FYP Study Budget Budgetary Control

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Topic – Study of Budget and Budgetary Control

Name – Anuprita Ashok Kadu

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Table of Content

Sr No Particulars Page No.

1 Research Methodology 6

2 Introduction to Fertilizer Industry 7

3 Introduction to IFFCO Achievements Units Vision and Mission Statement

9 13 14 15

4 Introduction to IFFCO KANDLA 17

5 Introduction of F & A Department of IFFCO 21

6 Introduction about Budget and Budgetary control 26

7 Budget and Budgetary control at IFFCO KANDLA 48

8 Revenue budget and Purchase budget 51

10 Revenue / Purchase budget control 59

11 Capital budget 62

12 Capital budget control 73

13 Loans and advances to employees budget 76

14 Sales Budget 78

15 Cash Budget 79

16 Limitations of the study 80

17 Findings and Suggestions 81

18 Conclusion 83

19 Recommendations 84

20 Bibliography 85

21 Statement and Annexure Explanation 86

21 Annexures 108


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PREFACE

This report is prepared at Indian Farmers Fertilizers Co-operative Limited

(IFFCO), KANDLA Unit on functional areas of IFFCO KANDLA. It contains the brief

description of the company and all its departments. It also covers the different functions

performed in different departments at IFFCO KANDLA.

The report contains the details regarding the information related to

BUDGET AND BUDGETARY CONTROL Of Indian Farmers Fertilizers Limited

(IFFCO KANDLA). In this report it is mentioned that how budget is being managed at

Indian Farmers Fertilizers Co operative Limited (IFFCO KANDLA).


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ACKNOWLEDGEMENT

“Debts can be certainly repaid, but co-operation extended and the guidance given

by someone can never be repaid.”

I owe special thanks to Vishwakarma Institute of Management, Pune for giving

me an opportunity to learn practically about the happenings in the field and my college

guide Ms. Sheetal Purohit, without the help of whom this training was impossible.

I as a student of Vishwakarma Institute of Management am very grateful to

IFFCO KANDLA for providing me the base to complete my project.

I am thankful to Shri. S. Srinivasan (Sr. G.M.), for providing me an opportunity to

conduct training program as a part of study and essential for our bright prospects.

I deeply express my gratitude towards Shri. S.K. Singh (Sr. Manager, Training)

for giving me the maximum co-operation without which, the training would have been

impossible.

I am thankful to Shri. V.J. Mankodi (Jt.G.M. F&A), for preparing training

schedule for me.

I take this opportunity to express my sincere appreciation and gratitude to Shri.

H.T. Bhambhani (Sr. Accounts Officer F&A) whose friendly co-operation made this

analysis and study of project data information regarding IFFCO KANDLA a more

fascinating and interesting experience.

I express my sincere thanks to all employees of F & A Department of IFFCO

KANDLA, who briefed me procedures and practices in the sections sparing time from

their heavy work schedule and busy work hours.


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I would also like to thank the Systems Department of IFFCO Kandla who

provided me with the necessities like internet connection, computers and printing &

stationery facilities on office expenditure.

I would thank all those whose names and references does not occurs above but

without their help and support it would not have been possible to carry out my training.

- Anuprita A Kadu


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EXECUTIVE SUMMARY

Indian Farmers Fertilizer Co-operative Limited (IFFCO) today is a leading player

in India’s fertilizer industry and is making substantial contribution to the efforts of Indian

Government to increase food grain production in the country. Indian Farmers Fertilizer

Co-operative Limited, popularly known as IFFCO emerged as a pioneer venture on the

horizon of fertilizer production and marketing with the objective of attaining self-

sufficiency in food grain production. Now a day there are 37,424 co-operative societies

associated with IFFCO. They have diversified their business in the field of insurance,

power plant and raw material production.

This report is a study of “BUDGET & BUDGETARY CONTROL OF IFFCO

KANDLA”. It contains detailed information regarding various types of budgets

pertaining to IFFCO KANDLA. In this report I have mentioned how various types of

budgets are prepared and how they are controlled. I have also studied the procedures and

steps for preparing the budget and steps taken to control it. In this report I have covered

all types of budgets prepared at IFFCO KANDLA namely Revenue budget, Purchase

budget, Capital budget, Loans and Advances to employees. I have also mentioned various

formats and tables Showing the Budget and Budgetary Control procedure.


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RESEARCH METHODOLOGY

The Research method which I had adopted at IFFCO was conducting exploratory

research and personal interviews. Exploratory research design is the unstructured and

informal research undertaken to gain background information about the organization.

Under exploratory research, the method adopted here was conducting experience survey.

Experience survey had been conducted in order to gather information from the

knowledgeable person on the issues relevant to the research project.

Required Information & Data

I have taken nearly every data from the annual reports and other related sources.


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INTRODUCTION OF INDIAN FRTILIZER INDUSTRY

The Indian fertilizer industry has been meeting a substantial portion of the

growing demand of fertilizer now. As on today the demand-supply gap in the fertilizer

industry is very marginal.

The industry had a very humble beginning in 1906, when the first manufacturing

unit of Single Super Phosphate (SSP) was set up in Ranipet near Chennai with an annual

production capacity of 6000 M.T. The Fertilizer and Chemicals Travancore ltd. (FACT)

at Cochin in Kerala and the Fertilizer Corporation of India Ltd, Sindhri in Jharkhand

were the first large sized fertilizer plant set up in forties and fifties with a view to

establish a base for industrialization and achieving self-sufficiency in food grains. The

seventies and eighties witnessed a significant addition to the fertilizer industry.

Presently there are 66 large sized fertilizer plants in the country manufacturing a

wide range of nitrogenous, phosphatic and other complex fertilizer. Besides there are

about 80 medium and small-scale single super phosphate plants.

As of now the country is almost self-sufficient in case of nitrogen but in case of

phosphates the scarcity of domestic raw material constraints the attainment of self-

sufficiency in the country.


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Indigenous rock phosphates supplies meet only a small percentage (5%-10%) of

total requirement of P2O5. also there are no known commercially exploitable reserves of

potash in the country and hence the entire requirement are met through imports.


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INTRODUCTION OF IFFCO: Indian Farmers' Success Story

During mid- sixties the Co-operative sector in India was responsible for

distribution of 70 percent of fertilizers consumed in the country. This Sector had adequate

infrastructure to distribute fertilizers but had no production facilities of its own and hence

dependent on public/private Sectors for supplies. To overcome this lacuna and to bridge

the demand supply gap in the country, a new cooperative society was conceived to

specifically cater to the requirements of farmers. It was a unique venture in which the

farmers of the country through their own Co-operative Societies created this new

institution to safeguard their interests. The number of co-operative societies associated

with IFFCO has risen from 57 in 1967 to 38,155 at present.

Indian Farmers Fertilizer Co-operative Limited (IFFCO) was registered on

November 3, 1967 as a Multi-unit Co-operative Society. On the enactment of the

Multistate Co-operative Societies act 1984 & 2002, the Society is deemed to be registered

as a Multistate Co-operative Society. The Society is primarily engaged in production and

distribution of fertilizers. The bylaws of the Society provide a broad frame work for the

activities of Indian Farmers Fertilizer Cooperative Limited as a Co-operative Society.

IFFCO commissioned an ammonia - urea complex at Kalol and the NPK/DAP

plant at Kandla both in the state of Gujarat in 1975. Ammonia - urea complex was set up

at Phulpur in the state of Uttar Pradesh in 1981. The ammonia - urea unit at Aonla was

commissioned in 1988.


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Head Office

Kandla Kalol Aonla Phulpur

Aonla -1 Aonla-2 Phulpur-1 Phulpur-2

Marketing

In 1993, IFFCO had drawn up a major expansion programme of all the four plants

under overall aegis of IFFCO VISION 2000 . The expansion projects at Aonla, Kalol,

Phulpur and Kandla have been completed on schedule. Thus all the projects conceived as

part of Vision 2000 have been realized without time or cost overruns. All the production

units of IFFCO have established a reputation for excellence and quality. A new growth

path has been chalked out to realize newer dreams and greater heights through Vision

2010 which is presently under implementation. As part of the new vision, IFFCO has

acquired fertilizer unit at Paradeep in Orissa in September 2005. As a result of these

expansion projects and acquisition, IFFCO's annual capacity has been increased to 3.69

million tonnes of Urea and NPK/DAP equivalent to 1.71 million tonnes of P2O5.

IFFCO has made strategic investments in several joint ventures. Godavari

Fertilizers and Chemicals Ltd (GFCL) & Indian Potash Ltd (IPL) in India, Industries

Chimiques du Senegal (ICS) in Senegal and Oman India Fertilizer Company (OMIFCO)

in Oman are important fertilizer joint ventures. Indo Egyptian Fertilizer Co (IEFC) in

Egypt is under implementation. As part of strategic diversification, IFFCO has entered


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into several key sectors. IFFCO-Tokio General Insurance Ltd (ITGI) is a foray into

general insurance sector. Through ITGI, IFFCO has formulated new services of benefit to

farmers. 'Sankat Haran Bima Yojana' provides free insurance cover to farmers along with

each bag of IFFCO fertilizer purchased. To take the benefits of emerging concepts like

agricultural commodity trading, IFFCO has taken equity in National Commodity and

Derivative Exchange (NCDEX) and National Collateral Management Services Ltd

(NCMSL). IFFCO Chattisgarh Power Ltd (ICPL) which is under implementation is yet

another foray to move into core area of power. IFFCO is also behind several other

companies with the sole intention of benefiting farmers.

The distribution of IFFCO's fertilizer is undertaken through over 37,000 co-

operative societies. The entire activities of Distribution, Sales and Promotion are co-

coordinated by Marketing Central Office (MKCO) at New Delhi assisted by the

Marketing offices in the field. In addition, essential agro-inputs for crop production are

made available to the farmers through a chain of 158 Farmers Service Centre (FSC).

IFFCO has promoted several institutions and organizations to work for the welfare of

farmers, strengthening cooperative movement, improves Indian agriculture. Indian Farm

Forestry Development Cooperative Ltd (IFFDC), Cooperative Rural Development Trust

(CORDET), IFFCO Foundation, Kisan Sewa Trust belongs to this category. An

ambitious project 'ICT Initiatives for Farmers and Cooperatives' is launched to promote

e-culture in rural India. IFFCO obsessively nurtures its relations with farmers and

undertakes a large number of agricultural extension activities for their benefit every year.


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At IFFCO, the thirst for ever improving the services to farmers and member co-

operatives is insatiable, commitment to quality is insurmountable and harnessing of

mother earths' bounty to drive hunger away from India in an ecologically sustainable

manner is the prime mission. All that IFFCO cherishes in exchange is an everlasting

smile on the face of Indian Farmer who forms the moving spirit behind this mission.

IFFCO, to day, is a leading player in India's fertilizer industry and is making substantial

contribution to the efforts of Indian Government to increase food grain production in the

country.


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ACHIEVEMENTS


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UNITS OF IFFCO Kandla

Phulpur

Kalol

Aonla

Paradeep


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VISION AND MISSION

VISION

.To augment the incremental incomes of farmers by helping them to increase their

crop productivity through balanced use of energy efficient fertilizers, maintain the

environmental health and to make cooperative societies economically & democratically

strong for professionalized services to the farming community to ensure an empowered

rural India.

MISSION

• To provide to farmers high quality fertilizer in right time and in adequate

quantity with an objective to increase crop productivity

• To make plants energy efficient and continually review various scheme to

converse an energy

• Commitment to health, safety, environment and forestry development to

enrich the quality of community life

• Commitment to social responsibility to strong social fabric

• To institutionalize core value and create a culture of team building,

empowerment and innovation which would help in incremental growth of employees and

enable achievement of strategic objectives


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• Building a value driven organization with an improved and responsive

customer focus. A true commitment to transparency, accountability and integrity in

principle and practice

• To acquire, assimilate and adopt reliable efficient and cost effective

technology and sourcing raw materials of production of phosphatic fertilizers at

economical cost by entering into joint venture outside India

• To ensure growth in core and non-core sector

• A true cooperative society committed for fostering cooperative movement

in the country


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INTRODUCTION OF IFFCO-KANDLA

Kandla Unit – Location

State Gujarat, India State Capital Gandhinagar District Kachchh Distance from New Delhi Approx. 1100 kilometers by rail Distance from Mumbai Approx. 800 kilometers by rail Nearest Airport Kandla Airport, Near Gandhidham,and Bhuj

Airport 65 KM from Gandhidham. Railway Station Gandhidham ( 12 Km from plant and 3 Km

from IFFCO's township at Gandhidham) and Kandla (3 Km from the plant)

Road Adjacent to Kandla Port Trust on National Highway 8-A , 365 Km. from Ahmedabad

Area under Plant 70.61 Hectares Area under Township 79.65 Hectares Temperature ( o C ) 47 (Max.) in summer to 7 (Min.) in winter. Rainfall (mm) Scarcity Longitude 70o 13'26" E Latitude 23o 00'00" N Address IFFCO, Kandla Unit, Post BoxNo.12,

Gandhidham - 370201, Kandla (Kachchh), Gujarat, INDIA

Phones :91-2836-270381,-270382,-270539 ,-270639, -270641.

FAX Website

: 91-2836-270642, -270658, -270685. : www.iffco.nic.in

E-Mail : [email protected]


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• IFFCO’s NPK plant is located on the water front adjacent to Kandla Port

Trust Oil Jetty. The plant was built at a cost of about Rs. 30 crores with two streams

(called train A and train B) and with the licensed capacity of 127000 tonnes of P2O5.

This plant was designed by the M/s Dor Oliver-Inc., to produced three grade ok NPK

based on DAP, the plant was commissioned on 26th November, 1974 and its commercial

production started on 1st January, 1975.

• With increase in demand for complex fertilizers, the capacity of NPK has

been doubled at a cost of about Rs. 28.6 crores. Two more streams (Train C and Train D)

had been added with the increased licensed capacity from 127000 MT P2O5 to 260000

MT P2O5 per annum. The new two streams are called Kandla Phase II was completed

one month ahead of the projected schedule. This is a rare phenomenon not only in India

but in entire South East Asian region. Kandla Phase II commissioned on 4th June, 1981

with the production record for IFFCO. The production of Kandla Phase II was started

from 6th September, 1981.

• IFFCO went for expansion of their unit at Kandla in 1996-97. Kandla

phase-II NPK/DAP project conceptualized the setting up of two additional streams (train

E and train F) for manufacture of the same grades of NPK/DAP fertilizers with an annual

production capacity of 2,10,700 MTPA thus increasing the total capacity from 3,09,000

MTPA of P2O5 to 5,19,700 MTPA of P2O5. The actual cost of the project was Rs.

205.30 crores against a budgeted cost of Rs. 212.20 crores.


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• The total annual production of the Kandla unit was 127000 MTPA as on

26th November, 1974 with two streams (train A and train B), which was increased by

182000 MTPA as on 6th September, 1981 by starting two more stream (train C and train

D), which was further increase to 210700 MTPA as on 1999 by introducing two more

streams (train E and train F). So currently the total production capacity of the both plant

at Kandla unit is 519700 MTPA. Currently all six streams (train A, B, C, D, E and F) is

working in its full-fledged capacity and giving its optimum output.

• In 1974 when the Kandla Unit was started IFFCO was importing its raw

material with help of Kandla Port Trust Oil Jetty and currently Kandla unit has its own

Oil Jetty


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Achievements of IFFCO Kandla Unit

• Nineteen Safety Awards from National Safety Council - U.S.A.

• Fourteen Safety Awards from the National Safety Council, Bombay,

Government of India.

• Twenty six Safety Awards from Gujarat Safety Council, Baroda.

• Six Fertilizers Association of India (FAI) Awards for the best overall

production performance during the years 1981, 1982, 1996-97, 1997-98, 1998-99 &

2002-03.

• One National Productivity Council (NPC) Best Productivity Award for the

year 1997-98 in the category of Fertilizers Industry - Phosphatic Sector presented in

August'2000.

• One Safety award from FAI for Excellence in Safety for 1999-2000.

• One Safety award from Directorate General Factory Advice Service &

Labour Institutes, Ministry of Labor, Government of India Runner, National Safety

Award – 1999.

• One Labour, Government of India Runner, National Safety award - 1999"


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INTRODUCTION TO F & A DEPARTMENT OF IFFCO

INTRODUCTION

Finance is the life blood of the business. According to Howard and Upton

“Finance is that administrative area or set of administrative function in an organization

which relate with the arrangements of cash and credit so that the organization may have

the means to carry out of its objective as possible.”

FUNCTIONS OF FINANCE AND ACCOUNTS DEPARTMENT

Finance & Accounts Department of KANDLA Unit is controlled by Head Of the

Department i.e. CM (F & A). His main function is to co-ordinate all activities related to

Finance & Accounts and report to Head Office’s Finance & Accounts Department /

Finance Director as well Unit Head. Finance & Accounts Department function various

type of activities as per the Guidelines issued by Head Office, Purchase Procedure,

Service Rules, Powers of officer etc.

At present to carry out all the related activities, following Four sectional heads are

reporting to him for work connected to their Sections. All the four sectional heads

independently report to Departmental Head. However, in case, Departmental Head

happens on tour or on leave, the next senior sectional head takes the charge of the


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department and remaining here sectional head will report to him for all the work

connected to their Sections.

Finance department comprises of

� PAY ROLL SECTION

� RAW MATERIALS

� FIXED ASSETS & INSURANCE

� WORKS BILL SECTION

� PURCHASE BILL SECTION

� BOOKS & BUDGETS

� FINANCIAL CONCURRENCE

PAY ROLL SECTION

Pay roll section takes care of all the financial issues of employees in co-ordination

with Administrative & Personnel Department. Its functions includes management of

salaries, TA/DA, loans & advances, misc payment related to employees, Perk/There

allowance payments etc.

Here records of each employee are maintained regarding basic pay, leave

encashment, medical, salary, increments, promotion based perks , etc.

RAW MATERIALS

Different types of Raw Materials that are required at IFFCO KANDLA Unit are

as follows :


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1. P2O5 – Imported

2. Ammonia – Imported & Indigenous

3. Potash - Imported

4. MAP - Imported

5. Urea – Kalol

6. Filler

Raw Material section in F & A department does the accounting of above

mentioned raw material which includes receipt of raw material are purchased, monthly

consumption as per the production department and payment to the suppliers.

MISCELLANEOUS ACCOUNTS

The miscellaneous jobs can be broadly divided into following categories:

1. Passing of bills of miscellaneous nature;

2. Accounting of cash imprest and advances for expenses;

3. Miscellaneous recoveries from outside agencies.

Miscellaneous bills includes rates contracts for service contract for air

conditioner, water coolers, weighing machines, franking machines, knitting of chairs, etc.

Others miscellaneous bills includes telephone rentals, STD calls, local calls, teleprinters,

fax, service bills, advertisement bills, electricity bills, printing and block making bills,

bills of travel agents, bills of canteen purchases, etc. Annual Contracts and Hiring of taxi,

motors, etc. is also included in this.


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WORKS BILLS

Work bills section is entrusted with the task of checking and authentication of

APF received from various departments such as Civil, Plant, and Township etc. They

have to keep record and maintain account. They have to verify W.R.T. measurements,

Tax provisions like TDS and other deductions like EMD, Security and penalty etc.

PURCHASE BILLS

In purchase bill, treatment is given to the bills on purchase of machinery and tools

and spares etc. for accounting requirements and book keeping as well as record

maintenance and tax deductions and authentication of AFP on purchase of Goods and

Services.

FINANCIAL CONCURRENCE

Financial concurrence deals with crosschecking and green signaling the

requisition for purchases made by various indent departments of the unit. They check for

the availability of budget and ascertain its necessity and critically for regular and smooth

operations of the plants and activities of various departments.

BOOKS & BUDGETS

Books and budget deal with revenue budget compilation, monitoring and control,

reconciliation of inter unit accounts, maintenance of books of accounts and submission of


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monthly / quarterly / annual reports, COP processing and attending internal / statutory /

tax auditors.


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BUDGET AND BUDGETARY CONTROL

INTRODUCTION

Complexities are increasing in running the modern business and management

has to face a number of problems, which are to be solved with utmost care. Number of

new tools and techniques are being evolved and used by management in modern times

to solve such complex problems of business. Budgeting is one of such effective tools in

the hands of management. Now planning has become an inevitable part of business

management. They have come to realize that success in business depends to a large

extent on the planning of its activities with great care and foresight. The management

gets ready to face the challenges of future contingencies by peeping into the future.

They are thus able to keep off the heavy financial losses and fatal errors. It is through

budgeting that the management is able to guide the business in proper direction.

“Budgeting is both planning and controlling, two most important functions of

management”. It is perhaps a very important tool for achieving business objectives.

What is Budget ?

A budget is a financial and / or quantitative statement, prepared prior to a defined

period of time, of the policy to be perused during that period for purpose of attaining the

given objective.


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An analysis of this definition will reveal the essential features of the budget,

namely that:

1. A budget can be expressed in terms of money or quantity, or both.

2. It should be developed prior to the period during which it is to be

operated.

3. It is set for definite period.

4. Before its preparation, the objective to be attained and the policy to be

pursued to achieve that objective are required to be laid down.

The Objectives Of Setting The Budgets:

� A budget is blue print of desired plan of actions or operations. Plans

covering the entire organization and all its functions like purchase, production, sales,

financial management, research & development are expressed through budget.

� The budget serves as a declaration of policies and also defines the

objective for executives at all levels of management.

� Budgets provide a means of co-ordination of the business as a whole. In

the process of establishing budgets, the various factors like production capacity, sales

possibilities, are procurement of material, labour, etc. are balanced and co-ordinate so

that all the activities proceed according to the objective.


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� The budgets inculcate team spirit and are like putting so many heads

together to solve a common problem.

� Budgets are means of communication. Complex plans lead down by the

top management are passed on to those whole are responsible for putting them into

action.

� Budgets facilitate centralized control with delegated authority and

responsibility. Group according to the responsibilities of different executive levels, they

facilitate decentralization of work.

� Budgets are instruments of managerial control by means of which the

management can measure performance in every part of the concern and take corrective

actions as soon as any deviations from budgets comes into light.

Budgeting:

Institute of Cost and Management Accountants, England defines “A Budget is a

financial and/or quantitative statement, prepared and approved prior to a defined period

of time, of the policy to be pursued during that period for the purpose of attaining

objectives. It may include income, expenditure and employment of capital”

Budgeting is an exercise in allocating scarce economic resources among

alternative uses. The necessity of budgeting arises out of the scarcity of economic

resources and the number of alternative uses in which these scarce resources can be

deployed.


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Concepts of budgeting:

In brief, Budgeting can be defined as “The statement of plan of activities of an

Organization expressed in financial and quantitative term for a definite future period

approved in advance by Top Management.”

Objectives of budgeting:

The following are some of the important objectives of budgeting:

1. To prevent wastes

2. To control economic expenditures

3. To ensure availability of adequate working capital for efficient operation

of plants.

4. To ensure adequate return on capital employed.

5. To identify and bring to the light areas where prompt action/ remedial

actions are required to be taken up by the management

Budget Period:

Budget can be prepared for any definite future period. Generally period of 12

months is treated as normal period for the purpose of budgeting. In IFFCO budgeting

exercise is done for the financial year April to March every year.


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Corporate Plan

Sales Budget

Production Budget

Capital Budget

Cash Budget Loans to Employees Budget

Consumption Budget

Procurement Budget

Types of Budget:

There are various types of budgets, which are formulated in various organizations

for different purpose. In IFFCO budgeting exercise is done for the area as per the chart

given bellows

Although the smallest of small business may be able to compile a budget for the

business in one document, other businesses commonly split up the budget into areas so

that it is more manageable. Such areas will include sales, production, marketing and so

on. Once these individual budgets has been created, they will all come together to create

the Master Budget.

Budgeting Cycle:

Four distinctive phases can be identified in the budgeting process as follows:

1. Budget formulation

2. Implementation

3. Control

4. Evaluation.


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Budget Interlinked:

Sales Budget Loan to Employees Budget

Capital Expenditure Budget

Marketing Budget

Head Office Administration

Cost of Production Budget

Cash Budget

Production Budget

Purchase Budget

Consumption Budget

Overheads Budget


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Steps in Fixation of Budget.

At IFFCO the following steps are followed for compilation of Budgeting

procedure:

1. Fixation of Targets

A. While initiating the budgeting exercise at the head office level, sale targets

are fixed in consultation with marketing division.

B. Production targets are fixed in consultation with Unit Head after giving

due consideration to various constraints some of which are given below:

� Plant capacity i.e. production and storage capacities for raw materials,

finished stock etc.

� Capacity utilization.

� Availability of raw materials particularly imported raw materials like

phos. Acid, Ammonia, Potash etc.

� Availability of power and related policy of Gujarat Electricity Board.

� Availability of water and related policy of state water supply board.

� Availability of packing materials.

� Industrial relation position.

� Availability of railway wagons and other transportation media for

distribution of finished products form plants etc.


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2. Communication of Targets.

After taking into consideration the above parameters and constraints, Units are

advised to communicate their production plan, consumption norms and other proposals

which are reviewed at Head Office. Having due regard to other constraints and

parameters with in the knowledge of top management, production targets are fixed for

individual production units and same are communicated to concerned units. Norms of

consumption of raw materials, utilities, fuel and other items proposed by the units are

also reviewed and after obtaining approval of the top management, the same are also

communicated to the concerned units.

Detailed circular for initiating the budget exercise is issued to all the units by

Executive Director (Finance) from Head office. The circular contains necessary

information and guidelines required for the purpose of preparation of budgets.

Commercial Department at Head office intimates anticipated rates and quantities

of major raw material for adopting the same in the units’ budgets proposals particularly in

respect of the following items:

1. Imported Phos.Acid (P2O5)

2. Imported Ammonia

3. Imported MOP (Potash)

4. Bags and other packing materials.

Part of ammonia requirement for Kandla unit is met from Kalol unit. Balance

requirement is either imported or procured indigenously from KRIBHCO, GNFC and


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other suppliers. Quantity requirements to be met for ammonia from different sources are

intimated by Head Office. Commercial department consults to Head Office finance

department. Urea requirement for Kandla unit is partially fulfilled from Kalol/Aonla

Plants & Partially by way of Import.

3. Delegation of responsibility for formulating revenue budget proposals at

unit level.

On receipt of the communication from Head office regarding formulation of

budget, a meeting is arranged by Unit Head with all Head of the Departments to explain

various important aspects of budget to be prepared. The compilation of revenue budget is

coordinated by Head of Finance and Accounts Department, who is responsible for

collecting the required data from all the concerned and compiled budget proposals,

discusses the same with the unit head and submits the budget proposal to Head Office

within the scheduled date prescribed in the Head office circular/communication.

Budgeting process at unit level:

Based on the preliminary discussion, detailed circular is issued by the Unit Head

for initiating budgeting exercise at unit level to all the Head of Department. The

budgeting exercise at unit level to all the concerned departments like sanctioned budget

and actual expenditure up to the period of the year and other particulars/information are

furnished to the concerned departmental Heads and they are advised to formulate the

budget requirements for their activities on “Conventional Budgeting Concept” i.e. not by

adopting percentage increase or decrease on the past data but all activities proposed to be


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taken up for the ensuring budget period, are required to be identified and budget

requirements are required to be furnished accordingly with complete details and working

separately item wise for each activity proposed to be taken in the ensuring budget period.


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CONTRIBUTION OF VARIOUS DEPARTMENTS IN

BUDGETING PROCESS

Contribution of various Departments for the purpose of compilation of budget is

as described below:

1. PRODUCTION DEPARTMENT

Production Department is responsible for calculation the requirement in terms of

the quantity for the budgeted level of production based on approved consumable items in

respect of the following major inputs:-

� Raw materials

� Chemicals

� Water

� Fuel oil- LSHS

� Packing Materials- bags & stitching threads

In addition to the above, production department is also responsible for

furnishing the following information:

I. Transportation cost of various raw materials and utilities e.g.

transportation cost of urea from Kalol to Kandla, cost of transportation of potash from

jetty to plant site, transportation of fuel oil from oil installation to plant site etc.

II. Cost of hose handling for raw material receipts.

III. Cost of internal movement of potash.

IV. Cost of internal movement of the finished product within Plant.


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V. Cost of product bag handling including empty bags.

VI. Survey fees for Ammonia and P2O5 and other cost for Raw Material,

packing materials, utilities etc.

VII. Consumption of chemicals & deformer.

While estimating the budgeting requirement of various raw materials, utilities,

packing materials etc. the following points are considered:

I. Quantities for various raw materials, utilities, and packing materials etc.

Rehired for production of finished products are calculated by applying the approved

norms of consumption.

II. In case of raw materials and utilities having more than one source of

supply for example, receipt of Ammonia, this has more then three sources viz. Kalol

unit, Import and Indigenous supply form GNFC, KRIBHCO etc, the total production is

first ascertained. Then the total requirement is broken into various sources as per Head

Office guidelines /price considerations. If abnormal variations are observed in the

consumption norms as compared to the earlier periods actual, details/justifications are

recorded for the same.

2. MAINTENANACE DEPARTMENT:

Maintenance Department is responsible for estimating the expenditure of repairs

and maintenance of plant and machinery equipments for mechanical maintenance,

instruments maintenance & Electrical maintenance. The Electrical section of the


40

maintenance department for plant & Township power requirement also estimates

consumption of power for the budgeted level of production. Estimated power cost is

worked out for the ensuing budget period by Electrical Maintenance Department.

Detailed budget proposals for repairs and maintenance of plant & Machinery

equipment is worked out item wise by the maintenance department under the following

broad heads:

� Consumption of Stores and Spares

� Maintenance works to be done through contractors/under SOR jobs.

� Procurement budget requirement for purchases of non-stock items of

stores and spares for maintenance.

3. TECHNICAL SERVICE DEPARTMENT:

� PROCESS ENGINEERING SECTION

Process engineering section of technical services department which is responsible

for compiling record of Daily Production, production reporting, Monitoring the

consumption of Raw materials, Flues and other process parameters, is also responsible

for compiling actual consumption norms of all the raw materials, utilities fuel and other

inputs consumed in the production process on day to day basis.


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Budgeted norms of consumption of various inputs are compiled and intimated by

process engineering department which are adopted while preparation of budget after

approval of top management.

� GENERAL ENGINEERING SERVICES SECTION

The General Engineering services section is responsible for introducing new and

improved equipments and instruments coming out as a result of technological

development for increasing efficiency and decreasing cost of production. Hence many of

the budget requirements of engineering service departments are of capital nature.

However, for routine management works of Technical Service Department, drawing,

photocopying and other facilities, revenue budget requirements are worked out and

furnished by engineering services section.

� SYSTEMS SECTION

This section is responsible for furnishing budget requirement for EDP charges,

repairs and maintenance expenditure for systems and resultant procurement budget for

the same.

� LABORATORY SECTION

This section is responsible for furnishing budget requirement for laboratory for

testing of input and finished product and R&D activities carried out at Plant level.


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� CIVIL DEPARTMENT

Civil section under the Technical Service Department is responsible for civil

maintenance in plant and township. Their budget requirement for maintenance of

buildings, roads, drains and culverts, railway siding and other facilities of civil nature in

plant and township are worked out and item wise details are furnished under the

following break up:

� Consumption of stores spares and steel consumption.

� Contractual jobs

� Procurement budget for non-stock items of spares and Stores.

� TRAINING SECTION

This section compiles budget requirement for training activities for in

house/outside training programmes and corporate training programmes to be conducted at

unit level and furnished budget requirements for the same and other related activities.

4. PERSONNEL & ADMINISTRATION DEPARTMENT

� Repairs and Maintenance for furniture, fixtures and office equipments and

other appliances at Plant and at Guest House and other locations in Township under their

charge.

� Expenditure on maintenance and up keep of township properties.

� Estimation of salaries, wages, allowances, overtime, medical and other

welfare expenses, awards etc expenditure on direct and indirect and indirect employees.


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� Other establishment expenses like communication expenses printing &

stationery, rents, rates & taxes vehicles hire charges and running expenses, courtesy and

entertainment expenses, legal expenses, celebration expenses, traveling and conveyance

expenditure, professional charges and such other expenditure, which are directly

controlled by personnel & administration department.

5. MATERIALS DEPRTMENT :

Materials Department is responsible for furnishing budget requirement for stores

overheads expenses. It also controls the expenditure on purchase of stock items to be

kept in main Stores for which procurement budget is furnished by materials department

after working out normal stock levels and estimated consumption for stock items within

the budget period.

6. FINANCE & ACCOUNTS DEPARTMENT :

In addition to coordinating compilation and submission of the annual budget,

Finance & Accounts Department is responsible for estimating the following:

� INCOME/OTHER REVENUE

In respect of receipts from employees e.g. Interest on house building Loan,

conveyance advance etc. The budget estimate is prepared in consultation with personnel

& Administration Department. Other revenue items are estimated based on the past data

and operation estimated for the ensuing budget period.


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� INSURANCE EXPENSES

This is estimated in consolation with the Engineering Services Department

� DEPRECIATION ON FIXED ASSETS

On receipt of detailed budget requirement for variable cost. Fixed cost and

overheads from the concerned section/department, Finance & Accounts Department is

arranging the compilation of Departments wise summary of fixed cost and overheads.

Initial discussions are held at each department level with concerned HOD’s and

Sectional Heads. Section wise individual items of budget requirements are discussed.

Supporting details and documents wherever required are obtained. Revisions are made

wherever required based on the discussion.

After the meeting with the concerned departments for finalization of departmental

budget proposals for revenue budget and procurement budget, the following draft budget

documents are prepared for the unit operations.

� Revenue Budget.

� Procurement Budget

Since variable cost part of the operations for revenue budget is worked out based

on the production plan and consumption norms and other parameters already approved by

the top management and by adopting procurement rates and quantity requirements

intimated/finalized by Head Office, the same is compiled accordingly as per Head

Office’s directives.


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Fixed constant and overheads portion of the revenue budget is further discussed in

the meeting of all Heads of Departments with Unit Head. Individual items of fixed cost

and overheads are reviewed by the Unit Head with reference to planned production

priorities, resources constraints, maintenance requirement and other parameters and after

discussion; fixed costs and overheads part of the revenue budget are finalized. After

Compiling of Production/Consumption/Purchase Budget, same is sent to Head Office for

further compilation & Approval of Board of Directors.


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PROCEDURE FOR USING THE BUDGET APPROVED.

After approval of budget by board of directors same is intimated to Unit Head and

concerned Finance Head of the Unit. In turn finance Head inform the Budget allocation

to respective Departmental Heads/Section Heads.

An entry for each individual department is made with there respective code

provided to the individual department in FAS (Financial Accounting System) Department

wise/Section wise. After receiving intimation/ allocation of Budget from Finance all

actual user/indenting department make their requirement on monthly basis. All stock

items are controlled by Stores Section of Materials Department. Where as Non-stock

items are purchased by respective section/department through Materials Department

(Purchase Section).

Stores Section raise MPR based on Safety Level / Re-Ordering level. Other user

sections raise MPR based on as & when on requirement basis. All Work of Indent (WOI)

is raised by actual user only.

Based on MPR received by Materials Departments (Purchase Section) take action

for sending enquires to Approved Vendors, receive Quotation, prepare QCS (Quotation

Comparative Statement) & place Purchase/Work Orders after obtaining Financial

Concurrence & Budget availability.


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All MPR/WOI related to Capital nature are routed through Finance by obtaining

Budget Availability Certification, where as all MPR/WOI related to Revenue nature

items are directly forwarded to purchase section. At the time of placing order Financial

Concurrence / Finance Department assures & made entry in FAS for control of Budget.

REVISION OF BUDGET ESTIMATES

After approval of budget estimates for the ensuing period, actual expenditure vis-

à-vis budget allocations are reviewed on monthly basis and quarterly report is submitted

to Head Office as above.

Due to various factors like raw materials constraints, economic factor, marketing

factors and other variable factors, generally necessity arises for revision of the approve

budget estimates based on the actual trend observed, since budgeting process for the

ensuing period normally start about 5/6 months before start of the budget period.

Accordingly, there is a system of revision of the budget proposals. Normally

actual expenditure for the first 6 months are reviewed and based on the same, revised

estimates for the next six months are compiled.

Budgeting process for revised revenue budget is more or less same as of

compiling the revenue budget. The following steps are taken:


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�� Revised production plan, consumption norms and other parameters based

on actual for the first six months along with revised estimates for next 6 months are

worked out and communicated to Head Office for approval.

�� On receipt of approval from Head Office, actual for first six months are

compiled by Finance & Accounts Department costs and fixed cost and overheads is

furnished to the concerned departments to work out their revised budget proposals for

next six months period.

Concerned departments are arranging review of actual performance against

budget provision for the first six months and rework the requirements for the next six

months based on approved revised production level and other norms.

The revised budget requirements if any along with the complete justifications are

furnished by the concerned departments to Finance & Accounts Department. Wherever,

actual expenditure against budget requirement is very much on positive or negative side,

detailed justification/reasons of the same along with the revised budget requirements, if

any, are to be furnished.

Commercial Department of Head Office is furnishing quantitative requirement

and estimated rates of raw materials utilities, packing materials etc. Applicable for the

next six months, Kalol unit from where part of ammonia requirements and total urea


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requirements for production process of KANDLA unit are met intimates revised transfers

quantity price in respect of ammonia and urea to be adopted for revised budget proposals.

Based on the above, revised budget proposals are compiled. The fixed cost and

overheads are thoroughly discusses with concerned HODs and with Unit Head and after

approval, the following documents are prepared and submitted to Head Office.

1. Revised Revenue Budget.

2. Revised Purchase Budget.

On approval of the revised budget, monthly break-up of fixed cost and variable

cost are also worked out and submitted to Head Office for approval. On approval,

budgetary control is exercised on monthly basis based on the revised monthly budget

allocations.


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BUDGET AND BUDGETORY CONTROL AT IFFCO:

KANDLA UNIT

METHOD OF BUDGETING AT IFFCO-KANDLA:

IFFCO-KANDLA follows ‘Zero Based Budgeting’ system to prepare its budgets

What is Zero Based Budgeting????

The technique of Zero Based Budgeting starts with the premise that the budget for

next period is “Zero” so long the demand for a function, process, project, or activity is

not justified for each rupee from the first rupee up. The assumption is that without such a

justification, no sending will be allowed. The burden of proof thus shifts to each manager

to justify why the money should be spent to all and to indicate what would happen if the

proposed activity is not carried out and no money is spent. In this way, he is required to

carry cost-benefit analysis of each of the activities etc. under his control for which he is

responsible. Such analysis would reveal that some activities may be eliminated or

curtailed or made into productive and profitable ones. Thus Zero Based Budgeting

affords a choice amongst the alternatives so that the activities would be selected in the

order of their importance.

However, Zero Based Budgeting is particularly suitable discretionary cost areas

such as marketing, administration, production services, research, etc. and in Govt.


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departments where the decision for the extent of spending rest with the management or

authorities and it is here that each rupee of the budget had to be justified.

Zero Based Budgeting at IFFCO????

IFFCO as whole follows Zero Based Budgeting system. As IFFCO-KANDLA is a

manufacturing Unit and it is also cost centre so in the process of conversion of raw

material into finished goods cost cannot be zero because for the manufacture of goods for

sale cost have to incurred for:

Purchase of raw material like:

� Phosphoric Acid

� Potash

� Ammonia

� Urea

� Sulphuric Acid

� Filler

� MAP

� Utilities (power, fuel oil, water)

� Bagging

Such situations are met by IFFCO by asking the managers to determine the

minimum or basic requirements for running their departments; any cost above the basic

requirement would be treated as added increments which would be critically reviewed

and justified, they are to be eliminated resulting in cost saving to IFFCO.


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At Kandla Unit, budget is prepared, got approved from Head Office and

controlled at Plant level cost. Being Manufacturing Unit, budget is prepared only for

“Production activities”.

At Kandla unit following types of budgets are prepared.

1. Revenue & Purchase Budget

2. Capital Budget

3. Loans to Employees Budget

We can break the Budget Process into following stages.

1. Proposal to be sent to Head Office for approval of Board of

Directors.

2. Approved budget to be allocated amongst actual user / indenters.

3. Monthly / Quarterly / Yearly control on actual expenses v/s

budget.

We will see the above aspects in detail of various budgets in following pages.


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Section I

Revenue & Purchase

Budget andBudgetary

Control


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BRIEF DESCRIPTION OF REVENUE BUDGET

Revenue Budget is also called as Production Budget / Consumption Budget. All

type of expenses pertaining to the concerned year and related to production activity

whether direct expenses or indirect expenses are estimated in this budget. Budget is

prepared for next financial year commencing from April to March.

PROCESS FOR PREPARATION OF BUDGET:-

1. Intimation from H.O. to send proposals for next financial year.

2. Collection of various estimates from indenters / H.O.

3. Collection of various data in specially designed statement / annexure.

4. Put-up to Unit Head for consideration

5. Meeting by unit Head with various HODs / SHs.

6. Final proposal to be sent to H.O.

1. Intimation from H.O. to send proposals for next financial year:-

Generally in Oct / Nov, intimation is received from Finance Director, Head Office

asking all manufacturing units / marketing offices to send their respective budgets. In this

intimation all concerned are asked to submit data to respective Head of Finance at unit

level. The Head of Finance of respective unit can compile the budget and sent it to Head


55

Office through respective Unit Head. In this intimation, general guidelines and specific

instructions are also issued to all units so that all units can keep uniformity in submitting

their data.

2. Collection of various estimates from indentors / H.O.:-

On receipt of intimation from Head Office, Unit Head of Kandla Unit is

intimating Finance and Accounts Department to compile Revenue Budget & put up the

same to him for review and final decisions.

On receipt of intimation from Unit Head, Finance and Accounts Department came

into action to get all related details from various department / Head Office.

Following are major information’s which are to be collected from various

Departments / Head Office:-

A. Production Targets.

B. C& F Price of imported Raw Materials.

C. Rates to be adopted for packing material.

D. Exchange rates to be adopted for US $.

E. Norms of actual input Qty of various raw material, utilities and

Packing materials.

F. Stream day’s estimates for production targets.

G. All estimates of various types of direct / indirect expenses related to

production activities.


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A: Production Targets.

On receipt of above referred intimation from Head Office through Unit Head,

Tech Department of Kandla Unit works out the production estimates for next financial

year. Production Targets are estimated based on licensed capacity of production in terms

of P2O5 output.

At Kandla Unit, three type of fertilizer is produced

1. NPK (10:26:26) (Grade I)

2. NPK (12:32:16) (Grade II)

3. DAP (18:46:00)

Production is estimated in bulk keeping in the mind the term P2O5 ratio. In above

fertilizer N stands for Nitrogen P stands for Phosphorous and K stands for Potash. DAP

stands for Dia Ammonium Phosphate.

Technical Department estimates grade wise production which normally equals for

100% capacity utilization in terms of P2O5 output. Technical Department before

estimating estimate of production target keeps in mind the estimate of shut down of Plant

due to shortage of raw material , shut down of plant due mechanical maintenance, power

failure etc. This production estimates are sent by them to Tech service, H.O. through Unit

Head for approval.

Since production Targets are to be approved by Head Office, Head Office at the

same time get sales estimates from their respective Central Marketing Office .Production

Targets are reviewed by H.O. in consideration with sales Targets . Since production of


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various grades is to be done as per Market demand, Head Office is the final authority to

approve Production Targets. On receipts of Production Target from Head Office, Tech

services Department intimate the final Production Target to F&A Department.

B. C& F Price of imported Raw Materials

To manufacture all the three type of Fertilizer, following Raw Materials are

required:-

1. Phos Acid (P2O5)

2. Ammonia (NH3)

3. Potash (MOP)

4. Urea

5. MAP

6. Filler

Since major Raw Materials like Phos Acid, Ammonia, Potash, Urea, MAP is

imported by Head Office from various countries, Head Office is to provide the estimated

C&F rate of above 5 Raw Materials (SrNo.-1 to 5) to Kandla Unit. Head Office intimate

C&F cost per MT in US $ to Kandla Unit after considering long term contract with major

suppliers , upward / downward trend of major Raw material cost in Global Market . C&F

cost varies with various suppliers distance of loading port from Kandla Port & Credit

facility for payment of C & F cost.


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C: Rates to be adopted for packing material

Like major Raw Materials, Head Office also Procure / finalize Purchase Orders

for purchase of packing material from indigenous suppliers. At Kandla Unit bags are

procured in various sizes depending upon the general demand of packing materials i.e.

HDPE Bags:-

HDPE Bags: 50 Kgs

HDPE Bags: 40 Kgs

HDPE Bags: 25 Kgs

Head Office intimate per bag rate of above sizes to Kandla Unit after considering

long term contract with major suppliers , upward / downward trend of above bags .

D: Exchange rates to be adopted for US $.

At Kandla, major raw materials are imported and the C&F rate for above raw

material is communicated by Head Office to Kandla Unit. All foreign exchange payments

are done by Head Office, they intimate the Foreign Exchange Rate of US $ to be adopted

for conversion of US $ into Indian Rupee. Head Office estimates the exchange rates in

consultation with various Foreign Exchange Trading Banks, RBI Bulletin and also

upward / downward trend of foreign exchange rate. This exchange rate is communicated

to all units so that a uniform exchange rate can be applied to Foreign Exchange payments

in respect of purchase of imported raw materials , Major Equipments , Spare Parts etc.


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E: Norms of actual input Qty of various R.M., Utilities and P.M.

To ascertain the requirement of the input of the various Raw Materials, utilities

and Packing Materials, norms are communicated by Tech Services Department to Head

Office. Input norms means the Qty of input to get exact output results like Nitrogen,

Phosphorous, Potash etc. as per ratio of individual grade. Also utilities norms indicate the

respective units to be consumed for mixing of above raw material and packing norms

means exact bags required to be packed for one MT fertilizer.

Based on above, norms are estimated by Tech Services for following

1. Raw Materials

- Phosphoric Acid

- Ammonia

- Potash

- Filler

- MAP

- Urea

2. Utilities

- Power

- Water

- Fuel Oil

3. Packing Materials

- HDPE Bags: 50 Kg

- HDPE Bags: 40 Kg

- HDPE Bags: 25 Kg


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F: Stream Day’s estimates for production targets

Kandla Plant runs all the days in three shifts. To achieve the production target,

Technical Department estimate the actual running of plant considering holidays, Shortage

of raw materials, shut down of plant due to electrical maintenance, mechanical

maintenance, power failure etc. These stream days figures are required for allocating

various fixed expenses amongst total cost to grade wise cost. Stream Days varies with

each grade wise production.

G: All estimates of various types of direct / indirect expenses related to

Production

To produce the targeted Production Raw Material, Utility and packing cost is

derived based on production, norms and per MT / KL cost. Other than this direct cost,

many fixed cost are involved to run plant. For this, all actual users / indenter estimate

their area cost based on estimated requirement and previous / last 3 years actual expenses.

Such type of expenses is booked in various account codes and further into respective

fixed cost groups.

3: Collection of various data in specially designed statement / annexure.

The various data collected from various sources are compiled in specially

designed Proforma’s / Annexures to derive profitability of Plant, total cost of production,

grade wise cost of production and further per MT cost of production.


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REVENUE / PURCHASE BUDGET CONTROL

After receiving the copy of approved Revenue / purchase budget, F & A Dept

intimate all departments / sections about the approval of their areas budget. Budget for

each & every account code is entered in the budget module meant for budget control in

Financial Accounting System. Each type of expenses has separate account code.

All commitments made vide purchase order / work orders are entered against

respective account heads while giving financial concurrence of proposed po/wo. At the

same time all payments which are not against any purchase order / work order are entered

against respective budget Heads / Codes. It is to be ensure that no payments or

commitments exceeds to sanctioned budget.

In case of commitments / payments are required to be made beyond sanctioned

amount, necessary action is to be initiated by indenter / actual user to get it re-appropriate

from other budget head of same group with the approval of unit head & from other

budget head of another group with the approval of Head Office / Competent Authority.

To further rearview of budget sanctioned & commitment made a monthly report is

generated for actual expenses versus budget sanctioned. This report is prepared to control

the budget on monthly basis. Here total budget sanctioned is shown as per estimated


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monthly budget. Wherever monthly actual expenses are higher than monthly budget,

justifications / reasons are asked from intender & further steps are taken to control the

budget in subsequent months.

At Head office level, quarterly meeting is arranged to review/discuss about the

budgetary control & measures taken at Unit level to control the budget.


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Section II

Capital Budget &

Budgetary

Control


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BRIEF DESCRIPTION OF CAPITAL BUDGET

Capital Budget is prepared for Procurement of Capital nature items or for Capital

nature works to be done during Budgeted year. The items so procured or work so to be

done are not the part of Profit & Loss Account, but are to be shown at Assets side of

Balance Sheet. However, Depreciation calculated for Assets already having with

Organization and Assets procured during the year is calculated and is to be shown in

Profit & Loss Account for particular year. Capital Budget is prepared for next Financial

Year commencing from April to March.

Process for preparation of Capital Budget:-

1. Intimation from Head Office to send proposals for next F.Y.

2. Collection of various estimates from Indentors.

3. Compilation of various data in specially designed Proformas.

4. Put-up to Unit Head for consideration.

5. Meeting by Unit Head with various Head of Departments / Sectional

Heads.

6. Final proposals to be sent to Head Office.

1. Intimation from Head Office to send proposals for Next F.Y. :-


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Generally, in Oct/Nov, intimation is received from Finance Director, Head Office

asking all manufacturing Units / Marketing Offices to send their respective budgets. In

this intimation all concerns are asked to submit data to respective Head of Finance at Unit

level. The Head of Finance of respective Unit can compile the Budget & send it to Head

Office through respective Unit Head. In this intimation general guidelines and specific

instructions are also issued to all Units so that all Units can keep uniformity in submitting

their data.

2. Collection of various estimates from Indentors :-

On receipt of intimation from Head Office, Unit Head of Kandla Unit is

intimating Finance & Accounts Department to compile Capital Budget and put up the

same to him for review and final decision.

On receipt of intimation from Unit Head, Finance & Accounts Department came

in to action to get all related Capital nature proposals from various department/ Sections.

3. Compilation of various data in specially designed Proformas :-

Capital Budget proposals are to be compiled in following Proformas-

A. Proposals for “New Items”.

B. Proposals for “On going items”

C. Completed items of current year Budget.

D. Dropped items of Current year Budget.


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E. RE-appropriated items.

F. Reconciliation of current year Budget.

A. Proposals for “New Items” :-

All proposals received from various Departments / Sections are thoroughly

checked by Finance & Accounts Department and same is financially concurred before

incorporating the same in the Performa for “New Items”. Estimates are checked with

Budgetary Quotations received from Suppliers or with Previous Procurements.

Proposals are to be incorporated into following groups:-

Sr No. Items

N-I Energy Saving System / Schemes

N-II Operational Necessity

N-III Reliability Improvement

N-IV Safety Equipments

N-V Replacement Of Aging Equipments

N-VI Pollution Control / Environmental Protection Schemes

N-VII Minor Modification

N-VIII Inspection Facilities

N-IX Research & Development Equipments

N-X Admn. Office Building , Furniture , Fixtures , Vehicles etc.

N-XI Associated Areas Like Welfare Colony Amenities, G.H.etc.

N-XII Computer & Computer Systems


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Following are some assets which are to be procured / Capitalized under each

group:-

N-I: Energy Saving System / Schemes:-

Against this group those items are to be estimated which are meant for

introducing a new schemes to save energy or any equipment which relates to saving

of energy.

Example:- 1. Replacement of Energy efficient street lighting fixtures

2. Lighting Transformer with stabilizer for K-1 Plant.

3. Installation of economizer in Boilers.

N-II: Operational Necessity

Against this group those items are to be estimated which are meant for running of

plant smoothly or necessary operation of the plant.

Example: - 1. Diesel operated Fork Lifts.

2. Voltage Stabilizers

3. Flame Photometers.

N-III: Reliability Improvement:-

Against this group those items are to be estimated which are meant for

increasing/improvement in reliability of plant operation / plant equipments.


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Example: - 1. Retrofitting of Air circuit breaker of Voltas make at ‘C- D’ Load

centre

2. Retrofitting of MOCB by VCB.

3. Replacement of Raw Material feeders.

N-IV: Safety Equipments:-

Against this group those items are to be estimated which are meant for protection

against Fire & keep the safety of Plant, its employees, contract labours etc.

Example: - 1. Installation of sliding / barriers type gate system for Railway

Crossings in the Plant.

2. Multi purpose encapsulated protection suit for Handling Acids & Ammonia.

3 . Fire Extinguishers.

N-V: Replacement of Ageing Equipments:-

Against this group those items are to be estimated which replace the old aged

equipments in Plant who have completed their useful life or are beyond economical

repairs.

Example: - 1. Diesel operated Fork lift.

2. Pay loaders.

3. Copying Machines.

4. Lathe Machines.

5. Air Coolers, Air Conditioners, Fridges etc.


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N-VI: Pollution Control / Environmental Protection Schemes:-

Against this group those items are to be estimated which are to be kept in Plant as

per Statutory requirement or as per directives of Central Government or state government

increasing / improvement in Pollution Control / Environment Protection Schemes.

Example: - 1. Spiro meter.

2. Construction of Check dams etc.

N-VII: Minor Modification :-

This group is used for procuring those minor capital items which are not covered

in other groups. Normative budget of Rs. 15 lakh for Plant and Rs. 5 Lakh for Township

is sanctioned for these groups.

Example: - 1. Lawn Movers.

2. Mobile Phones.

3. Two wheelers, cycles etc...

N-VIII: Inspection Facilities:-

Against this group those items are to be estimated which are meant for inspection

of various equipments, metals, atmosphere etc.:-

Example: - 1. Induction heater.

2. Machine condition Analyzer.


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3. Measuring Instruments & Tools.

N-IX: Research & Development Equipments:-

Against this group those items are to be estimated which are meant for Laboratory

and Research & Development equipments:-.

Example: - 1. Chemistry Modules.

2. Multi purpose Pilot Plant.

3. Misc. R & D Equipments like PH Meter, KF Titrator etc.

N-X: Admn. Office Building, Furniture, Fixtures, an d Vehicles etc.:-

Against this group those items are to be estimated which relates to run

Administration Building Office, Furniture, Fixtures etc.

Example: - 1. Xerox Machines.

2. Franking Machines.

3. Cars.

4. Security items

N-XI: Associated Areas Like Welfare Colony Amenities, Guest House etc.

Against this group those items are to be estimated which relates to welfare of

employees, township, Public Buildings, Guest House etc.

Example: - 1. Horticulture Equipments


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2. Baarat Ghar

3. Playing Gadgets in the Gardens.

N-XII: Computer & Computer System:-

Against this group those items are to be estimated which are directly or indirectly

relates to Computer Systems / Information Technology System.

Example: - 1. PCs / Printers.

2. Back up devises.

3. Web / Network Application Servers.

4. Fire wall for oracle database.

B. Proposal for ongoing items:

While proposing new items to be proved in next budgeted year, all

section/Departments are requested to review the physical progress of current year budget

items. After reviewing physical progress of current year budget, if they feel that the

scheme/ procurement shall not be completed during this year. They may propose to carry

forward their budget to the next budget year with same estimate or revised estimate.

However, all efforts should be taken to complete the budget during the year, but in some

exceptional care, if it is not possible to complete, than only those items to be carry

forward to next year.

Here indenter shall provide the expected budget to be utilized during current year

& balance to be utilized during the next year, with all justification for carry forward of


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the budget to next year. Here also for ongoing items, same groups of new items are to be

used for presentation in preformed prescribed for the purpose.

C. Completed items of current year:-

While proposing new items to be procured in next budgeted year, all section/

Departments are requested to review the physical progress of current year budgeted

items. After reviewing physical progress of current year budget, if they feel that the

scheme/procurement shall be completed during this year they may propose to show this

scheme/ procurement as ‘completed’ during the budget year. Such schemes/procurement

shall be shown in this proforma with final cost. Any utilized amount/ savings shall be

surrendered.

D. Dropped items of current year:-

In this proforma those items/schemes are shown which were not required/ to be

implemented after due re-consideration. Some times to reduce cost or to cut down

expenditure, less priority items are reviewed and dropped.

E. Re-appropriated items:-

Many time it happens that there is a short fall of budget for any item or a new

item is to be purchased which do not cover in approved budget. In this situation budget

can be re-appropriated from one head to another head with the approval of competent

authority. In this proforma, items are to be shown which were re-appropriated to/from

another budget heads for information of competent authority.


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F. Re-conciliation

In this proforma a statement is prepared to show re-conciliation of current year

budget as under:-

1. New items.

2. Ongoing items

___________

Total Budget

___________

1. Ongoing items

2. Completed items.

3. Dropped items.

__________

Total Budget

__________

This proforma help top management about the utilization of budget already

sanctioned.


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4. Put-up to unit head for consideration:-

Once budget estimation as given by various section/ Department is complied in all

proforma 1 to 6, same is put-up to unit head by Departmental head of Finance & Account

assuring all items are covered in respective groups.

5. Meeting by Unit Head with various HODs/SHS:-.

After receiving complete capital Budget proposals from F & A Department, Unit

Head review the same & call a budget review meeting with all Heads of Department/

Sectional Heads. In this meeting Unit Head discuss all the items & their estimates with

respective Department Heads/Sectional Heads. Unit Head once is satisfied with Capital

items to be procured/ capital nature jobs to be awarded, he gives clearance to F & A Dept

to send the proposal to Head office through him.

6. Final proposal to be sent to Head Office:-

Once Unit Head give clearance to send the capital budget estimation to Head

Office, Finance & Accounts Department prepare final proposals with changes, if any, as

suggested/agreed by Unit Head.

On receiving Capital Budget proposals from all unit of the organization, Head

office prepare consolidated budget of all the Units including marketing & Head Office &

put up to the Board of Directors through Finance Director and managing Director.

In due course, once capital Budget proposals are approved by Board of Directors,

Head Office intimate all units and marketing Department about the approval of Capital

Budget of respective Unit.


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CAPITAL BUDGET CONTROL

After receiving the copy of approved Capital Budget, Finance & Accounts

Department intimate all Departments/Sections about approval of items related to their

area. Budget for each & every item is entered in the Budget Module meant for Budget

Control in Financial Accounting Systems. Each items of capital budget is given 10 digit

code where first two digit indicate group, next two digit indicate Rs No. of item in that

particular group & last 4 digit indicate the year in which budget is sanctioned. Example

02 0010 0708 ,Here, 02 indicate group II, 0010 indicate Sr No of item of group II, 0708

indicate year 2007-08 in which budget is sanctioned.

After receipt of intimation of sanctioned budget & these 10 digit code, indenter

raise MPR/WOI (Material Purchase Requisition / work of indent) and send it to F & A

Department through Materials Department for Budget Availability Certification.

F & A Department certify Budget Availability after scrutiny of MPR/W01

comparing the same with Budget sanctioned & sent it to materials Department for further

action for procurement.

Once material Department completes all formalities for placing of order on

supplier/contractor, proposal sent to F&A for entering the landed cost in Budget Module.

F&A dept is responsible to assure that the material is not procured/contract is not placed

beyond the sanctioned budget.

To control Capital Budget commitment, monthly meetings are held under the

Chairmanship of Unit Head with all HODs / SHs and measures are taken to utilize the


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budget timely. For this monthly commitment/expenditure report is prepared by F & A

Dept & is circulated to all HODs/SHS.

To appraise Head office about the progress of capital Budget, Quarterly report for

high value items are sent to Head Office in prescribed proformas.


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Section III

Budget for Loans & Advances

to Employees


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BRIEF DESCRIPTION OF LOANS & ADVANCES TO EMPLOYEES

As per service rules of IFFCO, employees are given following type of loans /

advances from time to time and as per employee’s requirements:-

1. House Building Loan

2. Conveyance Loan

3. Personal Loan /One month salary advance

1. House Building Loan

All permanent employees are given House Building Loan as per their

entitlement. This Loan is given only once during tenure of employee’s service

period.

Loan is given for-

A. Purchase of plot

B. Purchase of ready build house

C. Construction of house on plot

D. Additional work is to be done on present house property.

Administration Section of P & A Department is responsible to get budget

sanctioned from Head Office through F & A Department. For this, they send the

estimate amount / budget required for budget period based on various data of

employee who have yet not availed HBL.

2. Conveyance Loan

All permanent employees are given conveyance loan as per their

entitlement. This loan is given more than once during tenure of employee’s

service period.

Loan is given for-

A. Purchase of car

B. Purchase of scooter / motor cycle / moped.

P & IR Section of Personal & Administration Department is responsible to

get budget sanctioned from Head Office through F & A Department. For this,


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they send the estimated amount / budget required for budget period based on

various data of employees who are entitled to avail this facility.

3. Personal Loan /One month salary advance:-

All permanent employees are given one month salary advance (personal

loan) once in a year. This advance is recovered in a year. This advance is

recovered in ten equal monthly installments from employee’s salary. It is also a

interest free loan.

Here also, P & IR section of Personal & Administration Department is

responsible to get budget sanctioned from Head Office through F & A

Department. For this they send the estimated amount / budget required for budget

period based on present employees strength & their yearly basic + D.A.

After getting budget estimates from P & A Department for above 3 type of

loans / advance, F & A Department prepare data in following format and send it

to H.O. for approval of competent Authority :-

S

r no

BL

Con

v loan

Personal

Loan

1 Op. Balance

2 Commitment(Bud

get)

3 Total

4 Less:EstimateRec

overies

5 Cl Balance

Head office get this budget proposals approved from competent. authority

and intimate F & A department about the approved budget.

Pay roll section & P & A Department are jointly control this budget.


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BRIEF DISCRIPTION OF SALES BUDGET

The marketing division after receiving the intimation from the Head Office asks

the zonal offices to prepare the sales estimations, the State Offices asks the Area Offices

and the area offices asks the Co-operative societies to prepare the sales estimations for

the next financial year. This way after completing all the procedure the sales estimates

are prepared and forwarded by the Co-operative societies to the marketing division and

the marketing division forwards it to the Head Office for the approval.

The Head Office co-ordinates the budgets prepared by the marketing division

(Sales Budget) and the budgets prepared by the Manufacturing Units (Production

Budget). If in the case the sales budget increases the production budget the Head Office

imports the goods from the other countries to fill up the gap. This way the Head Office

co-ordinates the production budget and sales budget.

Usually the first of all budgets to be compiled is the sales budget: this particular

budget will be dependent for creating the other budget proposals. These figures will have

been calculated by multiplying the expected number of sales by selling price of the

product.

Perhaps the most important of all budgets is the sales budget. It is a statement of

planned sales in terms of quantity and value, and analyzed into different grades of

products. The area officer with his intimate knowledge will gather the information from

the Govt. office at particular area about the previous record of rainfall, Demand and

Utilization of the fertilizer and also current years projection for rainfall in that area. All

information gathers are sent to higher authority of marketing officer on that basis the

higher authority prepare the rough estimate for next year sales.

They also prepare separate sale budget according Grade wise production and also

shown State wise sales to be achieved.


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BRIEF DESCRIPTION OF CASH BUDGET

The budget is the link between all the individual budgets and the master budget.

Cash budget forms the core of budgetary control. If adequate cash resources are

available, even the best schemes are bund to fail. This budget is prepared on the basis of

all the above budgets ad summaries the estimated receipts for each month from debtors,

is receivable and other incomes along with opening balances shows the total receipts. It

should also indicate month-wise disbursement for wages and salaries, purchases of

materials and overheads charges, etc. On the basis of this budget, the financial controller

is able to determine the need for additional funds and bank borrowings, if any, and also

plan the allocation of working capital. If proper care is not exercised in preparing this

budget, serious troubles are likely to arise at anytime during the year, particularly if

long-term cash forecast is not properly made, future progress may be frustrated due to

lack of funds.

AT IFFCO THE PROCEDURE OF CASH BUDGET:

All the units of IFFCO will make forecast there expenditure such as Capital

Expenditure, Revenue Expenditure, Loans & Advances etc. for whole year and the same

is divided into monthly requirement and send to the Head Office. Head Office will

combined all the forecast of all Units (at KANDLA, PHULPUR, KALOL, ANOLA,

Marketing and his own) and prepared Master Cash budget for the year. Where it shows

details all the sources of income and where it will be disturbed for expenditure full detail

planning is made monthly wise for whole year.


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LIMITATIONS OF THE STUDY

� This study has been carried out only based on information obtained by

interviewing personals in F & A Department IFFCO KANDLA.

� Information received was based on secondary data and on the primary

guidance given by the employees there at IFFCO KANDLA. So any Error in

source data that may change the Actual Scenario.

� This study has been carried out in a period of 15 days which is very less

to know and understand an organization like IFFCO KANDLA.

� Major sources of structured information and data or Records up to last

10 Years have been used.

� Also to evaluate and ascertain financial position correctly of

organization like IFFCO, a student like me of 22 years age is too less.

� I was interested to study following topics but couldn’t make it, in

absence of any information, as is handled by Head Office, New Delhi.

o cash budget

o sales budget

� It was advised to go through only in procedural information & Net to use

any financial data pertaining to IFFCO as a whole or for IFFCO KANDLA UNIT.

However at many places figures shown are as sample/Estimate figures & not the

actual figures.


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FINDINGS & SUGGESTIONS

FINDINGS:

� Sales are main source of Income.

� Raw Materials Cost consists of 95% of Total Cost. So Change in Raw

Materials Price will strongly affect the Total Cost.

� For Continuity in Production there should be continuous Raw Material

supply. So any deficiency in supply of Raw Materials will affect the Production.

� Whatever Project is undertaken at IFFCO KANDLA up to date all

Projects duration and cost were achieved within the specified limit or budget figure.

� Continuously from last 15 Years IFFCO is providing the Dividend at the

rate of 20% per Year.

� Punctuality in Timings and Management work is excellent at IFFCO.

� A well equipped System facility providing the LAN and VAN access for

speedy communication.

� Environment control policy adopted by ISO - 14001 Certified.

� Best Employees welfare facility(As per the interviews of employees)

(E.g. Residence for all the employees working at IFFCO)

� Every Employees Work is interlinked.

� EMD Security Retention Money and other amount an average of Rs. 4 -

5 Crores every Year at IFFCO Kandla. No Interest is paid to vendor and same

amount is being lying in the society current Account.

� Strong Marketing Distribution Network.

� A well Future Set Plan MISSION 2010.

� A Strong Team of Directors from all over India.

� Great Support of Government of India & Fertilizer Ministry.

� A Strong Financial Status.

� A team work from Top Management to Lower Grade Staff to achieve

the targets.

� A Chain (H.O.) between Management Plants (Kalol, Kandla, Aonla &

Phulpur & Marketing office) all over India.

� IFFCO seems a good pay master for employees as well as suppliers.


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� A good atmosphere to work at & with IFFCO.

� Safety level is at highest point.

� A good training to employees.

SUGGESTIONS: � Media Support should be taken to change the minds of farmers to use

fertilizer in their farms.

� IFFCO one of the country’s largest producer of fertilizer in industry

fertilizer is situated at Kandla -Kachchh but then also there are many villages in

Kachchh only where still Concept of using Scientific fertilizer in farms is not Clear

& popular. Still there are many farmers using the old concept of Cow Dunk as the

only way of fertilizer in there farms. So proper suggestion and guidance should be

given to change there mind set up.

� Work Load on employees should be equally divided. No body should be

loaded with too much work and too less work equal distribution of work should be

there.

� Employees should motivated to invest in IFFCO itself during their

service & even after retirement in FDR scheme of IFFCO at H.O.

� If employees agree at the time of retirement to convert his PF, Gratuity

etc. in to FDR & as a special care Ex-Employees should be paid higher rate of

interest on his investment interest to be paid to Ex-Employees on monthly basis so

the fund remain safe in the hand of IFFCO &Ex-Employees gets its return on

monthly basis to pull out his remaining life happily & safely.


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CONCLUSION.

I have carried out my training in a period of two months in Finance and

Account Department (F&A), IFFCO KANDLA). During this period I have studied in

brief and have taken overview of the activities of each section of F&A Department at

IFFCO KANDLA. And after the study I conclude that practices and procedures

followed here at par with the industry standard and comply with legal and regulatory

requirements.

During my training I have studied and analyzed IFFCO’s annual report for the

financial year 2006-07 and found that IFFCO is financially very strong due to its

large reserves and has good credit in market, due to its high share of equity. It has

paid 20% dividend which is ever highest by any P.S.U. or co-operative society in

India.

Successful realization of VISION 2010 and MISSION 2005 will definitely

made the society to emerge at top position in India. Also this would solve to its

objective of being a socially responsible organization and work for welfare of farmers

not only in India but also in abroad.

IFFCO is also Socially Responsible Organization who dose not only look

after the wellbeing of their employees and share holder only but they also look after

the welfare of farmers by many promotional programmers carried out under the

schemes of IFFCO Kisan Sewa Trust and by the Indian Farm Forestry Development

Cooperative (IFFDC).


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RECOMMENDATIONS

I undersigned, have no experience and my age 22 is too less to valuate any

industry giant like IFFCO. Also the training period of two months is too less to

understand and analyze the vast functions procedure and regulatory requirements that

needs to be carried out in cash section of finance and account department of IFFCO

KANDLA. Yet I have tried my best and declare that the below mentioned few

suggestions that can be better coated than recommendations are no way on attempt or

intention to criticize organization like IFFCO & its management or employees, but

only they are to serve as indicators of level of my understanding of the activities

carried out in various sections of Finance and Account Department of IFFCO

KANDLA.

� The whole process of implementing zero based budgeting is not

only a tedious job, but also a costly affair. Moreover, the insight of experience

gained in several years of preparing budget is not being used.

� All the cost are allocated to a single factory overhead. Moreover,

budget for Township is combined with Plant which doesn’t give a clear

picture of the expenses to be incurred in the budgeted year for the plant only.

� Trend of re-appropriation of budgets is not a healthy task


87

BIBLIOGRAPHY.

Books:

Name Author

Financial Management I. M. Pandey

Financial Management Khan and Jain

Financial Management Prasanna Chandra

Financial Management S. N. Maheshwari

Research Methodology C.R. Kothari

Magazines :

BUSINESS INDIA, JUNE ISSUE, SAHYOG, IFFCO KANDLA

Website : www.iffco.nic.in


88

Following are the main proforma / Annexures for compilation of various

data:-

Sr No. STATEMENT /

ANNEXURE

reference

Particulars

1 STATEMENT – I Production And Sales Targets

2 STATEMENT – II Profitability Statement

3 STATEMENT – III Total Cost Of Production

4 STATEMENT – IV Purchase Budget

5 ANNEXURE- I Break –up of Unit price of Raw Materials /

Utilities / Packing Materials

6 ANNEXURE- II Norms of consumption for raw materials

/utilities/packing material

7 ANNEXURE- III Township recoveries and other revenues

8 ANNEXURE- IV Consumption of raw materials / Utili ties /

packing materials

9 ANNEXURE- V Employees remuneration & benefits

10 ANNEXURE- VI Repairs and maintenance expenses

11 ANNEXURE- VII Chemicals

12 ANNEXURE- VIII Insurance expenses

13 ANNEXURE- IX a) Factory overheads & b) R & D expenses

14 ANNEXURE- X Grade wise cost of production


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Brief explanations of Statements / Annexures:-

STATEMENTS:

STATEMENT– I: PRODUCTION AND SALES TARGET

In this statement the data relating to plant’s installed capacity in terms of P2O5,

stream day’s estimates, production target in bulk & in terms of P2O5 is estimates. Based

on plant capacity and estimates production capacity utilization in % is derived. Sales

estimate figures are shown by H.O. after sending this budget proposal to Head Office for

approval. Also for comparison purpose last three years actual, current year budget and

revised budget estimates are also shown in this statement. Based on this statement, Total

cost of production is estimated / derived.

STATEMENT– II: PROFITABILITY STATEMENT

In this statement at plant level miscellaneous income like Township recoveries

and other revenuer as well as cost of production (including Depreciation) figures are

shown. Other revenue / income like income from sales, subsidy, ERF on ECB loans, ERF

on imported raw materials etc are shown by Head Office. Similarly other expenses like

Distribution Expenses, Selling Expenses, Financing Cost etc. are also shown by Head

Office after sending these Budget proposals to Head Office for approval. Based on this

statement, Head Office derives profit estimates at their level.


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STATEMENT– III: TOTAL COST OF PRODUCTION

In this statement based on Annexure 4 to 10 total cost of production is shown in

various groups and final figure is shown at statement 2. Total cost of production is shown

in 3 groups and sub groups as under:-

A. Raw Materials :-

• Phos. Acid Imported

• Potash

• Ammonia

• Urea

• Sulphuric Acid

• Filler

• MAP

B. Operating Expenses :-

• Chemicals

• Utilities

• Employee Remuneration And Benefits

• Repairs And Maintenance

• Insurance

• Factory Overheads

• Depreciation

C. Bagging Expenses :-

• Bags And Thread Cost

• Other Expenses like handling, diesel, demurrage etc.


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In above A and B makes cost for Bulk production and A+B+C makes cost of

bagged production. We will further highlight the details of above variable and fixed cost

in details explaining Annexure for above expenses.

STATEMENT– IV: PURCHASE BUDGET

This statement is prepared to estimate the likely purchase of following Raw

Material / Utilities / Packing Material etc based on estimated consumption of items ,

opening inventory and closing inventory based on storage capacity :-

A. Raw Materials :-

• Phos Acid (P2O5)

• Ammonia (NH3)

• Urea

• Potash

• Filler

• MAP

• Sulphuric Acid

B. Utilities :-

• Fuel Oil

C. Packing Materials :-

• HDPE Bags : 50 Kg

• HDPE Bags : 40 Kg

• HDPE Bags :25 Kg


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D. OTHERS

� Stores

• Spares

• Tools

• Cement

• Steel etc.

Generally while preparing this estimate inventory of raw material, fuel oil and

packing material is estimated as per maximum level of storage capacity so plant should

not be shut down due to any shortage of raw material. On other hand other items like

stores , spares tools, cement, steel are controllable inventory and it is always tried to keep

theses stock at minimum level so unnecessary fund is not blocked and there should not be

increase in inventory carrying cost.

ANNEXURES:

ANNEXURE– I: Break-up of unit price of raw materia ls / utilities / packing

Materials:

In this statement, landed cost is derived by taking all possible expenses for

purchasing the material. Landed cost is derived for all raw materials / utilities / packing

materials taking into consideration of following elements.

1. C & F price / basic price

2. Insurance


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3. S tamp Duty

4. Service Charges

5. Freight (in case of indigenous items)

6. Custom Duty

7. Excise Duty

8. Wharfage / Port Expenses etc.

9. Sales Tax

10. Thread

11. Miscellaneous bank charges directly related to Purchase.

Landed cost so derived is further considered at statement -4 (purchase budget) to

ascertain total purchases to be made during the financial year to produce the targeted

production. Based on purchase Qty / rate and opening stock of Qty / rate, weighted

average rate is derived for applying the same to consumption Qty.

ANNEXURE- II: Norms for consumption for raw materia l / utilities /

packing Materials

In this annexure the norms received from technical services department is

incorporated. As already explained earlier norms are the input Qty for getting targeted

output Qty in case of raw materials , required Qty to mix / produce the targeted

production Qty in case of utilities and bags required to pack the bulk production in case

of packing materials . Since per MT cost of production can be kept at the minimum level

when norms are kept in minimum level norms are to be derived very carefully. These


94

norms figures are further utilized at annexure -4 to derive quantity requirement of all raw

materials, utilities and packing materials.

ANNEXURE– III: Township recoveries and other revenue

Kandla Unit is manufacturing unit only and all sale of production is made at

marketing office and sale proceedings are accounted at Head Office, However, at plant

level there are some incomes which are detailed as under

I.Township Recoveries: from staff

• Rent

• Electricity

• Water

II. Other Revenue: Interest from staff

• HBL (House Building Loan)

• Conveyance Loan

• Hire Charges (pay loader, cranes etc.) & Interest.

• Insurance Claim Realized.

• Sale Of Scrap

• Transport Recoveries Fro Staff, Contractor.

• Interest Received on Deposits

• Income from Liquid Cargo Jetty.

• Provision No Longer Required Written Back


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• Tender Fee / Sale Of Tender Forms

• Depreciation Charges

• Sundries / Miscellaneous Income

• Rental Income : from township , from plant

• Profit On Sale Of Asset

• Unclaimed Amount Written Back

• Penalty Recovered

• Other Claims

• Lease Charges Under Own Your Own Wagon

• Miscellaneous Recoveries from Staff

All above income are estimated by individual actual receiver based on past

experience and future activities. The total of this revenue is shown at statement -2

(profitability statement) on revenue side.

ANNEXURE– IV: Consumption of raw materials, utiliti es and packing

material

At Kandla Unit cost of production is estimated in two categories as under

1. Variable Cost.

2. Fixed Cost

Variable cost is the cost which generally varies with the production activity.

Variable cost consists of following three items.

1. Raw Materials


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2. Utilities

3. Packing Materials

Since variable cost is linked directly with production figures there is no control on

the cost of variable cost. In case of nil production, variable cost will also be nil. In this

statement grade wise cost of production and total cost of production is derived based on

production targets, norms and average unit rate. Production Targets are taken from

statement –1, norms are taken from annexure -2 and average unit rate is taken from

statement -4. Based on above grade wise Qty (production x norms) and grade wise cost

(Qty x Average rate) is derived. By Totaling of all the three grades cost , total cost of

individual raw material , utilities and packing material is derived. By totaling all Raw

Materials, utilities and packing materials total cost of production is derived. This total

cost of production is shown at statement -3 items wise. Raw materials are shown under

A: raw material cost, utilities are shown at B: operating expenses & packing materials are

shown at C: bagging expenses: bags & thread.

ANNEXURE– V: Employees remuneration and benefits

Employee’s remuneration and benefits is a fixed cost type expenses. Fixed cost is

cost which generally not varies with the production activities. Whether there is any

production or not, this types of expenses occur. Here employee’s remuneration and

benefits remains constant irrespective of production.


97

In this group all type of expenses are covered which directly or indirectly pertains

to the employees including railway staff. Budget estimates are given by personal &

administration department for almost expenses:

To simplify the format expenses are shown under following groups:-

• Salaries & Wages

• PF & FPF Contribution

• Welfare Expenses.

Following are the major budget head & their respective user / indenter:-

Sr No. Particulars Indenter

A-1 Salaries & Wages

1 Basic Personal & Administration

2 Personal pay / Allowance Personal & Administration

3 DA (Dearness Allowance) Personal & Administration

4 Special Allowance Personal & Administration

5 House Rent Allowance(HRA) Personal & Administration

6 EL Encashment on Actuarial Basis Personal & Administration

7 Kandla Allowance Personal & Administration

8 Stipend To Trainees / DA Personal & Administration

9 Railway Staff Salary Transportation Section

10 Employees Furnishing Allowance Personal & Administration

A-2 Incentive Payments Head Office

A-3 Indirect Wages Contractor / Labour Personal & Administration

A-4 Provision For Salary Revision Head Office

A-5 Non Practicing Allowance To

Medical Officers

Personal & Administration

A-6 LTC Employees Personal & Administration


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A-7 Shift Allowance Personal & Administration

A-8 Washing Allowance Personal & Administration

A-9 Children Education Allowance Personal & Administration

A-10 EL Encashment Personal & Administration

A-11 Cash Handling Allowance Personal & Administration

A-12 Overtime Personal & Administration

A-13 VRS Expenses Personal & Administration

Sr No. Particulars Indenter

B PF & FPF Contribution

B-1 PF Contribution Personal & Administration

B-2 FPF Contribution / Pension Employer Personal & Administration

B-3 PF Administration Charges Personal & Administration

B-4 Group Gratuity-Cum-Life Assur. Head Office

B-5 Society’s Contribution To Insu. Head Office

C Welfare Expenses

C-1 Reimbursement Of Medical Exp. Personal & Administration

C-2 Medical Expenses : Recruitment Personal & Administration

C-3 Fixed Medical Assistance Personal & Administration

C-4 Hospital Supplies Personal & Administration

C-5 Doctor’s Honorarium Personal & Administration

C-6 Liveries –Protective Clothing Personal & Administration

C-7 - Shoes Personal & Administration

C-8 - Stitching Charges Personal & Administration

C-9 - Others Personal & Administration

C-10 Staff Welfare Expenses Personal & Administration

C-11 Family Planning Incentive Personal & Administration

C-12 Children Transport Subsidy Personal & Administration

C-13 Awards To Employees Personal & Administration

C-14 Cinema Show Personal & Administration

C-15 Celebration Expenses Personal & Administration


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C-16 Club House Expenses Personal & Administration

C-17 Transfer Expenses Personal & Administration

C-18 School Personal & Administration

C-19 Employees Contribution To

Benovelent Fund

Personal & Administration

C-20 Honorarium To Staff Personal & Administration

Above budget estimates are given by concerned section based on last 3 years

actual, present strength of employees, next year retirement cases, transfers, natural death

of employees & new recruitment etc. As mentioned above at Sr Nos A-2, A-4, B-4 and

B-5 since payments are made by Head Office directly estimates are asked from Head

Office and incorporated in Kandla Unit’s budget.

The total of above three groups is shown at B-3 statement –III (Cost of

Production) under operating expenses.

ANNEXURE- VI: Repairs and maintenance expenses

Repairs and maintenance expenses are also a fixed cost type expenses. Repairs &

maintenance expenses remains constant irrespective of production.

In this group all type of expenses are covered which directly or indirectly pertains

to Repairing & Maintenance of Plant & Machinery , Equipments , Civil Works , Jetty ,

Furniture , Fixtures etc. Budget estimates are given by all departments for their areas or

where they are custodian of the equipments.

Repairs & Maintenance expenses are covered under 2 categories: - (1)

Consumption of stores, spares etc & (2) Job done by outside agencies. For any items


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issued from stores for particular work is charged to consumption of stores , spares where

as for any type of Repairs and Maintenance job is done by outside agencies are booked

against contractor’s job .

To simplify the format expenses are shown under following groups

A. Plant Machinery

B. Civil Maintenance –Factory , Township

C. Furniture & Fixtures

Following are the major budget heads & their respective user / indenters:-

A. Plant Machinery

Sr No Particulars Indenter

1. NPK Maintenance Department / NPK

2. Offsite Maintenance Department /Offsite

3. Bagging And Handling Maintenance Department /Bagging &

Material Handling

4. Electrical Installation: Factory Electrical Department

5. Electrical Installation: township Electrical Department

6. Mobile Equipments Auto Section / Maintenance Department

7. Rolling Stock Maintenance Department

8. Air Conditioner & Cooler etc AC Section / Maintenance Dept.

9. General Maintenance Department

10. Emergency DG Plant Electrical Department

11. Water Supply Installation Maintenance Department /Civil Section.

12. Computer System EDP System Department


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13. Workshop Equipments Workshop Section

14. Weighing Equipments Instrumentation Section

15. Instrumentation Instrumentation Section

16. Laboratory Equipments Lab / R & D Section

17. Other Non Plant Equipments Maintenance Department

18. Audio Visual Equipments Instrumentation Section

19. Communication Equipments Electrical Section

20. Guest House Equipments Personal & Administration

Sr. No. Particulars Indenter

21. Stores Equipments Stores Section / Maintenance Department

22. Canteen Equipments Personal & Administration

23 R & D Equipments Lab / R & D Section

24. Hospital Equipments Personal & Administration / Medical

Section

25. Fire & Safety Equipments F & S Section / Tech Services

26. R & M –Stores (ERF) Stores Section

C. Civil Maintenance –Factory, Township

Sr. No Particulars Indenter

1. Factory –Liquid Cargo Jetty Civil Section

2. Factory- Railway Siding Civil Section

3. Factory- Office Building Civil Section

4. Factory- Factory Building Civil Section

5. Factory- Roads ,Culverts Civil Section

6. Township : Buildings Civil Section

7. Township: Roads, Culverts &

Drains

Civil Section


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D. Furniture & Fixtures


1. Furniture & Fixtures Personal And Administration

2. Office Equipments Personal And Administration

Above budget estimates are given by concerned sections based on last 3 years

actuals , present volume of assets , next years additions , deletion of assets etc .

The total of above three groups is shown at B .4. a) Of statement 3 (cost of

production) under operating expenses.

ANNEXURE-VII: Chemicals

Consumptions of various chemicals are also treated as fixed cost expenses.

Consumption of various chemicals remains constant irrespective of production activities.

In this group all types of chemical are covered which directly or indirectly

pertains to consumption of chemicals to be used in plants, tanks, lab etc. Budget

estimates are given by all departments for their area or where they are custodian of

particular chemicals.

In this group some chemicals are of stock item in nature & some chemicals are of

non – stock type items. Stock type items of chemical are being procured through stores &

non stock type of chemicals are being procured directly by actual users.

Following are major budget heads & their respective users / indenters


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Out of above items, Sr no. 4 i.e. Sulphuric Acid was procured 2-3 years back

under consumption of chemical group , but at present sulphuric acid is being procured as

a raw material item due to heavy Qty of this sulphuric Acid is mixed with other raw

material for nutrient purpose.

Above budget estimates are given by concerned sections based on last 3 years

actuals and present requirement of respective chemicals.

The total of above chemicals is shown at B-1 of Statement –III (cost of

production) under operating expenses.

ANNEXURE- VIII: Insurance Expenses

Insurance expenses are also treated as fixed cost expenses. Insurance expenses

remains constant irrespective of production activity since insurance expenses are to be

incurred to cover all type of risk for material and loss of profit in case of any incident

occurs due to major fire or natural calamity etc.

To cover all type of risk, budget is estimated by finance & Accounts Department

in consultation with technical service department .Since technical service department is

the custodian of main plant & machinery.


1. Spent Acid Utilities

2. Defoamer Production Dept/Stores

3. Chemicals Lab/R & D

4. Sulphuric Acid Utilities

5. Ammonia Bi-Sulphate Utilities


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Following are the major policies to cover different types of risks prevailing in day

to day transactions:-

1. Fire & Allied Peril Policy

a. New admin building & furniture & fixtures.

b. Township &public utilities / buildings

2. Marine Policies

a. Marine open cover- imported spares

b. Marine open cover- Inland (rail / road) Transit

3. Mega Policy

a. All buildings, plant and machinery, stocks, jetty, pipelines etc. (Everything

which is in ground)

b . Loss of profit policy

4. Miscellaneous Policies

a. Cine project at cinema ground, township

b. Cash in transit, case in safe / burglary

c. All risk policy for laptop & mobile phones

d. Vehicle policy

e. Cordet Pantia farm

f. Contractor all risk-ammonia tank

Some policies are taken by Head office for all the plants jointly & proportionate

expenses are to be accounted by Kandla Unit. Following are some policies taken by H.O.

• Public liability as per Public Liability Act


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• Public liability for industrial risk

• Terrorist cover.

All above policies are taken by Kandla Unit from their sister concern –M/S

IFFCO Tokio general insurance Co.Ltd.

Above budget estimates are estimated by F & A Dept based on last 3 years actuals

& re-instate value of the assets. The total of insurance expenses is shown at of Statement

–III (cost of production) under operating expenses.

ANNEXURE- IX: Factory overheads & research and development expenses.

Factory overheads & research & development expenses are also treated as fixed

cost expenses. These types of expenses are remaining constant irrespective of production

activities. In this group those fixed cost type expenses are covered which are not covered

in Annexure 5 to 8 budget estimate are given all departments for their area or where they

are custodian of particular items . However in this group major expenses are of service

nature.

Following are the major budget heads & their respective user / indenters

Sr.No Particulars Indenter

1. Traveling Expenses Personal And Administration

2. Local Conveyance Personal And Administration

3. Fixed Local Travel Concession Personal And Administration

4. Ground Rent Personal And Administration

5. Rent , Rates & Taxes Personal And Administration

6. Postage Charges Personal And Administration

7. Telephone Charges Personal And Administration


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8. Telex / NIC / Lease Charges Personal And Administration

9. Courier Charges Personal And Administration

10. Printing & Stationery Personal And Administration

11. Periodicals,Books&Newspapers Personal And Administration

12. Subscription to membership fees for

society

Personal And Administration

13. Seminar Expenses Training Section

14. Vehicle Running Expenses Personal And Administration

15. Advt. for tender &recruitment Personal And Administration

16. Legal Expenses Personal And Administration

17. Professional &Consul Charges Personal And Administration

18. Entertainment expense Personal And Administration

19. Courtesy Expenses Personal And Administration

20. Laboratory Expenses Laboratory / Technical Services

21. Bank Charges F & A Department

22. Pocket Expenses (Auditors) F & A Department

23. Other Sundry Expenses Personal And Administration

24. Stores Overheads Materials Dept

25. EDP Charges System Department

26. Product Advertisement Personal And Administration

27. Vehicle Hire Charges Personal And Administration

28. License Fees Personal And Administration

29. Loose Tools Written Off Stores Section / Material Dept.

30. Horticulture Expenses Personal And Administration

31 Electricity Expenses Electrical Department

32. Water – Township Personal And Administration

33. Guest House Expenses Personal And Administration

34. Training Expenses Training Section

35. Provision For Bad Debt Finance & Accounts Dept

36. Loss on Disposal of asset Finance & Accounts Dept


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37. Assets Written Off Finance & Accounts Dept

38. Emp. Contribution To KSF Personal And Administration

39. Honorarium To Visitor’s Training Section

40. Township Expenses-Others Personal And Administration

41. Vehicle Maintenance Auto Sec. / Maintenance Dept

42. Cost of Diesel for Pay loader/Mobiles Auto Sec. / Maintenance Dept

43. Gifts Expenses (Emp / Others) Personal And Administration

44. IRDP Expenses Personal And Administration

45. R & D Expenses Laboratory / R &D Dept

46. Security Expenses Personal And Administration

Above budget estimates are given by concerned section based on last 3 years

actuals & normal increase in activity as well as normal like in rates of various

procurement & services etc.

The total of above groups is shown at of Statement –III (Cost of Production)

under operating expenses.

ANNEXURE X: Grade wise cost of production

This Annexure 10 is prepared to derive grade wise cost of production and further

to Per MT cost of each grade.

In this Annexure total variable cost and fixed cost is appropriated as per norms &

stream hours respectively.

Grade wise stream hours based on budgeted production is given by technical

service department. Fixed Cost is divided by total stream hours run & multiply by grade

wise Stream hours. Thus grade wise fixed cost is derived.


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Once grade wise cost is derived, the same is divided by grade wise production.

All raw materials, utilities, packing material & fixed cost are divided by grade wise

production to get Per MT cost.

In this statement first we get cost of bulk production first and subsequently by

adding bagging expenses we get total cost of bagged production. This is an important

statement to take final decision about profitability of the org.

GENERAL :-

Following type of expenses directly taken at statement –III for which no annexure

are prepared.

• Depreciation which is directly calculated by finance & accounts

department by considering assets in books , estimated additions & deletion of the assets

during the budgeted year.

• Bagging expenses – cost of diesel –loco which is estimated by production

department based last 3 years consumption of diesel used for running of locomotives for

moving of railway wagons etc.

• Bagging expenses – cost of demurrage which is also estimated by production

department based on last 3 years demurrage incurred for loading of railway wagons.

4. Budget to Put-up to Unit Head for consideration:-

Once budget estimation as given by various sections / departments / is compiled

in statement –I to IV and in annexure 1 to 10 , same is put-up to Unit Head by


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departmental head of Finance & Accounts assuming all estimates are covered in

respective groups.

5. Meeting by Unit Head with various HODs / SHs:-

After receiving complete budget proposals from F & A Dept, Unit Head review

the same & call a budget review meeting with all Head of Department / Sectional Heads.

In this meeting Unit head discuss all the points related to budget estimates with respective

HODs / SHs , Unit Head once is satisfied with budget estimates, he give clearance to F &

A Dept to send the proposal to Head Office through him.

6. Final proposal to be sent to H.O.:-

Once Unit Head gives clearance to send the budget estimation to Head office , F

& A Dept prepare final proposals with changes , if any, as suggested / agreed by unit

Head. Revenue budget proposal are sent to Head Office. Head office further add Head

Office expenses, Marketing expenses etc, compile all other Unit’s budget, marketing

departments budget & put-up a consolidated budget to the Board of Director’s through

Finance Director and Managing Director’s.

In due course once budget proposals are approved by Board of Directors, Head

Office intimates all Units and Marketing department about the approval of budget of

respective Units.


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ANNEXURES


FYP Study Budget Budgetary Control

Documents

hods shs

specially

welfare colony

national safety

foreign exchange

reviewing

making substantial

marine open