kirti

Summer Training

Report

A STUDY OF BUDGETING SYSTEMAt

VARDHMAN POLYTEX LIMITED, BATHINDA

Submitted To

PUNJAB TECHNICAL UNIVERSITY JALANDHAR

BABA FARID COLLEGE OF MGT & TECH

BATHINDA(PUNJAB)

In partial fulfillment of requirement for the award of degree in

MASTER OF BUSINESS ADMINISTRATION

Session – 2008 – 2010

Submitted By

DEEPAK BANSAL

M.B.A. (FINANCE)

ROLL NO 8011

CONTENTS

TEXTILE INDUSTRY-AN OVERVIEW

PROFILE OF THE GROUP AND UNIT

HISTORY OF THE GROUP

COMPANY STRUCTURE

HIGHLIGHTS OF VPL BATHINDA

SWOT ANALYSIS OF THE UNIT

MANUFACTURING PROCESS OF THE UNIT

OBJECTIVES & SCOPE OF THE STUDY

LIMITATIONS OF THE STUDY

INTRODUCTION TO THE BUDGETS

BUDGET FORMULATION

BUDGET ANALYSIS & BUDGETARY CONTROL

BUDGETING SYSTEM IN VARDHMAN POLYTEX LTD.

BUDGETARY CONTROL IN VARDHMAN POLYTEX LTD.

PERFORMANCE & ACHIEVEMENT REVIEW

DIRECTIONS FOR FUTURE RESEARCH FINDINGS

SUGGESTIONS & CONCLUSION

SUMMARY AND FINDINGS

BIBLIOGRAPHY

ACKNOWLEDGEMENT

I wish to place on record my sincere thanks to various individuals who have

helped in carrying out this project. I am grateful to Management of Vardhman

Polytex Limited, Bathinda to allow me to have the summer training in their

industry.

First of all I wish to express my gratitude and sincere thanks to Miss Ritu

Sharma (training & placement officer) who allowed me to join summer training at

VPL.

It gives me immense pleasure to acknowledge my deep sense of gratitude and

sincere thanks to Mr Rajinder Pal (Executive HRD ) for agreeing for the training.

I am specially grateful to Mr. Sandeep Goyal for his support and guidance and

inspiration all through this project.

I would like to express my appreciation for the discussion and constructive criticism

from my friends during the course of this project.

Last but not the lest I am obliged to my family whose his moral support has been

major source of strength to carry out this project.

Deepak bansal

Date :

TEXTILE INDUSTRY-AN OVERVIEW

Cotton textile in India is a well-established manufacturing industry and employ more

workers than any other sector. In Indian textile mills, yarn is spun, woven into fabrics,

and processed under one roof. The textile industry occupies a unique place in our

country. Textile industry is providing one of the most basic needs of people and

maintaining sustained growth for improving quality of life. It has a unique position as a

self-reliant industry. From the production of raw materials to the delivery of finished

products, with substantial value-addition at each stage of processing; it is a major

contributor to the country’s economy.

India accounts for 25 percent of the world installed capacity of spindles and is one of the

largest exporters of yarns in international market. It has second highest spindlage in the

world after China with an installed capacity of 38.60 million.

India has several advantages in the textile sector, including abundant availability of raw

material and labour. It is the second largest player in the world cotton trade. It has the

largest cotton acreage, of about nine million hectares and is the third largest producer of

cotton fibre in the world. The textile industry is also labour intensive, thus India has an

advantage.

PROFILE OF THE GROUP

The industrial hub of the northern region - Ludhiana nestles the corporate Headquarters

of the Oswal Group of industries. The Oswal Empire expands from Anshupati Textiles

Limited to Vinayak Textile Mills both situated in Ludhiana to Vardhman Polytex

Limited in Bathinda . The Company has entered into a joint venture agreement with F.M.

Hammerle Group, Austria for setting up a Rs.255 crore green field project for

manufacture of quality yarn & piece dyed shirting fabric with annual capacity of 12

million meters. For this purpose, a new company in the name of 'Oswal F.M. Hammerle

Textiles Ltd.' has been floated which has set-up its plant at Village Kagal, Dist. Kolhapur

(Maharashtra). Vardhman Polytex hold a 76% stake in the the said joint venture

company and 24% equity is held by F.M. Hammerle Group. This project will definitely

decide the success of the group in the future. Oswal group is earning laurels by selling

yarn of international quality both indigenously and exporting it to several countries. Its

market share is increasing day by day.

HISTORY OF THE COMPANY: -

M/s Punjab Mohta Polytex limited was set up in 1983 and started production in

1984. In1987; it was taken over by Vardhman group and was named Vardhman Polytex

Limited. But after the family settlement in 2002, the unit came under Oswal group.

The group has very good potential and high presence in the textiles industry with well set manufacturing set up for 100% cotton, Polyester cotton, Acrylic and other blended yarns. New qualities of yarn added are Lycra and Slub yarn. All the group units are well equipped with machinery imported from Europe, Japan, China and many other countries. Continuous efforts are always being made to further improve the quality and match the industry standard to meet the demand of its customers.

After the family settlement, in January 2003, the company is ushering under the newly formed

Oswal Group. The company has set up a state of the art technology-spinning project at Focal

Point Ludhiana with an installed capacity of 24,288 spindles in January, 2004.

Further, a new state of the art Dye House has been installed at the same site with an installed

capacity of 13 MT / day which has been increased to 15 MT/day.

The company has also set up a state of the art technology-spinning project at Bathinda with

an installed capacity of 25,344 spindles for the manufacture of Cotton yarn/Blended yarn,

which has started its commercial production in May, 2005.

Thereafter, the company has expanded its capacity at Focal Point, Ludhiana with an installed

capacity of 25,315 spindles for the manufacture of Cotton yarn/Blended yarn which has

started its commercial production in October, 2006.

In 2006, the Company has joined hands with one of the leading European shirting fabric

manufacturer namely F.M. Haemmerle estd. 1836 for setting up of a green field project of

dyed yarn shirting fabric. The said project has been undertaken in the newly formed subsidiary

company namely "Oswal F. M. Haemmerle Textiles Ltd." at Kolhapur (Maharashtra) with

annual capacity of 12 million meters. The dyed yarn shirting fabric plant of OSWAL GROUP is

one of the best plant in India with latest state-of-art machinery and equipments. The

commercial production is started in the mid of the year 2008-09.

In 2008, the Company completed another expansion of 30,000 spindles at its existing location

in Bathinda and with this expansion, the total spinning capacity with OSWAL GROUP stands

increased to 1,65,872 spindles.

Vision:

We at Oswal Group will achieve a turnover of Rs 1,000 crore by the year 2012 by

strengthening its core competencies and capacities in Textiles and diversified businesses to

create value for its Stakeholders.

Mission:

Oswal Group on a learning curve will expand capacities in Textiles and reinforce Customer-

delight by manufacturing world-class quality using state-of-the-art technology.

Core values

Total Customer Delight

Competing with the best

Total Quality People

High Product Quality is a Way of Life

Continued Improvement through Innovation and Creativity

State of Art Technology with ultra-modern R&D Facilities

Respect of Every Oswal Group Parivar Member

Achieving Excellence through Culture Integration

Change is a Way of Life

Act as responsible corporate citizen and discharge our social responsibilities

Quality policy

Quality is built into the company's products to not only meet customer requirements

continuously, but exceed them. The company will achieve this through an interface with the

market place, access to state of the art technology, continuous R&D, Process Development

and adoption of innovative manufacturing and marketing strategies.

The quality policy is integrated with the company's main objectives:-

To remain market leader in quality.

Increase market share with focus on niche segments.

Improve productivity

Cost reduction

Reduction in percentage of seconds.

The management is committed to provide resources and comply with all requirements needed

for fulfillment and continual improvement of quality management system.

Quality culture is created throughout the organisation through training and motivation of

people at all levels. The quality policy is implemented through a network of systems and

procedures understood and followed throughout the company.

COMPANY STRUCTURE

OSWAL F.M HAMMERLE TEXTILE LIMITED

VTM,LUDHIANA(SPINNING & DYEING)

ANSHUPATI,LUDHIANA(SPINNING )

A.M.KRYON,LUDHIANA(READYMADE GARMENTS)

OSWAL GROUP

VARDHMAN POLYTEX LIMITED

VARDHMAN POLYTEX LTD.,BATHINDA (SPINNING)

ANSHUPATI TEXTILES LIMITED, based at Ludhiana(Punjab), was setup in

1991 with an installed capacity of 8000 spindles to manufacture Grey/Dyed Acrylic

Yarn, Fancy yarn. The Acrylic Yarn is used in the manufacturing of Hosiery & Knitted

Garments. This Unit also manufactures the Acrylic Yarn which is used in manufacturing

of Mink Blankets. Presently it has the capacity of 12000 spindles. The quality yarn in

this unit is manufactured using technology imported from Europe, which is fully backed

with ultra modern R&D equipment for consistent quality. The yarn manufactured from

this unit has demand both in domestic and international market. The present capacity in

terms of production is approximately 7.5 ton/Day.

VINAYAK TEXTILE MILLS, The Company has setup this Unit in 2004 at

Ludhiana with an installed capacity of 25000 spindles. The Unit has latest state-of-the-

art-technology imported from Rieter (Switzerland), Murata (Japan) & Uster

(Switzerland). The Company has also installed a Dye House at the same location having

capacity of 13.2 MT per day with latest machinery imported from Fongs

(China).Company under this unit is manufacturing 100% cotton yarn with vast range of

count selection varies from NE 20 to 40 both in carded and combed varieties.Presently,It

has installed capacity of 50000 spindles. The present production capacity is around 30-

mt/Day and 13-mt dyeing /day.

Oswal F. M. Hammerle Textiles Limited -: is a joint venture company

promoted by Oswal Group, primarily engaged in textile manufacturing right from spinning to

garmenting in India. OFMHTL is a flag-ship company of Oswal Group and is aiming to cater the

market of premium shirting segment by providing finest quality top of the line shirting fabrics

for dress wear. OFMHTL is a joint venture between F. M. Hämmerle, Austria and Oswal Group,

who has a formidable presence in global textile business since long.

By clearly defining assignments in the management of the company, Dr. R. Mittal is Group

CEO responsible for entire business, A. K. Joshi, Unit Head for managing the entire Unit, B.

Ghosh, Manufacturing Head, Dr. A. Thakare is TQM Head, and G. Natarajan, Chief Engineer, a

strong synergy exists between the individual departments with a dynamic approach to

decision making. This leads to a very quick response to the wishes of customers, a great deal

of creativity in fabric development and styling and provides a decisive impulse also in plant

operations.

As a matter of fact during the last two years, in other words between 2006

and 2007, some 66 million USD has been invested into this new project so far. This has meant

not only the entire complement of machines has been commissioned, but also emphasis was

focused on new storage facilities, information systems, logistics and an intensive and

comprehensive personnel training program. Manufacturing capacity is 12 million meters per

annum in Premium Quality Shirting Fabric for dress wear. Our product is made

from 100% Giza cotton and that too with VAT dyeing. Primarily our yarn count range is from 40’s Ne to 80’s Ne in single and from 2/80’s Ne to 2/140’s Ne in two ply yarn for 180 ~ 200 average GSM of finished fabric.

VARDHMAN POLYTEX LIMITED, a unit based at Bathinda(Punjab) The company

has completed its expansion project and with this, the total capacity of the company has

increased to over 1 lakh spindles making it one of the largest in Northern India. with

Present installed capacity of 1,04,592 spindles, is manufacturing 100% cotton yarn,

Polyster cotton yarn, lycra, slub and viscose yarn with vast range of count selection

varies from NE 10 to 40 both in carded and combed varieties. The Unit is situated in the

hub of COTTON BELT and derives the advantage of procuring its basic raw material of

best quality at lower cost from nearby locations. the Company has also set up an

independent Cotton Purchase Office in Bathinda for the selection & procurement of

Cotton to meet out its requirement in all the Units The company had been awarded the

Export House status by the Government of India. The present capacity in term of

production is around 65000 Kg/day.

CURRENT SET UP:

Presently the Company has its corporate office situated at Chandigarh Road, village

Mundian, Ludhiana and works at Bathinda &Ludhiana. The day to day operations are

looked after by qualified technocrats/professional at plant/work as well as at corporate

office having experience in their respective fields of management. Presently Mr.Ashok

Goyal is the Chief Executive of Vardhman Polytex limited.

PRESENT CAPACITIES

Presently the group has following production capacity and product range at its

different manufacturing facilities.

Location Installed

Capacity

(spindles)

Production

Capacity

Product Range

Bathinda (VPL) 1,04,592 65000kg/Day Cotton, synthetic,

Blended

yarn,lycra,slub

Ludhiana

(Anshupati Textile)

12000 7.50 MT/Day Acrylic Yarn

Ludhiana (VTM) (spinning &

dyeing)

50000 30-MT/Day

13-MT

dyeing/Day

100% Cotton yarn

HIGHLIGHTS OF VPL- BATHINDA

COMPUTERISATION

Presently the unit is operating under “SAP”. The system work completed & come

into working from April 2007. This system is well structured keeping in view the

present tax regime like VAT, SERVICE TAX, and TDS etc. The Server for this is

situated at LUDHIANA. The feature of system is that data related to all units are

available at different units & branches. Each department can access data related to

different units at there own site subject to authorization. Personal computers have also

been provided separately for each department like administration, costing, R&D,

Maintenance as well as the production areas.

RESEARCH AND DEVELOPMENT

VPL has a well-established R&D department to assure quality and supervise yarn

manufacturing from the very first stage of raw material procurement i.e. cotton

purchasing to the final stage of finished good manufacturing i.e. yarn. All the stages have

pre-established standards and the output of every step is tested in comparison to these

standards in the ultra modernized machines like HVI-(Higher Volume Instrument),

AFIS, UT-3- (Uster Tester) and the deviations reported at the earliest .All of this

machinery is totally imported and checks for the various parameters of yarn like Its

strength, elongation, trash, length, color, fineness, moisturizer etc is done. At the End,

fabric produced is also tested and graded so that the quality could be assured and

Contamination is reduced. VPL also has a Process Developmental Cell to improve

processes and gain efficiency.

I.S.O. CERTIFICATION

The unit had been awarded ISO-9002 certificate by Bureau of India standards. The ISO

certification is an assurance of good quality of the product. At present, unit had been

awarded ISO-9001 – 2000 by bureau of India Standard.

PROCUREMENT OF COTTON

The raw material required for yarn manufacturing is cotton and the cotton

requisite of VPL is sent to the corporate office which purchases it by its COTTON

PURCHASE OFFICE located in Bathinda .The selectors of COTTON PURCHASE

OFFICE visits the local cotton markets in the towns of Punjab, Haryana, Rajasthan

where they with the help of cotton brokers enter in the agreement with Ginning factory

owners. Along with the selector of CPO, ginning factory owner goes to the cotton market

and selects the cotton in the unit of bales. After ginning this cotton is dispatched and

payment made with the help of commission agent.

MARKETING

For Marketing of different product, the unit is having a modern marketing

department headed by experienced team that covers all the activities for conversion of

finished goods into cash. It keeps vigil on the market feed-back on the level competition,

market, trend, changing customer needs and modifications. The marketing department

deals with domestic sales, while export department of the group manages export sales.

The VPL’s having the export and domestic ratio is 18:82. The unit is having different

channels for distribution of its products.

1. Selling agents at Ludhiana, Amritsar, Delhi, Mumbai and Tirupur.

2. Branches at Delhi and Ludhiana.

3. Direct Dispatches are also made by the units.

PRODUCTION

The unit is producing difference types of yarn both for Domestic consumption and

Export purpose. The production department is headed by Assistant General Manager

(A.G.M.). The department has four units. The unit I is related to the production of cotton

yarn and Lycra. The unit – II is for the production of cotton yarn, slub & unit-II

expansion is for the production of Polyester, Cotton yarn, blended yarn & unit – III

partially Polyester & 100% Cotton yarn . Unit IV is related to the production of cotton

yarn.

EXPORTS

The exports at the group level started in 1985-86 due to increased govt. attention

during that period. For promoting the export govt. has also assigned the export house

status to the group in the late eighties.Export and Domestic ratio of VPL is 18:82.

Company has been awarded two stars with ‘EXPORT HOUSE’ Certificate . VPL exports

yarn to countries like BANGLADESH, HONGKONG, KOREA, MALAYSIA,

PHILLIPINES, SINGAPORE, SRI LANKA, VIETNAM, PORTUGAL.

INDIGENEOUS CUSTOMERS

The indigenous customers of VPL, Bathinda; are industries like RAYMOND,

SURYA LAKSHMI, and cities like DELHI AND LUDHIANA in the North, TRIPURA

in the South etc.

COMPETITORS

VPL is in tough competition with VARDHMAN GROUP;

NAHAR GROUP, LUDHIANA; TRIDENT etc.

SWOT ANALYSIS

STRENGTHS

1. Adequate competency and confidence in all dep.

2. Committed team members from top of bottom.

3. Core competency for textiles

4. Capability for troubleshooting and crisis management.

5. Creative and innovative thinking.

6. Peaceful industrial environment

7. Strong discipline and positive attitude culture

8. Relatively advanced technology and reliable captive power

9. Strong HRD and development tools for work force.

WEAKNESS

1. Economies of scale

2. Slow acceptance to changes / rigidity to some extent

3. Locational factors like away from textile / financial hub.

4. Technology up gradation particularly in engineering end computerization /

communication.

5. Professional depth in few places / areas.

OPPORTUNITIES

1. Globalization

2. Liberalization in govt. policies and tax laws.

3. Availability of latest / state of art technology and know how /

communication.

4. Availability of easy finance

5. Availability of good professionals

THREATS

1) WTO

2) VAT

3) Unpredictability about cost of input like raw cotton fuel for CPP,

imported spares.

4) Shorter life span of imported technology

5) Instability of production work force

6) Squeezing margins of profit in textiles specially in spinning.

Issue of Cotton Bales

Laying Down

Blow Room

Card

Breaker Draw Frame

Finisher Draw Frame

Unilap

Comber

Speed Frame

Ring Frame

Winding

Cheese Winding

T.F.O

Conditioning

Packing for Double Yarn

Conditioning

Packing for Single Yarn

Storage & Despatch

MANUFACTURING PROCESS FLOW CHART 100% COTTON CARDED/COMBED YARN

MANUFACTURING PROCESS IN VARDHMAN POLYTED LIMITED, BATHINDA

Raw cotton is used as a basic raw material for producing 100% cotton yarn for

ring spun.

1. MIXING

The different varieties of cotton are issued as per product mix from the raw

material section in bale from. The different varieties of cotton and different lots

are mixed together as per the requirement of end product and standard

recommended mixings. The material is conditioned in mixing for 24 hours.

2. BLOW ROOM

In this process, the cleaning and opening of fibers is done in a sequence of

beaters. Main purpose is to reduce tuft size, remove the trash particles and

foreign matter etc, which often comes in the bales.

3. CARDING

In this process, further cleaning of fibers is done and the fibers are opened unto

single fibers extent i.e. the main purpose is further removal of trash in cotton and

the industrialization and parllelosation of fibers. From the carding machine, the

material is delivered in the form of silver.

4. DRAW FRAME

The purpose of this process is to reduce the wt/yard in the card sliver 6 to 8 end

of card slivers are doubled together in this process to reduce variations and

further drafting is done to reduce the wt/yard of delivered sliver. Two passages

are given at the draw frame stage.

In case of combed counts, the card sliver is fed to the precombing draw frame.

The purpose of combing draw frame is to reduce the wt/yard variations in the

card sliver and to parllelise the fibers. Singles passage is given at the

precombing stage.

5. LAP FORMER

20-25 precombed draw slivers are fed together to produce a lap sheets of fibers,

which is wound on the spools.

6. COMBERS

The laps prepared on lap former are fed to combers. The main purpose of

combing process is to remove the short fibers from the material in the form of

noil. The average noil percentage caries from 15% to 18%. The material is

delivered in the form of silver.

7. SPEED FRAME

The finisher draw frame sliver is fed to the speed frames for conversion into the

roving form. In this process the wt/yard of the sliver is reduced, slight twist is

given to the fleece and the material delivered in the form of roving, wound on the

plastic bobbins.

8. RING FRAME

The roving is fed to ring frame for conversion into yarn. In the process, the

weight / yd of roving is reduced as per requirement of ultimate user and the

delivered yarn is wound on the plastic bobbins.

9. WINDING

In this process, the yarn is wound on paper cones to produce bigger package, as

per requirement of the market. The weight / package varies from 1.2 kilogram to

2.1 kilogram. During the process, in addition to the formation of bigger packages,

the yarn faults are also removed with help of electronic yarn cleaner.

10. DOUBLING

In the case of type cord the process is same upto cone winding. After cone

winding the yarn is fed into Cheese Winding. In the process 2 ply or 4 ply is to be

done as per requirement. After the yarn is fed into ring doubling and required

T.P.I. is given in 2 ply or 4 ply yarn. In the next process in assembly cheese

winding is get the package in the package in the required from to be fed into

T.F.O. in T.F.O. final yarn is prepared in theform of cheese and required T.P.I. is

given to the final yarn in process.

11. PACKING

In this process, the cones / cheese are packed in bags or cartoons as per the

requirement of the market. In addition to the packing the material is checked

thoroughly to avoid mixing of different materials.

OBJECTIVES OF THE STUDY

The main objectives of the study are as under :

To be conversant with budgetary control system in any large business

organization.

To develop the understanding about responsibility as to why and by whom

it is made.

To be familiar with nature, type and purpose of budget to be submitted by

the various department.

To have better understanding about the budgetary control system through

different departments of organization.

To study and review the present budgetary control system in VPL,

Bathinda for the purpose of better understanding of system and making it

more effective.

SCOPE OF THE STUDY

To study the concept of budgetary control and for proper understanding of this

concept, I have done the study of annual budget, monthly budget, annual review,

monthly review and commercial review. And then from review, reasons for

variances are found out from control point of view.

LIMITATIONS OF THE STUDY

As budgets are prepared for the future period so situation which, is

presumed to prevail in future may change.

Time to study concept of budgetary control is very limited.

Identification of the persons, involved in Budgeting.

INTRODUCTION

Budgets can be prepared for and used by anyone and anything. That is, we can

prepare and use personal budgets and organisations, ministries and non profit

making organisations can all use them.

Budgets, by definition, have to be prepared in advance; and for this reason, they

are often referred to in terms of their being part of a feedforward system.

Feedback is a term frequently heard both in accounting and ordinary use.

Feedforward, on the other hand tends to be less frequently heard, yet this word

incorporates the most important aspect of budgeting: looking at situations in

advance, thinking about the impact and implications of things in advance,

attempting to take control of situations in advance.

BUDGET

A budget is quantitative expression of a plan. It is commonly used by business

firms, government agencies, non-profit institutions, and even households.

Budget is a financial statement, prepared prior to a defined period of time of the

policy to be pursued during that period for the purpose of attaining a given

objective. Budgets quantity the planned financial effects of activities aimed at

continuous improvement and cost reduction.

Well managed organizations usually have the following budgeting cycle :

1. Planning the performance of the organization as a whole as well as its

submits. The entire management team agree as to what is expect.

2. Providing a frame of reference, a set of specific expectations against

which actual results can be compared.

3. Investigation variations from plans if necessary, corrective action follows

investigation.

4. Planning again, considering feedback and changed conditions.

OBJECTIVES OF SETTING BUDGET

1. A budget is a blue print of the desired plan of action or operation plans

covering the entire organization and all its functions like purchases,

production, sales, financial requirements, research and development are

expressed through budgets. The budget serves as a declaration of policies

and also defines the objectives fro executives at all levels of management.

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

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

sales, possibilities and procurement of material, labour etc. are balanced and

coordinated so that all the activities proceed according to the objectives.

Budgets inculcate team spirit and are like putting so man people together to

solve a common problem.

3. Budgets are means of communication. Complex plan laid down by the top

management are passed on to those who are responsible for putting them

into action.

4. Budget facilities centralized control with delegated authority and

responsibility as they are grouped according to the responsibilities of different

executive levels, they facilitate decentralization of work.

Hence budgets are instruments of managerial control by means of which the

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

corrective action as soon as any variation from budget emerges.

CLASSIFICATION OF BUDGETS

Budgets are classified according to the different purposes they serve. The

budgets can be classified according to :

1. The coverage they encompass

2. The capacity to which they are related

3. The condition on which they are based

4. The period which they cover

BUDGET

COVERAGE CAPACITY CONDITION PERIOD

1) Financial budgets

a) Sales Budgetb) Production budgetc) Administration budgetd) Capital Exp. budgete) Research & Dev. Budgetf) Cash budget

2) Master Budget

1) Fixed budget

2) Flexible budget

1) Basic budget

2) Current budget

1) Long-term budget

2) Short-term budget

CHARACTERISTICS OF A BUDGET

A good budget is characterized by the following :

Participation : involve as many people as possible in drawing up a budget.

Comprehensiveness : embrace the whole organization.

Standards : base it on established standards of performance.

Flexibility : allow for changing circumstances.

Feedback : Constantly monitor performance.

Analysis of costs and revenues : this can be done on the basis of product

lines, departments or cost centers.

ADVANTAGES OF BUDGETING AND BUDGETARY CONTROL

There are a number of advantages to budgeting and budgetary control:

Compels management to think about the future, which is probably the

most important feature of a budgetary planning and control system. Forces

management to look ahead, to set out detailed plans for achieving the targets

for each department, operation and (ideally) each manager, to anticipate and

give the organisation purpose and direction.

Promotes coordination and communication.

Clearly defines areas of responsibility. Requires managers of budget

centres to be made responsible for the achievement of budget targets for the

operations under their personal control.

Provides a basis for performance appraisal (variance analysis). A budget

is basically a yardstick against which actual performance is measured and

assessed. Control is provided by comparisons of actual results against

budget plan. Departures from budget can then be investigated and the

reasons for the differences can be divided into controllable and non-

controllable factors.

Enables remedial action to be taken as variances emerge.

Motivates employees by participating in the setting of budgets.

Improves the allocation of scarce resources.

Economies management time by using the management by exception

principle.

PROBLEMS IN BUDGETING

Budgets may be an essential part of any marketing activity they do have a

number of disadvantages, particularly in perception terms.

Budgets can be seen as pressure devices imposed by management, thus

resulting in :

a) Bad labour relations

b) Inaccurate record keeping

Departmental conflict arises due to :

a) Disputes over resource allocation

b) Departments blaming each other if targets are not

attained.

It is difficult to reconcile personal / individual and

corporate goals.

Waste may arise as managers adopt the view, “we

had better spend it or we will lose it”. This is often coupled with “Empire

building” in order to enhance the prestige of a department.

Responsibility versus controlling, i.e. some costs are

under the influence of more than one person, e.g. power costs.

Managers may over-estimate costs so that they will

not be blamed in the future should they overspend.

BUDGET FORMULATION

KEY FACTORS

The starting point for preparing budget at unit level is to determine companies

limiting factor e.g. Sales forecasts, raw-material availability. In case of VPL unit,

the production capacity is taken as the limiting factor. Therefore the unit’s

production budget is the pivot around which all functional budgets are prepared.

The budget factor constitutes the starting point for the preparation of many

budgets. The budget factor highlights the limitation of the undertaking as for e.g.

Production capacity is the limiting factor of VPL.

INTERPRETATION OF DIFFERENT BUDGETS PREPARED BY VPL

BUDGET AT GLANCE

Budget at glance shows the overall structure of organizations. It shows the sale

value of production for different quarters and its total value. The various

expenses like raw material, manufacturing expenses, personnel expenses,

administration expenses, selling expenses and excise duty are deducted from

sale value to arrive the profits. Budget at a glance shows Quarter wise PBDIT.

MAJOR ASSUMPTIONS

The budget deals with the future, which is full of uncertainties. The major

underlying assumptions forecasted are:

PERIOD ALLOCATION: whole annual budget is divided into four semesters:-

April to June.

July to Sept.

Oct to Dec.

Jan to march.

It indicates the utilization %age of various m/cs during four

quarters.

Sales rate (provided by Central Marketing).

Power rate purchased and own generation.

Hike in wage rate / salary, manpower recruitment.

Working days etc.

Waste %age: it indicates the rates taken for the purchased of

cotton.

Cotton and PSF prices.

Exchange rate for Exports.

BUDGETED CONTRIBUTION STATEMENT

Budgeted contribution statement shows the sales value minus variable cost.

Total variable cost is calculated by adding raw material cost, wages, power,

packing material, selling expenses and excise duty. This variable cost is

deducted from sales to give contribution per count. To make it more

analytical count wise contribution P/S/S is calculated.

RAW MATERIAL BUDGET

Production budget is the base for Raw material budget. On the basis of

production and yarn recovery % raw material requirement is calculated. The

estimated quality of raw material is then multiplied by the pre anticipated

cotton prices. For 1st half of the budget year actual book prices are

considered while for 2nd half budgeted rates are considered which are

provided by cotton purchase office.

BUDGET WASTE REALIZATION STATEMENT

This report shows the various types of cotton waste to be generated by the

various cost centers starting from blow room to packing. Department wise

waste percentage is provided by the production department. Quality wise

waste is then multiplied by expected rate, which are being provided by

commercial department.

MANUFACTURING EXPENSES BUDGET

All the variable and fixed expenses, which relates to manufacturing process

are considered under the head of manufacturing expenses in annual budget.

The major expenses covered in this budget are: energy charges, packing

charges, and maintenance charges, which comprises: - machinery repairs,

planned replacement, stores consumables, oil & lubricant and electrical /

electronics cost departments.

POWER AND FUEL BUDGET

This report indicates the cost of power and the fuel used for operating D.G.

sets keeping in view the requirement and supply of power, units of power per

unit cost of power is calculated. Similarly keeping in view the use of D.G. sets

cost of H.S.D./ HPS is calculated. Units to be consumed in each department

are given by electrical department. As the unit have 80% power of its own

generation. Expenses like maintenance cost, oil & lubricant of WARTSILA

and other D.G set are provided by power house.

PERSONNEL EXPENDITURE BUDGET

This report shows the fact based on anticipated expenses relating to the

personnel. It comprises department wise wages. Head wise various

personnel expenses such as Basic salary, H.R.A., conveyances, medical,

LTA, ESI, P.F., Bonus, welfare expenses and other incentives etc. Detail

department wise manpower is given by respective department to I.R

department. on the basis of department wise personnel budget is being

prepared by Industrial relation department.

ADMINISTRATION EXPENDITURE BUDGET

The expenses relating to general administration are considered under the

head of administration. The expenses comprised in this report are insurance,

rent, traveling, vehicle expenses, printing & stationery, postage & telegraphs,

electricity & water charges, books & magazines, legal & professional, rates &

taxes, general repairs, auditor expenses, charity & donations, general

charges, survey fees etc.

INSURANCE EXPENSES BUDGET

Budget would show the sum insured and rate of premium for different type of

assets. Major insurance policies under taken as follows: -

i. Policy of fixed assets: for plant & machinery and building

(insurance expenses allocated to different department on the basis of P &

M value and building expenses. Are allocated on the basis of covered

area.)

ii. Marine policy: state of finished goods, purchase of raw material,

purchase of stores, cash in transit and machinery breakdowns etc.

iii. Policy of stock: For stock of finished goods, raw material and

stores and spares.

iv. Other policies: it covers the other misc. policies.

BUILDING REPAIR BUDGET

It is prepared by Civil Department. This report indicates the expenses to be

incurred on building repair. The repairing expenses are divided in three

parts:-

Factory building repairs

Non factory building repairs

Colony building repairs.

SELLING EXPENSES BUDGET

All the expenses relating to sales are comprised in this report. The major

expenses covered in this report are:-

Commission of sales (exports & domestic)

Cash discount and quantity discount

Freight, octroi & other forwarding expenses

Advertisement and other promotional expenses

Rebate & claims

Cess on yarn & truck expenses: not on exports but on

domestic sales.

Cash discount

Quantity discount

FINANCIAL EXPENDITURE BUDGET

It includes the following expenses:

i. Interest on Working Capital – Fixed at Corporate Office, Ludhiana.

ii. Interest on Term Loan.

iii. Interest on Suppliers – if the payment is made with in 72 hours from

time of pressing of bales the supplier give interest of 24%.

iv. Interest on trade deposit and other bank charges.

v. Interest on Head office investment.

BUDGETED CONVERSION COST

This report indicates all the expenses, which are incurred on converting Raw

Material Goods into Finished goods. All the expenses are allocate in following

parts.

Manufacturing expenses, Personnel expenses, Administration expenses and

spd. Shift is calculated.

BUDGETED RING FRAME ALLOCATION: -

It comprises the complete production programme for the budgeted period. It

indicates the quarter wise machine allocation for production of various quality

of yarn.

BUDGETED PRODUCT MIX

This report indicates the combination of various quality of yarn to be

produced during the budgeted period.

Combed Export

Combed Domestic

Carded Export

Carded Domestic

Tyre Cord – Domestic

PC – Combed Export as well as domestic PC – Carded

BUDGETED STOPPAGE REPORT

This report indicates the department wise & head wise reasons of stoppage

of machines. All these reason are divided into two parts :

Avoidable

Non-avoidable.

Each concerned department provides budgeted stoppage of his department.

A compiled report is prepared by production department.

TARGET MAN MINUTES PER KG

Based upon the budgeted production and manpower deployment, budget

man-minute are being calculated. This report shown man-minute required to

provide one kg of yarn.

MAINTENANCE BUDGET

As the name implies “maintenance budget”, this is report is concerned with

indicating the total expenses to be incurred on maintenance of machines and

parts during the year. It comprises department wise expenses of various

machines.

STANDARD PACKING MATERIAL COST / KG

This comprises the mode of packing, standard Weight material cost, wages

costs, packing material cost per kg. (With 1% waste)

Different type of packing

Export KH 44.10

CH 45.36

TC 65kg

Domestic KH& CH 42.50

PC 45.36

SALES BUDGET

Sales budget involves a realistic sales forecast. This is prepared in units of each

product and also in sales value. Methods of sales forecasting include:

Sales force opinions

Market research

Statistical methods (correlation analysis and examination of trends)

Mathematical models.

In using these techniques consider:

Company's pricing policy

General economic and political conditions

Changes in the population

Competition

Consumers' income and tastes

Advertising and other sales promotion techniques

After sales service

Credit terms offered.

SALES BUGET IN VPL

Sales budget at group level is prepared by the Central marketing department

as part of the annual marketing budget taking into consideration

organizational objectives, forecasted market scenario, capacities and

capabilities. The unit sales budget is prepared on the basis of the group sales

plan.

At the unit level in VPL, the planned product mix is arrived at in consultation

with Central Marketing Department. The central marketing at unit level would

however jointly work to finalize the optimal product mix for the unit keeping in

view production capacity and capabilities, expected products, prices, market

demand, customer’s requirements.

MAIN POINTS TO BE CONSIDERED:-

Sales budget is prepared by PPC (production planning and control), where

EXPORT MARKETING, LUDHIANA BRANCH and DELHI BRANCH sends

their sales requirement i.e. quantity required, what should be the sales price

(in USD) and in Rs. and they do this by doing sales forecasting through

historical data, production constraint, trends and destinations.

PRODUCTION BUDGET

FOR in quantitative terms only and is geared to the sales budget. The production

manager's duties includes analysis of plant utilization

If requirements exceed capacity he may:

Subcontract

Plan for overtime

Introduce shift work

Hire or buy additional machinery

The materials purchases budget's both quantitative and financial.

PRODUCTION BUDGET IN VPL

The production budget is prepared taking into consideration the installed

capacity and new capacity/balancing machines plan during the year with the

objective of optimum utilization of production facilities available in the unit and

would include production programme. Production programme shows count

wise spindle speed, front roller speed, twist per inch, efficiency percentage to

calculate production per spindle in gms.

BUDGET ANALYSIS

The basic objective of budget analysis is to modulate the goal-oriented behavior

of the units and help them formulate and achieve right objectives. The unit

budgets would be analyzed at the unit / corporate level on the following

parameters.

1. PRODUCTION

For determining a unit’s performance production budget is the key variable i.e.

the variable whose performance will have most significant impact on the unit’s

working. The units production budget would be analyzed on the following basis.

2. CAPACITY UTILIZATION

Capacity utilization budged for Ring Frame and other balancing machines

Combers and Autoconers shall be analyzed with respect to

Past performance

Performance by other units

Bench marks

Inconsistencies and deviations would be worked out and reasons there of like

power, labour machine balancing, raw material etc. shall be examined.

3. PRODUCTIVITY

The account wise budgeted productivities of Ring Frame would be analyzed on

the basis of

Past Performance

Performance By Other Units

Productivity Norms

Actual count

Mixing Composition

Health Of Machines

Ring Diameter

Environment Conditions

4. WASTE

Another key variables for analyzing production budget of a unit is waste budget.

The budgeted waste determine how effectively the process control measures

have been designed by the unit.

The waste budget shall be evaluated keeping in view the following :

Department wise process wise waste generation – carded, combed

Past performance

Other units performance

Bench marks

Trash content in cotton

5. EXPENSES

The analysis of expenses is essential to determine the impact of these on cost of

production. The parameters to be analyzed are :

RAW MATERIALS

The raw material cost needs to be closely examined because 70% of total

cost is on account of raw material. The raw material purchase is

undertaken at the group level and the raw material department indicates

the budgeted prices. However, at the unit level, the raw material budget

would be analyzed in term of.

Raw material mix

Yarn realization

Waste recovery

Clean cotton cost

In analyzing raw material mix, group standards and mixings used by other

units &target given by Corporate can be taken into consideration.

MANUFACTURING EXPENSE

The analysis of various direct expenses budgeted by the unit shall be done to

as certain cost effectiveness.

A. POWER : Power significance as it is the second highest cost of input next

to Raw material cost. Power cost shall be analyzed keeping in view the

following parameters.

No. of units per spindle shift

Cost of generation of power

Proposed hike in P.S.E.B rates.

Trends of fuel prices.

Maintenance schedule of own generated set.

The analysis shall be done taking into consideration the previous year

consumption and consumption and consumption levels of other units having

similar count patterns.

MAINTENANCE COST

In this analysis of maintenance, engineering and production budget is done.

The analysis of various indirect expenses shall be made to ascertain their impact

on production cost. The various indirect expenses which are to be analyzes are:

a) SELLING EXPENSES : Budgeted cost of advertising, sales promotion,

freight and commission shall be studied in relation to previous year’s

expenses and new requirements etc.

b) PERSONNEL EXPENSES

WAGES : The total budgeted wage cost shall be analyzed in terms

of previous year’s cost and experience of other units and also other

factors like statutory wage revision and wage agreement etc. The wage

cost shall also be analyzed with reference to process wise, category wise

deployment of man power along with workloads.

SALARY : Department wise deployment of officers and staff shall

be analyzed keeping in view the following :

o Sanctioned strength

o Past record

o Deployment in other units

FIXED WAGES COST

Wage cost incurred on Overlookers and other personnel engaged in service

departments shall be analyzed on the basis of past experience, per spindle cost

and possibility of cost reduction.

c) EXPENSES

TRAINING EXPENSES

Budgeted training activities and associated cost like wages during training

period, faculty cost, study material cost, etc. shall be analyzed taking into

consideration capacity plan expansion and normal turnover.

Deployment of trainees shall be studied against bench marks and previous

year’s deployment.

In using budget as an instrument of control, actual result will be compared with

the budgeted on monthly / quarterly basis to prepare periodic performance report

and to identify deviation. An analysis of variances can help understand the

problem better and take appropriate corrective action. The variances can occur

on account of the following :

a) Caused by un-controllable facts like government policies, raw material

prices, production, marketing problems etc.

b) Caused by managerial decisions not initially planned e.g. product mix

change. Controllable factors, which need to be carefully investigated.

BUDGETARY CONTROL

Control activity is fundamental to all living systems. In the context of organization

it is crucial to the achievement of goals and objectives. The control process

essentially involves measurement of the actual state and comparison with

desired state. Budgetary control system is one of the important control system

employed in an organization. It includes preparation of budgets which means the

setting out the desired state and comparison with actual state. (Budgetary

Control).

IDENTIFICATION OF KEY FACTORS

In every firm, there are critical factor which sets a limit to its level of activity.

Often, the expected demand, production capacity of the firm, availability of

power, raw material availability and some time finance for the budgeting, as it

determines the scope and level of operations.

Budgetary Control : It is the process of determining various budgeted figures for

the enterprises for the future period and then comparing the budgeted figures

with the actual performance for calculating variance, if any. First of all the

budgets are prepared and then actual are recorded. The comparison of

budgeted and actual figures will enable the management to find out the

discrepancies and take remedial measures at a proper time. The budgetary

control is a continuous process which help in planning and coordination. It

provides a method of control too. A budget is a means and budgetary control is

the end-result. Budgetary control refers to the principles, procedures and

practices of achieving given objectives through budgets.

DEFINITION

Budgetary control involves the use of budget and budgetary reports, throughout

the period to coordinate, evaluate and control day operation in accordance with

the goals specified by the budget.

Budgetary control involves preparation of budgets and business is divided into

various responsibility centers for preparing the various budgets. The budgeted

and actual figures compared for studying the performance of different cost

centers if actual performance is less than the budgeted norms a remedial action

is taken immediately management information system is used in finance and

accounting for budgetary control purposes.

BUDGETARY SYSTEM IN VARDHMAN POLYTEX LTD.

NEED OF BUDGETING IN VPL

It integrates the objectives of all sub-units – Marketing, Production,

Finance, Human Resources, Research & Development.

Quantify expectations regarding future income, cash flows, financial

position etc.

Comparing performance with plans

Foreseeing and avoiding prospective difficulties

Identifying control factors, indicating deviations in resource utilization,

productivity’s expenses, wastages.

Locating areas for improvement

Communicating, motivating and authorizing actions

DEVELOPMENT OF BUDGETS

The preparation of individual budget deciding upon scope of budgets, suitable

time to start budgeting scheme, requirement of budgets. In VPL, costing

department is responsible for compilation of the budgets in set forms. All

departments prepare their budgeted requirements and achievements based on

the standard norms, past performance, capacity utilization, guarantee of the

supply and many others. The costing department finally checks the final budgets

and send to the corporate Head Office, Ludhiana for its approval.

PROCEDURE FOR PREPARING BUDGETS IN VPL

1. Functional budgets are prepared at each departmental level. Each head of

department prepares budget estimates of items of expense controllable at its

level.

2. After the functional budgets are compiled, master budget is prepared and

analysis by the costing department. Master budget provides an overall view

of the structure of the unit.

3. Master budget is discussed at unit level by unit head alongwith all

departments heads. A representation is made by the costing head. For future

analysis the budgets are sent to corporate MIS, Ludhiana.

4. Actual of last years and budgeted of this year are analysed. The Chairman

thoroughly analysis these budget. The budget is compared with budgeted

figures of other units.

5. A final meeting at the corporate level is held where budget is discussed. The

meeting at Corporate level is chaired by CMD and members from unit level

as well as from corporate also participates in Budget meeting. Finally, it is

approved and send to Bathinda Unit for its implementations. Any alternations

are recommendations suggested in meeting if necessary are incorporated.

BUDGETARY CONTROL IN VARDHMAN POLYTEX LTD.

In using budget as an instrument of control, the actual results will be compared

with the budgeted an monthly / quarterly basis to prepare periodic performance

report and to identify deviations. An analysis of variations can help to understand

the problem better and appropriate corrective action can be taken. The variances

can occur on account of the following :

a) Caused by uncontrollable facts like Govt. policies, raw material prices,

production, marketing problems etc.

b) Caused by managerial decisions not initially planned e.g. product

exchange.

c) Controllable factors, which need to be carefully investigated.

The various analysis also helps and isolate the impact of each important variable

leading to useful insights in the underlying causes and fixing responsibilities.

As I have already mentioned that Vardhman Polytex Limited, Bathinda belongs

to Oswal Group of Industries. The corporate office of the organization is situated

at Ludhiana. All the information relating to various departments flow from units to

corporate office. The corporate office analyze the information and data supplied

by the units and convey the facts to the top management for the purpose of

planning, coordinating and controlling. In Vardhman Polytex Limited, budgets are

prepared by different cost centers for the purpose of budgetary control. Budget

preparation and control is done at every level of management. Even though

budgets are finalized at top level but involvement of persons from lower levels of

management is essential for their success.

The budgets are prepared on the basis of key factor, a factor which influences all

other budgets and key factor is sales, and production, raw material and power

cost. Budgets are prepared on the sales factor. Costing department is

empowered to scrutinize the budgets prepared by different functional heads and

to make changes them, if the situation so demands. Annual budget is prepare

before the start of every financial year. Then the actual performance of different

departments is collected and analyzed by costing and MIS Department. He

determines the deviations in the budgets and suggests necessary steps to rectify

the deficiencies, if any. He works as a coordinate among different department

and monitor the relevant information.

To prepare budget for next year, a meeting is called to know what to do in future

and the various departments are informed about the meeting. Different

department give information and projections relating to their department. As

mentioned periodic reports are prepared and analyzed by costing department. A

presentation on monthly performance is given by costing department in monthly

review. Any deviation found are highlighted and conveyed to concerned

department for corrective action.

BUDGETING SYSTEM IN VPL

Master Budget

Sales Budget

Production Budgeta)b)c)d)

Expenditure Budget

Raw Material Budget

Manufacturing Expenses

Personal Expenses Administration Exp. Budget

Selling Exp. Budget

Other Income Budgets

Cotton

Polyester

Power Packing

Material Maintenan

ce Bdgt. R&D Exp.

Wages Trainee

Stipend Salary Perks &

Allowances Welfare &

Other exp. etc.

Rent Rates &

Taxes Telephon

e Postage

& telegram Vehicle Local

conveyance Traveling Printing

& Stationery Audit fee Audit

exp. Legal &

profession fee

Freight, forwarding & octroi

Export exp.

Commission Export & Domestic

Cash & Quantity Discount

Scrap sale

DEPB Benefit

PERFORMANCE / ACHIEVEMENT REVIEW

Annual review is complete review of the performance of the unit activities and

the actual results are compared with budgets. The variances are noted and

analysis is done. Annual review is divided in to two parts:-

1. Technical Performance

2. Financial Performance

3. Achievement / Activity Performance

1. TECHNICAL REVIEW

Technical review includes the following: -

a) BUDGETED UTILIZATION

b) RING FRAME PRODUCTION / PRODUCTIVITY

c) YARN RECOVERY

d) WASTE PERCENTAGE

e) MAN POWER DEPLOYMENT

f) MAN MINUTES PER KG

g) MAINTENANCE COST P/S/S

h) ENERGY REPORT

i) MOTOR BURNING

In this review, given all the above heads actual cost in each head for whole of

the process is calculated and then compared with budgeted cost in each head

assumed at the beginning to check whether there is any deviation between them

or not. If there is any deviation then required steps are taken to remove that

deviation between them.

FINANCIAL REVIEW

In this review first of all actual PBDIT for current year is calculated and then it is

compared with last year’s PBDIT to check whether there is any difference

between them or not. If there is any difference between them then what are the

reasons for differences are calculated. For this following steps are taken;

SALE

In this total actual sale, domestic as well as export both are calculated at the end

of the period and compared with budgeted sale to check whether there is any

deviation between them or not. If there is any deviation between them then what

are the reasons for the deviations. In this we check whether the deviations are

due to the change in demand or due to the change in sale rate.

RAW MATERIAL

In this comparison between actual raw material consumed and budgeted raw

material is done to check whether there is any deviation between them. And if

there is any deviation between them then what are the reasons for the

deviations. The reason may be change in rates or due to change in mixing.

MANUFACTURING COST

In this comparison between actual manufacturing cost incurred and budgeted

manufacturing cost is done to check whether there is any deviation between

them. And if there is any deviation between them then what are the reasons for

the deviations. The reason may be change in power rates, due to the shortage of

supply of raw material etc.

PERSONNEL EXPENSES

In this comparison between actual personnel expenses incurred and budgeted

personnel expenses is done to check whether there is any deviation between

them. And if there is any deviation between them then what are the reasons for

the deviations. The reason may be change in basic salary, change in wages,

change in other perks etc.

ADMINISTRATION EXPENSES

In this comparison between actual administrative expenses incurred and

budgeted administrative expenses is done to check whether there is any

deviation between them. And if there is any deviation between them then what

are the reasons for the deviations. The reason may be change in insurance

charges, change in telephone expenses, change in traveling expenses etc.

SELLING EXPENSES

In this comparison between actual selling expenses incurred and budgeted

selling expenses is done to check whether there is any deviation between them.

And if there is any deviation between them then what are the reasons for the

deviations. The reason may be change in commission on domestic as well as

export sales, change in cash discount, change in rebate and claim etc.

ACHIEVEMENT & MAJOR ACTIVITIES

Major achievements are highlighted by the respective department. Modifications

done for system improvement or for cost saving are also being discussed during

review.

DIRECTIONS FOR FUTURE RESEARCH FINDINGS

1) Due to avoidable and non-avoidable circumstances, variance is noted in

actual and budgets.

2) Budgets are prepared on the assumption that certain condition will prevail.

Because of future uncertainties, assumed conditions may not prevail

necessitating the revision of budgetary targets. The frequent revision of

targets will reduce the value of budgets and revisions involve huge

expenditure too.

3) Every department head worries for his departmental goals without

thinking of the business goals. Every department tries to get maximum

allocations of funds and this raises a conflict among different department.

SUGGESTIONS

1. An effective system of communication is required for

successful budgetary control. The flow of information regarding budget

should be quick so that these are implemented. The performance reports of

various levels will help top management in budgetary control.

2. Flexibility in budgets is required to make them suitable

under changed circumstances.

3. The proper organization is essential for successful

preparation, maintenance and administration of budgets. A budgetary

committee must be formed which comprises the departmental heads of

various departments.

4. Though annual budgets are prepared and are discussed in

length. Monthly budgets should also be discussed with respective heads

and at corporate level.

5. Budgets are normally based on conventional basis.

Concept of Zero base budgeting should be adopted wherever possible.

6. As the actual results are collected from accounts books,

which sometimes provide difficulties in analysis because of common head

for difference type of expenses.

7. Activity based costing system should be used where the

same can be used to provide better monitoring.

8. Variance reports are prepared on monthly basis and are

being communicated to respective department head but no action plan is

provided by the department to overcome with variances.

9. In the present era, rapid changes are being observed on

day to day basis. While preparing annual budget a deep forecasting based

on historical data and likely future trend is required which normally doesn’t

happen.

10. Budgeting exercise is confined to arrive at PBDIT only.

Other financial expenses are not being considered to arrive at cash

accruals / net profit and depreciation.

CONCLUSION

Various reports such as annual budget, monthly budget, annual review, monthly

review and commercial review are studied for control purposes. The variances

are due to the assumptions which are considered during the preparation of

budgets. Moreover, variances are there due to change in rate and quantity, staff

turnover e.g. as company purchases cotton in bulk during August to March so

the value of raw material gets affected. The deviation in actual and budgeted

reports helps the head of costing and MIS departments to control over various

capital and revenue expenditure and budgetary control aims at the maximization

of profits of the organization. The budgetary control helps in the co-ordination

among different departments of the organization. Reviews are prepared so that

necessary actions are taken at the earliest time and it will help in the

determination of weak spots. Control is continuous process.

SUMMARY AND FINDINGS

After the analysis of various costs, procedures and reports we can find that cost

accounting system adopted by Vardhman Polytex Ltd. Bathinda for reflecting the

accurate cost of production of the final product i.e. yarn is adequate. Efforts for

controlling cost of vigorous cost control is a guidance and regulation of the cost

of operating and undertaking. Here is control cost by the respective department

heads. Budgetary control system is adopted. Budgetary control includes

preparation of for planning and comparison of actual with budgeted figures for

control purposes. Proper presentation and reporting the information to the

Management and Head Office. The reports are filed on the daily, weekly,

monthly quarterly and annually namely :

1. Annual Budget

2. Monthly Budget

3. Annual Review

4. Monthly Review

5. Commercial Review

6. Trends Report

7. Daily Cost Sheet

8. Other reports

Annual review and monthly review are complete reviews of the performance of

units activities. Actual results are compared with budgets. Variances are noted

and analysis is done. These reviews contains various reports. Daily cost sheet

monitors the cost and profitability on daily basis. It reflects the changing in cost

and cash profit. Monthly meeting are held to discuss the monthly reviews.

Corrected actions are suggested by various heads of departments in case of

variances. The Head Office also analyses the reports and sends suggestions

BIBLIOGRAPHY

Chandra Prosana, Financial Management, Theory and Practice, McGraw

Hill, Publishing Company, 1993.

VAN Hourne, J.C, Financial Management and Policy, Prantice Hill of India,

New Delhi, 1993.

Websites :

www.texprocil.com

www.texmil.nic.in

www.careratings.com

www.sga.tamu.edu

www.abilityforum.com

www.oswalgroup.com

Company Records & Reports