INTRODUCTION OBJECTIVES OF THE STUDY To offer comments on the annual budgeted estimations on the accounts of a mother dairy for the users of the financial statements to access the ability of the mother dairy to generate cash and cash equivalents to serve the needs of the organization. To derive the working experience of producing budgetary statements. To offer limited directions cash management group to steer the organization to a cash surplus company. Analyzing the budgetary estimations of the organization. SCOPE OF THE STUDY Mother dairy having the continuous growth every year several divisions, the study of budgetary control in this organization gives a fair idea on the cash management considering the major transaction of the firm. 1
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INTRODUCTION
OBJECTIVES OF THE STUDY
To offer comments on the annual budgeted estimations on the accounts of a
mother dairy for the users of the financial statements to access the ability of the
mother dairy to generate cash and cash equivalents to serve the needs of the
organization.
To derive the working experience of producing budgetary statements.
To offer limited directions cash management group to steer the organization to a cash
surplus company.
Analyzing the budgetary estimations of the organization.
SCOPE OF THE STUDY
Mother dairy having the continuous growth every year several divisions, the
study of budgetary control in this organization gives a fair idea on the cash
management considering the major transaction of the firm.
The budgetary estimations are taken for the project study form the annual
reports for the information, and are restricted to the last five years. Several aspects of
the firm have been considered.
The discussion is made in ensuring chapter for the budgetary estimations that
have been prepared at the end of the financial year, and the date is compared with the
past five year’s records.
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METHODOLOGY OF THE STUDY:
A. Sources of the data
There are mainly two important sources through which the whole data is collected.
Primary Data
The primary data of the topic is collected by personal interaction with the
officials of the finance and accounting department and also from annuals of the
company. The financial data relating to organization has been collected for the 5years.
Secondary Data
The data collected from the websites, books and all other relevant information or
literary are taken as secondary source of data. The data thus collected is arranged in a
format.
B. Period of the data
The is the project report (live project) conducted in the month of April,2007 for 45
days. The partial fulfillment of Master of Business Administration (MBA).
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PRESENTATION OF THE STUDY
1) The first chapter is the present scenario of the topic together with objectives
and methodology are presented.
2) The second chapter is about the profile of the MOTHER DAIRY is given in
which the study is done.
3) The third chapter is about industrial profile.
4) The fourth chapter is conceptual frame work relating to budgets and a budget
is reported through tables.
5) The fifth chapter consists of the study of budgetary control of MOTHER
DAIRY.
6) The sixth chapter consists of the suggestion & bibliography.
LIMITATIONS TOF THE STUDY
The 6 weeks period is one of the constraints to make project much more qualitatively
Findings of the study are purely based on information provided by the company other
non financial factors were not considered for analysis.
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INTRODUCTION TO DAIRYING IN INDIA :
Every morning millions of Indians wake up to find their dairy requirement of
milk waiting at their doorstep. Across the country, the dairy products like butter,
cheese, ghee, find their way into millions of homes in the metros, cities, towns and
even teeming need populate.
Milk is the nourishes of health and it was this elixir that brought forth
significant change in the lines of the people of A.P it as changed the way people
looked at life in rural India. But most of all it renewed there hopes and raised their
assumptions.
The main rust was not in just supplying milk but also in giving opportunities to
improve the quality of rural life. And maybe for the first time allowing them to dream.
DIFFERENT KINDS OF SECTORS IN DAIRYING IN INDIA.
In India there are four different kinds of sectors in the field of dairying
They are follows.
1. PRIVATE SECTOR
Individual persons forming his/her dairy shop and collects milk and sale the milk and
its products to customers directly.
2. PUBLIC SECTOR
In this kind of sector, dairying is done by govt. by purchasing milk. From middlemen
and milk producers and processing of milk is done in their own plant and then sold to
the customers.
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3. TRADING SECTOR
Production of milk products is done their primary co-operative society or co-operative
milk union at district level, by which arrangements for collection, processing and
marketing of milk is done and then it is sent to milk takers place.
CO-OPERATIVE SOCIETIES:
Co-operatives mean voluntary association on the basis of equality and for
some common purpose. The basic principle of cooperatives is “each for all and all for
each” in the words of H.CALVERT, cooperatives is a form of organization where in
persons voluntarily associate together as human beings an basis of equality for the
promotion of their economic interest of themselves”.
FEATURES OF CO-OPERATIVE SOCIETY/UNION
It’s membership is voluntary
It’s organization is democratic
It’s functioning is based on decentralized decision making principle
Its aim is economic, social and moral development of its members
In India, evolution of cooperative societies is as old as the co-operatives ACT of
1912, which recognized non-credit forms of cooperative including marketing.
COOPERATIVE MILK UNIONS:
In India, cooperatives milk union’s structure was three tier structures. It
consists of an intermediate organization between primary societies (village level) and
the pace societies.
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REVIEW OF LITERATURE
INTRODUCTION TO BUDGET AND BUDGETARTY CONTROL
BUDGET:
Budget is essential in every walk of our life –national, domestic and business.
A budget is prepared is to have effective utilization of funds and for the realization of
objective as effective utilization of funds and for the realization of objective as
efficiently as possible. Budgeting is a powerful tool to the management for
performing its functions i.e., efficiently. For efficient and effective and budgetary
control provides a set of basic techniques for planning and control are two highly
essential functions. Budget and budgetary control provides a set of basic techniques
for planning and control.
A budget fixes a target in terms of rupees or quantities against which the
actual performance is measured. A budget 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 budge thing is
correspondingly more because a budget is an effective tool of planning and control.
Budget is helpful in coordinating the various activities (such as production, sales,
purchase etc) of the organization with result that all the activities precede according to
the objective. Budgets are means of communication. Ideas of the top management are
given practical shape. As the activities department heads are coordinated at the much
needed for the very success of an organization. Budget is necessary to future to
motive the staff associate, to coordinate the activities of different department and to
control the performance of various persons operating at different levels.
Budgets maybe divided into two basic classes. Capital and operating Budgets. Capital
Budgets 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 maybe sub-divided into various departmental of functional
Budgets .
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DEFINITION 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 Budgets is “financial and/or quantitative
statement, prepared and approved prior to be defined period of time, of the policy to
be pursed during the period for the purpose of attaining a given objective.”
It is also defined as “a blue print of protected 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 Budgets for each function and section of the organization.
2. Executive responsibility in order to perform the specific tasks so that objective
of the enterprise maybe attained.
3. Continuous comparison of the actual performance with that of the budget and
placing the responsibility of executives for failure to achieve the desired
results a given in the Budgets.
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.
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DEFINITION OF BUDGETARY CONTROL:
According to the brown and Howard “ Budgetary control is the system of
controlling costs which includes the preparation of Budgets , co-coordinating the
department and establishing the responsibilities, comparing the actual performance
with the Budgeted and acting up in the results to achieve the maximum profitability.”
According to the j. Betty ”system which uses Budgets as means of planning and
controlling all aspects of producing and/selling commodities and services”
According to the CIMA, London, “Budgetary control is the establishment of Budgets
gets relating to responsibilities of executives to the requirements of a policy, and the
continuous comparison of actual with Budgeted results, either to secure by individual
action the objective of that policy or to provide a basis for revision.
Row land and William in their book entitled Budgeting for management control has
given the difference between Budgets. Budgeting and budgeter control as follow:
“Budgets are the individual objectives of an department etc where as budgeting may
be said to be the act of budgets. Budgetary control embraces all this and in addition
includes the science of planning the Budgets themselves and the utilization of such
Budgets to efforts on overall management too! For the business planning and
control.” Thus , a budget is financial plan and budgetary control results from the
administration of the financial plan.
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ESSENTIAL FEATURES OF A BUDGETARY:
► Budgetary control defines the objective and policies of the undertaking as a whole.
►it is an effective method of controlling the activities of various departments of a
business unit. It fixed targets and the various departments have to efficiently to teach
the targets.
►it is an effective method of controlling the activities of various departments of a
business unit. It fixed targets and the various departments have to efficiently to reach
the targets.
►it secures proper co ordination among the activities of various departments.
►it helps the management to fix up responsibility in case the performance is below
expectation.
► it helps the management to reduce wasteful expenditure. This leads to reduction in
the cost of production.
►it brings in efficiency and economy by promoting cost consciousness among the
employees.
►it facilitates centralized control with decentralized activity.
►it acts as internal audit by a continuous evaluation of departmental results and costs.
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ADVANTAGES OF BUDGET AND BUDGERTARY CONTROL.
There are a number of advantages to budgetary control:
● Compels management to think about the future, which is probably the most
important feature of a budgetary planning and control system. Forces management to
look ahead, to set out detailed plans for achieving the targets for each department,
operation and (ideally) each manager, to anticipate and give the organization purpose
and direction.
● Promotes coordination and communication.
● Clearly defines areas of responsibility. Requires of budget centers to he made
responsible for the achievement of budget targets for the operations under their
personal control.
● provides a basis for performance appraisal (variance analysis). A budget is
basically a yardstick against which actual performance is was unread assessed.
Control is provided by comparisons of actual results against budget plan. Departures
from budget can then be investigated and the reasons for the differences can be
divided into controllable and non-controllable factors.
● Enables remedial action to be taken as variances emerge.
● Motivates employees by participating in the setting of budgets.
● Improves the allocation of scarce resources.
● Economizes management time by using the management by exception principle.
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PROBLEMS IN BUDGETING
Whilst budgets may be an essential part of any marketing activity they do have
a number of disadvantages, particularly in perception terms.
● Budgets can be seen as pressure devices imposed by management, thus
resulting in:
i) Bad labor relations
ii) In accurate record keeping
●Departmental conflict arises due to:
i)Disputes over resource allocation
ii)Departments 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 spend it or we will lose it”.
This is often coupled with “empire building” in order to enhance the prestige of a department.
Responsibility versus controlling, i.e. some costs are under the influence of more than one
person, e.g. power costs.
● Managers may overestimate costs so that they will not be blamed in the future
should they overspend.
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LIMITATION OF BUDGETARY CONTROL
►The preparation of a Budget under inflationary conditions and changing government
policies is really difficult. Thus, the accurate position of the business cannot be
estimated.
►Accuracy in budgeting comes through expenditure. Hence it should not be relied on
too much in the initial stages.
►Budget is only a management tool. It is not a sub stature for management. It cannot
be replace management in decision marking.
►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 on efficiency of individuals.
►The success of budgetary control depends upon willing co-operation and team work.
This is often lacking.
►Frequent changes maybe called for in budgets due to fast changing industrial
revision of Budgets is expensive exercise.
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PLANNING
A Budget is a plan of the policy to be pursued during the defined period of
time to attain a given objective. The Budget control will force management at all the
Activities to be done during the future periods Budget as a plan of action achieves the
following purpose:
►Action is guided by well thought out plan because a budget prepared after a careful
study and research.
►The budget serves as mechanism though which management objectives and policies
are affected.
►It is bridge through which communication is establish 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
secure co-ordinates the various activities of the firm and secures co-operation of all
concerned so that the common so that the common objective of the firm maybe
successfully achieved. It forces executive to think and think as a group. It
coordinating the policies, plan and action. 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 achievements by making
comparison of actual performance and badgered performance.
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MOTIVATION
At employees actively participated imbued preparation and if they are
convinced that their personal interest are closely associated with the success of
organizational plan, Budget provide motivation in the form of goals to be achieved.
The Budget 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 confirms to the plans and objectives. Control of performance is possible
with predetermined standards, which are laid down in the 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
management 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. The 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.
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APPROVED PLAN
A master Budget provides an approved summary of results to be expected from
proposed plan of operations. It concerns all functions of organizations 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, adjectives
of sub units {Budget centers} and the part that thy have to play for their adamant.
Affectively communicate this information to employees. Besides, budgets keep
different sections of organization informed about the contribution of different sub
units in the attainment of over all organizational objectives.
BUDGET PROCEDURE
Having the Budget organization and fix the period, the actual work or
Budgetary control can be taken up to the following pattern.
STEPS IN BUDGETARY CONRTOL
Organization for Budgeting up of definite plans of organization is a first a step
towards installing Budgetary controlling system in any organization a Budgets
manual should be prepared giving detail of the powers, sixties, responsibilities and
areas of operation of each executive in each organization.
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BUDGETARY MANUAL
A budgetary manual lays down the details of an 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 control system. CIMA England defines a budgetary
manual as “ a document schedule or book let which sets out inter alias, the routine of
and the forms and records required for budgetary control”.
Thus, it is a document, which guides the executives in preparing various
budgets. Budgets are to be drawn keeping in view the objectives of the organization
given the Budget manual, responsibility and functions of each executive in regard to
Budgeting are return sown in the budget manual to avoid any duplication or
overlapping of responsibilities, steps and the methods developing various budgets and
the methods of reporting performance against the budget are return down in the
budget manual. In short it is a written document, which gives everything relating to
the preparation and execution of carious Budgets , it should be clear and there should
be no ambiguity in it.
The following are some of the most important matters covered in budget manual.
1) Introducing and brief explanation of the objects, benefits and principles of
budgets and principles of budgetary control.
2) Organization chart giving the titles to different personals with full explanation
of the duties each to operating system and preparation of departmental and
functional budgets.
3) Length of budget periods and control periods should be clearly stated
4) A method of accounting and control of expenditure.
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5) A statement showing a responsibility given to each manager for approval of
budgets, vouchers and all other forms and documents which authorized them
to spend money. The authority for granting approval must be clearly stated.
6) The entire process of budgeting programmed including the timetable for
periodically reporting. A schedule should be drawn for this.
7) Purpose, specimen form and other number of copies to be used for each report
and statement. Budget centers should also be clearly stated.
8) Outline of main Budgets and their accounting relationships
9) Explanation of key Budgets.
FIXATION OF BUDGET PERIOD:
The Budget period mean the period for which a Budget is prepared and employed. The
Budget period will depend upon the type of business and the control aspect.
Budget period mean the period for which a Budget is prepared and employed. The Budget
period depends upon the nature of the business and the control techniques. For example, in
case of seasonal industries (i.e., food or clothing) the Budget period should be a short one and
should cover one season. But in case of industries with heavy capital expenditure such as
heavy engineering works, the budget period should be ling enough to meet the requirements
of the business. From control point of view , the budget period should be a short one so that
the actual results may be compared with the budget each week end or month end and
discussed with the discussed with 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 ling 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.
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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 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, shot -term budgets-monthly or even weekly budget-short-term
budgets are prepared to see that actual performance is preceding according to the
budgets and early corrective action may be taken if there is any pitfall.
BUDGETARY CONTROLLER:
Although the chief executive I finally responsible for the budgetary programmer. It is
better if a large part of the supervisory responsibility is deluged to an official
designated as Budget Controller or Budget Director. Such a person should have
knowledge of the technical details of the business and report directly to the president
or the chief executive.
ROLLING (CONTINUES) BUDGET:
This is a budget which is updated continuously by adding a further period(a
month/quarter) and deducting a corresponding earlier period. Budgeting is a
continuous process under these methods of preparation of Budget. Once the first
period elapses, the forecast for that period is dropped and the forecast reliably, this
method is useful. However, it is a costly exercise but matched by considerable
reduction in operational variances.
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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, severe inflationary sales prices
immediately and wide range of products being produced making it not feasible to
have precise estimate 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 quarter . This
method a time which need not be in respect of or coincide with the financial year. It
will enable to evolve a precise plan of action and control of variance functions at the
least for the immediate quarter and a broad tentative one the subsequent three quarters
on a continues basis.
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PRINCIPAL BUDGET (LIMTTING) 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)
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.
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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 very rapidly from time to time due
to internal and external factors. It is of temporary nature and in the light 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 BUDGETS;
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.
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FUNCTIONAL BUDGET:
A functional budget is a budget which relates to any of the functions of an
undertaking e.g., sales, production, research and development, cash etc, the following
budgets are generally prepared.
Budget Prepared by
1. Sales Budget including selling Sales Manager
And distribution cost Budget Production Manager
2. Production Budget Purchase Manager
3. Material Budgets Personnel Manager
4. Labor and Personnel Budget Production Manager
5. Manufacturing Overheads Finance Manager
6. Administration Cost Budget Production Manager
7. Plant Utilization Budget Chief Executive
8. Capital Expenditure Budget
9. Research and Development Cost R&D Manager
10. Cash Budgets Finance Manager
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SALES BUDGET:
Sales budget is the most important budget and of primary importance. It forms the
basis in which all the budgets are built up. This budget period. Every quantities and
values of sales to be achieved in a budget in a budget period. Ever effort should be
made to ensure that its figures are as accurate as possible because this is usually the
starting budget (sales being limiting factor on which all the other budgets are built
up). The sales manager should be mode directly responsible for he preparation and
execution of the budget. The sales budget may be prepared according to products,
sales territories, types of customers; salesmen etc., in the preparation of the sales
budget, the sales manager should take into consideration the following factors.
1. Past Sales Figures and Trends.
2. Sale sales men Estimation
3. Plant Capacity
4. Availability of Raw Material and other Supplies
5. General Trade Prospects
6. Orders in Hand
7. Seasonal Fluctuations
8. Financial Aspect
9. Adequate Return on Capital Employed
10. Compeition
11. Miscellanecous Considerations
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PRODUCTION BUDGET:
Production budget is a forecast of the total output of the whole organization
broken down into estimates of output of each type of product with a scheduling of
operations (by weeks and months) to be performed and a recast of the closing finished
stock. This budget may be expressed in quantitative (weight, units et) financial
(rupees) units or both. This budget is prepared after taking into consideration the
estimated sales and the desired closing finished stock of each product. The works
manager is responsible for the total production budget and the departmental managers
are responsible for the departmental production budget. In preparing the production
budget, the following factors are considered.
The time lag between the production in the factor and sales to the customer
should be considered so as to allow 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 factory’s 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 a
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.
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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 fin direct. The
materials budget deals with the requirements and procurement of direct materials.
Indirect materials are dealt with under the works overhead budget. The budget should
be related to the production budget and the period of the budget should be of short
duration because this budget has an important bearing on the cash budget.
PURCHASE BUDGET:
Purchase Budget is mainly dependent on production budget and material
requirement budget. This budget provides information about the materials to be
acquired from the market during the b period.
Purchase budget should be prepared by the purchase manager by getting relevant
information about capital items, 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 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 advantage of lower prices and there is fear that price will
increase in near future. The purchase manager should get additional sanctions from
the higher authorities for making the additional purchases not I covered by the
purchase budget.
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DIRECT LABOR BUDGET:
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 requirement budget. The labor requirement 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 training and transfer and to find out sources
of labour needed so that every of 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 turnovers. 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 lacor cost budget is developed on the basis of
standard 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
programmer set out in the sales, manufacturing maintenance, research and
development and capital expenditure budget s. the labour terms are expressed of rupee
value, number of labor 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.
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MANUFACTURING OVERHEADS BUDGET:
This budget gives an estimate of the works overhead expenses to be in creed in
a budget period to achieve the production target. The budget includes the cost of
indirect material indirect works expenses. The budget may be classified into fixed
cost, charitable 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 bases of the budgeted output because these expenses are bound to
change with the change in put.
The Cost Account prepares this budget on the basis of figures available in the
manufacturing overhead ledger or the head of the workshop may be asked to give
estimates for the manufacturing expenses. A good method is to combine the estimates
of the Cost Accountant and the shop executive.
ADMINISTRATIVE EXPENSES BUDGET:
This budget covers the expenses incurred in framing policies, directing the
organization and controlling the business operations. In other words, the budget
provides as estimate of the 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 ling run. With a small change in output, they
did 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.
27
BUDGETED INCOME STATEMENT:
A budgeted income statement summarizes all the individual budget 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.
SELLING AND DISTRIBUTION COST BUDGET:
This budget is the forecast of the cost selling and distribution for budget
period and is clearly related to the sale budget. All expenses related to selling and
distribution of the various products as indicated in the sales budget is included in it.
These expenses are based on the volume of sales set in the sales budget and budget
and budgets are prepared for each item of selling and distribution overhead. Long
term expenses.
As advertisement are spread over more than one period. Selling and
distribution overheads are divided into fixed and variable category with reference to
volume of sales. Separate budgets are prepared for variable and fixed items of selling
and distribution overheads. Certain items of selling and distribution costs as cost of
transport department are included in the departmental production cost budget from
control point of view rather that including in selling and distribution costs budget.
28
PLANT UTILIZATION BUDGET:
This budget lays sown the requirements of plant capacity to carry out the
production as per the production programmer. This budget is terms of convenient
physical units as weight or number of products or working hours.
The main functions of this budget are:
The 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
5 BUILDING RENT 10 18 8 FAV6 OTHER INCOMES 20 20 NIL7 BANK LOAN 300 380 80 FAV8 CLOSING STOCK 780 723 57 ADV
TOTAL 6810 7378 568 FAV
Table.9 DETAILS OF EXPENSES 2006-2007 RS IN LAKHS
BUDGETED ACTUALS VARIANCE
62
1 MILK PURCHASES 3580 3350 230 FAV2 MILK PURCHASED FROM OTHER UNIONS 100 315.8 215 ADV3 TRANSPORT CHARGES FOR MILK 160 185 25 ADV4 MILK PRODECTS PURCHASED
A)MILK POWDER 300 537 237 ADVB)CHEESE NIL NIL NIL
5 CATTLE FEED MATERIAL 135 225 90 ADV6 PURCHASING BAGS FOR CATTLE FEED 5 6 1 ADV7 PURCHASING OF STORES MATERIAL 25 20 5 FAV8 PURCHASING OF POLYTHIN FILM
5 BUILDING RENT 20 18 2 FAV6 OTHER INCOMES 20 25 5 ADV7
BANK LOANS 400 500 100 ADV
TOTAL 7560 8213.83 653.83 FAV
DETAILS OF EXPENSES 2008-09 RS. IN LAKHSTable-19
BUDGETED ACTUALS VARIANCE
1 MILK PURCHASES 4100 3750 350 FAV2 MILK PURCHASED FROM OTHER 230 1090 860 ADV
76
UNIONS3 TRANSPORT CHARGES FOR MILK 200 216 16 ADV4 MILK PRODUCTS PURCHASED
A)MILK POWDER 350 500 150 ADVB)CHEESE NIL
5 CATTLE FEED MATERIAL 225 230 5 ADV6 PURCHASING BAGS FOR CATTLE
FEED9 12 3 ADV
7 PURCHASING OF STORES MATERIAL 35 50 15 ADV8 PURCHASING OF POLYTHIN FILM 210 232 22 ADV9 PACKING MATERIAL 15 21 6 ADV10 ELECTRICITY,DIESEL CHARGES 255 262 7 ADV11 REPAIRS IN PLANT AND MACHINERY 65 60 5 FAV12 REPAIRS OF VEHICLES 98 80 18 FAV13 MAINTENANCE AND REPAIRS OF BUILDING 30 28 2 FAV
DETAILS OF CIVIL CAPITAL EXPENSES 2008-2009 RS. IN LAKHSBUDGETED ACTUALS VARIANCE
79
1 MILK COOLING SECTION MALLEPALLYA)COMPRESSOR BED NIL NIL NIL NIL
2 MILK COOLING SECTION KODADA
A)OFFICE CUM GUEST HOUSE NIL 4.85 4.85 ADVB)WATER SUPPLY NIL NIL NIL NIL
3 MILK COOLING SECTION MOTHKUR
A)OFFICE EXPANSION NIL NIL NIL NIL
4 MILK COOLING SECTION BUVANAGIRI
A)CONDENSOR CONSTRUCTION NIL NIL NIL NIL
5 CATTLE FEED BUILDING
A)TANKS CONSTRUCTION NIL 9.96 9.96 ADVB)FOUNDATION EXPENSES NIL 3.75 3.75 ADVC)STEPS CONSTRUCTION NIL NIL NIL
6 MILK COOLING SECTION PARIGI
A)SECOND ENTERTAINMENT BUILDING NIL NIL NIL
7 MILK COOLING SECTION MAL
A)STORES ROOM CONSTRUCTION NIL 1.32 1.32 ADV
8 MOTHER DAIRY HAYATHNAGAR
IT PLANTS NIL 9.04 9.04 ADVCOMPOND WALL CONSTRUCTION NIL NIL NILTOILETS CONSTRUCTION NIL NIL NILSTORES CUM LAB CONSTRUCTION NIL NIL NILCIVIL CAPITAL WORKS