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A Study on Budgetary Control System
1
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INTRODUCTION
&
OBJECTIVES OF STUD
!
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INTRODUCTION
BUD"ET#
Budget is essential in every walk of our life national, domestic and Business.
A budget is prepared to have effective utilization of funds and for the realization of
objective as efficiently as possible. Budgeting is a powerful tool to the management
for performing its functions i.e., formulation plans, coordination activities and
controlling operations etc., efficiently. For efficient and effective management
planning and control are tow highly essential functions. Budget and budgetary control
provide a set of basic techniues for planning and control.
A budget fi!es a target in terms of rupees or uantities against which the actual
performance is measured. A budget is closely related to both the management function
as well as the accounting function of an organization.
As the size of the organization increases, the need for budgeting is
correspondingly more because a budget is an effective tool of planning and control.
Budget is helpful in coordinating the various activities "such as production, sales,
purchase etc# of the organization with result that all the activities precede according to
the objective. Budgets are means of communication. $deas of the top management are
given the practical shape. As the activities of various department heads are
coordinated at the much needed for the very success of an organization. Budget is
necessary to future to motivate the staff associated, to coordinate the activities of
different departments and to control the performance of various persons operating at
different levels.
Budgets may be divided into two basic classes. %apital and operating budgets.
%apital budget are directed towards proposed e!penditure for new projects and often
reuire special financing.
&he operating budgets are directed towards achieving short'term operational
goals of the organization for instance, production or profit goals in a business firm.
(perating budgets may be sub'divided into various departmental of functional
budgets.
$
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OBJECTIVES OF STUD
T%E STUD %AS T%E FOO'IN"#
&o provide the material frame work of budget and budgetary control
&o describe the profit of the organization as a backdrop for undertaking a
study of budgetary control system.
&o analyze the budgetary system in practice in )esoram %ement $ndustries
*imited with particular reference to their objectives and phases of
organizational and re'appropriation.
$n addition to the analysis of the conventional budgetary system in practice in
)esoram %ement $ndustries *imited. &he study aims at evaluation and
modification to the current budgetary system with reference to the various
types of budgets. &he scope in the formulation of performance budget is also
studied.
SOURCES OF DATA#
&he data of Basanth +agar )esoram %ement $ndustries *imited, have been
collected mainly from secondary sources viz.,
Form the concerned officers of the )esoram %ement $ndustries *imited
)esoram %ement $ndustries *imited journals.
Accounting books, records.
)ey books of concerned title.
tatistical records
)esoram %ement $ndustries *imited library.
(
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OR"ANISATION +ROFIE
,
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$n $ndia cement was produced for the first time in 01?> by outh $ndia
$ndustries *imited in 3adras. &his :nit had capacity of @? tons per day was based on
lime from sea.
By 010@, however three units started their operations with a combined
installed capacity of 7/,??? tons per annum. $n 010>, indigenous production fees for
short of domestic demand necessitating an import of 0,8/,72@ tones shipment
difficulties and foreign trade relations during the first world war years acted as a
catalyst for the development of indigenous industry, and by 012> the total installed
capacity grew to /,/1?? tons per annum.
$n 018@, all the %ement %ompanies with the e!ception of (+- A**-
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%ement is @ types.
+U//OANTIC CE)ENT#
$t consists of mi!ture of silicate %alcium and Aluminum. hows the hydraulic
property when it is in the form of powder and being mi!ed with suitable proportion of
lime. &he rate of hardening is much slower and the comprehensive strength developed
is about a half of
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+ORTAND CE)ENT#
0. (rdinary
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ince it will not be possible to conduct a micro level study of all cement
industries in Andhra
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)esoram cement industry is one of the leading manufacturers of cement in
$ndia. $t is a day process cement plant. &he plant capacity is .28 lakhs tones per
annum. $t is located at Basanth +agar in )arim +agar district of Andhra
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process. amples are sent regularly to the bureau of $ndian standards. +ational council
of construction and building material for certification of derived uality norms.
&he company has vigorously undertaking different promotional measures their
product through different media which includes the use of newspapers, magazines,
hoardings etc.
)esoram cement industry distinguished it self among all the cement factories
in $ndia by bagging the +ational productivity Award consecutively.
For two years the year 01/'017. the federation of Andhra
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)esoram cement bagged prestigious awards like national awards for
productivity and technology and conversation and several state awards for year 01>.
)esoram cement is best family planning effort 5in the federation of Andhra
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CO)+ANCement 6a7a68ty
8n T+A
Cement 9
o: sales
*A4-+ G &(:4B( 02.? 2?
A%% 00.@ 1@
E4A$3 1.7 2
$+=$A+ %-3-+& 8.8 12
E:;A4A&9 A3B:;A 8./ 0??
'EA3NESSES#
a. &he per capita consumption of the cement in $ndia is very low.
b. &he transport costs in $ndia are very high.
c. &he cement industry is facing with acute power shortage and raw material
problem.
d. &he industry is also facing major packaging problems.
O++ORTUNITIES#
a. &he industry has tremendous potential for growth in $ndia.
b. $n near future cement is going to replace tar for the construction of roads.
c. &here are good prospects for e!port with cement e!port promotion council.
d. &he government polices of reduction in e!cise duty and e!empting cement
from the just packaging may act as boon to the industry.
T%REATS#
1,
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STATE 'ISE CE)ENT +ANTS
S;NO STATE NO; OF CE)ENT+ANTS
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D8re6tors o: 3esoram 8ndustr8es l8m8ted
C>a8rman
yt. B.). Birla
D8re6tors
mt. ).E. maheshwari
hri.
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Aud8tors
3essrs
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INTRODUCTION OF BUD"ET &
BUD"ETAR CONTRO
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INTRODUCION T BUD"ET BUD"ETIN" BUD"ETAR CONTRO
&he management is efficient if it is able to accomplish the objective of the
enterprise. $t is effective when it accomplishes the objectives with minimum effort
and cost in order to attain long'range efficiency and effectiveness management must
chat out its course in advance. A systematic approach to facilitate effective
management performance is profit planning and control or budgeting. Budgeting is
therefore an integral part of management in a way, a budgetary control system has
been described as a historical combination of a 5goal setting machine for increasing
an enterprises profits and a goal achieving machine for facilitating organizational co
ordination and planning while achieving the budgeted targets6.
)EANIN" OF BUD"ET#
$t is a financial and uantitative statement, prepared and approved prior to a
defined period of time of policy to be pursued during that period for purpose of
attaining a given objective. $t may include income, e!penditure and employment
capital.
$n other words is a pre'determined detailed plan of action developed and
distributed as a guide to current operations and as a partial basis for the subseuent
evaluation of performance.
)EANIN" OF BUD"ETIN"#
&he process of planning all flows of financial resources into with in and from
an entity during some specified future period. $t includes providing for the detailed
allocation of e!pected available future resources to projects, functions, responsibilities
and time periods.
From above definition it is clear that budgeting is the actual act of preparing
the budget. $t is the process of evolving the final statement. Budget is the end product
of budgeting.
!!
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)EANIN" OF BUD"ETOR CONTRO#
$t is the process of establishing of departmental budgets relating the
responsibilities of e!ecutives to the reuirements of a policy, and the continuous
comparison of actual with budgeted results, either to secure by individual action the
objectives of the policy a firm basis for its revision.
First of all budgets are prepared and then actual results are the comparison of
budgeted and actual figures will enable the management to find out discrepancies and
take remedial measures at a proper time. &he budgetary control is continuous process,
which helps in planning and co ordination. $t provides a method of control too. A
budget is a means and budgetary control is the end result.
$n the word of ;.A olt 5budgetary control is the system of management
control and accounting in which all operations are forecast and so as possible planned
ahead and actual results compared with the forecast and the planned ones.
ESSENTIAS OF BUD"ETAR CONTRO#
Budgeting, or the process of preparing the budget, is the starting point for
budgetary control =istribution of budgets pertaining to each function to all the
relevant section within organization.
%ollection of actual data pertaining to till budgeted activities. %ontinuous comparison
of actual performance with budgeted performance. $nitiation of corrective action to
ensure that actual performance is in line with budgeted performance 4evision of
budgeted if it is felt that the budgets prepared are no longer relevant on account of
unforeseen developments.
!$
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OBJECTIVES OF BUD"ETAR CONTRO#
&he primary objective of budgetary controlDs to help the management issystematic planning and in controlling the operations of the enterprise. &he primary
objective can be met only of there is proper communication and coordination amongst
different within the organization. &hus the objectives can be stated asI
1; +ANNIN"#
Businesses reuire planning to ensure efficient and ma!imum use of their
resources. &he first step in planning is to define the broad aims and objectives of thebusiness. &hen, strategies to achieve the desired goals are formulated and tentative
schedule of eh proposed combinations of the various factors of production, which is
the most profitable for the defined period. Budget influences strategies that need to be
followed by the originations. $t cultivates forced planning aiming managers.
!; COORDINATION#
%o'ordination is managerial functions under which all factors of production
and all departmental activities are balanced and integrated achieve the objectives of
the organization. Budgeting provides the basis for individual in all department to
e!change ides on how best the organizations objectives can be realized. -!ecutives
are forced ot think of the relationship between their department and the company as a
whole. &his removes unconscious bases against other departments. $t also helps to
identify weaknesses in the organization structure.
$; CO))UNICATIONS#
All people in the organization must know the objectives, policies and
performances of the organizations. &hey must have a clear understanding of their part
in the organizations goals. &his is made possible by ensuring their participation in the
budgeting process.
(; CONTROS AND +ERFOR)ANCE EVAUTION#
%ontrol ensures control by continuous comparison of actual performance with
the budgeted performance. ariances are highlighted and corrective action can be
!(
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initiated. BudgetDs also from the basis of performance evaluation in an organization as
they reflect realistic estimates of acceptable and e!pected performance.
BUD"ET BUD"ETIN" AND BUD"ETAR CONTRO#
A budget is B*:-
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BUD"ET OFFICER#
&he chief e!ecutive appoints budget officer. uch budget officer also called as
5budget controller or budget director6. 9is rank should be eual to other functional
managers.
&he budget officer does not have the direct responsibility of preparing the
budgets. &he various functional managers prepare the budgets. 9is role is that of a
supervisor. &he budget officer has the specific duty of administering the budget. 9e is
responsible for timely completion of budgeting activity by various departments and
for co'ordination between them so the t there is a proper link between them. 9e isempowered to scrutinize the budgets prepared by different functional heads and to
make changes in them. $f the situation so demands.
&he budget officer works as a coordinator among different department. 9e
continuously monitors the actual performance of different departments. 9e determines
the deviations in the budgets and takes necessary steps to rectify the deficiencies, if
any. 9e also informs the top management about the performance of different
department.
&he budget officer will be able to carry out his work only if is conversant with
the working of all the departments he must have technical knowledge of the business
and should also possess accounting knowledge.
$; BUD"ET CO))ITTEE#
A budget committee is formed to assist the budget officer. &he heads of all the
important departmentDs are made members of this committee. &he committee is
responsible for preparation and e!ecution of budgets. &he members of this committee
put up the case of their respective departments and help the committee to take
collective decisions, if necessary. &he budget committee is responsible for reviewing
the budgets prepared by various functional heads. %o ordinate all the budgets and
approve the final budgets, the budget officer acts as coordinator of this committee. All
!,
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the functional heads are entrusted with the responsibility of ensuring proper of
ensuring proper implementation of their respective final departmental budgets.
(; BUD"ETS CENTERS#
A budget centers is that part of the organization for which the budget is
prepared. A budget center may be a department, section of a department or any other
part of the department. $deally, the head of every center should be a member of the
budget committee. 9owever, it must be ensured that each budget center at least has an
indirect representation in the budget committee.
&he establishment of budget centers is essential for covering all parts of the
organization becomes easy. Chen different centers are establishment. &he budget
centers are also necessary for cost control purposes.
*; BUD"ET )ANUA#
a# A budget manual is a document that spells out the duties and responsible of the
various e!ecutives concerned it specifies among various functional areas. A
budget manual covers the following matters.
b# A budget manual clearly defines the objectives of budgetary control system. $t
also gives the benefits and principles of this system.
c# &he duties and responsibilities of various persons dealing with preparation and
e!ec ton of budgets are also given in a budget manual. $t enables the
management to know the persons dealing with various aspects to budgets and
provides clarity on their duties and responsibilities,
d# $t gives information about the sanctioning authorities of various budgets. &he
financial powers of different managers are given in the manual for enabling he
spending amount on various e!penses.
e# A proper table for budgets including the sending of performance reports is
drawn so that every work starts in time and systematic control is e!ercise.
f# &he specimen forms and number of copies to be listed for budget repots is also
stated. Budget involved should be clearly stated.
g# &he length of various budget periods and control points is clearly given.
h# &he procedure to the followed in the entire system is clearly stated.
!-
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i# A method of accounting to be used for various e!penditures is also stated in
the manual.
&he budget manual helps in documentation the role of every employee, his
duties, responsibilities the ways of undertaking various tasks etc. thus it also in
reducing ambiguity at any point of time.
,; BUD"ET +ERIOD#
A budget period is the length of time for which a budget is prepared. $t
depends upon a number of factors. &he choice of a budget period depends upon the
following considerations. &he types of budget "longJshort#
&he nature of demand for the products.
&he timings for the availability of the finance.
&he economic situations of the cycles.
All the above mentioned factors are taken into account while fi!ing the period
of budgets. $n this budgeting process the financial manager has to take the financial
decision on the budgets.
&he financial manager usually responsible for organizing this budget, he must
perform the following functions.
&o decide the general policies and guidelines.
&o officer technical advice
&o suggest changes
&o receive and review individual budget estimates
&o reconcile divergent views
&o co'ordinate budgeting activities.
&o approve budgets with or without revisions.
&o scrutinize control reports later on
&o scrutinize budget repots later on
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&o disseminate these guide lines.
CONTINUOUS BUD"ETIN" SSTE)#
A continuous budgeting system is a method of having two different budget
periods with in the same budget. &he purpose of having this system is to have greater
control in terms of operational activities without losing sight is to have greater control
in terms of it results in incorporating the effect of changes in the short term on the
long'term targets of the organization.
DETER)INATION OF 3E FACTOR#
&he budgets are prepared for all functional areas. &hese budgets are interring
dependent and inter'related. A proper co'ordination among different budgets in
necessary for budgetary control to be successful. &he constraints on some budgets
may have an effect on other budgets too. A factor which influences all other budgets is
known as 5key factor or principal factor6.
&he key factor may not necessity remain the same. &he raw materials supply
may be limited at one time but it may be easily available at another time. imilarly,
other factors may also improve at different times. &he key factor highlights are
limitations of the enterprise. &his will enable the management to improve the working
of these departments where scope for improvement e!ists.
!0
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control device by the employees but it should be used as a tool to improve their
efficiency.
*; FEIBIIT#
Fle!ibility in budgets is reuired to make them suitable under changed
circumstances. Budgets are prepared for the future, which is always uncertain, even
though budgets are prepared by considering the future possibilities but still some
adjustment. Fle!ibility makes the budgets more appropriate and realistic.
,; )OTIVATION#
Budgets are to be implemented by human beings. &heir successful
implementation will depend upon the interest shown by the employees. All persons
should be motivated to improve their working so that budgeting is successful. A
proper system of motivation should be introduced for making this system a success.
$1
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T+ES OF BUD"ETS#
$!
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1; ON" TER) BUD"ETS#
&he long'term budgets prepared for a long period of five to ten years. &hey are
concerned with planning the operations of a firm over a considerably long period of
time. &he financial 5controller6 e!clusively for the top management usually prepares
long'term budgets. &hese budgets are very useful in terms of physical units "i.e.
uantities# or percentages, since accrued values may be difficult to forecast over such
long'period. %apital e!penditure, research and development budgets, etc, are
e!amples of long'term budgets.
!; S%ORT TER) BUD"ETS#
hort'term budgets are budgets prepared for a short period of one to two year.
&hey are prepared for those activities the trend in which cannot be for seen easily over
long periods. &hese budgets are very useful incase of consumer goods industries such
as sugar, cotton, te!tiles, etc. they are generally prepared in terms of physical units
"i.e.. uantities# as well as monetary units "i.e. values# materials budget. -ach budget
etc, are e!ample of short'term budget. &hey are useful to lower level of management
for control purpose.
$; CURRENT BUD"ETS#
%urrent budget is a budget, which is established for use over a short period of
time and is related to current conditions. &hus current budgets are essentially short
term budgets adjusted to current "i.e., present or prevailing# condition or
$$
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circumstances. &hey are prepared for a very short period. ay, a uarter or a month.
&hey related to current activities of the budgets.
(; INTERI) BUD"ETS#
$nterim budgets are budgets, which are prepared in between two budget
periods. &hese budgets may get integrated with the budget of the following period.
CASSIFICATION OF BUD"ETS ACCORDIN" TO CONTENT#Budgets may be classified into budgets in physical terms and into budgets in
monetary terms.
A= BUD"ETS IN +%SICA TER)S#
Budgets in physical terms are budgeted that budget in terms uantities only.
&hey do not include corresponding rupee value. *ong'term budgets are usually
prepared in physical terms. -!amples of such budgets are production budgets,
material budget etcK
B= BUD"ETS IN )ONETAR TER)S#
Budgets in monetary terms are budgets that budget in terms of uantities as
well as their corresponding rupee value, sales budget, purchase budget, etc are
e!ample of such budgets. Budgets such as cash budget, capital e!penditure budget,
etc that may not have physical uantities also from part of budgets in monetary terms.
CASSIFICATION OF BUD"ETS ACCORDIN" TO FUNCTION#
Budgets can be classified intoI
0. operating budgets
2. financial budgets
@. master budgets
$(
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4esponsibility areas may be classified under three broad categoriesI
%ost Je!pense center
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According to $%3A *ondon a fle!ible budget is a budget which is designed to
%hange in accordance with the level of activity actually attained. &hus a fle!ible
budget changes according to the change in the level of activity. $n other words it
provides the budgeted costs at any level of activity.
Business activity cannot be accurately predicted on account of uncertainties of
Business environment. A fle!ible budget contains several estimates for different
assumed circumstances instead of just one estimate, it provides for automatic
adjustments with changes in the volume of activity. 9ence, a situations operating in
an unpredictable environment.
$-
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BUD"ET AND BUD"ETAR SSTE) IN
3ESORA) CE)ENT INDUSTRIES TD;
$.
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/ERO BASED BUD"ETIN"#
Lero'based budgeting is the latest techniue of budgeting and it has increased
use as a managerial tool. &his techniue was first used in America in 0182, by the
former president America, ;immy %arter.
As the name suggests, it is starting from a 5scratch6, the normal techniue of
budgeting is to use previous years cost levels as a base for preparing this yearDs
budget. &his method carries previous years inefficiencies to the present year because
we taken last year because we taken last year as a guide, and decide 5what is to be
done this year when this much was the performance of the last year6.
$n zero based budgeting every year is taken as a new year and previous year is
not taken as a base, the budget for this year will have to be justified according to
present situation, zero is taken as a base and likely future activities are decided
according to present situations. $n zero base budgeting a manager is to justify why he
wants to spend. &he performance of spending on various activities will depend upon
their justification and priority for spending will have to be proved that an activity is
essential and the amounts asked for are really reasonable taking into account the
volume of activity.
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BUD"ET AND BUD"ETAR SSTE) IN 3ESORA) CE)ENT
INDUSTRIES I)ITED BASANT% NA"AR 3ARI) NA"AR
&he budgeting process is used in the performance budgeting for the
construction of phase. Chich includes pre'commission activities. Besides meeting the
essential reuirements of managerial control. &he budgeting e!ercise also covers the
long'term capital budgeting, which is presented in the from of annual plan.
OBJECTIVES OF T%E BUD"ETAR SSTE)#
&o prepare annual budgets in such a manner those managers at various levels
in the organization carry out periodical e!ercise in respect of each contact or
responsibility center for physical planning and matching resources broke up
into monthly targets or cash flows.
&o introduce and operate responsible for achievement of specified targets with
the resources allocated for the purpose.
&o bring about effective co'ordination of all activities of the organization of all
activities of the organization and to gear up service divisions to meet
effectively the reuirement of projects.
BUD"ET +ERIOD AND +%ASIN"#
&he budget period or annual budgets should correspond with the financial
year. &he budget should be drawn up for the ensuring financial year in the form of
budget estimates financial year in the form of 4evised -stimates "4.-# in addition, the
budget are to be reviewed on monthly basis by project review teams, in the light of
actual e!penditure and projections in the budget period. Budgets should indicate
monthly phasing of e!penditure and targets for the first and uarterly phasing for the
second half of the year. At the time of review of the budget estimates to frame revised
estimates the uarterly phasing should be broken up into monthly phasing.
(
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Chile drawing up the actual budget in (ctober every year, the long'term
capital budget for ongoing and new schemes should be formulated as a part of the
e!ercise for preparation of Annual plan. &he long term capital budget should indicate
for a period of si! years following the budget period project wise annual phasing of
the capital e!penditure and physical schedules resource based network.
BUD"ET %EADS#
For uniform accounting, it is essential that costs are collected for each system
of the factory tough this may involve splitting up of payments against contracts which
embrace more than one system. Allocation of the cost as system wise affords a sound
basis for cost accounting, inter'firm comparisons and provides valuable inputs to data
bank. Budget provisions are related to project estimated and monitoring of actual
e!penditure where as control cables for part control and instrumentation system.
Factory piping which include pipelines, for ash water mains, compressed air system
and civil works piping.
Au!iliary pumps for water treatment plant and civil works system. $f there are,
any contracts not covered in the budget heads provision for such contracts should be
shown against the appropriate system head by adding code number.
* T+ES OF BUD"ETS IN 3ESORA) CE)ENT INDUSTRIES
I)ITED#
According to the nature e!penditure budget are classified as under
=irect capital outlay on works
&echnical consultancy
$ncident e!penditure during construction
-mployee cost
Ot>er estal8s>ment e?7enses#
&raining and recruitment
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3isc. brought'out assets
&ownship budget
BRIEF E+ANATION TO T%E NATURE OF E+ENDITURE
INCUDED IN EAC% BUD"ET INDICATED BEO'#
INCIDENTA E+ENDITURE DURIN" CONSTRUCTION
+ERSNNE +A)ENT#
&hese comprises of salaries, wages, allowance, contribution to
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REVIE' OF +ROJECT BUD"ET#
)ONT% REVIE'#
At monthly intervals, the budgets should be reviewed by project review
committee "
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BUD"ET OF SERVICE DIVISION COR+ORATE BUD"ETS#
A review of budgets of service and corporate divisions should be conducted at
uarterly intervals by corporate budget committee "%D%#. for this purpose, corporate
accounts should report actual e!penditure up to the end of the uarter by the 0? thof
the month following uarter to corporate budget and budget co'ordination of the
remaining period of the year should be sent to corporate budget should be sent to
corporate budget should put up a consolidated report division wise and project wise to
corporate budget committee "%B%# by the 0/thof the may, August, +ovember and
February every year.
OBJECTIVES OF T%E CURRENT BUD"ETAR CONTRO
SSTE) IN3ESORA) CE)ENT INDUSTRIES I)ITED;
$n current to corporate budgetary control system operating phase has beencompiled to achieve the following objectives.
&o control actual performance with reference to standards J norms adopted in
the budget, ascertain the deviations analyze and establish the reasons.
&o identify constraints in generation and tamely action for estimation of
constraints.
&o monitor the generation of internal resources so as to ensure availability of
adeuate funds. &o prepare revenue budget so as to forecasting the periodical profitability of
the organization.
&o develop standards J norms of performance in the various areas of operation
and maintenance based on the e!perience.
&o involve managers at various in the process of developing performance
budget so as to introduce the concept of responsibility accounting and
participate management.
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&o ensure effective co'ordinate planning of all activities so the all the inputs
and services necessary for achieving the physical targets are available at
appropriate time.
&o create cost consciousness among the managers responsible for decision
making.
&o provide data regarding operational norms and costs for the purpose of
formulating tariff.
&o provide data a basis for assessment of working capital reuirements.
&o control the working capital particularly book debts, spears and other items
or inventory.
&o improve profitability and internal resources generation.
SCO+E OF T%E +ERFOR)ANCE BUD"ET#
&he budget for operation and maintenance activities will be called
performance budget operation. &his, in effect means that all financial targets in the
budget will be based on performance targets in physical terms.
&he current budgetary control system operation phase envisages generation
and transmission line projects as independents investment centers. $t becomes
applicable to a project in the year in which it plans to commercialize its first
generation unit. 9owever, the budgeting for e!penses "net of revenue# from the date
of synchronization to the date of commercial generation "i.e. during trail run# is to be
taken case of in the capital budget of the respective project. imilarly, in the case of
transmission line project, the system becomes applicable from the year in the date
commercial generation of the first unit of generating project, with which this line is
associated, which ever is later. For subseuent lines, the ( G 3 will be prepared from
the energisation.
&he sum totals of budgets of the cost centers will be the budget for the
investment center. 9ow ever, the budget for the profit center will be worked out by
apportioning the revenue and cost of various cost centers to individualDs profits
centers bases on specified norms.
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&he performance budget operation will consists of following budgets along
with the supporting schedules
A. Budget balance sheet
B. Budget profit and loss account
%. 4evenue budget
$n addition, separate budgets for revenue activities other than operation for
research and development consultancy contracts etc.
&he e!penses in respect of developmental e!penditure for improvements,
additions, replacement, renewals, balancing facilities etc., are of capital nature and
will be budgeted for in the construction budget of budgetary control system
construction phase.
&o facilitate management control the system also envisages, phasing of these
budgets into monthlyJuarterly targets. &he actual performance then will be reasons
for variations will be analyzed and established for taking corrective remedial actions.
&he scope also includes projections of internal resources for a period ranging from /
to 0/ years and updating of /years plan as well as perspective plan of the company.
STA"ES IN T%E FOR)UATION OF +ERFOR)ANCE
BUD"ET#
&he system provides for a two stages formulation for 5performance budget'
operation6 the stages are given below.
(,
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INITIA +RO+OSA#
$n the initial proposal, the project is reuired to indicate yearly targets. $n he
addition, to furnishing basic information like synchronization and commercial
generation dates%onstraints on coal operation at less than the designed specification, calorific
value of raw material and lime stone, material consumption in physical terms for
items whose consumption value in 4s./ lakhs or more, planned shut down for a
maintenance and overhauling and norm for various operation parameters provided for
design specification and in the tariff agreements to the corporate budget committee.
$n the initial proposals is planned to be submitted after considering these
factors and keeping in view the perspective plan of the organization, fi!es as well as
norms for various operating parameters. &hese targets and norms are then
communicated to all stations and transmissions line offices in the last week of ;uly to
be used for formulating detailed budget in the firm of final proposal.
FINA +RO+OSAI
Budgeted balance sheet, budgeted profit G loss account and budgets in the
form of cash budget along with the proposal will consist of detailed supporting
schedules for each of the investment center J cost center. &his final proposal needs to
be submitted to corporate center with in @ weeks of receiving approval for initial
proposal.
&he final proposal, after approval by board, will become the basis of
monitoring performance for cost centers and investment centers.
&he freuency and e!tent review and monitoring will be done is underI
i. &he monitoring of actual performance against budgeted targets for investment
center J profit center on monthly basis and for cost centers on uarterly for
remedial J corrective actions.
ii. &he review of performance budget on uarterly basis to assess the anticipated
profitability.
&he first step in the preparation of performance budget, ( G 3 is formulation of
maintenance and overhauling schedules for Boiler and to which generation, then
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considering the grid demand, the availability or inputs and factory problems. &he
utilization of capacity will be worked out on month'month basis for the budget period
the gross generation targets can be worked and accordingly.
NET "ENERATION#
&he sales value will be determined from uantum of net generation "i.e. gross
generation au!. %onsumption#
AUIIAR CONSU)+TION CONSU)+TION B UTIITES#
&he cement consumption by each of the cost centers for individuals unit
au!iliaries, station au!iliaries as well as transformer losses are to be estimatedseparately based on designed specifications and added in order to workout total
au!iliary consumption rather than fi!ing a overall percentage. imilarly consumption
by utilities will also need to be indicated by concerned cost centers J departments like
township and construction department. &his will be valued at cost net generation to
arrive at the sales values for owns consumptions.
C%E)ICA CONSU)+TION#&he chemical are used by many cost centers for treatment of water. &he
consumption of chemicals will be correlated with volume of water treated and certain
norms will have to be developed for different type of chemicals and different types of
treatment.
Based on these norms, each of the cost centers will indicate consumption of
chemical in uantitative as well as financial terms. &he cost center wise reuirement
will be consolidated to arrive at total chemicals consumption to be charged to profitand loss account. &he valuation of chemical will be done at current prices only.
E)+OEE COST#
&he basis employee cost will be approved manpower budget effective for
respective years of budget period. &he estimation of employee cost is to be done for
each grade considering mid'point of the scale as basis pay and after adding various
allowance like =.A., 9.4.A., %.%.A6 project allowance etc., as admissible in
respective grades. &his is to be worked >1 out or each of the budget period based on
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e!isting strength "at the time of estimation# in each grade and additions during each
uarter "taking 7?M satisfaction for additions#.
&he provisions for *&%, medical reimbursement,
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+ormally budgeting will be done for the former twoI under each activity
separate estimates will be prepared for consumption of materials and maintenance
jobs. &his estimation will be done at each of the sub cost center wise details are
reuired to be mentioned.
&he consumption material for repairs and maintenance will be classified into
spares, lubricants, loose tools and plants, consumables and others.
&he cost center wise total separately for three activities will be added to arrive
at summary of material consumption and maintenance jobs, which will be reflected in
the profit G loss account.
&he material consumption especially of spares can be estimated based on the
e!pected life of various consumption J spears in the installed euipment the freuency
of breakdowns in the past and the reuirement for prevented maintenance and major
overhauls. &he actual life of components may be different from that indicated in the
manufacturerDs specification. &herefore, it is very difficult t estimate reuirements of
spares. But this new station it will be advisable to collect such information from old
stations that have gained e!perience in this field.
+ormally maintenance of euipment through contractors should be avoided.
But in certain areas, if the e!pertise and in house capability or sufficient man power is
not available, maintenance jobs can be got done through contractors. uch contracts
will need to be listed out separately. $f any owner supply items are covered in such
contracts the cost of these items will be included in the material cost.
FACTOR & "ENERA OVER%EADS#
All the items of e!penditures under this head will be estimated based on past
trend with due adjustment for policy changes. &he estimates will be given by cost
center needs for items identified with respective cost centers. &he total administrative
cost of service cost centers will be allocated between construction and ( G 3 in the
ration of capital e!penditure and sales during the respective years.
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DE+RECIATION#
&his is to be charged as per - act from the year following the year in which
assets have been capitalized. &his will be done separately by each of the cost centers
on the basis of capitalized value and rates of depreciation furnished by site finance
and account for different categories of assets. %ost center'wise depreciation will be
added at total depreciation for the investment center.
INTEREST ON FIED CA+ITA#
As per e!isting accounting policy, the interest is to be charged to profit G loss
account based on the loan content in the capitalized assets restricted to total accrued
interest on the actual loans.
For budgeting purposes, interest will be worked on euated loan content or euated
loan which ever is less.
E5UATED OAN CONTENT#
-uated loan content is to taken as /?M if total capital cost and adjusted for
number of operating months in respective years. $n case of both generating factory
and transmission lines with associated factory, the cost for each profit center will be
taker as per actual or anticipated capital cost.
&he euated loan content is to be individual unitDs transmission lines
separately for each of the phases J stages. &he total capital cost will be taken as
proposed in the performance budget construction.
*1
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ANASIS AND INTER+RETATION
*!
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T%E 3ESORA) INDUSTRIES I)ITED
REVENUE BUD"ET
TABEI
S;NO +ARTICUAR
Budgeted
est8mated :or t>e
!01
A6tual :or t>e year
!01
1 Sales
Fi!ed cost recovery 72> 72.> 80 80.
ariable cost recovery >? >.? 7>? 7>.?
Fuel price adjustment recovery 2? 2.? 8@ 8.@
(wn consumption 0@2 [email protected] 0> 0>.
Total o: 1 2/08 2/0.8 2@81 [email protected]
! A@erage 8ntens8@es 0?2 0?.2 1 1.
$ Ot>er 8n6ome /8 /.8 >1 >.1
"RAND TOTA
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INTER+RETATION
&he data pertaining to the generation and consumption of cement at )esoram$ndustries limited have been obtained from the year 2??1'0? and represented in table
'0. &he aspect included are total generation of cement in "crores 4s# and utilization for
au!iliary consumption, raw material consumption and line stone respectively.
=uring the year 2??1'0? the sales, fi!ed costs, variable cost, fuel price, own
%onsumption was decreased. Chen the estimated budgeted so sales consumption is
[email protected] respectively.
=uring the year 2??1'0? the average intensive are decreased 1.M the other
$ncome also decreased >.1M respectively.
Finally with regard to the result in revenue budget of )esoram cement industries
limited totally decreased 2/0.8M in the year 2??1'0? respectively.
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T%E 3ESORA) INDUSTRIES I)ITED
O7erat8onal E?7end8ture Budget :or t>e ear !01
TABE 2 II
Rs 8n 6orers
S;
NO+ARTICUAR
BUD"ETED
ESTI)ATED
FOR T%E !01
ACTUA FOR T%E
EAR !01
A)OUNT RS)T A)OUNT S)T
1 VARIABE COST
4aw 3aterial >2? >2.? >/? >/.?
*ime stone >/? >/.? >7? >7.?
Total o: 1 .- .-; 0! 0!;
!O+ERATIVE
)AINTENANCE COST
%hemical water 0@? 0@.? 0/? 0/.?
4epair G maintenance 2? 2.? @?? @?.?
-mployee cost @2? @2.? @/? @/.?
tationary general e!penses 8/ 8./ ? .?
4ebate 00 0.0 0@ 0.@
hareofoperating e!penses ?. 0? 0.?
Total ! 1,.( 1,.;( 0$ 0;$
$ FINANCE C%AR"ES
=eprecation >2 >.2 0/ 0./
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$nterest on fi!ed capital 0 0. 2? 2.?
Total o: 2 $ , ,; $* $;*
"RAND TOTA /M
increased and the line stone consumption >7M also increased.
$n operating G maintenances cost components chemical G water, repair G
3aintenance, employee cost, stationary G general e!penses, rebate and share of other
e!penses is all are fluctuating with the e!penses of the year 2??1'0?. 9owever the
total operating maintenance costs are 1?.@M decreasing respectively.
$n finance charges depreciation and interest on fi!ed capital, has been included
&he total finance charges recording decreasing of @./M in the year 2??1'0?
respectively.
Finally with regard to the operational e!penditure budget of )esoram cement
$ndustries limited the total profit has increase with 010.8M during the year 2??1'0?
&he overall budgets results of )esoram cement industries limited is earning
3ore profits.
*,
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CAS% FO' STATE)ENT
:or t>e year ended $1st)ar6> !1
For t>e year ended :or t>e year ended
$1st)ar6> !1 $1st)ar6> !0
A; Cas> :loG :rom O7erat8ng A6t8@8t8es
Net +ro:8t e:ore Ta? $(1-.$!.0! . 0! 0!1$!
AdHustments :or#
=epreciation /, @?, />,?22 /0, /7, 08,782
*oss Jprofit on fi!ed assets soldJ discarded /, >/, /, 221 "/, 78, 0/, 772#
*oss on sale of long term investment"other than trade# @,/,1/2 ''''''''
$ncome from long term investments"other than trade# ">,10,>8,/0# "2,80,@7,/27#
$nterest paidJpayable on loans etc. @@,/?,@?,@7/ @2,7/,@7,770
$nterest receivedJreceivable on loans etc. "2,/?,//,/8@# "1,?/,20,>2/#
,1>,2>,80/#
&rade and other receivables "/?,07,>?,@17# 2,12,82,28
&rade payables 8/,80,?2,/1> "2?,?0,@/,@0#
*-
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%ash generated from operations 2,10,7,21,2>? 0,?>,0?,>@,81@
=irect ta!es "paidJ refund "net# "1@,>1,?,870# 8,@0,/7,171
Net 6as> :rom o7erat8ng a6t8@8t8es 10.$-(.*,0 11(!1,-!
CAS% FO' STATE)ENT
:or t>e year ended $1st)ar6> !1
For t>e year ended :or t>e year ended
$1st)ar6>!1 $1st)ar6>!0
Rs Rs
B; Cas> :loG :rom 8n@est8ng a6t8@8t8es
# "2,?0,7,17>#
2,>78 '''''
$ncome from long term investments >,10,>/,0 2,80,@7,/27
*oansJ deposits given "8/,?/,??,???# "0,0/,1?,??,???#
4evision of loans J deposits given 0,??,?,??,??? 0,>,?,2/,???
$nterest received on loans etc. 2,0@,22,877 ,?7,@8,188
Net 6as> used 8n 8n@est8ng a6t8@8t8es 2,@?,>0#
$ncrease in cash credit and overdrafts from banks 2@,@8,27,/7/ 7,88,7/,77?
$nterest paid ">,27,22,/?2# "@@,>,@0,@8?#
=ividends paid "including ta!es# "@/,?8,11,?0# "0@,?/,>2,02/#
Net 6as> :rom :8nan68ng a6t8@8t8es 1-*$00.* ,-(!-1,0(
*.
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+et increase in cash and cash euivalents 2,>0,?,702 /,?>,@1,171
(penings cash and cash euivalents 2>,@,0@,821 01,7,@/,87
%ash and cash euivalents taken over conseuent
:pon amalgamation ''''''''''' @7,7@
Clos8ng 6as> and 6as> eu8@alents !-!(!!$(1 !(.$,1$,!0
+ro:8t and loss a66ount :or t>e year ended $1st)ar6>!1
chedule 4s 2??1'0? 2??'2??1
INCO)E
ales 2/,08,>/,1,@81 0,77,0,//,21>
*essI -!cise duty @,?7,>8,21,?@? 2,8>,8@,?,7/2
+et sales 22,?8,18,8?,@@1 8,0@,07,7>,/>2
(ther income 0@ >1,?>,?8,>0? /@,7>,21,820
!!*.,,-(0 1,,,0!(1*$
E+ENDITURE
4aw materials and finished goods 0> 1,2?,1,@/,87 7,80,0>,/1,122
Administration e!penses 0/ 1,?@,>@,?@,70 7,>?,/0,87,/78
=epreciation
"note 0"c# and 08 on schedules07# /1,/2,@,/?1 /@,?/,88,22/
*essI transfer from capital reserve
4evaluation of fi!ed assets 0,20,7>,>7 0,>,>1,>1@
N+ote 0"c# on schedule 07O /,@?,8>,?22 /0,/7,08,782
$nterest 08 @@,/?,@?,>7 @2,7/,@7,770
101,!!$$.*- 1*.*001!$1
+ROFIT BEFORE TAATION $(1-.$!.0! .0!0!1$!
,??,??,???
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-arning per share /.? 1.11
+ote on the accounts 07
&he schedules referred to above from an integral part of the profit and loss account
&his is the profit and loss account referred to in out report of given data.
Balan6e s>eet as at $1st)ar6> !1
chedule 4s @0.?/.2?0? @0.?/.2??1
1; SOURCES OF FUNDS
a# %apital 0 >/,7>,08,@8/ >/,7>,0/,>?
b# 4eserves and surplus 2 8,?,81,2,278 @,7?,?,>,@??
,*(($((,(1 (1,*1(
2# *oans funds A# ecured loans @ 8,>@,01,7?,08/ >,0@,@8,@,/1?
b# :nsecured loans > 2,21,8?,21,/8/ 2,?7,1,8?,11>
.-!-000-$ ,!1$*((*.(
=eferred ta! liability 0,02,>?,12,@71 0,?7,01,00,02?
1,$0,($-!* 11((*0**.((
!; A++ICATION OF FUNDS
0# F$P-= A-& /
A# gross block 08,71,@0,7/,87? 02,0/,21,@0,7@7 b# *ess depreciation 7,20,1@,>2,/ 8,?,@0,>?,@7
%# net block 1,/>,@,@@,?2 /,@>,17,10,@/1
=# work'in'progress 0,/?,?,8,01/ 2,?,2>,?/,8?
11*101!-- -($!10-$0
2. $nvestment 8 2,7,27,1?7 21,?0,/?,00
@. %urrent loans and advance
a# $nventories 7 @,78,/@,27,777 2,//,0,/2,>>@
b# undry debtors 2,>/,1>,/2,/0 0,/>,@7,2/,2>7
c# %ash and bank 1 27,2>,22,@>0 2>,@,0@,821
d# (ther current asset 0? 00,0,11,>02 0>,>2,8>,0@>
e# *oans and advance 00 2,?8,22,>7,280 0,@?,11,77,07
.,.11(0$-! ,0.1$!,(
*essI current liabilities and
,?80
@,82,/@,?0,@?8 2,@7,>/,2>,8>8
+et current assets /,?/,/,?,?88 @,72,@8,?7,11>
1,$0,($-!* 11((*0**.((
,
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+ote on the accounts 07
&he schedules referred to above from an integral part of the balance sheet
&his is the balance sheet referred to in our even data
CONCUSIONS
AND
SU""ESTIONS
,1
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CONCUSIONS
-very organization has pre'determined set of objectives and goals, but
reaching those objectives and goals only by proper planning and e!ecuting of the
plans economically.
&he )esoram %ement $ndustries *imited is objectives of planning promotingand organizing an integrated development of %ement %ompany.
&he corporation mission of )esoram %ement $ndustries is to make available
and uality cement in increasingly large uantities, the company will spear head the
process of accelerated development of cement sector by e!peditiously.
&he organization needs the capable personalities as management to lead the
organization successfully, the management makes the plans and implement of these
plan are e!pressed in terms of budget and budgetary control.
&he )esoram %ement $ndustries *imited has budget process in two stages.
(ne is the capital e!penditure budget and another is operating maintenance budget,
the capital e!penditure budget shows the list of capital projects selected for
investment along with their estimated cost, operating G maintenance budget refers to
the repairs G maintenance budgets, the special budgets are rarely used in the
organization like long'term budgets, research G development budget and budget for
consultancy.
&he )esoram %ement $ndustries *td. $s to make available and uality cement
efficient resources and implementation of sophisticated technology and cement
generation and also creating ambience of collective working of its employees.
,!
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BIBIO"RA+%
F$+A+%$A* A%%(:+&$+E 4< &4$-=$
F$+A+%$A* 3A+AE-3-+& $.3.