budget control in maruti

AMITY SCHOOL OF BUSINESS

A SUMMER TRAINING REPORT

ON

REVIEWING THE WHOLE PROCESS OF BUDGET PREPARATION AND BUDGETARY

CONTROL

(In partial fulfillment of Bachelor of Business Administration)

SUBMITTED TO: SUBMITTED BY:

MRS PRIYA SOLOMEN GAURAV MAHESHWARIBBA(GEN) E-46

(2008-2011)

Amity School of Business

Amity University, Uttar Pradesh

1


DECLARATION

I hereby declare that the present study entitled Reviewing the whole process of Budget

Preparation and Budgetary Control at MARUTI SUZUKI INDIA LTD. Is based on my original research work for the fulfilment of the continuous evaluation of the assessment of two months summer internship program, BACHELOR OF BUSINESS ADMINISTRATION-Class of 2008-2011.The report has been done by me under the guidance of Mr Narayan Murthy(Industry guide).And Mrs Priya Solomen (Faculty Guide).the research presented in this study has not been submitted in full or part in this or any other university of the award of any degree or diploma.

GAURAV MAHESHWARI Place: Noida

BBA(GEN)2008- 2011 Date:

A3906408154

2


CERTIFICATE

This is to certify that Mr. GAURAV MAHESHWARI (A3906408154), a student of Bachelor Of

Business Administration (BBA GENERAL),class of 2008-2011 Amity School Of Business, Amity

University has undertaken the summer internship training at Maruti Suzuki India Ltd during

May 2010 to June 2010. He has worked under the guidance for the project title BUDGET

PREPARATION AND BUDGETARY CONTROL at Maruti Suzuki India Ltd.

This project report in partial fulfilment of Bachelor Of Business Administration (BBA

GENERAL) to be awarded by Amity University, Uttar Pradesh.

To the best of my knowledge, this price of work is original and no part of this report has

been submitted to any other Institute/University earlier.

Mrs Priya Solomen Date:

Faculty Guide

3


ACKNOWLEDGEMENT

I express my sincere& deep sense of gratitude to my industry guide for their constant

support which made me work in right direction and their encouraging attitude at every

stage of preparation of this project.

I am also thankful to my faculty guide , Mrs Priya Solomen for her help in the completion of

this project.

I would also like to thank the whole Finance Department , Maruti Suzuki India Ltd, for

making me familiar with the intricacies of project development and ensuring that work in a

systematic way.

Also, I would like to extend my gratitude to my institute Amity School Of Business (Noida)

for giving me an opportunity to have a practical experience of job.

It is a great pleasure for me to acknowledge the assistance of these people who have taken

keen interest in m y work and extended their help.

It was a great experience knowing the attitude of different people towards the system.

I owe my sincere thanks to all of them.

Gaurav Maheshwari

BBA(GEN)2008-2011

ABSTRACT 4


The first project - REVIEWING THE WHOLE PROCESS OF BUDGET

PREPARATION AND BUDGETARY CONTROL FOLLOWED IN MARUTI SUZUKI INDIA LIMITED

involves the reviewing the whole process of budget preparation and budgetary control

followed in Maruti Suzuki India limited. The budgetary system followed in Maruti Suzuki

India limited is very unique and is based upon a similar system followed in its parent

company from Suzuki Motor Corporation Japan. Annual budgeting exercise for Maruti

Suzuki India limited starts in December every year for next accounting year and gets

finalized by February end. This budgetary process followed by Maruti ensures proper

utilizations of funds by different departments of the company. There are over 350 +

departments in the company. So without effective budgetary control system in place, it

would be impossible for the company to ensure proper utilization of the funds in the

company.

The first step of this project is to understand and review how the different departments

prepare their budgets and how the budgeted balance sheet and budgeted profit and loss

account for the whole company is prepared. Every year each department prepares a budget

for their department on the basis of their projected expenses. These budgets are sent to the

budgeting and costing department of the company, which on the basis of these budgets

prepares budgeted balance sheet and budgeted profit and loss account. After preparing

budgeted balance sheet and budgeted profit and loss account, budgeting department

presents these accounts in front of board of directors for their approval.

The second step of this project is to understand and review the process of budgetary control

followed in Maruti Suzuki India limited. In Maruti Suzuki budgetary control and budget

monitoring is a continuous process, which involves monitoring of the budgets of different

departments by comparing the actual expenses of the respective departments with their

projected expenses and finding out reasons for any deviations if any.

The final step of this project is to suggest measures to make this whole process more

effective, less time consuming and error proof.

5


TABLE OF CONTENTS

1. INTRODUCTION………..………………….………………….……......……….… 8

2. REVIEW OF LITERATURE………………………..………..…………………….. 13

3. COMPANY PROFILE……............................................................. 15

4. SWOT ANALYSIS....................................................................... 20

5. RESEARCH METHOLODOGY……………………................................ 24

6. OBJECTIVES…........................................................................ 29

7. BUDGETS PREPARATION PROCESS FOLLOWED IN MARUTI SUZUKI 33

8. BUDGETARY CONTROL PROCESS IN MARUTI SUZUKI……………. 37

9. RATIO ANALYSIS…………………………………………………………… 42

10. CONCLUSION........................................................................................... 45

11. RECOMMENDATIONS.......................................................................... 46

12. BIBLIOGRAPHY....................................................................................... 47

6


MARUTI SUZUKI INDIA LTD

INTRODUCTION – Maruti Suzuki is one of India's leading automobile manufacturers

and the market leader in the passenger car segment, both in terms of volume of vehicles

sold and revenue earned. It is largely credited for bringing an automobile revolution to

India. Maruti Udyog Limited was established in Feb 1981 through an Act of Parliament, as a

Government company with Suzuki Motor Corporation of Japan holding 26 per cent stake.

The Joint Venture agreement was signed between Government of India and Suzuki Motor

Company (now Suzuki Motor Corporation of Japan) on Oct 1982. Suzuki Motor Company

was chosen from seven prospective partners worldwide. This was because of their

undisputed leadership in small cars and also because of their commitment to actively bring

to MUL contemporary technology and Japanese management practices (which had

catapulted Japan over USA to the status of the top auto manufacturing country in the

world).

Maruti Udyog limited was renamed to Maruti Suzuki India Limited (MSIL) on 17

September, 2007.

Until recently, 18.28% share of Maruti Suzuki, a subsidiary of Suzuki Motor

Corporation Japan, was owned by the Indian Government, and 54.2% by Suzuki of Japan. On

May 10, 2007 Govt. of India sold its complete share to Indian financial institutions. With this,

Govt. of India no longer has stake in Maruti Suzuki India limited.

The company went into production in a record time of 13 months and the first car was

rolled out from Maruti Suzuki India Limited Gurgaon in December, 1983.

In 2001, Maruti Suzuki India Ltd became one of the first automobile companies

anywhere in the world to get an ISO 9001:2000 certification. A V Belgium has rated the

7


company’s quality systems and practices as a “BENCHMARK FOR THE AUTOMOTIVE

INDUSTRY WORLD-WIDE”, global auditors for International Organization for

Standardization.

Since inception, Maruti Suzuki produced and sold over 7.5 million vehicles, including

almost 500,000 units in Europe and other export markets. In fact, every 22 seconds a car is

rolled out of Maruti Suzuki. It is Suzuki’s largest manufacturing facility, outside Japan

offering 11 models in over 100 variants.

8


MANUFACTURING FACILITIES - Maruti Suzuki have two manufacturing facilities

in India, one in Gurgaon and the other in Manesar, North India.

Gurgaon plant - Maruti Suzuki`s Gurgaon plant houses three fully integrated plants.

While the three plants have a total installed capacity of 350,000 cars per year, several

productivity improvements or shop floor Kaizens over the years have enabled the company

to manufacture nearly 650,000 cars per year at the Gurgaon facilities.

The entire facility is equipped with more than 150 robots, out of which 71 have been

developed in-house. More than 50 per cent of shop floor employees have been trained in

Japan.

Manesar plant - Maruti Suzuki`s Manesar plant has been made to suit Suzuki Motor

Corporation (SMC) and Maruti Suzuki India Limited's (MSIL) global ambitions. It is rated high

among Suzuki's best plants worldwide the plant was inaugurated in February 2007.

.

The plant has several in-built systems and mechanisms to ensure that cars being

manufactured here are of good quality. There is a high degree of automation and robotic

control in the press shop, weld shop and paint shop to carry on manufacturing work with

acute precision and high quality. In particular, areas where manual operations are

hazardous or unsafe have been equipped with robots.

The plant is designed to be flexible: diverse car models can be made here conveniently

owing to automatic tool changers, centralized weld control system and numerical control

machines that ensure high quality. .

The plant at Manesar is the company's fourth car assembly plant and has started with

an initial capacity of 100,000 cars per year. This will be scaled up to 300,000 cars per year. A

total investment of Rs 2,500 crore will be made in this car plant by 2010

Diesel engine plant - Suzuki Powertrain India Limited the diesel engine plant at

Manesar is Suzuki & Maruti's first and perhaps the only plant designed to produce world

9


class diesel engine and transmissions for cars. .

This plant is under a joint venture company, called Suzuki Powertrain India Limited

(SPIL) in which SMC holds 70 per cent equity with the rest held by Maruti Suzuki.

This facility has an initial capacity to manufacture 100,000 diesel engines a year. This

will be scaled up to 300,000 engines per year by 2010. .

The diesel engines manufactured at this plant will also be exported to SMC companies

across the world. .

This facility, too, has a high level of automation. Final inspection of components is done

through automatic measuring and marking machines, which leads to a uniform and error

free production.

Maruti Suzuki’s contribution as the engine of

growth of the Indian auto industry, indeed its Impact

on the lifestyle and psyche of an entire generation of

Indian middle class, is widely acknowledged.

10


REVIEW OF LITERATURE

11


BUDGET: A budget is a detailed plan expressed in quantitative terms that specifies

how an organization will acquire and use resources during a particular period of time.

In other words a budget is a systematic plan for the efficient utilization of resources.

Budget serves as a benchmark against which actual results can be compared.

What are the Key Purposes of Budget?

Planning: Preparing budgets forces organization to plan ahead.

Facilitate Co-ordination: To be effective, each department throughout the

organization must be aware of plans made by other departments.

Allocating Resources: As resources are limited, budget provides one means of

allocating resources among competing uses. So, that resources can be used in a best

possible manner.

Exercising control: Budgets helps in managing financial and operational performance,

by comparing actual performance against the planned performance.

In a business organization, a budget represents an estimate of future costs and

revenues. Budgets may be divided into two basic categories:

1) Capital Budgets

2) Revenue Budgets.

Capital budgets are directed towards proposed expenditures for new projects and often

require special financing. For example – installing a new plant or expanding the production

capacity.

12


Revenue 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.

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. Preparation of various budgets. .

2. Continuous comparison of actual performance with budgetary performance. .

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

13


COMPANY

PROFILE

14


Maruti Udyog Limited, a subsidiary of Suzuki Motor Corporation of Japan, has been

the leader of the Indian car market for about two decades. Its manufacturing plant, located

some 25 km south of New Delhi in Gurgaon, has an installed capacity of 3,50,000 units per

annum, with a capability to produce about half a million vehicles.

The company has a portfolio of 11 brands, including Maruti 800, Omni, premium

small car Zen, international brands Alto and WagonR, off-roader Gypsy, mid size Esteem,

luxury car Baleno, the MPV, Versa, Swift and Luxury SUV Grand Vitara XL7.

In recent years, Maruti has made major strides towards its goal of becoming Suzuki

Motor Corporation's R and D hub for Asia. It has introduced upgraded versions of Wagon-R

Zen and Esteem, completely designed and styled in-house.

Maruti's contribution as the engine of growth of the Indian auto industry, indeed its impact

on the lifestyle and psyche of an entire generation of Indian middle class, is widely

acknowledged. Its emotional connect with the customer continues

Maruti tops customer satisfaction again for sixth year in a row according to the J.D.

Power Asia Pacific 2005 India Customer Satisfaction Index (CSI) Study.

The company has also ranked highest in India Sales Satisfaction Study.

The company's quality systems and practices have been rated as a "benchmark for

the automotive industry world-wide" by A V Belgium, global auditors for International

Organisation for Standardisation.

In keeping with its leadership position, Maruti supports safe driving and traffic

management through mass media messages and a state-of-the art driving training and

research institute that it manages for the Delhi Government.

The company's service businesses including sale and purchase of pre owned cars

(TrueValue), lease and fleet management service for corporates (N2N), Maruti Insurance

and Maruti Finance are now fully operational.. These initiatives, besides providing total

mobility solutions to customers in a convenient and transparent manner, have helped

improve economic viability of The company's dealerships.

The company is listed on Bombay Stock Exchange and National Stock Exchange.

15


OBJECTIVES – Modernization of the Indian Automobile Industry.

Production of fuel-efficient vehicles to conserve scarce resources.

Production of large number of motor vehicles which was necessary for economic

growth.

16


BOARD OF DIRECTORS:

Mr Shinzo Nakanishi, Chairman

Mr Jagdish Khattar, Managing Director

Mr Hirofumi Nagao, Joint Managing Director

Mr Shinichi Takeuchi, Joint Managing Director

Mr Osamu Suzuki, Director

Mr R C Bhargava, Director

Dr. Surajit Mitra, Director

Mr Kumar Mangalam Birla, Director

Mr. Amal Ganguli, Director

Ms Pallavi Shroff, Director

Mr Manvinder Singh Banga, Director

17


Profile of Products

18


19


EXPORTS OF MARUTI SUZUKI INDIA LIMITED

In March 2007 Maruti Suzuki India limited crossed cumulative export figure of

450,000 vehicles since its first export in 1986. It is India’s largest passenger car manufacturer

and has a global presence with a well established network in several countries across Asia,

Europe, Africa, South and Latin America. Europe has been the largest market with exports of

over 280000 units. Even in the highly developed markets of Netherlands, UK, Germany,

France & Italy, Maruti vehicle have made a mark. The top ten destinations of the cumulative

exports have been Netherlands, Italy, U.K., Germany, Algeria, Chile, Hungary, Sri Lanka,

Nepal and Denmark in that order.

Maruti has also entered some unconventional markets like Angola, Benin, Djibouti,

Ethiopia, Morocco, Uganda, Algeria, Egypt, Chile, Costa Rica and El Salvador and witnessed

sizeable growth. The Middle-East region has also opened up and is showing good potential

for growth. Some markets in this region where Maruti has a good presence are Saudi Arabia,

Jordan, Kuwait, Bahrain, Qatar and UAE. In Europe the number of units sold is 280000 in 34

countries, in Africa it is 45000units, in Latin America it is 29000units and Oceania the

number of units sold is 6300units.

20


64%15%

10%

9%2%

EUROPE

ASIA

AFRICA

AMERICA

OCEANIA

CONTINENT WISE EXPORTS OF MARUTI SUZUKI SINCE

ITS INCEPTION

PRODUCT PORTFOLIO – The company has a product portfolio of 11 brands with

over 100 variants, including - Maruti 800, Omni, Alto, WagonR, Swift, Zen Estilo, Gypsy,

DZire ,Versa, SX4, Ritz, A-Star and Grand Vitara.

Three Maruti Suzuki`s cars namely Maruti Zen Estilo, Maruti Swift and Maruti SX4

walked away with 2007- India Automotive Performance, Execution and Layout Study

(APEAL) Award in their respective categories. .

In 2007 Initial Quality Study also, Maruti Swift walked away with the highest IQS in the

Premium Compact car segment.

21

http://www.grandvitaraindia.com/

http://www.marutisx4.com/

http://www.marutiversa.com/

http://www.marutidzire.com/

http://www.marutigypsy.com/

http://www.marutiZen.com/

http://www.marutiSwift.com/

http://www.marutiwagonr.com/

http://www.marutiAlto.com/

http://www.marutiOmni.com/

http://www.maruti800.com/


ACCOLADES 2008-2009

Maruti Suzuki was ranked first in customer satisfaction in an annual survey conducted by

JD Power for the seventh time in a row.

The company was ranked first in India for sales satisfaction for the third time in a row by

JD Power Asia Pacific.

The company won the Avaya Global Connect Customer Responsiveness award 2006.

The company was ranked 91among world`s most reputed companies reported by Forbes

magazine. Among automobile players, it ranked 5th in the world, ahead of many global

giants.

Business World ranked Maruti as India’s most respected automobile company.

Business today listed the company among India’s 10 best marketers.

Maruti Suzuki won the Asia Pacific PLM excellence award for 2006 from UGC Corp,

leading global provider of product life cycle management (PLM) software and services.

TNS Automotive ranked Maruti Suzuki first for Corporate Social Responsibility.

Manesar car assembly plant is ranked amongst the top two Japanese subsidiaries

overseas, by Nikkei (Nihon Keizai Shimbun), for the year 2007. .

22


SWOT ANALYSIS OF MARUTI SUZUKI

MAJOR STRENGHTS OF MARUTI SUZUKI INDIA LIMITED –

1) LOW LABOR COST - Maruti Suzuki India limited is operating in a country in which cost of

labor is very low as compared to other developing and developed countries. This is a

major strength for Maruti Suzuki.

2) STRONG DISTRIBUTION AND SERVICE NETWORK - Maruti Suzuki has the largest

Distribution and Service Network in India

600 showrooms covering 393 cities

150 rural format sales outlets in 143 cities

620 dealer service stations &1900 Maruti Authorized Service Stations

Over 1190 cities covered by Service Network

3) STRONG PRODUCT PORTFOLIO - Maruti Suzuki has a large and strong product portfolio -

Maruti Suzuki’s overall portfolio consists of 11 basic models & over 150 variants

spanning across all segments of the industry.

It has widest product range in India

Majority of new showrooms & workshops coming from existing dealers

Maruti Suzuki is Present in Gasoline, Diesel and LPG

6 models launched in last 30 months including Swift Diesel & Wagon R Duo.

23


4) EXCLUSIVE TIE UPS WITH AUTO FINANCE COMPANIES - In India, a large proportion of cars

– about 75% are sold via finance. Company`s exclusive tie ups with financers helps the

customers to get their vehicles financed easily.

MAJOR WEAKNESSES FOR MARUTI SUZUKI INDIA LIMITED -

Diesel Segment

A3

Perceived as entry level car only…

MAJOR OPPURTINITIES FOR MARUTI SUZUKI INDIA LIMITED -

1) India is among the few countries that are showing a growth rate of 30% in demand for

passenger cars as domestic automobile market is growing at a high rate. Automobile

industry expert predicts that by 2050 every sixth car in the world will be for Indians

2) There are about 700 million vehicles on road in the world today. It is estimated that this

vehicle population would grow to about 1.3 billion in the year 2030. Most of this

increase of 600 million will come from developing countries. These markets will

look for low-cost automobiles. India has the opportunity to meet this need.

And, in the process create a huge export market. This presents a major opportunity for

Maruti Suzuki as it is a major player in Indian automobile sector.

3) By 2010, India is expected to witness over Rs 30,000 crore of investment.

24


4) According to estimation the compound annual growth rate (CAGR) of Indian automobile

sales will grow at 9.5% and will touch a mark of 13,008 million by 2010.

5) About 77 % of the Indian automobile sector is still owned by 2 wheeler manufacturers,

which can be a potential market for small car manufacturers.

6) Maruti Suzuki believes that there are millions of Indians who can afford a car but for

various reasons are not buying one. With focused marketing efforts, many of these

people can be persuaded to buy a car. This is a major opportunity for the company. The

company also took several initiatives like Special Schemes for certain sections of society

like government employees etc., Employee referral scheme where each employee was

veiled as sales man. Dealer and vendor scheme are some other examples of these

initiatives.

25


7)

The above graph shows the positive correlation between GDP and the no. of cars per 1000

people. GDP of India is growing at a very healthy rate and is expected to grow between 6 to

8 %. India’s fast paced GDP growth and pent up demand are expected to fuel growth in

automotive sales. This presents a great opportunity for automobile manufacturers.

8) Low car penetration, about 8 cars per 1000 Population in India.

9) By 2020 more than half of India’s population is expected to live in urban areas this will

bring about a dramatic growth in demand of passenger cars.

10) Indian rural market is on the verge of opening up, this will present a huge growth

opportunity for automobiles manufacturers.

26


MAJOR THREATS FOR MARUTI SUZUKI INDIA LIMITED -

1) TATA`S one lakh car – NANO is a big threat to Maruti Suzuki as Maruti Suzuki is a small

car manufacturing company and its smallest and cheapest car Maruti 800 is of approx 2

lakhs . Maruti 800 is also the smallest and cheapest car in India right now. After the final

launch of TATA`S NANO it will become the cheapest car in the Indian automobile sector

2) Wage rates in India are increasing at a very fast pace, this can be a potential threat to the

company.

27


RESEARCH METHODOLOGY

RESEARCH DESIGN

The research method selected for the study is a combination of a survey and an industrial

study. The survey research method is described here under that:

(i) It is a design in which primary data is gathered from members of the sample that represents

a specific population

(ii) It is a design in which a structure and systematic research instrument like a questionnaire or

an interview schedule is utilized together with the primary data

(ii) It is a method in which the researcher manipulates no explanatory variables because they

have already occurred and so they cannot be manipulated

(iii) Data are got directly from the subjects .The subjects give the data in the natural settings of

their workplaces

Interview

The method of communication of the research instrument is by means of the personal

interview. The method has the merit that it produces a better sample of the population than

either mail or the telephone methods. It also has the merit that it gives a very high

completion and response rates. It has the merit that the interview has a bigger sensitively

misunderstandings by the respondents and gives a chance for clarification of misunderstood

questions. It has the merit that it is a very feasible method . The personal interview method

has the demerit that it is more costly than the mail or the telephone methods of

communication of a questionnaire.

28


Observations

In addition to questionnaire and face-to face interviews, observation was also carried out.

This was to enable the researcher to witness by the officers of this firm and to interact with

these people.

Secondary data:

(1) Annual reports

(2) Company databases

(3) Auto journals

(4) Industry analysis reports

(5) Company websites

limit

ation of The Study

Research work is subject to one form of limitation or the other, mine is not an exemption.

It was the initial thought that the exercise was easy but the contrary was the case. As a

student, several academic demands compete with the limited but precious time available.

This implies that none of the competing exercise could be effectively handled without the

others being worse off.

This was my situation. Although the time expended was too small to do justice to the study.

The opportunity cost in terms of other equally important activities forgone or cursorily

attended to, was made.

The researcher faces some embarrassment arising from low-level educated staff who could

not understand the essence of the research work as this.

29


Current budget of the company could not be studied due to the confidential nature of the

data.

30


OB JECTIVES

1) Maruti is a multinational company & is globally known for its automobiles & due to its

well known reputation in the market I a finance student has chosen to study the “BUDGET

PREPARATION & BUDGETARY CONTROL” of the company.

2) To gain experience & knowledge that how a company prepares budget & control it.

3) The budget forms a base for a company’s operations & working.

31


Budget preparation process followed in MARUTI

SUZUKI INDIA LIMITED

32

Production / sales target finalized by top management

Detailed production plan

Sales budget From M&S Domestic

sales Export sales Spare parts

sales

Manpower budget

Revenue expenditure budget from departments

Indigenization plan

Capital investment plan

Material cost budget Imported

components Indigenous

components Raw materials Paints and direct

consumables

Discussion between finance & other departments

Preparation of model wise and month wise unit standard statement and consolidation

Consolidation of divisional budget

Consolidation of divisional budget to company budget


NO

YES

This chart shows the unique process of budget preparation followed in Maruti Suzuki,

which is based upon a similar process followed in its parent company Suzuki Motor

Corporation Japan.

Annual Budgeting exercise in Maruti Suzuki starts from December and gets finalized

during February. Every year top management decides the total number of cars to be sold or

33

Preparation of draft cash budget and profit & loss a/c

Budget presentation by divisional heads to MD & directors. Budgetary targets for each division set by directors.

Whether budget target

acceptable?

REVIEW

Preparation of cash budget, projected profit & loss a/c and balance sheet


produced on the basis of past trends, industry growth rate, feedback from marketing and

selling department and various other factors which effect the demand of cars. On the basis

of the number of cars to be produced, a detailed production plan is prepared. This

production plan indicates the resources required to produce the desired number of cars. On

the basis this production plan every department plans their expected requirements of funds

for the next financial year. These departments enter their respective requirements of funds

in an online form sent by finance department, on a monthly basis along with the purpose for

which funds are required. When the save button on this form is clicked this data gets stored

in a central database. Similar expenses of all the departments are stored in one place for

example training expenses of all the departments are stored in one and stationary expenses

of all the departments are saved in one database. Budgeting department prepares a master

budget on the basis of these databases, which represents an overall plan of the

organization. Annual Budget is divided into quarterly budgets i.e. Q1, Q2, Q3 and Q4.

Budget for Q3 and Q4 is revised based on actual expenditure up to July and expected

trends for the remaining year. This exercise starts on July and revised budget is finalized by

August.

Budgeting department also prepares projected profit & loss account and balance

sheet of the company. This projected profit & loss account and balance sheet is presented

before board of directors for their approval. If the Board of directors are satisfied with the

expected profit and sales, then the budget is approved if not then the respective

departments are told to reduce their budget and the whole process is repeated.

Zero-based budgeting – In Maruti Suzuki, a zero based budgeting (ZBB) system is

followed. ZBB is a top-down budgeting system where resource allocation decisions are

made through a function-by-function assessment. No function is assumed to be necessary.

The criteria for evaluation are passed down from higher levels, enhanced and made more

appropriate for each area as the criteria are passed down to office and department heads.

Department and office heads develop justifications within these evaluation guidelines for

34


each function and justifications for increased resources. These pass back up through the

organization with each level setting priorities for resource allocations to individual functions

from the levels below.

35


Budgetary control process followed in MARUTI SUZUKI INDIA

LIMITED

Maruti Suzuki follows a unique process of budgetary control, which ensures proper

utilizations of funds by different departments of the company. There are over 350 +

departments in the company. So without effective budgetary control system in place, it

would be impossible for the company to ensure proper utilization of the funds in the

company.

Monitoring of the budget is done on the monthly basis by budgeting department, in which

it compares the actual expenses of the respective departments with the projected expenses

and finds out reasons for any deviations if any and presents the report to the board of the

directors at the beginning of each month.

Budget controlling is done on a quarterly basis at Maruti Suzuki India limited. For effective

control of the funds all the expenses are divided into 3 categories, according to their relative

importance.

A category expenses are very tightly controlled and monitored because of their relative

high degree of controllability. For example- Consultancy fees, Gifts, Seminar / Conference

Exp, etc.

B category expenses are less closely monitored and controlled, because of their low degree

of controllability B category expenses can be controlled to a extent only. For example Travel,

Journals, Stationary, Phone, Conveyance, etc. and no control is exercised over C i.e. Their

payment is not stopped even they shoot over their budget but for A and B category

expenses payment is allowed to the level of budget approved.

36


A’ Category – Items of similar nature are grouped together (have same first 5 digit a/c

code), and control is exercised over the group budget. Budget control exists at a parent level

or 5 digit account code level.

For example-

A-P2110701-COMPUTER CONSUMABLES

A-P2110702- SOFTWARE PURCHASE EXPENSES

A-P2110703- SOFTWARE DEVELOPMENT EXPENSES

A-P21107- SOFTWARE RELATED EXPENSES

Account Budget Actual Balance

A-P21229 01 500,000 500,000

A-P2122902 100,000 400,000 (300,000)

A-P2122903 200,000 (200,000)

Total 600,000 600,000 Nil

These A category expenses are monitored or controlled at 5 digit code (A-P21229) and not

at individual 7 digit item code level ie 2122901, which basically means that respective

department cannot spend more on SOFTWARE RELATED EXPENSES then the budgeted

amount but it can spend the whole amount on any of its components.

37


B category expenses are general expenses and are monitored at cost center level i.e.

expenses related to a particular department.

For example –

B-P2111501- SNACKS EXPENSES

B-P2111501-LUNCH EXPENSES

B-P21115- SNACKS EXPENSES

B-P2113201-POSTAL STAMPS

B-P2113202-POSTAL EXPENSES

B-P2113203-COURIER CHARGES

B-P21132-POSTAL EXPENSES

Account Budget Actual Balance

B-P2123401 50,000 5,000 45,000

B-P2123402 40,000 40,000

B-P2145665 40,000 (40,000)

B-P2645872 45,000 (45,000)

Total 90,000 90,000 Nil

38


These B category expenses are monitored and controlled at a cost center or departmental

level which means that expenses are not monitored on B-P21234-POSTAL EXPENSES or B-

P21115- SNACKS EXPENSES level but on total of all these expenses of that particular

department. For example in the above table expenses will not be monitored at individual

account code level but at a departmental level.

Maruti Suzuki India limited is using a financial module of Oracle for its financial function.

Special codes are assigned to all the entries that come in profit & loss account and balance

sheet (7 digit code), cost centers (every department is a cost center) – 4 digit code and

companies (2 digit code). Booking of expenses can only be done by entering specific codes.

My project in maruti Suzuki India limited involves understanding and analyzing this whole

process and to suggest ways to make this unique process more effective and free from any

faults.

Appendix – 1

39


RATIO CALCULATION OF MARUTI SUZUKI

RS. IN MILLIONS

PARTICULARS

2008-2009 2007-2008 2006-2007

LIQUIDITY RATIOSCurrent assets 38,459 37,496 29,720

Current liabilities 25,015 19,771 16,080

CURRENT RATIO = Current assets / Current liabilities 1.54 (times) 1.90 (times) 1.85 (times)

Current assets 38,459 37,496 29,720

Less inventories 7,132 8,812 6,666

Liquid assets 31,327 28,684 23,054

Current liabilities 25,015 19,771 16,080

ACID TEST RATIO =

LIQUID ASSETS

CURRENT LIABILITIES

1.25 1.45 1.43

ACTIVITY RATIOSAverage assets =

Op. balance + Cl.. Balance

2

88,665 69,962 60,031.5

Gross sales 171,442 147,043 132,914

ASSET TURNOVER RATIO =

SALES

AVERAGE ASSETS

1.93

2.10

2.21

40


Cost of goods sold 12,9349 107110 99966

Average inventory 7972 7739 5532

INVENTORY TURNOVER RATIO 16.22 13.84 18.07

LEVERAGE RATIOSTotal debt 32998 21354 20256

Equity 68539 54526 43788

DEBT EQUITY RATIO 0.48 0.39 0.46

Total debt 32998 21267 20256

Total assets 101537 75793 64044

DEBT-ASSET RATIO 0.32 0.28 0.32

Earnings before interest and taxes 23174 17704 13409

PROFITABILITY RATIOSGross profit 32913 22404 19585

Net sales 145,922 120,034 109108

GROSS PROFIT MARGIN RATIO 22.55 % 18.66 % 17.95 %

Net profit 15,620 11,891 8,536

Net sales 145,922 120,034 109108

41


NET PROFIT MARGIN RATIO 10.70 % 9.90 % 7.82 %

Net income (profit after tax) 15,620 11,891 8,536

Number of outstanding shares 288.910000 288.910000 288.910000

EARNING PER SHARE =

NET NCOME (PROFIT AFTER TAX)

NUMBER OF OUTSTANDING SHARES

54.065

41.16 29.54

Net income 15,620 11,891 8,536

Equity Capital 68539 54526 43788

RETURN ON EQUITY =

NET INCOME

AVERAGE EQUITY

22.79 % 21.81 % 19.49 %

DIVIDEND PER SHARE 4.5 3.5 2

EARNING PER SHARE 54.065 41.16 29.54

DIVIDEND PAY OUT RATIO =

DIVIDEND PER SHARE

EARNING PER SHARE

8.32 % 8.50 % 6.77 %

DIVIDEND PER SHARE 4.5 3.5 2

MARKET PRICE PER SHARE 865.40 577.22 426.32

DIVIDEND YIELD =

DIVIDEND PER SHARE

MARKET PRICE PER SHARE

0.52 % 0.61 % 0.47%

EXPENSES TO NET SALES RATIOSConsumption of raw material 108630 94247 86502

Net sales 145,922 120,034 109108

42


CONSUMPTION OF RAW MATERIAL TO NET SALES 74.44% 78.52% 79.28%

Employees remuneration and benefits 2,884 2,287 1,960

Net sales 145,922 120,034 109108

EMPLOYEER REMUNERATION AND BENEFITS TO NET

SALES

1.98 % 1.91 % 1.80 %

Selling and distribution expenses 4,999 3,560 3,699

Net sales 145,922 120,034 109108

SELLING AND DISTIBUTION EXPENSES TO NET SALES

RATIO

3.42 % 2.97 % 3.39 %

Interest expenses 376 204 360

Net sales 145,922 120,034 109108

INTEREST EXPENSES TO NET SALES RATIO 0.26 % 0.17 % 0.33 %

Depreciation 2,714 2,854 4,568

Net sales 145,922 120,034 109108

DEPRECIATION TO NET SALES 1.86 % 2.38 % 4.19 %

43


CONCLUSION

When summarizing the financial results of “MARUTI UDYOG LIMITED”. I have observed that

their working is quite reasonable financial. It is very good company. There are no any debts

of long term liabilities of the company. To conclude, from of the overall analysis of financial

management of the company, I can say that it is financial sound and well managed three

consecutive year’s shows and applauding position. I was also able to well understand my

financial concepts.

The formal budgeting system has the following major benefits.

1. Budgeting due to its formal time table or schedule compels managers to think ahead

apart from taking care of their current activities.

2. Budgeting, due to its approval and authorization by the superiors, provides definite

expectations that are the best framework for judging subsequent performance.

3. Budgeting helps in coordinating the various departments of the organization. The budget

harmonizes the goals (objectives) of the individual departments into the organization wide

goals (objectives).

44


RECOMMENDATION

We need to know that many financial reporting frauds have their genesis in overly optimistic

budgets that subsequently lead to an environment of "cooking the books" to reach

unrealistic goals. These events usually start small, with the expectation that time will make

up for a temporary problem. To maintain organizational integrity, senior-level managers

need to be careful to provide realistic budget directives. Lower-level managers need to be

truthful in reporting "bad news" relative to performance against a budget, even if they find

fault with the budget guidelines.

45


BIBLIOGRAPHY

(1) Annual reports

(2) Company databases

(3) Auto journals

(4) Industry analysis reports

(5) Company websites

(6) Articles published by Society of Indian Automobile Manufacturers

(7) www.siam.in

(8) www.ibef.org

46

budget control in maruti

Documents

maruti suzuki india

process of budget preparation

project report

budgetary system

stage of preparation

project tit

gaurav maheshwari a3906408154

gaurav maheshwari bbagen2008