Budget and Budgetary Conrol

INTRODUCTION & OBJECTIVES OF STUDY
INTRODUCTION TO BUDGET AND BUDGETARY CONROL BUDGET:

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 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 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. Ideas 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. 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 budgets may be sub-divided into various departmental of functional budgets.
Definitions of Budget:
According to Institute of Charted Management Accountants, England A plan
quantified in monetary term prepared and approved prior to a defined period of time usually showing planned income to be generated and / or to be incurred during that period and the capital to be employed to attain a given objective. According to ICMA, England, a budget is, a financial and/or quantitative statement, prepared and approved prior to a defined period of time, of the policy to be pursed during the period for the purpose of attaining a given objective. It is also defined as, a blue print of projected plan of a action of a business for a definite period of time.
BUDGETARY CONTROL:
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 budgets 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 may be attained. 3. Continues comparison of the actual performance with that of the budget and placing the responsibility of executives for failure to achieve the desired result 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.
Definitions 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 acing upon the results to achieve the maximum profitability According to the J.Betty: A system which uses budgets as a means of planning and controlling all aspects of producing and / or selling commodities and services According to the CIMA, London, Budgetary control is the establishment of budgets relating to responsibilities of executives to the requirement of a policy, and the continuous comparison of actual with budged results, either to secure by individual action the objective of that policy or to provide a basis for revision.
OBJECTIVES OF STUDY:
1. To analyze the revenue budgets and budgetary control policies of LG
ELECTRONICS through the analysis of UPPAL through the analysis of financial statements. 2. To study the revenue budgets as it serves as a mechanism through which his
objectives and policies are affected. 3. In the light of the findings can be offered for the improvement of its
budgetary control. 4. 5. To give a suggestion for the better & successful budgetary control. To organize data for the past five years, compare and study the trend
possible.
STATEMENT OF PROBLEM
The importance of budgeting and budgetary control in the decision making, revenue budget estimate of a business needs no emphasis. Therefore, an analysis of the budgeting and budgetary control of a business firm is always a dynamic subject for research and development. With this back drop a humble attempt is being made to analyze the budgeting control of LG ELECTRONICS INDIA LTD.
METHODOLOGY:
In this case study. The budgeting control of the LG ELECTRONICS is analyzed in this study. The required data has been collected from primary data and such as annual reports were taken. And reasons for variances were analyzed. The variances between the revised estimates and actuals were computed. And finally suggestions and conclusion. Firstly, the revenue budget estimates for the past five years were taken. Secondly, the variance between the revised estimates and actuals were computed. Thirdly, the reasons for variances were analyzed and measures were taken. Graphs are given regarding variances of sales, total cost of production, sales quantity and inventory, and interpretation.
SCOPE OF THE STUDY:

Under this study the budgeting and budgetary control under study is done from the angles of efficient controlling and corrective decisions and operational efficiency.
REFERENCE PERIOD:
The period of the study was done with reference to the past 6 years i.e. from 2002-2009.
SOURCES OF DATA:
The main source of data is through primary sources and secondary sources of data. Through annual reports, financial statements of the company and also secondary data from different books and journals.
LIMITATIONS:
The analysis is only based on the information given in the financial statements of the organization. The final accounts compared for the year 2006-06. Data is taken from internal sources of the company only.
BUDGETARY CONTROL PRACTICES IN LG ELECTRONICS

Capital Budget Revenue Budget In LG ELECTRONICS budgets are prepared for the following periods Revised estimates of current financial year Budget estimates of next financial year Forecast
Suppose, if we consider that the budget preparation activity of 2006-06, the budgets are prepared for the following periods. Revised estimates i.e. RE 2008-08 Budgets estimates i.e. BE 2009-09 Forecast i.e., 2010-10
Revised Estimate is nothing but the revision of budget estimate of previous year i.e. BE 2006-06 taking into consideration actual up to August Budget circular will be issued by the Finance Department requesting all shop In charges\Departmental Heads to compile their respective budgets and send to Finance Department within the stipulated period.
BUDGET, BUDGETING AND BUDGETING CONTROL

Row land and William in their book entitled Budgeting for management control has given the difference between budge, budgeting and budgetary control as follows: Budgets are the individual objectives of a department etc where as budgeting may be said to be the act of building budgets. Budgetary control embraces all this and in addition includes the science of planning the budgets themselves and the utilization of such budgets to effect on overall management tool for the business planning and control. Thus, a budget is a financial plan and budgetary control results from the administration of the financial plan.
ORGANISATION PROFILE
COMPANY PROFILE
About LG
Established in 1958, LG Electronics, Inc. (LG) is a global leader and technology innovator in consumer electronics, home appliances and mobile communications, employing more than 82,000 people working in over 110 operations including 81 subsidiaries around the world. Comprising four business units - Mobile Communications, Digital Appliance, Digital Display and Digital Media with 2007 global sales of USD 38.5 billion - LG is the world's leading producer of CDMA/GSM handsets, air conditioners, front-loading washing machine, optical storage products, DVD players, flat panel TVs and home theater systems . Corporate Name Established Corporate Office LG Electronics Inc. October 1, 1958 (As a private Company) LG Twin Towers 20, Yeouido-dong, Youngdungpo-gu, Seoul, Korea 150-721 Tel: 82-2-3777-1114 URL: http://www.LGE.com Yong Nam
Vice Chairman & CEO Business Area and Mobile Communications Company CDMA Handsets, GSM Handsets, 3G Handsets Main Product Monitor, PDP Module, OLED Panel, USB Memory
Digital Media Company Home Theater System, DVD Recorder, Super Multi DVD Rewriter, CDRW, Notebook PC, Desktop PC, PDA, PDA Phone, MP3 Player, New Karaoke System, Car Infotainment Number of Employees 82,772 (29,948 in Korea/ 52,824 overseas) - as of 2007
Financial Highlights (in billion won) 2006 200 2008 7 18,602 20,176 6,654 4,793 11,948 15,383 675 836 2009 2010 2011
SALES Domestic Export Ordinary Ordinary Profit Profit
16,601
6,084 10,516 573
24,65 23,774 23,170 9 5,086 5,509 5,947 19,57 18,264 17,223 3 1,860 741 261
History
1958 Founded as GoldStar 1960's Produces Korea's first radios, TVs, refrigerators, washing machines and air conditioners 1995 Renamed LG Electronics Acquires US-based Zenith Worlds first CDMA digital mobile handsets supplied to Ameritech and GTE in U.S. Achieves UL certification in U.S. Develops worlds first IC set for DTV Develops worlds first 60-inch plasma TV Establishes LG.Philips LCD, a joint venture with Philips Launches worlds first internet refrigerator Exports synchronous IMT-2000 to Marconi Wireless of Italy Significant exports to Verizon Wireless in U.S. GSM mobile handset exports to Russia, Italy and Indonesia Establishes market leadership in Australian CDMA market Launches worlds first internet washing machine, air conditioner, and microwave oven Under LG Holding Company system, spins off to become LG Electronics and LG Corporation Full-scale export of GPRS color mobile phones to Europe Establishes CDMA handset production line and R&D center in China
1997
1998 1999 2001
2002
2003
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2006
Enters North-European and Middle East GSM handset market Achieves monthly export volume above 2.5 million units (July) Top global CDMA producer EVSB, the next-generation DTV transmission technology, chosen to be the US/Canada Industry standard by the US ATSC Commercializes worlds first 55" all-in-one LCD TV Commercializes worlds first 71" plasma TV Develops worlds first Satelliteand Terrestrial-DMB handsets
2007
2008
Becomes fourth-largest supplier of mobile handsets market worldwide Develops worlds first 3G UMTS DMB handset, 3G-based DVB-H and MediaFLO phones, DMB Phone with time-shift function, and DMB notebook computer Establishes LG-Nortel, a network solution joint venture with Nortel LG Chocolate, the first model in LGs Black Label series of premium handsets, sells 7.5million units world wide Develops the first single-scan 60" HD PDP module Establishes the strategic partnership with UL Acquires the worlds first IPv6 Gold Ready logo Launches the industry-first dual-format high-definition disc player and drive Introduces new global brand identity: "Stylish design and smart technology, in products that fit our consumer's lives."
2009
2010
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CEO PROFILE
Biography Yong Nam was appointed Vice Chairman and CEO of LG Electronics effective January 1, 2008. His appointment signifies LG's desire to achieve the status of a highly profitable, technological leader with strong brand power. Mr. Nam honed his strong business insight during his 30 years of experience with LG Electronics, LG Corporate and LG Telecom. He is well-known in the industry for his strategic outlook, in-depth IT experience and global perspective. Prior to his appointment, Mr. Nam served as Head of Strategic Business for LG Corporation and was responsible for overall strategic business initiatives. He directly supported the LG Group chairman on a variety of business issues, including telecommunications. Mr. Nam served as the President and CEO of LG Telecom from 1998 until 2007. Under his leadership, the company's revenue increased fivefold from $560 million to $2.6 billion; subscribers tripled from 2.1 million to nearly 7 million; and profits grew to around $250 million in 2006. He was instrumental in introducing the world first mobile internet service, ez-i, and in commercializing mobile banking service BankON, now the number one convergence service in Korea. In 1997, he assumed additional responsibilities, overseeing the Executive Office for Strategic Projects, LG's corporate-level new business development arm. Later that year, he led the Multimedia Division of LG Electronics as Vice President and transformed the division into a profitable business within just one year.
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Mr. Nam joined the LG Chairman's Office in 1986. As a Special Assistant to the Group Chairman, he ran the in-house team that drove change management. He also led corporate-wide efforts to achieve operational excellence and redefine LG's strategic direction. Mr. Nam's career at LG began in 1976 when he joined LG Electronics in the overseas business planning division. As part of this role, he spent seven years in the U.S. in several management positions centered on marketing and sales, which helped him, develop a global perspective on LG's business. Mr. Nam is a graduate of Seoul National University, and is fluent in English and Japanese in addition to his native Korean. He and enjoys golf, reading and hiking during his leisure time. Yong Nam was appointed Vice Chairman and CEO of LG Electronics effective January 1, 2008. His appointment signifies LG's desire to achieve the status of a highly profitable, technological leader with strong brand power. Mr. Nam honed his strong business insight during his 30 years of experience with LG Electronics, LG Corporate and LG Telecom. He is well-known in the industry for his strategic outlook, in-depth IT experience and global perspective. Prior to his appointment, Mr. Nam served as Head of Strategic Business for LG Corporation and was responsible for overall strategic business initiatives. He directly supported the LG Group chairman on a variety of business issues, including telecommunications. Mr. Nam served as the President and CEO of LG Telecom from 1998 until 2008. Under his leadership, the company's revenue increased fivefold from $560 million to $2.6 billion; subscribers tripled from 2.1 million to nearly 7 million; and profits grew to around $250 million in 2006. He was instrumental in introducing the world first mobile internet service, ez-i, and in commercializing mobile banking service BankON, now the number one convergence service in Korea. In 1997, he assumed additional responsibilities, overseeing the Executive Office for Strategic Projects, LG's corporate-level new business development arm. Later that year, he led the Multimedia Division of LG Electronics as Vice President and transformed the division into a profitable business within just one year. Mr. Nam joined the LG Chairman's Office in 1986. As a Special Assistant to
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the Group Chairman, he ran the in-house team that drove change management. He also led corporate-wide efforts to achieve operational excellence and redefine LG's strategic direction. Mr. Nam's career at LG began in 1976 when he joined LG Electronics in the overseas business planning division. As part of this role, he spent seven years in the U.S. in several management positions centered on marketing and sales, which helped him develop a global perspective on LG's business. Mr. Nam is a graduate of Seoul National University, and is fluent in English and Japanese in addition to his native Korean. He and enjoys golf, reading and hiking during his leisure time.
Major Awards Received by LG Electronics Following its "Select & Focus" strategy, LG Electronics has resolutely maintained its efforts towards corporate restructuring. In the process, many of its accomplishments in its management innovation and productivity innovation activities were recognized with awards. 2008 Awards
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November 2008
LG Electronics received Best Show Award at the publicity film Galaxy Award, and the Grand Award in the corporate brochures category. LG Electronics grabbed Best Manufacturer in White Goods Award in Kazakhstan for the 4th year in a row. LG Electronics received Presidential Prize in the labormanagement culture category for large corporations. LG Electronics was chosen among Beijing's 10 Most Influential Enterprises by Beijing TV(BTV). LG Electronics received Most Promising Vendor of the Year Award at the "Frost &Sullivan Asia Pacific Technology Awards 2008."
November 2008
December 2008
December 2008
December 2008
October 2010
LG Electronics was chosen as one of the top 10 electronics brands in South Africa - for(or by) people aged 25+, and across businesses and products. LG Electronics received No. 1 Enterprise in Electronics and Communications Award and Innovation Award as selected by Brazil's most prestigious economic magazine Isto e Dinheiro.
October 2011
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Apr. 19, 2011 LG ELECTRONICS REPORTS FIRST QUARTER 2010 EARNINGS RESULTS
LG Electronics (LG), a leader in consumer electronics and mobile communications, announced un-audited earnings results of the three month period ended March 31, 2010. Amount in Korean Won (KRW) are translated into US dollars (USD) at the average rate of three month period in each quarter, which was KRW 939 per US dollar (2010 1Q), KRW 938 per US dollar (2009. 4Q, QoQ), KRW 977 per US dollar (2009. 1Q, YoY). To accommodate comprehension of LGs global business, the company released financial earnings in parent format plus additional consolidated earnings of each division and overseas subsidiaries. Sales and Profit For the quarter, the company posted a revenue of KRW 6.03 trillion (USD 6.43 billion) on a parent basis, increased by 4.0% from a year earlier thanks to robust sales of premium handsets and home appliances. On a consolidated basis which includes sales of LGs overseas subsidiaries, revenue reached KRW 9.59 trillion (USD 10.22 billion), increased by 8.3% from the previous year. Operating profit was KRW 173 billion (USD 184 million) on a parent basis with a margin of 2.9% compared to KRW 191 billion (USD 204 million) from a year earlier primarily due to a sluggish display and media business in spite of a remarkable turnover in mobile business and solid performance of appliance business. Situation on a consolidated basis was KRW 28 billion (USD 29.4 million) hurt by overseas subsidiaries operating loss of KRW 133 billion (USD 142 million). Net Profit was a loss of KRW 123 billion (USD 131 million) on a parent basis mainly due to loss in equity method of KRW 193 billion (USD 205 million) from LG.Philips LCD and overseas subsidiaries. Consolidated performances by business division are as follows;
Mobile Communication Company recordedsales of KRW 2.51 trillion (USD 2.67 billion), 14.7% higher than a year earlier. Revenue from the handset business rose 17.8% to KRW 2.35 trillion (USD 2.50 billion) from KRW 2.00 trillion (USD 2.05 billion). Consolidated sales based total shipments were 15.8 million
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units, compared to 14.1 million units YoY and 17.9 million units QoQ.
Success of Shine phone and DMB line-ups in Korea pushed up shipments 46% QoQ, and continued high demand of premium Chocolate phone in GSM open-markets led a shift of 28% QoQ. Strong growth in WCDMA phones sales was realized in Korea and the United States. Operating margin was 4.7%, a bit less than 6.6% on a parent basis, but recovered from a loss of 2.6% from the first quarter of 2007. Digital Appliance Company sales rose 15.1% to KRW 2.94 trillion (USD 3.13 billion) from a year earlier, thanks to growth in premium product lines. Improvement of an operating profit was remarkable. KRW 169 billion (USD 17.9 million) was 43.6% higher than a year earlier and 37.1% from the previous quarter. Operating margin increased 1.1% point to 5.7% despite won appreciation and rise in material costs. On a parent basis the margin rose 1.8% point to 12.0%. Digital Display Company sales including plasma display panels and flat panel TVs and monitors rose 1.5% to KRW 2.75 trillion (USD 2.93 billion) from the previous year, but posted an operating loss of KRW 262 billion (USD 2.79 million). Sales from Digital Media Companys media and IT products posted KRW 1.38 trillion (USD 1.47 million), 4.7 % down from a year earlier. Slow in display and media business stems from seasonality plus intensified price erosion, but mainly due to lower efficiency in capacity of plasma display panels.
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INDUSTRY PROFILE
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INDUSTRY PROFILE Electronics is the study of the flow of charge through various materials and devices such as, semiconductors, resistors, inductors, capacitors, nano-structures, and vacuum tubes. All applications of electronics involve the transmission of either information or power. Although considered to be a theoretical branch of physics, the design and construction of electronic circuits to solve practical problems is an essential technique in the fields of electronics engineering and computer engineering. The study of new semiconductor devices and surrounding technology is sometimes considered a branch of physics. This article focuses on engineering aspects of electronics. Other important topics include electronic waste and occupational health impacts of semiconductor manufacturing. Consumer Durables (Data table headings are shown Year-wise in descending order) Air Conditioners Bicycles Crystal Glass Domestic Electrical Appliances Gems and Jewellery Glass Products Kitchen Equipment Liquefied Petroleum Gas Cylinders Microwave Ovens Refrigerators Sewing Machines Sunglasses Toys and Games Washing Machines and Vacuum Cleaners Watches and Clocks White Goods
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Writing Instruments
INTRODUCTION OF BUDGET & BUDGETARY CONTROL
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CAPITAL BUDGET: Capital Budgets are prepared separately for items to be procured through Internal resources institutional Term Loans Customer Financial Funds Government Grants
The budget items, which were already approved in RE 2006-07, and BE 2007-08 may be reviewed for inclusion\deletion. All capital budgets [proposals of items more than Rs. 10 lakhs will be backed with proper justification and the Cost Benefit Analysis. After receipt of all Budget proposals, Finance Department will compile and prioritize the requirements in consultation with the Shop In charges\Production personnel. Based on the availability of funds, items will be differed\dropped in consultation with the top management and Capital Budget will be finalized.
REVENUE BUDGET:
To prepare Revenue Budget, Marketing, PPC and Shop In charges\Department heads are requested to compile their respective budgets and send to Finance Department. To Start with the Marketing department finalize the order book\ Sales Budgets and sent production Budget in coordination with various product ion shops While preparing the production programme necessary care will be taken to liquidate the existing work-inprogress(WIP). Based on consumption details of the various shops, Purchase Department will prepare procurement budget considering the opening stock and norm of inventory holding etc. Development of new grades may be indicated separately and R&D Budget will be prepared.
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Manpower Budget will be furnished by the Personnel department in consultation with respective shops\departments. Production Shop In charges will estimate the expenditure on off loading jobs based on production plans. After collection of all required data Finance Department will compile the Revenue Budge and funding position will be finalized. While preparing various estimates\Budgets, necessary provisions will be incorporated to take care of future escalations. For each element of major expenditure, separate Budgets will be prepared. Once the budget is finalized, it will be put into Board and Board approval it will sent to Ministry. Budget copies will be circulated to all the Shops\Departments after approval. All capital and revenue expenditure proposal are concurred subject to budgetary provisions.
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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 can not 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 can not 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 inefficiency of individuals. The success of budgetary control depends upon wiling co-operation and team work. 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 these fast changes, because revision of budgets is expensive exercise.
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OBJECTIVES OF BUDGETARY CONTROL: Planning:

A budget is a plan of the policy to be pursued during the defined period of time to attain a given objective. The budgetary control will force management at all the activities to be done during the future periods. A budget as a plan of action achieves the following purposes: Action is guided by well thought out plan because a budget is prepared after a careful sturdy and research. The budget serves as a mechanism through which. Managements objectives and policies are affected. It is a bridge through which communication is establishment between the top management and the operatives who are to implement the policies of the top management. The most profitable course of action is selected from the various available alternatives.
Co-ordination:
The budgetary control co-ordinates the various activities of the firm and secures co-operation of all concerned so that the common objective of the firm may be successfully achieved. It forces executives to think and think as a group. It co-coordinating the policies, plans and actions. An organization without a budgetary control is like a ship sailing in a chartered sea. A budget gives direction to the business and imparts meaning and significance to its achievement by making comparison of actual performance and budgeted performance. 24
Motivation:
It employees have actively participated in budget preparation and if they are convinced that their personal interests are closely associated with the success of organizational plan, budgets provide motivation in the form of goals to be achieved. The budgets will motivate the workers, depends purely on how the workers have been mentally and physically involved with the process of budgeting.
Control:
Control consists of the action necessary to ensure the performance of the organization conforms to the plans and objectives. Control of performance is possible with predetermined standards which are laid down in a budget. Thus, budgetary control makes control possible by continuous comparison of actual performance with that of the budget so as to report the variations from the budget to the management of corrective action. Thus, budgeting system integrates key managerial functions as it links top
managements planning function with the control function performed at all levels in the managerial hierarchy. But the efficiency of the budget as a planning and control device depends upon the activity in which it is being used. A more accurate budget can be developed for those activities where direct relationship exists between inputs and outputs. The relationship between inputs and outputs becomes the basis for developing budgets and exercising control.
Approved Plan:
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A mater budget provides an approved summary of results to be expected from proposed plan of operations. It concerns all functions of organization and serves as a guide to executives and departmental heads responsible for various departmental objectives.
Communication:
The employees of an organization should know organizational aims, objectives of subunits (budgets centers) and the part that they have to play for their attainment. Budgets effectively communicate this information to employees. Besides, budges keep different sections of the organization informed about the contribution of different subunits in the attainment of overall organizational objective.
Budget procedures:
Having the budget organization and fixed the period, the actual work or budgetary control can be taken upon the following pattern.
STEPS IN BUDGETING CONROL: Organization for budgeting:

The setting up of a definite plan of organization is the first step towards installing budgetary controlling system in an organization a budget manual should be prepared giving details of the powers, duties, responsibilities and areas of operation of each executive in the organization.
Budget Manual:
A Budget manual lays down the details of the organizational set up, the routine procedures and programmers to be followed for developing budgets for various items and the duties and responsibilities of the executives regarding the operation of the budgetary 26
control system. CIMA England defines a budget manual as a document schedule or booklet which sets out, inter alia, the routine of and the forms and records required for budgetary control. Thus, it is a written document which guides the executives in preparing various budgets. Budgets are to be drawn keeping in view the objectives of the organization given in the budget manual. Responsibility and functions of each executive in regard to budgeting are written down in the budget manual to avoid any duplication or overlapping of responsibilities. Steps and the methods for developing various budgets and the methods of reporting performance against the budget are written 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. The following are some of the most important matters covered in a Budget manual: a) Introducing and brief explanation of the objects, benefits and principles of budgetary control. b) Organization chart giving the titles to different personnels with full explanation of the duties of each to operating system and preparation of departmental and functional budgets. c) Length of budget periods and control periods should be clearly stated. d) A method of accounting and control of expenditure. e) A statement showing the responsibility and of authority given to each manger for approval of budgets, vouchers and all other forms and documents which authorize them to spend the money. The authority for granting approval must be clearly stated. f) The entire process of budgeting programme including the time table for periodical reporting. A schedule should be drawn for this. g) Purpose, specimen form and number of copies to be used for each report and statement. Budget centers involved should also be stated clearly. h) Outline of main budgets and their accounting relationships. 27
i) 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 budge 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 and 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 helping 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
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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.
The responsibility for preparation and implementation of the budgets may be fixed as under.
Budgetary controller:
Although the chief executive l 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 for the future period beyond the existing could not be predicted and 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
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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 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: Is there sufficient demand for the product? (customer demand) Will a required quality and quantity of materials be available? (availability of raw material) Is the plant capacity sufficient to cope up with the expected sales? (plant capacity) Is the required type of labor available? (available of labor) Is cash position sufficient to finance the expected volume of sales? (cash position) Are there any Government restrictions? (Government restrictions)
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For example, a concern has the capacity to produce 50,000 units of particular item per year. But only 30, 000 units can be sold in the market. In this case, low demand for the product is the limiting factor. Therefore, sales budget should be prepared first and other functional budgets such as production budget, labor budget, plant utilization budget, cash budget etc. should be prepared in accordance with this case plant capacity is limited. Therefore, production budget should be prepared first and other budgets should follow the production budget. Thus, the budget relating to limiting factor should be prepared first and the other budgets should be prepared in the light of that factor. All budgets should be co-coordinated keeping in view the principal budget factor if the budgetary control is to achieve the desired results. Principal budget factor is not static. It may vary rapidly from time to time due to internal and external factors. It is of temporary nature and in the long run can be overcome by suitable management taking sales promotion steps as increasing sales staff and advertising. Plant capacity can be improved by better planning, simplification of product or extension of plant.
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; The capacity to which they are related; The conditions on which they are based; and The periods which they cover.
Functional Budget:
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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
1. 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
prepared by
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
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Manger 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. 2. 3. 4. 5. 6. 7. 8. 9.
Past Sales Figures and Trends. Salesmens Estimation. Plant Capacity. Availability of Raw Material and other Supplies. General Trade Prospects. Orders in Hand. Seasonal Fluctuations. Financial Aspect. Adequate Return on Capital Employed.
10. Competition. 11. Miscellaneous Considerations.
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) r 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 manger is responsible for the total production budget and the departmental managers are
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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 fro 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 he 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 uniform level throughout the year. The material labor and plant requirements should 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 34
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 manger by getting relevant information about capital items, tools, general supplies and direct materials required during the budget period from other 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 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 manger should get additional sanctions from the higher authorities for making the additional purchases not covered by the purchase budget.
Direct Labor Budget:
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This budget gives as estimate of the requirements of direct labor essential to meet the production target. This budget may be classified into labor Requirements budget and recruitment budget. The labor recruitment budget is developed on the basis of requirement of the production budget given and detailed information regarding he different classes of labor 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 too enable the personnel department to carry out programmers of training and transfer and to find out sources of labour 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 labour 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 and experience required and the rates of pay. Where standard costing system is applied, the labor cost budget is dev eloped on the basis of standard labor 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 labor 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 labour 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
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basis of the budgeted output because these expenses are bound to change with the change in output. The Cost Accountant 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 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 sort 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 budges i.e., 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.
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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 distributions of the various products as indicated in the sales budget are 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 prize coupons, recruiting efficient sales staff etc.
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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 etc. The capital expenditure budget is an important budget proving 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. 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. Thus this budget provides an estimate of the expenditure to be incurred on research and development during the budget
CASH (FINANCIAL) BUDGET:

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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 are 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 n 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 (Finalized Profit Plan):

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
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The master budget is prepared by the budget committee on the basis of cocoordinated 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 an d 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
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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, labour, 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 shipbuilding.
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. 42
Current Budget:
A Current budget can be defined a budget which is related to the current conditions and is prepared for use 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 longterm 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 i.e. 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.
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Performance oriented budgets are established in such a manner that each 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 attainment 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 physic al plan laid down and evaluation of performance.
Zero Based Budgets:

This budge 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., U.S.A. 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 gaining acceptance e 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 aw 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.
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ADVANTAGES OF BUDGETARY CONTROL:

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 of 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 at and 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 exactly to 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 ay 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.
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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. Budgetary control creates conditions for setting up a system of standard costing. It is helpful in reviewing current trends in the business and in determining further policy of the business because current and future trends are studied in the preparation of the budget.
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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ANALYSIS AND INTERPRETATION
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COST OF PRODUCTION BUDGET (2007-2008)

PARTICULARS Sales Value of production Cost of production Raw materials Consumables Power Fuel Repairs & Maintenance Off loading Total variable cost Salaries & Wages Other expenses Factory Expenses Admin & Sellings Depreciation R&D Amortization Interest BE 12000 11172 3710 730 717 946 350 603 7056 3182 72 358 450 103 10 20 RE 12000 10750 4028 640 697 666 350 6680 7061 3099 56 377 300 83 5 25 (9701/10750)* 4028 3635 (9701/10750)*640 578 (9701/10750)*697 629 (9701/10750)*666 601 (9701/10750)*350 316 (9701/10750)*680 614 6372 Estimate for actual Output Actuals Variance 10430 9701 3556 492 537 456 367 650 6058 3093 77 281 375 0 10 4 1570(adv) 1049(adv) 79(fav) 86(fav) 92(fav) 145(fav) 51(adv) 36(adv) 314(fav) 6(fav) 21(adv) 96(fav) 75(adv) 83(fav) 5(adv) 21(fav) 37.4 7 5.95 6.48 6.2 3.26 6.33 36.66 5.07 5.54 4.7 3.78 6.7 %of vop
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Total fixed cost Total Cost of Prod Operating profit Capacity utilization Sales quantity (tones)
4195 11251 -79 77% 2108
3945 11006 -256 96% 2611
3840 9898 -196 74% 2017
105(fav) 1108(fav) 60(fav) 22%(adv) 594(adv)
INVENTORY BUDGET (2007-2008)

(Rs. In Lakhs) ARTPCULARS Raw materials Consumables Spares Internally generated Work in progress Finished goods Total inventory BE 1300 700 425 550 3211 10 6196 RE 800 600 350 800 2934 10 5494 ACTUALS 1125 625 287 1085 3425 124 6671 VARIANCE 325(adv) 25(adv) 63(fav) 285(adv) 491(adv) 114(adv) 1177(adv)
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DETAILS OF SALARIES AND BENEFITS (2007-2008)

PARTICULARS Salaries & Allowances Leave encashment Comp Off Incentive Bonus Statutory Bonus Stipend to Trainees PF(Incl. Insp.) Gratuity VRS Misc WELFARE EXPENSES Canteen Expenses (Less Receipts) Health Care Family Welfare Liveries LTC Transport Less Receipts) Conv. Allowance Children Education Allowance Staff Welfare Int. Subsidy on BE 2047 91 90 100 34 15 216 161 54 5 2813 RE 1992 125 72 35 0 15 205 186 114 7 2751 ACTUALS 2054 134 27 87 0 13 225 97 135 4 2776 (Rs. In Lakhs) VARIANCE 62(adv) 9(Adv) 44(fav) 52(adv) 0 2(fav) 20(Adv) 89(fav) 21(adv) 3(fav) 25(adv)
65 0 90 6 6 17 93 -6 28 10 6 26
50 -10 95 5 12 13 60 -3.5 35 12 8 25
47 -16 100 5.43 14.53 3.42 55 -6.28 44 12.39 0.05 18
3(fav) 6(fav) 5(adv) 0.43(adv) 2.53(adv) 9.58(fav) 5(fav) 0.28(fav) 9(adv) 0.39(adv) 7.95(fav) 7(fav)
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House Loans Township Expenses Less Receipts) Township Expenses School TOTAL WELFARE GRAND TOTAL
22 -3 29 389 3202
18 -3 31 347.5 3098.5
17 -2.47 25 317.07 3093.07
1(fav) 0.53(adv) 6(adv) 28(fav) 3(fav)
DETAILS OF OTHER EXPENSES (2007-2008)

PARTICULARS FACTORY EXP (A) Water Rates & Taxes Insurance Amortizing Tools Miscellaneous ADMN. EXP (B) Rent & service charge Postage Telephone & Telex Printing & Stationery Travel Expenses Bank charges Advertisement Audit Fees Legal Exp Conveyance charges Books & Periodicals Membership & seminars fees etc. Committee meetings & Entertainment exp Hostel & Guest House Less Income BE 27 3 35 1 15 81 3.5 43 15 40 60 9 0.42 2.75 8 4.5 6.75 4 4.5 -1.25 RE 10 3 28 0.75 14 55.75 12 30 20 60 30 16 0.84 2.5 10 3 75 3.5 6.5 -1.25 12 32.5 16 36 17 10 1.72 0.77 11.16 2.12 7.92 3.59 5.5 -1.35 ACTUALS 33 3.57 22 0.43 18 77 VARIANCE 23(Adv) 0.57(Adv) 6(fav) 0.32(fav) 4(adv) 21(Adv) 2(fav) 2.50(fav) 4(fav) 24(fav) 13(fav) 6(fav) 0.88(adv) 1.73(fav) 1.16(adv) 0.88(fav) 67.08(fav) 0.09(adv) 1(fav) 0.1(fav)
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Consultancy exp Misc
5.5 52.5 258.1 7 3 7.5 7.5 25 43
1 117.5 386.59 4 7 2 5 18
0.33 70.58 225.84 1 10 0 7.83 18.83
0.67(fav) 47(fav) 161(fav) 3(fav) 3(adv) 2(fav) 2.83(adv) 1(adv)
SELLING EXP (C) Selling Agency com Publicity Exp Export Promotion Exp Misc CHARGED OFF, (D) WRITTEN OFF&PRO Mise Total of A+B+C+D
60 442.1 7
40 500.34
40.15 361.82
0.15(adv) 138.52(fav)
REASONS FOR VARIANCES FOR THE YEAR 2007-2008

The performance in respect of both Vop and sales was lower than the targets and is mainly because of the receipts of most orders at the fag end of the financial year and delays in import of critical raw materials from Russia. A. Raw materials: Due to continued efforts by the organization to overcome the problems arises due to imposition of restrictions on supply of materials and as a result procurement of this material at higher prices and increased utilization of internally generated scrap has resulted cost of Raw material consumption. B. Repairs and Maintenance: Because of the aging of the machinery and equipment, repairs and maintenance jobs are increasing. C. Consumables: By improving the life of the furnace lining and recondition of used cast iron moulds the cost of consumables has come down over the revised estimates. D. Salaries and Wages: The expenditure on incentives bonus, VRS, PF has increased in spite of these; there was nominal variance between actuals and RE due to controls exercised on other expenses like LTC, Comp off etc from time to time.
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E. Administrative and Selling expenses: Even though security expenses were increased after September 11th attacks, the reduction in administration expenses was mainly due to less expenditure incurred on rent services hares, printing and stationary, travel expenses, etc. There is a nominal increase in selling expenses as compared to estimates due to increased publicity expenses.
F. Inventory: As most of the orders were received at the end of the financial year, the organization was not able to execute the orders in time and WIP has increased over estimates. The increase in finished goods inventory indicates that there is a delivery of goods to the customers. Even though the sales turnover was less than the estimate, the organization exercised control over expense and consequently the cost of production was less than the estimates and as a result the operating loss was less than the estimated. G. G.R&D: The expenditure on R&D was less than the estimated expenditure indicating that the organization has deferred has the activities to the required level.
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PARTICULARS Sales Value of production Cost of production Raw materials Consumbles Power Fuel Reparirs & Maintanc Off loading Total variable cost Saleries & Wages Other expenses Factory Expenses Addmin & Sellings Depereciation R&D Amortisation
BE 1300 0 1205 0 4460 730 732 757 400 715 7794 3250 66 385 330 127 5
RE 12000 10700
Estimate for actual output
Actuals 9152 8496
Variance 2848(adv) 2204(adv)
%of vop
3665 630 600 560 375 850 6680 3309 82 374 250 125 10
(8496/10700)*3665 2910 (8496/10700)*630 500 (8496/10700)*600 476 (8496/10700)*560 445 (8496/10700)*375 298 (8496/10700)*850 675 5304
2582 512 622 555 335 763 5369 3179 73 378 203 0 10
328(fav) 12(adv) 146(adv) 110(adv) 37(adv) 88(adv) 65(adv) 130(fav) 9(fav) 4(adv) 47(fav) 125(fav) -
34.2 5 5.88 5.67 5.23 3.5 7.94
30.39 6.02 7.32 6.53 3.94 8.98
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Interest Total fixed cost Total cost of prod
110
25 4175 10856 -156 96% 2616
16 3859 9228 -733 55% 1489
9(fav) 317(fav) 1628(fav) 577(adv) 41(adv) 1127(adv)
4273 1206 7 Operating profit -18 Capacity utilization 78% Sales quantity (tones) 2137

(Rs. In Lakhs) PARTICULARS Raw materials Consumables Spares Internally generated Work in progress Finished goods Total inventory BE 1000 650 425 750 3184 10 6019 RE 900 600 300 800 3225 50 5875 ACTUALS 985 533 278 1139 3492 256 6683 VARIANCE 85(adv) 67(fav) 22(fav) 339(adv) 267(adv) 206(adv) 808(adv)
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(Rs. In Lakhs) VARIANCE 49.61 14.89 10.65 30.59 0.43 5.31 0.19 6.37 2.09 3.55 107.18
PARTICULARS Salaries & Allowance Leave encashment Comp Off Incentive Bonus Statutory Bonus Stipend to Trainees PF(Incl Insp) Gratuity VRS Misc WELFARE EXPENSES Canteen Expenses (Less Receipts) Health Care Family Welfare Liveries LTC Transport Less Receipts)
BE 2181.23 93.95 77 40 0 15 223.38 123.41 103.85 8.2 2866.02
RE 2188.65 110.39 40 90 0 15 217.73 100 109.78 7.15 2878.7
ACTUALS 2139.04 95.5 29.35 59.41 0.43 9.19 216.54 106.37 11.87 3.6 2771.3
55 95 6 35 0 66
57 110 6 29 70 50
55.22 112.64 6.09 26.1 81.01 39.47
1.78 2.64 0.09 2.9 11.01 10.53
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Conv Allowance Children Educat Allowa Staff Welfare Int Subsidy on House Loans Township Expenses Less Receipts) Township Expenses TOTAL WELFARE GRAND TOTAL
40 14 10 28 22 22 403 3269.02
50 15 1 20 19.5 19.5 457.5 3336.2
47.13 10.67 1.59 14.69 14.32 14.32 434.11 3205.41
2.87 0.59 5.311 5.18 5.18 24.48 131.65

PARTICULARS FACTORY EXP (A) Water Rates & Taxes Insurance Amortising Tools Miscellaneous ADMN. EXP (D) Rent & service charge Postage Telephone & Telex Printing & Stationery Travel Expenses Bank charges Advertisement Audit Fees Other Audit Legal Exp Conveyance charges Books & Periodicals Membership & seminars fees etc. Committee meetings & Entertainment exp BE 15 4 31 1 15 66 12 38 22 65 30 15 0.84 2.50 12 2.75 8 3.75 RE 33 3.60 25 0.50 20 82.10 12 35 20 70 20 14 0.77 1.22 1.50 14 2.75 17.50 6 ACTUALS 20.59 9.66 32.15 0.4 9.96 72.76 8.44 29.11 20.87 55.47 25.19 8.09 0.91 1.13 1.67 12.34 2.71 8.91 3.66 VARIANCE
12.41(fav) 6.06 (adv) 7.15 (adv) 0.10 (fav) 10.04 (fav) 9.34 (fav) 3.56 (fav) 5.89 (fav) 0.87 (adv) 14.53 (fav) 5.19 (adv) 5.91 (fav) 0.14 (adv) 0.09 (fav) 0.17 (adv) 1.66 (fav) 0.04 (fav) 8.59 (fav) 2.34 (fav)
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Hostel & Guest House Less Income Consultancy exp Misc SELLING EXP (C) Selling Agency com Publicity Exp Export Promotion Exp Misc CHARGED OFF,(D) WRITTEN OFF&PRO Miscellaneous Total of A+B+C+D
7 1.50 76 296.34 5 8 5 7 25 65 452.34
6 1 63 284.74 3 15 2 10 30 60.09 456.93
4.7 5.69 63.98 252.87 3.79 11.31 0 16.34 31.44 94.77 451.84
1.3 (fav) 4.69 (adv) 0.98 (adv) 31.87 (fav) 0.79 (adv) 3.69 (fav) 2.00 (fav) 6.34 (adv) 1.44 (adv)
34.68 (adv) 5.09 (fav)
REASONS FOR VARIANCES THE YEAR 2008-2009

Value of production decreased in 2008-2009 by Rs. 22.04 crores as against Re 2007-2008 due to reduced sales realization of various products. The reasons for lesser sales is due to lack of orders what ever executed also are of low value in nature of all the production facilities. Cost of Production Budget: a) Raw material: As the VOP decreased raw material consumption also got reduced. Raw materials on account for about 36.66% of VOP and efforts are on to increase the scrap utilization to reduce the ratio of raw materials to VOP. b) Consumables: Consumption of consumables also reduced due to the reduction in value of production that is reduction in production activities. There is a slight increase in consumption of judicious usage of high value consumables. However efforts are on to contain the consumption. c) Power & Fuel: Power and fuel requirements are usually determined on the basis of the level of operations in various shops on the various product mi.
58
There is an increase in power cost due to upward revision of power charges by APSEB. The increase in Fuel cost is mainly due to increase price of fuel in International markets. d) Repairs & Maintenance: However, there is no increase in this expenditure because of the aging of the machinery and equipment, repairs and maintenance jobs are increasing. The major portion of this expenditure comprise of spares. e) Off loading expenses: Usually off loading of work in resorted to reduce the cost of production by getting the small works done outside at a cheaper rate instead of doing internally. During the year the expenses were higher because of drastic reduction in volume of off loading quantity. f) Salaries and Wages: Reduction in factory expenses were increased by Rs.4 lakhs compared to Re 2008-2009 due to increase in consultancy, printing& stationery expenses due to selling agency commission. . g) Inventory: Increase in inventory by Rs.8.08 crores. As against RE 2008-2009 due to low value of production resulting in to lack of bulk orders.
59
60
PARTICULARS Sales Value of production Cost of production Raw materials Consumables Power Fuel Repairs & Maintains Off loading Total variable cost Salaries & Wages Other expenses Factory Expenses Admin & Sellings Depreciation R&D Amortization Interest Total fixed cost Total Cost of Prod Operating profit Capacity utilization Sales quantity (tones)
BE
RE
Estimate for Actual Output
Actuals 5135 8495
Variance 3396(adv) 2265(adv) 519(adv) 107(adv) 227(adv) 78(adv) 101(adv) 847(adv) 1909(adv) 69(adv) 20(adv) 18(adv) 73(fav) 18(fav) 11(adv) 3(fav) 24(adv) 801(adv) 57(adv) 24%(adv) 887(fav)
%of vop
12000 12531 11332 10360 3665 630 600 562 370 849 6677 3309 300 372 254 125 10 25 4370 11047 -78 70% 2011 2582 512 623 555 335 763 5370 2352 369 360 203 19 10 16 3329 8699 -250 96% 1975 (8495/10760)* 2582 2038 (8495/10760)*512 404 (8495/10760)*623 492 (8495/10760)*555 438 (8495/10760)*335 264 (8495/10760)* 763 602 4238
2558 511 719 517 366 1476 6147 2421 389 378 130 1 21 13 3353 9500 -193 72% 1088
23.9 9 4.75 5.79 5.15 3.10 7.08
30.11 6.01 8.46 6.08 4.30 17.37
61

(Rs. In Lakhs) PARTPCULARS Raw materials Consumables Spares Internally generated Work in progress Finished goods Total inventory BE 950 600 350 800 3184 10 5894 RE 906 485 273 1137 3490 255 6546 ACTUALS 966 513 271 1057 2848 11 5666 VARIANCE 60(adv) 28(adv) 2(fav) 80(fav) 642(fav) 244(fav) 880(fav)
Inventory Budget(2009-10)
3500 3000 2500 Inventory 2000 1500 1000 500 0 BE RE Year(2009-10) ACTUAL Raw materials Consumables Spares Internally generated Work in progress Finished goods

62
PARTICULARS FACTORY EXP (A) Water Rates & Taxes Insurance Amortising Tools Miscellaneous ADMN. EXP (B) Rent & service charge Postage Telephone & Telex Printing & Stationery Travel Expenses Bank charges Advertisement Audit Fees Other Audits Legal Exp Conveyance charges Books & Periodicals Membership & seminars fees etc. Committee meetings & Entertainment exp Hostel & Guest House Less Income Consultancy exp Misc SELLING EXP (C) Selling Agency com Publicity Exp Export Promotion Exp Misc CHARGED OFF, (D) WRITTEN OFF&PRO Mise Total A+B+C+D
BE 20.59 9.6 32 0.4 9.9 72.49 84 29 21 55 20 8 0.91 5 1.13 1.66 2.7 9 4 5 6 64 316.4 3.79 15 2 10 30.79
RE 21 10 32.15 0.40 10 73.55 9 29 21 55 25 8.09 0.70 0.05 1.67 2.77 10 5 4 6.1 16.33 193.71 3.79 11.31 0 16.33 31.43
ACTUALS 32 24 33.08 0.45 10.11 99.64 10 27 24 46 19 3 0.79 1.10 1.14 3 10.1 5.1 6 7 7.56 170.79 3.49 8.52 0 7.56 19.57
VARIANCE 11 (adv) 14 (adv) 0.93 (adv) 0.5 (adv) 0.11 (adv) 26.09 (adv) 1 (Adv) 2 (fav) 3 (Adv) 9 (fav) 6 (fav) 5.09 (fav) 0.09 (adv) 0.05 (adv) 0.25 (adv) 0.23 (adv) 0.01 (adv) 0.01 (adv) 2 (Adv) 1.1 (adv) 8.77 (fav) 22.92 (fav) 0.3 (fav) 2.79 (fav) 0 8.77 (fav) 11.86 (fav)
94.77 514.45
13.69 312.38
33.76 323.76
20.07 (adv) 11.38 (adv)

63
(Rs. In Lakhs) PARTICULARS Salaries & Allowances Leave encashment Comp Off Incentive Bonus Statutory Bonus Stipend to Trainees PF(Incl Insp) Gratuity VRS Misc WELFARE EXPENSES Canteen Expenses (Less Receipts) Health Care Family Welfare Liveries LTC Transport Less Receipts) Conv Allowance Children Educ Allowan Staff Welfare Int Subsidy on House Loans Township Expenses Less Receipts) Township Expenses TOTAL WELFARE GRAND TOTAL BE 2139 111 29 0 15 217 200 123.41 103.85 8.2 2946.46 RE 2358 96 27 0.43 9.19 217 216.53 313.95 109.78 7.15 3355.03 ACTUALS 2421 89 25 0 13 229 228.5 106.37 111.87 3.6 3227.34 VARIANCE 69(adv) 7(fav) 2(fav) 0.43(adv) 3.81(fav) 12(adv) 12.48(Adv) 207.38(fav) 2.09(Adv) 3.55(fav) 127.69)fav)
47 100 5.43 14.5 3.42 66 44 13 0.05 18 17 25 469 3415.46
55 113 6 26 81.1 50 38 11 408 15 15 26 507.5 3862.53
56 127 7.1 28 85 39.47 41 15 364 19 20 29 490.11 3717.45
1(adv) (adv) 14(Adv) 1.1(adv) 2(adv) 3.9(Adv) 10.53(fav) 3(adv) 4(adv) 44(fav) 4(adv) 5(adv) 3(adv) 24.48(fav) 145.08(fav)

64
The performance in respect of both VOP and sales was low than the targets and is mainly because of the receipts of the most orders at the end of the financial year. A. Raw Materials: Due to continued efforts by the organizations to overcome the problems arise due to material at higher prices and increased utilization of internally generated scrap has resulted in reduced cost of raw material consumption. B. Repairs and Maintenance: Because of the aging of the machinery and equipment, repairs and maintenance jobs are increasing. The major portion of this expenditure comprises of spares. C. Off-Loading Expenses: Besides the regular jobs off loading like machining of low alloys steels, rolling steels etc. off loading of work in resorted to reduce the cost of production by getting the small works done outside at cheaper rate, in order to obtain better yields. During the expenses were higher because of drastic reduction in volume if off loading quality. D. Salaries and Wages: The increased expenditure on salaries and wages because of increase in PF and EPS. Increase sue to payment of gratuity etc. other expenses are reduced like leave encashment. E. Administration & selling: The increases in expenditure on administration & selling were mainly due to increase in printing and stationery expenses. Increase in administration expenses was mainly due to increase in administration miscellaneous including entertainment expenses Rs.0.36 lakh. F. R&D: The expenditure on R&D was more than the estimate which shows that aggressive R&D activity was undertaken and more goods were produced as result of R&D. during the year Geosynchronous satellite launch vehicle (GSLV). The performance of the companys maraging steel which goes into making the rocket motor casing etc. G. Inventory Level: Decrease in inventory by 2.44 crores as against RE because of high value of production resulting in to higher consumption of inventories.
65
PARTICULARS Sales Value of production Cost of production Raw materials Consumables Power Fuel Repairs & Maintenance Off loading Total variable cost Salaries & Wages Other expenses Factory Expenses Admin & Sellings Depreciation R&D Amortization Interest Total fixed cost Total Cost of Prod Operating profit Capacity utilization Sales quantity (tones)
BE 1137 0 1125 0 3647 632 630 590 350 860 6707 3350 350 372 250 120 15 20 4370 1104 7 -78 75% 2012
RE 12556 10400 2580 515 625 550 335 763 5371 2352 369 360 203 20 10 16 3329 8690 -250 96% 1975
Estimate for actual Output
Actuals Variance 5135 8495 3396(adv) 2265(adv) 519(adv) 107(adv) 227(adv) 78(adv) 101(adv)
%of vop
(8495/10760)* 2580 2038 (8495/10760)*515 404 (8495/10760)*625 492 (8495/10760)*550 438 (8495/10760)*335
2555 511 719 513 366
23.9 9 4.75 5.79 5.15 3.10
30.11 6.01 8.46 6.08 4.30 17.37
(8495/10760)* 763 1474 4238 6147 2421 389 374 133 1 21 13 3353 9500 -193 72% 1088
847(adv) 7.08 1909(adv) 69(adv) 20(adv) 18(adv) 73(fav) 18(fav) 11(adv) 3(fav) 24(adv) 801(adv) 57(adv) 24%(adv) 887(fav)
66

(Rs. In Lakhs) PARTICULARS Raw materials Consumables Spares Internally generated Work in progress Finished goods Total inventory BE 930 650 250 600 3164 15 5609 RE 906 580 270 1138 3499 250 6643 ACTUALS 566 523 231 1657 2838 110 5925 VARIANCE 340(fav) 57(fav) 39(fav) 519(fav) 661(adv) 140(fav) 718(fav)
Inventory Budget (2010-11)

3500 3000 2500 Inventory 2000 1500 1000 500 0 BE RE ACTUALS
Raw materials Consumables Spares Internally generated Work in progress Finished goods
Year (2010-11)

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PARTICULARS Salaries & Allowances Leave encashment Comp off Incentive Bonus Statutory Bonus Stipend to Trainees Pf(Ind. Insp.) Gratuity VRS Misc WELFARE EXPENSES Canteen expenses Health Care Family Welfare Liveries LTC Transport Conv Allowance Children Educational Allowances Staff Welfare Int subsidy on House Loans Township Expenses TOTAL WELFARE GRAND TOTAL
BE 2421 89 25 0 13 229 228.5 106.37 111.87 3.6 3227.34 56 127 7.1 28 85 39.47 41 15 364 19 20 29 490.11 3717.45
RE 2698 89 34 0.14 16 223 267.00 100 87.00 5.67 3544.79 60 150 4.5 26 80 45.50 25 16 410 12 30 30 898.5 4442
ACTUALS 2534 90 20 0 14 220 230.5 109.89 90.23 7.0 33.15.12 64 145 5.00 23 89 41.34 30 19 404 15 25 32 532.41 3847.53
Variance 164(Fav) 1(adv) 14(fav) .14(adv) 2(fav) 3(fav) 37(fav) 0.9(adv) 3.23(adv) 2.67(adv) 229.67(fav) 4(adv) 5.00(fav) 0.5(fav) 3.00(fav) 9(adv) 4.16(fav) 5(adv) 3.(adv) 0.6(fav) 3(adv) 5(fav) 2(fav) 17.76 258.76(fav)

68
The increase in sales quantity and VOP of actual over RE indicates that sufficient orders were received, particularly of low value items lime soft iron. Nuclear Steel than those of high value items like super alloys, heating elements alloys. Off-Loading Expenses: Besides the regular jobs off loading like
machining of low alloys steels, rolling steels etc. off loading of work in resorted to reduce the cost of production by getting the small works done outside at cheaper rate, in order to obtain better yields. During the expenses were higher because of drastic reduction in volume if off loading quality. Salaries and Wages: The increased expenditure on salaries and wages
because of increase in PF and EPS. Increase sue to payment of gratuity etc. other expenses are reduced like leave encashment. R&D: The expenditure on R&D was more than the estimate which
shows that aggressive R&D activity was undertaken and more goods were produced as result of R&D. during the year Geosynchronous satellite launch vehicle (GSLV). The performance of the companys maraging steel which goes into making the rocket motor casing etc. Inventory: As most of the orders were received at the end of the
financial year, the organization was not able to execute the orders in time and WIP has increased over estimates. The increase in finished goods inventory indicates that there is a delivery of goods to the customers. Even though the sales turnover was less than the
estimate, the organization exercised control over expense and consequently the cost of production was less than the estimates and as a result the operating loss was less than the estimated.
TOTAL INVENTORY BUDGETARY 69
YEARS 2007-08 2008-09 2009-10 2010-11
BE 6196 6019 5894 5609
RE 5494 5875 6546 6643
ACTUALS 6671 6683 5666 5925
Total Inventory
7000 6000 5000 Inventory 4000 3000 2000 1000 0 2007-08 2008-09 2009-10 2010-11 BE RE ACTUALS
Years
Interpretation:
The inventory level was increased in 2007-08. After that next year the level of inventory decreased. Increasing in inventory as against RE in 2010-11 due to low value of production resulting in leaser consumption.
TOTAL SALES QUANTITY BUDGET
70
YEARS 2007-08 2008-09 2009-10 2010-11
BE 2108 2137 2011 2633
RE 2611 2616 1975 2562
ACTUALS 2017 1489 1088 2563
71
Total Sales Quantity Budget

3000 2500 2000 Sales Qty 1500 1000 500 0 2007-08 2008-09 2009-10 2010-11 BE RE ACTUALS
Years
Interpretation:
Sales quantity has been increasing from 2007-2008 to 2008-09. In 2009-10 sales quantity has decreased. In the year 2007-08 actual was overcome the target. Actuals over RE indicates that sufficient orders were received, particularly of low value items like soft iron. Nuclear strolls than those of high value items like supper alloys.
SALES BUDGET
72
YEARS 2007-08 2008-09 2009-10 2010-11
BE 12000 13000 12000 11370
RE 12000 12000 12531 12556
ACTUALS 10430 9152 5135 5135
Sales Budget
14000 12000 10000 8000 6000 Sales 4000 2000 0 2007-08 2008-09 2009-10 2010-11 Years
BE RE ACTUAL S
Interpretation:
Taking in to the consideration of 5 years data of sales budget. There is increase in the year 2008-09. Actual were low than the revised estimates. Hence it is not reached to the targets. While estimating the sales budget firm should consider the from the customers
73
5 YEARS AT A GLANCE
Particulars 1 Sales To consumers Dispatches to Sub-contractors Value of Production (including ED) Cash profit /loss (Before prior Period Adjustments and Excluding Amortization of DRE & Dep Net Profit (PAT) Before prior Period Adjustments Value added Value added for employee Productivity for Employee Paid up Capital Capital Employed Net Worth Contribution To exchequer 2006-07 9,075.96 2,183.57 11,386.57 2007-08 8,710.35 1,713.30 10,717.41 2008-09 7,486.41 1,648.76 9,350.23 2009-10 9,562.63 2,949.96 11,641.88 2010-11 11,190.78 1,936.23 14,166.73
2 3
359.62
396.82
(32.85)
908.62
1,335.47
35.14
8.95
(236.07)
690.15
687.08
5 6 7 8 9 10 11
7,172.68 5.25 8.34 13,889.87 13,889.87 13,421.16 2,270.80
7,160.95 5.54 8.29 13,734.00 14,093.79 13,348.23 2,029.00
6,768.64 5.26 7.27 13,734.00 13,712.03 3,226.10 1,863.00
9,082.89 7.06 9.05 13,734.00 13,825.54 13,888.65 2,031.00
9,697.49 9,697.49 10.72 13,734 14,361.63 14,361.63 2,418.00
74
12
No.of employees -Executives -NonExecutives
285 1,081 YEARS 2006-07 2007-08 2008-09 2009-10 2010-11
256 1,037
256 1,037 PAT 35.14 8.95 236.07 690.15 687.08
256 1,037
265 993
75
5 YEARS AT A GLANCE
Profit after Tax

2% 1% 14%
41%
2006-07 2007-08 2008-09 2009-10 2010-11
42%
Interpretation:
The PAT level was decreased from 2006- 07 to 2007-08 After that next year the level of PAT Increased 2007-08 to 2008-09 and 2009-10 this year it has slightly raised high it is good period to the organization because seeking high profits but in 2010-11 PAT decreased 1% So here it indicates to good measures that followed in year 2009-10.
76
ELEMENTS OF SUCCESSFUL BUDGETING PLAN

The success of the budgeting process is an organization depends on the following essential elements: Accurate Forecasting of Business Activities: Forecasting is a prerequisite in a budgeting process. It is not only the starting point, but is also critical to the development of an accurate budge. Forecasting can be done regarding activities which are internal and external to an organization. Internal activities are easier to forecast than external activities such as production forecast. But external factors like state than external activities such as production forecast. But external factors like state of and nature of marker conditions, inflation or deflation and its company products are difficult to predict. Business firms require competent market researchers to forecast accurately such external factors. Coordinating Business Activities: Budgeting needs to coordinating all the individual budgets into an integrated plan as each budget has certain implication for the other budgets. There must be coordination between sales, production purchasing, and personnel budges. Budgets are useful tools in communicating budgetary organizational activities. Communicating the Budgets: The successes of a comprehensive budgeting programmers depend on communication of individual budgets to the different units in the organization. The basic point is that the preparation of the budget is of on value unless it is known to the person for budget of communicated clearly, concisely and in an authoritative manner to them. Acceptance and Cooperation: Successful budgeting also requires that budgets should be accepted by the people who must execute them. Budgeting should have the active cooperation of the organization from the top to the bottom. Cooperation for the budget can be achieved in a number of ways.
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Reasonable Flexibility: The budgeting programme should contain reasonable flexibility if the situation so demands. However, it should be noted that too much flexibility and too much tightness are both undesirable. Too much flexibility will weaken the cost control and the budget will become inoperative. Similarly, too much rigidity not permitting reasonable of the budget. If conditions have changed making the estimates and budgets inaccurate, the budgets should be revised, a budget is simply a tool to serve managements needs and not an irrevocable contract. Proving a Framework for Evaluation: Budgeting provides a basis to evaluate the performance of different departments. A comprehensive budget, properly developed, will contain initially organizational goals and expectations and subsequently can be used as an effective evaluation technique. Suggestions or Guidelines for Preparation of good budget Firstly, determine the principal budget factor this is also known as the key budget factor or limiting budget factor and is the factor which will limit the activities of an undertaking. This limits output. E.g. sales material or labour. A) Sales budget: This involves a realistic sales forecast. This is prepared in units of each product and also in Sales value. Methods of sales forecasting include: Sales force opinions Market research Statistical Methods (correlation analysis and examination Mathematical models using theses techniques consider: Companys pricing policy General economic and political conditions Changes in the population Competition Consumers income and tastes Advertising and other sales promotion techniques After sales service credits terms offered
78
B) Production Budget: expressed in quantitative terms only and and is geared to the sales budget. The production managers duties include: Analysis of plant utilization Work-in progress budgets If requirements exceed capacity he may: Subcontract Plan for overtime Introduce shift work Hire or buy additional machinery C) Raw Materials and purchasing budget: The materials usage budget is in quantities. The materials purchase budget is both quantitative and financial. Factors influencing A) and B) include: Production requirements Man-hours available Wage rates (union agreements) The need for incentives D) Cash Budget: cash plan for a defined period of time it summaries monthly receipts and payments. Hence, it highlights monthly surplus and deficits of actual cash. It main uses are To maintain control over a firms cash requirements, e.g stock and debtors. To enable a firm to tale precautionary measures and arrange in advance for Investment and loan facilities whenever cash surpluses or deficits arises To show the feasibility of management plans in cash terms To illustrate financial impact of changes in management policy e.g Change of credit terms offer to customers. Receipts of cash may come from one the following:
Cash sales Payments by debtors
79
The sale of fixed assets The issue of new shares The receipt of interest and dividends form investment Payments of cash may be for one or more of the following: Purchase of stocks Payments of wages or other expenses Purchase of capital items Payment of interest, dividends or taxation
FINDINGS
Inventory budget has been decreased form year to year. In 2006-07 it has 6671 actuals and 2010-11 it has been decreased to 5929 actuals.
It was observed that sales quantity budget has been increased from year to year. In 2009-10 it has 2011 and 2010-11 has 2633.
Sales budget has moving on the same way. There is a minor change in this budget. It said to be satisfactory. Other expenses have also decrease form year to year. These results it is said to be that the expenses budget is satisfactory.
80
CONCLUSIONS
After analyzing the financial position of LG Electronics Industries and evaluating its budgetary control or Capital Budgeting techniques in respect of components analysis. Various budgetary policies of LG Electronics were analyzed. Cost of production, inventory, Salaries details, other expenses, Budgets variants analysis was done for five years and reasons for variance were analyzed. It was found that inventory budget decreased. Sales budget increased and also other expenses budget decreased. It is hoped that the interpretations, suggestions and ideas and findings of this study would support the company in an efficient and better way.
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SUGGESTIONS
As the internal resources are not sufficient to take up the major Government of India must take steps to provide. As LG is the manufacturer of electronics and consumer durables alloys in the country, the most acceptable material for electronics devices world wide. It should put in more efforts to capture a sizable market share of consumer durables. modifications
revamping of the equipment covering to the requirements of strategic sector,
LG ELECTRONICS continues to be comfortable on the power front with the availability of surplus power uninterruptedly from its feeder agencies. However, by taking strategic decisions at appropriate time it could be able to transfer some of its surplus power, reserved for its future expansion and modernization schemes, temporary to another sister organizations in public sector, thereby avoiding payment for unused power charges duly safe guarding is requirements to avail the same at times it becomes necessary.
82
For the past few years it is evident that the inventories including the scrap generated internally is in excess of estimates. The organization must take steps to utilize the scrap to bring down inputs costs.
While several sectors like Defence and Aeronautics enjoy concessions of NIL duty, power and software sectors from 5% to 20% no concessions are available to LG ELECTRONICS in import of its raw materials. Government should take steps to provide some relief in this regard.
BIBLIOGRAPHY
Cost Accounting (Principles and Practice) Cost Accounting Cost Accounting (A Managerial Accounting) Managerial Accounting Management Control Systems Horngren, Datar, Faste James Jiambalro Robert N. Anthony Vijay Govindarajan S.P. Jain & K.L. Narang Jawaharlal
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Annual Reports of the LG ELECTRONICS INDIA PVT LTD Web Site: www.lgelectronics.com www.google.coms
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Budget and Budgetary Conrol

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INTRODUCTION & OBJECTIVES OF STUDY

INTRODUCTION TO BUDGET AND BUDGETARY CONROL BUDGET:

Definitions of Budgetary Control:

SCOPE OF THE STUDY:

BUDGETARY CONTROL PRACTICES IN LG ELECTRONICS

BUDGET, BUDGETING AND BUDGETING CONTROL

SALES Domestic Export Ordinary Ordinary Profit Profit

1998 1999 2001

INTRODUCTION OF BUDGET & BUDGETARY CONTROL

Limitations of Budgetary Control:

OBJECTIVES OF BUDGETARY CONTROL: Planning:

STEPS IN BUDGETING CONROL: Organization for budgeting:

i) Explanation of key budgets.

FIXATION OF BUDGET PERIOD:

Rolling (Continues) Budget:

Annual Vs Continues budgeting system:

Principal Budget (limiting) factor:

DIFFERENT TYPES OF BUDGET:

R&D Manager Finance Manager

10. Competition. 11. Miscellaneous Considerations.

Cost of production Budget:

Direct Labor Budget:

Manufacturing Overheads Budget:

Administrative Expenses Budget:

Budgeted Income Statement:

Selling and Distribution Costs Budget:

Plant Utilization Budget:

Capital Expenditure Budget:

RESEARCH AND DEVELOPMENT COST BUDGET:

CASH (FINANCIAL) BUDGET:

Master Budget (Finalized Profit Plan):

Short- Term Budget:

Zero Based Budgets:

ADVANTAGES OF BUDGETARY CONTROL:

ANALYSIS AND INTERPRETATION

COST OF PRODUCTION BUDGET (2007-2008)

4195 11251 -79 77% 2108

3945 11006 -256 96% 2611

3840 9898 -196 74% 2017

105(fav) 1108(fav) 60(fav) 22%(adv) 594(adv)

INVENTORY BUDGET (2007-2008)

DETAILS OF SALARIES AND BENEFITS (2007-2008)

47 -16 100 5.43 14.53 3.42 55 -6.28 44 12.39 0.05 18

17 -2.47 25 317.07 3093.07

1(fav) 0.53(adv) 6(adv) 28(fav) 3(fav)

DETAILS OF OTHER EXPENSES (2007-2008)

Consultancy exp Misc

5.5 52.5 258.1 7 3 7.5 7.5 25 43

0.33 70.58 225.84 1 10 0 7.83 18.83

0.67(fav) 47(fav) 161(fav) 3(fav) 3(adv) 2(fav) 2.83(adv) 1(adv)

REASONS FOR VARIANCES FOR THE YEAR 2007-2008

COST OF PRODUCTION BUDGET (2008-2009)

Estimate for actual output

Actuals 9152 8496

Variance 2848(adv) 2204(adv)

34.2 5 5.88 5.67 5.23 3.5 7.94

30.39 6.02 7.32 6.53 3.94 8.98

Interest Total fixed cost Total cost of prod

25 4175 10856 -156 96% 2616

16 3859 9228 -733 55% 1489

9(fav) 317(fav) 1628(fav) 577(adv) 41(adv) 1127(adv)

INVENTORY BUDGET (2008-2009)

DETAILS OF SALARIES AND BENEFITS (2008-2009)