various products as indicated in the

sales budget is included in it. These expenses are based on the volume of sales set in the sales budget

and budget and budgets are prepared for each item of selling and distribution overhead Long term

expenses. As advertisement are spread over more than one period. Selling and distribution overheads

are divided into fixed and variable category with reference to volume of sales. Separate budgets are

prepared for variable and fixed items of selling and distribution overheads. Certain items of selling and

distribution costs as cost of transport department are included in the departmental production cost budget

from control point of view rather that including in selling and distribution costs budget.

PLANT UTILIZATION BUDGET:This budget lays down the requirements of plant capacity to carry out the production as per the

production programme. This budget is terms of convenient physical units as weight or number of products

or working hours.

The main functions of this budget are:

It will show the machine load in each department during the

Budget period

It will indicate the overloading on some departments, machine or group of machine and alternative

courses of actions as working overtime, off loading, procurement or expansion of plants, sub-contracting

etc., can be taken.

Idle capacity in some departments may be utilized by making efforts to increase the demand for the

products by providing after sale service, conducting advertisement campaign, reducing prices, introducing

lucky price coupons, recruiting efficient sales staff etc.

CAPITAL EXPENDITURE BUDGET:The capital expenditure budget gives an estimate of the amount of capital that may be needed for

acquiring the assets required for fulfilling production requirements a specified in the production

budget. The budget is prepared after taking into consideration in the available productive capacities,

probable reallocation of the existing assets such as plant and equipment budget, building budget


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etc. The capital expenditure budget is an important budget providing for acquisition of assets,

necessitated by the following factors:

RESEARCH AND DEVELOPMENT COST BUDGET:

While developing research and development cost budget, it should be clear in mind that work relating to

research and development is different from that relating to the manufacturing function. Manufacturing

function gives quicker results than research and development which may go on for several

years. Therefore, these budgets are established on a long term basis; say for 5 to 10 years which can be

further subdivided into short-term budgets on annual basis. As a rule research workers are less cost

conscious; so they are not susceptible to strict control. A research and development budget is prepared

taking into consideration the research projects in hand and the new research projects in hand and the

new search and development projects to be taken up. Thus this budget provides an estimate of the

expenditure to be incurred on research and development during the budget period.

After fixation of the research and development cost budget, the research executive fixes priorities for the

various research and development projects and submits research and development project authorization

forms to the budget committee. The projects are finally approved by the senior executive. Before giving

the approval, the expenditure on research and development is matched against the benefits likely to be

availed of from the new project; after the approval of the budget, a close watch is kept on the expenditure

so that it may not exceed budget provisions. It is also seen that extent of progress made is

commensurate with the expenditure incurred.

CASH (FINANCIAL) BUDGET;The cash budget can be prepared by any of the following method:

1. Receipts and payments method

2. The adjusted profit and loss method

3. The balance sheet method

1. Receipts and payments method: In case of this method the cash receipts from various sources and the

cash payments to various agencies are estimated. In the opening balance of cash, estimated cash

receipts are added and from the total of estimated cash payments re deducted to find out of the closing

balance.

2. The adjusted profit and loss method: In case of this method the cash budget is prepared in the basis of

opening cash and bank balance of the various assets an liabilities.3. The balance sheet method: With the help of budget balances at end except cash and bank balances, a

budgeted balance sheet can be prepared and the balancing figure would be the estimated closing

cash/bank balance.

Thus under this method, closing balances, other than cash/bank will have to be found out first to be put in

the budget balance sheet. This can be done by adjusting the anticipated.

MASTER BUDGET (FINALISED PROFIT PLAN):


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The Master Budget is consolidated summary of the various functional budgets. It has been defined as a

summary of the budget schedules in capsule form made for the purpose of presenting, in one report, the

highlights of the budget forecast. The definition of this budget given by the Chartered Institute of

Management Accountant, England, is as follows:

Thus summary budget incorporating its components functional budgets and which are finally approved

and employed.

The master budget is prepared by the budget committee on the basis of co-coordinated functional

budgets and becomes the target for the company during the budget period when it is finally approved by

the committee. This budget summaries functional budget to produce a budgeted profit and Loss Account

and a Budget Balance Sheet as at the end of the budget period.

FIXED BUDGET:This budget is drawn for one level of activity and one set of conditions. It has been defined as a budget

which is designed to remain unchanged irrespective of the volume of output or turnover attained. It is

rigid budget and is drawn on the assumption that there will be no change in the budgeted level of

activity. A fixed budget will, therefore, be useful only when the actual level of activity corresponds to the

budgeted level of activity. A master budget tailored to a single output level of (say) 20,000 units of sales

is a typical example of a fixed budget. But in practice, the level of activity and set conditions will change

as a result of internal limitations and external factors like changes in demand and price, shortage of

materials and power, acute competition etc. It is hardly of any use as a mechanism of budgetary control

because it does not make any distinction between fixed, variable and semi-variable costs and provides for

no adjustment in the budget fixed as result of change in cost due to change in level of activity. It is also

not helpful at all in the fixation of price and submission of tenders.

FLEXIBLE BUDGET:The Chartered Institute of Management Accountants, defines a flexible budget also called sliding scale

budget as a budget which, by recognizing the difference in behavior between field and variable costs

in relation to fluctuations in output, turnover, or other variable factors such a number of employees, is

designed to change appropriately with such fluctuations. This, a flexible budget gives different budgeted

costs for different levels of activity. A flexible budget making an intelligent classification of all expenses

between fixed, semi-variable and variable because the usefulness of such a budget depend upon the

accuracy with which the expenses can be classified. Such a budget is prescribed in the following cases.

Where the level of activity during the year varies from period, either due to the seasonal nature of the

industry or to variation in demand.

Where the business is a new one and it is difficult to foresee the demand.

Where the undertaking is suffering from shortage of a factor of production such as materials, labors, plant,

capacity etc. The level of activity depends upon the availability of such a factor of production.

Where an industry is influenced by changes in fashion.

Where there are general changes in sales.

Where the business units keep on introducing new products or make changes in the design of its products

frequently.

Where the industries are engaged in make to order business like ship building.


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BASIC BUDGET:A basic budget has been defined as a budget which is prepared for use unaltered over a long period of

time. This does not take into consideration current conditions and can be attainable under standard

conditions.

CURRENT BUDGET:A current Budget can be defined a budget which is related to the current conditions and is prepared foruse over a short period of time. This budget is more useful than a basic budget, as a target of lays down

will be corrected to current conditions.

LONG-TERM BUDGET:A Long-Term budget can be defined as a budget, which is prepared for periods longer than a

year. These budgets help in business forecasting and forward planning. Capital Expenditure Budget

and Research and Development Budget are examples of long-term budgets.

SHORT TERM BUDGET:This budget is defined as a budget, which is prepared for period less than year and is very useful to lower

levels of management for control purposes. Such budgets are prepared for those activities the trend in

which is difficult to foresee over longer periods. Cash budget and material budget are examples of short

term budget.

PERFORMANCE BUDGET:Performance Budgeting has its origin in U.S.A. after second World War. It tries to rectify some of the

shortcoming in the traditional budget. In the traditional budget amount are earmarked for the objects of

expenditures such as salaries, travel, office expenses, grant in aid etc. In such system of budgeting the

money concept was given more prominence ie., estimating or projecting rupee value for the various

accounting heads or classification of revenue and cost.

Such system of budgeting was more popularly used in government department and many business

enterprises. But is such system of budgeting control of performance in terms of physical units or the

related costs cannot be achieved.Performance oriented budgets are established in such a manner thateach item of expenditure related to a specific responsibility centre is closely linked with the performance

of that centre. The basic issue involved in the fixation of performance budgets is that of developing work

programmers and performance expectation by assigned responsibility, necessary for the attaining of

goals and objectives of the enterprise, it involves establishment of well defined centers of responsibilities,

establishment for each responsibility centre-a programmed of target performance e in physical units,

forecasting the amount of expenditure required to meet the physical plan laid down and evaluation of

performance.

ZERO BASED BUDGETS:This budget is the preparation of budget starting from Zero or from a clean state. As a new technique it

was proposed by Patter Peal of Texas Instruments Inc..USA. This technique was introduced in the

budgeting in the state of Georgia by Mr. Jimmy Carter who was then the Government of that state. ZBB

was tried in federal budgeting as a means of controlling state expenditures. The use of zero based

budgeting as a managerial tool has become increasingly popular since the early 1970s It is steadily


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gaining acceptance in the business world because it is providing it utility as a tool integrating the

managerial function of planning and control. ZBB is not based on the incremental approach and previous

years figures are not adopted as a base. Rather, zero is taken as a base of the name goes. Taking zero

as a base, a budget is developed on the basis of likely activities for the future period. In ZBB, by

declining the budget from the past, the past mistakes are not repeated. Funds required for any for the

next budget period should be obtained by presenting a convincing case. Funds will not be available as a

matter of course. The most important advantage of a budgetary control is to enable management to

conduct business in the most efficient manner because budgets are prepared to get the effective

utilization and resources and the realization of objectives as efficiently. It lies down as objective for the

business as a whole. Even though a monetary reward is not offered the budget becomes a game a

goal to achieve or a target to shoot atand hence it is more likely to be achieved or hit that if there was

no predetermined goal or target.

The budget is an impersonal policeman that maintains ordered effort and brings about efficiency in

result. It ensures effective utilization of men, materials, machines and money because production is

planned according to the availability of these items. Everyone working in the concern knows what exactlyto do because budgetary control laid emphasis on the staff organization. It ensures that individual

responsibilities are clearly defined and that the required authority commensurate with the responsibility is

delegated so that buck passing is prevented when the budgeted results are not achieved. Budgetary

control takes the help of different levels of management in the preparations of the budget. Budget finally

approved represents the judgment of the entire organization and not merely that of an individual or a

group of individuals. Thus, it ensures team work. Management by exception is possible because the

comparison of actual and budgeted results points out weak spots so that remedial action is taken against

weak spots which are not in conformity with the budgeted performance.

DISADVANTAGES OF A BUDGET;

While budgets may be essential part of activity they do have number of disadvantages, particularly in

perception terms.

Budgets can be seen pressure devices imposed by management, thus resulting in:

a. Bad labor relations

b. Inaccurate record-keeping.

Departmental conflict arises due to:

a. Dispute over resources allocation

b. Departmental blaming each other if targets are not attained. It is difficult to reconcile

personal/individual and corporate goals. Waste may arise as managers adopt the view, we had

better sped it or we will lose it.This is often coupled with empire building in order to enhance

the prestige of department. Responsibility versus controlling, i.e. some costs are under the

influence of more than one person, eg. Power costs.


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5. DATA ANALYSIS & INTERPRETATIONTHE KESORAM INDUSTRIES LIMITEED

OPERATIONAL EXPENDITURE BUDGET FOR THE YEAR 2011-2012

(RS IN CRORES)

SI NO PARTICULARS

BUDGETED

ESTIMATES

FOR THE 2011-2012

ACTUAL FOR THE YEAR

2011-2012

C

VARIABLE COST

AMOUNT RS/MT AMOUNT RS/MT

01 RAW MATERIAL 420 42.0 450 45.0

02 LIME STONE 450 45.0 470 47.0

03 TOTAL OF .1 870 87.0 920 92.0

04 OPERATIVE

MAINTAINED COST

05 CHEMICALS AND WATER 130 13.0 150 15.0

06 REPAIRS&MAITAINCE 280 28.0 300 30.0

07 EMPLOYEE COST 320 32.0 350 35.008 STATIONAR&GENRAL EXP 65 6.5 80 8.0

09 REBATE 11 1.1 13 1.3

10 SHARE OF OPERATING EXPS 8 0.8 10 1.0

11 TOTAL-2 1684 168.4 903 90.3

12 FINANCE CHARGES

13 DEPRECITION 42 4.2 15 1.5

14 INTEREST ON FIXED

CAPITAL

18 1.8 15 1.5

15 TOTAL-3 60 6.0 35 3.5

16 GLAND TOTAL(1+2+3) 1744 17.44 1916 191.6

INTERPRETATION:Observed from the above table that the operational expenditure budget of kesoram cement industries

limited in the year 2011-2012. in the year 2011-2012variable cost components, raw material consumption

45% increased and the lime store consumption 47% also increased. In operating & maintain aces cost

components, chemical & water, repair & maintenance employee cost, stationary & general expenses


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rebate and share of other expenses in all are fluctuating expenses of the year 2011-2012. However the

total operation maintenance costs are 90.3% decreasing respectively. In finance charges depreciation

and interest on fixed capital, has been included the total finance charges recording decreasing of 3.5% in

the year 2011-2012.respectively. Finally with regard to the operational expenditure budget of kesoram

cement industries limited the total profit has increase with 191.6% during the year 2011-2012. The overall

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

TABLE-5.1VARIABLE COST (EXPENDETURE BUDGETARY)

SI NO PARTICULARS

BUDGETED

ESTIMATES

FOR THE 2011-2012

ACTUAL FOR THE YEAR

2011-2012

C

VARIABLE COST

AMOUNT RS/MT AMOUNT RS/MT

01 RAW MATERIAL 420 42.0 450 45.0

02 LIME STONE 450 45.0 470 47.0

03 TOTAL OF .1 870 87.0 920 92.0

INTERPRETATION:FORM above table it can be under that the estimated amount and actual amount of kesoram cement was

recorded at raw materiel 420 during the year 2011-2012it is increased to actual raw material 450 in the

year 2011-2012. It shows that there is an increased in budget the more extent of 30. The highest amount

in budget was recorded in year 2011-2012.

TABLE-5.2OPERATIVE MAITAINCE COST (EXPENDETURE BUDGET)

SI NO PARTICULARS

BUDGETED

ESTIMATED

FOR THE 2011-2012

ACTUAL FOR THE YEAR

2011-2012

01 OPERATIVE

MAINTAINED

COST

AMT RS/MT AMT RS/MT

02 CHEMICALS

AND

WATER

130 13.0 150 15.0

03 REPAIRS&MAITAINCE 280 28.0 300 30.0

04 EMPLOYEE COST 320 32.0 350 35.0


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05 STATIONAR&GENRAL EXP 65 6.5 80 8.0

06 REBATE 11 1.1 13 1.3

07 SHARE OF OPERATING EXPS 8 0.8 10 1.0

TOTAL-2 1684 168.4 903 90.3

INTERPRETATION:1. Form the above table it can be understood that the budget of kesoram cement was recorded

the estimated value 1684 during the year 2011-2012.and it is decreased to 903 during the year 2011-

2012.

2. It shows that there is on decreased in the budgetary to the lowest 781.

3. The lowest investment in budgetary was recorded in year 2011-2012form the total of the table

2

TABLE-5.3FINANCIAL CHARGES (expenditure budget)

SI NO PARTICULARS

BUDGETED

ESTIMATED

FOR THE 2011-2012

ACTUAL FOR THE YEAR

2011-2012

01 FINANCE

CHARGES

AMT RS/MT AMT RS/MT AMT

02 DEPRECITION 42 4.2 15 1.5

03 INTEREST ON FIXED

CAPITAL

18 1.8 15 1.5

04 TOTAL-3 60 6.0 35 3.5

INTERPRETATION:

1. Form the above table it can be understood that the budgetary of kesoram cement was recorded

at 60 value of estimation during the year 2011-2012.and it decreased to 35 of actual value in during year

2011-2012.

2. It shows that there is decrease in the budgetary the lower value is 25.

3. The lowest investment in budgetary was recorded in year 2011-2012.

KESORAM INDUSTRIES LIMITEEDREVENUE BUDGET


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NO PARTICULARS BUDGETED

ESTIMATED

FOR THE YEAR

2011-2012

ACTUAL FOR THE YEAR 2011-2012

1 SALES AMOUNT SMTP AMOUNT RS/MT

2

FIXED AND RECOVERY 724 72.4 618 61.8

3

VARIABLE COST RECOVERY 840 84.0 740 74.0

4

FUEL PRICE ADJUSTMENT

RECOVERY

820 82.0 863 86.3

5

OWN CONSUMPTION 132 134.2 148 14.8

6

TOTALOF.1 2516 251.6 2369 236.9

7

AVERAGE INTENSIVES 102 10.2 98 9.8

8

OTHER INCOME 56 5.6 49 4.9

9 GRAND TOTAL(1+2+3) 2674 267.4 2516 251.6

INTERPRETATION:

The data pertaining to the generation and consumption of cement at roam industries limited have been

obtained from the year 2011-2012.and presented in table-1. the aspect included are total generation of

cement in(crores rupees) and utilization for auxiliary consumption, raw material consumption and line

store respectively.

During the year 2011-2012. The sales, fixed cost, variable cost, fuel price, consumption was decreased.

When the estimated budgeted, so consumption is 236.9%respectively.

During the year 2011-2012. The average intensives are decreased 9.8% there income also decreased

4.9% respectively, Finally, with regard to the result in revenue budget of kesoram cement industries

limited, totally decreased 251.6% in the year 2011-2012.respectively.

CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST

MARCH, 2012:

Cash flow from operating

activities


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Net profit before tax 3,41,78,32,892 80, 92, 92132

Adjustments for:

Depreciation 58, 30, 64,022 51, 57, 16,762

Loss/profit on food

assets sold/disable

5, 45, 85,229 5, 76, 15,772

Loss on sale of long

term investments

3, 58,952 -----

Income from

long term

investment(other

trader)

4,91,46,881 2,61,37,771

Interest paid/payableon loans etc

33, 50, 30,376 32, 75, 37,771

Interest receivable onloans

2, 50, 55,563 9, 05, 21,426

Provision for doubtful

Debts/deposits in add 3,82,15,119 --------

Provision for doubtful

Debts/deposits (net) ------------------ 93, 92,067

Debt/advance/depositswritten off

5, 34, 50,070 55, 44,394

Long term investmeastwritten off

----------- 7,700

Unrealized loss/gain on

Foreign currencyfluctuation

2, 95, 96,073 19, 16,075

Provision for diminution in

Value of investment --------------- 1, 10, 09232

Operating profit before

working capital changes:

Adjustment for:

Inventories (1,21,69,75,334) (24,94,24,615)

Trade and otherreceivable

(50, 17, 40, 397) 2, 92, 62,288

Trade payables 65, 61, 02,594 (20,01,35,318)

Cash generated fromoperations


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Dire

a study on budgetory control

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