Budgetary Control of Hanani

INTRODUCTION

Budgets are an important tool of profit planning. The purpose of this chapter is to present a general view of budgeting as a device of planning and illustrate the preparation of various types of budgets. Section 1 of the chapter provides a brief account of the planning process vis--vis budgeting. Section 2 elaborates on the meaning of a budget and the purpose of budgeting. The important types of budgets are discussed and illustrated in Section 3. The major points are summarized in the last sectionSection 1 - The Planning ProcessBudgeting as a tool of planning, is closely related to the broader system of planning in an organization. Planning involves the specification of the basic objectives that the organization will pursue and the fundamental policies that will guide it. In operational terms, it involves four stages: (i) Objectives (ii) Goals (iii) Strategies and (iv) Plans/Budgets

Section 2 Budget Definition, Meaning and PurposeA budget is defined as a comprehensive and coordinated plan, expressed in financial terms, for the operations and resources of an Enterprises for some specified period in the future. According to this definition, the essential elements of a budget are: (i) Plan, (ii) Operations and resources (iii) Financial terms (iv) Specified future period, (v) Comprehensiveness and (vi) Coordination.

It may be recalled that a budget with reference to planning and control refers to a comprehensive and coordinated budget generally known as master budget. In operational terms, a comprehensive or overall budget has several components. A master budget normally consists of three types of budgets: (i) Operating budgets, (ii) Financial budgets and (iii) Special decision budgets. Another classification of a mater budgets is : (i) Fixed/static budget and (ii) Flexible/variable/sliding budget. In the discussions that follow we illustrate the preparation of the various components of a master budget, namely, operating and financial budgets. The mechanics of the preparation of a flexible budget is also discussed.

OBJECTIVE OF THE STUDY To help the organization to prepare various budgets. To evaluate the performance of the unit by comparing actual results with budgeted result. To analyses the deviation from actual figure with budgeted figure. Take corrective action on the base of deviation from budgeted result to actual result. To plan future action on the base of budget.

RESEARCH METHODOLOGY

DATA COLLECTIONData plays a very vital role in any research program. Source of data are of mainly two types i.e., primary and secondary. The data used in this study were collected from the published annual reports and magazines of relevant periods of the company.

PERIOD OF STUDYThe period covered by the present study based on the financial year 2012.LIMITATIONS OF THE STUDY The inexperience makes the study less precise than professionals The tools used for budgetary control are limited In depth budgetary control could not be done to time constraints

INDUSTRY PROFILEThe world production of rubber was considered to be very unstable during the last few years. Comparatively, India's production of rubber is consistent at the rate of 6% per annum. TheRubber industry in Indiahas been growing in strength and importance. This is the result of India's burgeoning role in the global economy. India is the world's largest producers and third largest consumer of natural rubber. Moreover, India is also one of the fastest growing economy globally. These factors along with high growth of automobile production and the presence of large and medium industries has led to the growth of rubber industry in India.Rubber Producing Areas in IndiaRubber producing regions in India are divided into two zones traditional and non-traditional.Traditional zoneNon-traditional zone

Kanyakumari in Tamil NaduCoastal regions of Karnataka

Districts of KeralaGoa

Andhra Pradesh

Orissa

Some areas of Maharashtra

Northeastern states (mainly Tripura)

Andaman and Nicobar Islands

Kerala contributes 90% of Indias total production of natural rubber. Also, Kerala and Tamil Nadu together occupies 86% of the growing area of natural rubber.Rubber Production in IndiaHere are some facts regarding rubber industry in India. India is the third largest producer of rubber in the world. It is the fourth largest consumer of natural rubber. It is the fifth largest consumer of natural rubber and synthetic rubber together in the world. India is the world's largest manufacturer of reclaim rubber. India and China are the only two countries in the world which have the capacity to consume the entire indigenous production of natural rubber.To know more about India's export opportunities regarding rubber products and also to have an idea about global rubber industry, take theRubber Industry OverviewRubber Consumption in IndiaThe following industrial sector consume most of the rubber products. Automotive tyre sector:50% consumption of all kinds of rubbers Bicycles tyres and tubes:15% Footwear:12% Belts and hoses:6% Camelback and latex products:7% Other products:10%Indian Rubber MarketIndias production varies between 6 and 7 lakh tons annually which amounts to Rs. 3000 crores. Seventy percent of the total rubber production in India is in the form of Ribbed Smoked Sheets (RSS). This is also imported by India accounting for 45% of the total import of rubber. The Indian rubber industry has a turnover of Rs 12000 crores. Most of the rubber production is consumed by the tyre industry which is almost 52% of the total production of India. Among the states, Kerala is the leading consumer of rubber, followed by Punjab and Maharashtra. The exports of Indian natural rubber have increased tremendously over the years and have reached 76000 tons in 2003-04.Though, India is one of the leading producers of rubber but it still imports rubber from other countries. At present, India is importing around 50000 tons of rubber annually.India Rubber Industry OverviewThere are about 6000 unit comprising 30 large scale, 300 medium scale and around 5600 small scale and tiny sector units. These units are manufacturing more than 35000 rubber products, employing 400 hundred thousand people, which also includes 22000 technically qualified support personnel, contributing Rs. 40 billions to the National Exchequer through taxes, duties and other levies. The Indian Rubber Industry plays a vital role in the Indian national economy. The rubber plantation sector in India produces over 630 hundred thousand tones of natural rubber and there is a projected production of more than one million tones in near future. This has helped in the radical and rapid growth of the Indian rubber industry. This prospect of growth is further enhanced by a boom in the vehicle industry, improved living standards of the people and rapid over-all industrialization. The per capita consumption of rubber in India is only 800 grams compared to 12 to 14 kilos in Japan, USA and Europe. So far as consumption of rubber products is concerned, India is far from attaining any saturation level. This is another factor leading to tremendous growth prospects of the industry in the years to come.

COMPANY PROFILE ST MARYS RUBBERS PVT LTDBeginningMr. Sunny Jacob got started m/s ST Marys rubbers, a proprietary concern and leased a small latex processing unit in the district of trichur with earnest determination and commitment to his duties, he steadily progressed. After gaining ample experience in practical aspects of business administration and awareness about all the connected factors of the industry he come down to his native district and started a small latex processing unit of his own. Since he could not settle down as an owner of a simple processing unit. He dreamed of setting up a full pledged company with all infrastructures for processing centrifuged latex, marketing the same both in international as well as domestic markets and to continuously contributes towards the progress of the industry and thus developing of our society.The company strictly adheres to stringent quality control measures conforming to ISO standards. They have a well established laboratory and competent technicians in place to ensure the quality at par with ISO standards. The plant is situated in an ecofriendly area of about 30acres. The most modern plant of the company was commissioned in the year 2003. The centrifuging machines manufacture in the world and their machines are used worldwide.

Organizational profileIt is a registered company under the companies act 1956, has commenced his business on 17th October 2002. The promoter is Mr. sunny Jacob. Hailing from an esteemed family at Kanjirappally, Kottayam (dist). As an enthusiastic entrepreneur he at first started a dealership of rubber. He studies the scenario of rubber industry and understood its diversified fields and opportunities. The plant is situated at Koovappally, Kanjirappally, Kottayam (dist), Kerala (state) India. Their plant is positioned centrally within the vast rubber plantation area and enables them easy access to field latex.Global visionWe consider that the key to the production of consistently high quality concentrates should be centered on the hygienic, careful selection, delivery and initial storage of the field latex. The field latex received at the factors, has to pass our stringent laboratory tests using the following parameters(1)The color of the latex(2)Tests to ensure there is no evidence of pure factors in the latex(3)DRC content(4)Ammonia content(5)VFA content

ManagementMr. Sunny Jacob heads the St Marys Rubber Group with his wife Mrs. Mini Jacob handles the management unit in KeralaMr. Sunny Jacob - managing directorMrs. Mini JacobMr. Jacob Joseph - General ManagerMr. Dinesh Sharma - Accounts ManagerMr. Noushad K A - Production ManagerMr. Shashi Kumar- Export Manager

REVIEW OF LITERATUREBudgets are an important tool of profit planning. The purpose of this chapter is to present a general view of budgeting as a device of planning and illustrate the preparation of various types of budgets. Section 1 of the chapter provides a brief account of the planning process vis--vis budgeting. Section 2 elaborates on the meaning of a budget and the purpose of budgeting. The important types of budgets are discussed and illustrated in Section 3. The major points are summarized in the last section. Section 1 - The Planning ProcessBudgeting as a tool of planning, is closely related to the broader system of planning in an organization. Planning involves the specification of the basic objectives that the organization will pursue and the fundamental policies that will guide it. In operational terms, it involves four stages: (i) Objectives (ii) Goals (iii) Strategies and (iv) Plans/Budgets Objectives The first stage in the planning and control system is setting the objectives which are defined as the broad and long range desired state or position in the future. They are motivational or directional in nature and are expressed in qualitative terms. Examples of fundamental objectives are identification of the line of business, customer satisfaction, employee welfare and so on. Thus, they are the basic policies. Goals The second stage in the planning process is specifying the goals. The terms goal, as an element in planning, represents targets, specific in quantitative terms, to be achieved in a specific period of time. The timing of introducing new products, purchase of new plant and machinery and expected rate of return are examples of time and quantity oriented goals.

Strategies The next step involves laying down the strategies. Strategies denote specific methods/courses of action to achieve the goals, for instance, promotion of sales through price reduction or aggressive advertisement, financial alternatives and so on. Plans/Budgets The final step is the preparation of budgets/profit plans. Basically, budgeting is the periodic planning to implement the alternatives during a particular fiscal period, usually one year. It converts, in other words, goals and strategies into annual operating plans.

Section 2 Budget Definition, Meaning and PurposeA budget is defined as a comprehensive and coordinated plan, expressed in financial terms, for the operations and resources of an enterprise for some specified period in the future. According to this definition, the essential elements of a budget are: (i) Plan, (ii) Operations and resources (iii) Financial terms (iv) Specified future period, (v) Comprehensiveness and (vi) Coordination PlanThe first ingredient of a budget is its plan. The term plan with reference to budgeting has a specific connotation. It includes two aspects which have a bearing on the operations of an enterprise. One set of factors, which determine a firms future operations are wholly external and beyond its control. Included in this category of factors are general business conditions, government policy and size and composition of population. The second set of factors affecting future activities are within the firms control and discretion hat is, they are internal. The promotional programmes and manufacturing process are illustration of these factors. Budgeting, as a plan, covers both these aspects. In other words, budgeting not only suggests what should happen but should also make things happen. In brief (plan) is an expression partly of what the management expects to happen and partly of what the management intends to happen. Operations and Resources A budget is a mechanism to plan for the firms operations and resources. The operations are reflected in revenues and expenses. This means that a budget should quantify the revenues to be realized from products/services and the expenses to be incurred on goods/services used in generating revenues. The plan also covers the recourses of the firm. The planning of recourses means the planning of the various assets and the sources of Capital to finance these assets. The assets could be fixed assets as well as current assets. Financial terms Budgets are prepared in financial terms, that is, in terms of monetary value such as the rupee, collar, and so on. The reason is that the monetary unit is a common denominator. The various activities and operations are expressed sin different units, for example, material in terms of weight, labour in terms of number/man-hours, sales in terms of territories, advertisement in terms of magazine space, and so on. If they have to be integrated in a plan, they must be expressed in comparable units of measurement. Monetary units provide such a measure. Specified Future PeriodA budget relates to a specified period of time, usually one year. If it is not related to a time horizon, it will be meaningless. Planning merely for a given amount of, say sales/profits will not constitute a budget unless a time dimension is added, that is the budget sales/profit if planned to be achieved in a predetermined time framework. Comprehensiveness A budget is comprehensive in that all the activities and operations of an organization are included in it. It covers the organization as a whole and not only some segments. The modus operandi is that budgets are prepared for each segment/facet/activity/division of an organization. These are integrated into an overall budget for the entire organization. The overall budget is referred to as the master budget. Budgets Purpose As a tool, budges serve as a guide to the conduct of operations and a basis for evaluating actual results. The main objectives of budgeting are (i) Explicit statement of expectations, (ii) Communication, (iii) Coordination and (iv) expectations as a framework for judging performance. Explicit Statement of Expectations One purpose of budgeting is to state expectations in formal terms so that most of the underlying assumptions may be identified. A firm has the basic objective of optimizing long-run profit. It long-range goals also include survival, consumer satisfaction, employee welfare, personal power and prestige and so on. These long range objectives can be achieved in successive phases over a period of time. In other words, long range objectives have to be split into short-term operational plans. Thus, a budget can be said to be a device to express goals which are sought to be achieved in a short period of time. In other words, it is a means to establish congruence between short term goals and the long term objectives of the firm. Therefore, budgets formulate targets expected performance. The advantage is that by laying down targets, budgets contain an explicit statement of expectations. These targets help direct their operations, identify problems, help motivate lower level employees and clarify the Relationship between current activities and future policies. Another implication is that budgets explicitly state the underlying assumptions and goal and/or the means of attaining it. To illustrate, if the sales target (projected sales) for any given period is Rs.5,00,000, the budget will not only indicate this figure but will also give details about the assumed prices, quantity, sales efforts and so on. This explicit statement of assumption is one of the most important contributions of budgeting for managerial planning and control.However, a budget does not lay down a statement of expectations in rigid terms. Budgets, as observed earlier, are based on factors which are either uncertain or are beyond the control of management. Some of these are economic, social and business conditions; supply and demand; competitions; consumer taste; technological innovations; and so on. A budget should be modified when necessary in the light of the changes in the factors/assumptions on which the original estimates were based. Communication Another purpose of budgeting is to communicate or inform others of the goals and methods selected by top management. Since budgeting deals with fundamental policies and objectives, it is prepared by top management. A formal budget by itself will not ensure that a firms operations will be automatically geared to the achievement of the goals set in the budget. For this to happen, the managers and lower-level employees have to understand the goals and support them and coordinate their efforts to attain them. In other words, the employees should be aware well in advance of the level of performance expected of them. It is for this reason that a budget is viewed as a means of communicating to the employees the level of performance expected of them so that the goals set out in the budget can be accomplished. Coordination Yet another purpose of budgeting is coordination. The term coordination refers to the operation of all departments of an organization in such a way that there is no bottleneck or imbalance. In other words, Coordination implies a harmonious relationship between various departments to ensure smooth and uninterrupted operation of each of them. If an organization is to achieve its long run goals coordination in the activities of all its departments is necessary. If there is no coordination, imbalances will be created which hinder smooth operation and stand in the way of the accomplishment of the goals of the budgets. To illustrate, one type of imbalance may be between the manufacturing/production and sales departments. The manufacturing department may be producing goods, which the sales department may not be able to sell. Conversely, the sales department may like the production department to produce goods which the production department is incapable of producing. Another example of lack of coordination is the purchasing manufacturing imbalance when the production schedule is not related to the raw materials purchases. Further, the production schedule may not be based on the capability of employees and capacity of plant and machinery. In view of the above, coordination is a major function of budgeting. Budgets should be drafted in such a way that the operations of the various departments are related to each other for the achievement of the overall goal. Apart from the interdepartmental reconciliation, budgets also provide for flexibility to accommodate plans and operations to unexpected situations. Expectations as Framework for Judging Performance Finally, a budget establishes expectations as a framework for judging employee performance. A budget, as observed earlier, defines the goals, the means of implementing them and the level of performance by the employees. The extent to which employees have succeeded in the task assigned to them, can be judged on the basis of a comparison of the actual performance equals or exceeds the budgeted level, it may be termed satisfactory, otherwise not. Thus, a budget can serve as yardstick to judge employee performance or as a control device. To conclude, budgeting, as a tool of planning and control, serves as a guide to conduct operations and a basis for evaluating actual results. Actual results can be judged satisfactory or unsatisfactory in the light of the relevant budgeted data and also in the light of changes in conditions. However, a budget should not be regarded as a rigid requirement of performance. Many of the factors upon which a budget is based are beyond the control of management and all of them are uncertain. The budget should, therefore, be regarded as a plan, not an immutable commitment of performance; it is a means of control, but not a straitjacket on operations. In view of its significance as a managerial tool, the preparation of a budget is illustrated.

Section 3 Preparation/Types of BudgetsIt may be recalled that a budget with reference to planning and control refers to a comprehensive and coordinated budget generally known as master budget. In operational terms, a comprehensive or overall budget has several components. A master budget normally consists of three types of budgets: (i) Operating budgets, (ii) Financial budgets and (iii) Special decision budgets. Another classification of a mater budgets is: (i) Fixed/static budget and (ii) Flexible/variable/sliding budget. In the discussions that follow we illustrate the preparation of the various components of a master budget, namely, operating and financial budgets. The mechanics of the preparation of a flexible budget is also discussed. Operating Budgets Operating budgets relate to the physical activities/operations of a firm such as sales, production, purchasing, debtors collection and creditors payment schedules. In specific terms, an operating budget has the following components. 1. Sales budget2. Production budget3. Purchase budget4. Direct labour budget5. Manufacturing expenses budget, and 6. Administrative and selling expenses budget and so on Financial Budget Financial budgets are concerned with expected cash receipts/disbursements, financial position and results of operations. In other words, a financial budget has the following components. 1. Budgeted income statement2. Budgeted statement of retained earnings3. Cash budget, and4. Budgeted balance sheetCash budget The principal of the cash budget, as a tool of planning, is to ascertain whether, at any time, there is likely to be an excess or shortage of cash. The preparation of a cash budget involves various steps. The first element of a cash budget is the selection of the period of time to be covered by the budget. Alternatively, it is referred to as the planning horizon. The planning horizon means the time span and the sub-periods within that time span over which the cash flows are to be projected. There is no hard and fast rule. The period coverage of a cash budget will differ from firm to firm depending upon its nature and the degree of accuracy with which the estimates can be made. As a general rule, the period selected should be neither too long not too short. If it is too long, it is likely that the estimates will be upset as we cannot visualize them at the time of the preparation of the budget. If on the other hand, the time span is too small, the disadvantage are: (i) Failure to take into account important events which lie just beyond the period covered by the budget; (ii) Heavy workload in preparation; and (iii) Abnormal factors that may be operative.The planning horizon of a cash budget should be determined in the light of the circumstances and requirements of a particular case. For instance, if the flows are expected to be stable and dependable, such a firm may prepare a cash budget covering a long period, say, a year and divide it into quarterly intervals. In the case of a firm whose flows are uncertain, a quarterly budget divided in to monthly intervals may be appropriate. Where flows are affected by seasonal verifications, monthly sub-divided into weekly or even daily budgets may be necessary. If the flows are subject to extreme fluctuations, a daily budget may be called for. The idea behind sub diving the budget period into smaller intervals is to highlight the movement of cash from one sub period to another. The sub division will provide information on the fluctuations in the cash reservoir level during the time span covered by the budget. The second element of the cash budget is the factors that have a being on cash flows. The items included in the cash budget are the cash only, non- cash items such depreciation are excluded. The factors that generate cash flow are generally divided, for purposes of constricting a ash budget, into two broad categories: (a) Operating and (b) Financial. This twofold classification of cash budget items is based on their nature. While the former category includes cash flows generated by the operations of the firms and are known as the operating cash flows the latter consists of the financial cash flows. Special Decision Budgets The third category of budgets are special decision budgets. They relate to inventory levels, breakeven analysis, and so on. These are discussed comprehensively in other operators of this volume. The long term capital budgets are covered in detail in chapters 10 and 11. Flexible Budgets The discussion of the master budget and its components in the preceding section was based on the assumption of fixed level of activity. In other words, the budgets were related to a specific level of operation implying thereby that a firm can accurately and precisely forecast the level of its behavior/operations in a given period of time. If the business environment is capable of accurate prediction, this approach to budgeting is likely to yield dependable results. It however, changes take place during the budget period, the budget will serve no useful purpose. Such a budget is technically referred to as a fixed/static budget. In other words, budgets prepared at a single level of activity, with no prospect of modification in the light of the changed circumstances, are fixed or static budgets. The alternative to fixed budgets is flexible/variable/sliding budgets. The term flexible is the most apt description of the essential features/characteristics of these budgets and is used here to refer to such budgets. A flexible budget estimates costs at several levels of activity. The merit of a flexible budget is that instead of one estimate it contains several estimates/plans in different assumed circumstances. Since business activities cannot be accurately predicted as the conditions/environments are uncertain, it is a useful tool in real business situations, that is, an unpredictable environment. In view of its significance as a more realistic basis of budgeting, the setting up of a flexible budget is demonstrated in the discussions that follow. It may at the outset be noted that the construction of a flexible budget is similar to that of a fixed budget except in one respect. While the fixed budget is based on costs and other business operations/activities at one level, the flexible budget considers several alternative/levels/volumes of activity. The term volume/level of activity refers to the usage of capacity. In other words, volume/level of activity signifies the percentage use of capacity. The term capacity means the installed capacity of plant and personnel, that is, the fixed amount invested in these. For instance, if a plant when fully operated can produce 5,000 units, its capacity is 5,000 units of production. Assuming 2,500 units of production in a given period, the volume/level of activity is 50 per cent. Thus, the essence of a flexible budget is the presentation of estimated cost data in a manner that permits their determination at various levels of volume. This means that all costs must be identified as to how they behave with a change in volume whether they very or remain fixed. The conceptual framework of flexible budgeting, therefore, relates to: (i) Measure of volume and (ii) Cost behavior identified with change in volume. Measure of Volume The volume measure selected for any given department/firm should be that quantity which displays the greatest degree of correlation with those costs that very with the level of operating.

DATA ANALYSIS AND INTERPRETATIONBUDGETED ASSUMPTIONTable 1Details Of Finished Goods Particular Product IProduct II

Units sold6,0009,000

Selling Prince / unit7580

Opening Stock 1,0002,500

Closing stock5001000

Table 2Type of material Grade IGrade II

Unit requirement 12 units / finished product 4 units / product A2 units/ product B

Cost profit1.502.50

Closing stock3,000500

Opening stock4,000300

Table 3Details of Labor CostParticular Product IProduct II

Direct Labor per unit710

Budget cost / Low22

Table 4Other Details Supplies 12,000

Indirect labor 30,000

Cost fringe benefit 10,000

Power ( variable portion) )22,000

Maintenance ( Variable portion)1,500

Depreciation 10,000

Property tax2,000

Property insurance1,000

Supervision12,000

Power ( fixed portion)800

Maintenance ( Fixed portion)3,200

Salaries of clerical staff 28,000

Executive salaries 8,000

Audit fee600

Depreciation office equipments800

Insurance250

Stationary 1,250

Postage and telegram950

Telephones 850

Miscellaneous 5300

Interest expense ( Assumed)50,000

Income tax (50%) Assumed

Table 5Direct Selling expense Salesmens salary15,000

Salesmens commission4,500

Travelling expense21,000

Total40,500

Table 6Distribution expenseWare house wages4,000

Ware house rent, rates, electricity5,500

Lorry expense12,000

Total21,500

Table 7Sales Office expenseSalaries16,000

Rent, rate, electricity 12,000

Depreciation 2,000

Stationary , postage, telephone12,500

General expense3000

Total45,500

Table 8AdvertisingPress4,500

Radio And Television 18,500

Shop window display 4,000

Total27,000

Table 9SALES BUDGET FOR THE YEAR ENDING MARCH,31st ,2012UNITSSELLING PRICEPer unit(Rs.)TOTAL(Rs.)

Product I 6,000754,50,000

Product II 9,000807,2,0000

TOTAL11,70,000

Table 10PRODUCTION BUDGET IN UNITS FOR THE YEAR ENDING MARCH,31st 2012PARTICULARSPRODUCTS IPRODUCTS II

Budgeted sales6,0009,000

Add: Desired closing 5001,000

Total quantity required6,50070,000

Less : Opening stock1,0002,500

Units to be produced5,5007,500

Table 11DIRECT MATERIALS USAGE IN UNITS AND RS. FOR THE YEAR ENDING MARCH 31ST, 2012Type of materialProduct IProduct IITotal directMaterialTotal cost

(5,500 units)(7,500units)MaterialCost per Of materials

X(12 units per finished product66,00090,0001,56,0001.502,34,000

Y (4 units per product A&2units per product B

22,000

30,000

52,000

2.50

1,30,000

Total3,64,000

Direct Material

Table 12DIRECT MATERIAL PURCHASED BUDGET FOR THE YEAR ENDING MARCH 31st 2012PARTICULAR MATERIALS XMATERIALS Y TOTAL

Desired closing stock (units)3,000500

Units required for production1,56,00052,000

Add: total needs1,59,00052,500

Less: opening stock (units) 4,000300

Units to be purchased1,55,00052,200

Unit price (Rs.)1.502.50

Purchase cost( Rs.)2,32,5001,30,5003,63,000

Table 13DIRECT- LABOR COST BUDGET FOR YEAR ENDING MARCH 31st ,2012Units purchasedDirect labor hour, per unitTotal hoursTotal budget cost (Rs.)@ Rs. 2 per hour

Product A5,500738,50077,000

Product B7,5001075,0001,50,000

Total1,13,5002,27,000

Table 14FACTORY OVERHEAD BUDGET FOR THE YEAR ENDING MARCH 31,2012PARTICULARS AMOUNT AMOUNT

Supplies12,000

Indirect labor30,000

Cost of fringe benefits10,000

Power (Variable portion)22,000

Maintenance cost (variable portion)15,000

Total variable overheads89,000

Depreciation 10,000

Property taxes2,000

Property insurance 1,000

Supervision12,000

Power ( fixed portion)800

Maintenance ( fixed portion)3,200

Total fixed overheads29,000

Total factory overheads1,18,000

Table 15ENDING INVENTORY BUDGET MARCH 31st ,2012UnitsUnits costAmountTotal (Rs.)

Direct materials

Grade I3,0001.504,500

Grade II5002.501,2505,750

Finished goods

Grade I50049.0024,500

Grade II1,00053.0053,0077,500

Total83,250

Table 16Unit cost of finished goods has been computed as below:Unit costOf inputProduct 1Product 2

UnitsAmountUnitsAmount

Grade I1.501218.0012.0018.00

Grade II2.50410.002.005.00

Direct labour2.00714.0010.0020.00

Factory overhead1.0077.0010.0010.00

Total49.0053.00

Table 17COST OF GOODS SOLD BUDGET FOR THE YEAR ENDING MARCH 31st 2012PARTICULARSAMOUNT

Direct material3,64,000

Direct labor2,27,000

Factory overhead1,18,000

Total manufacturing costs7,09,000

Add: finished goods(opening)1,81,500

8,90,500

Less : finished goods (closing)77,500

Total cost of goods sold8,13,000

Table 18SELLING AND DISTRIBUTION COST BUDGET FOR THE YEAR ENDING MARCH 31ST,2012PARTICULARSAMOUNT

Direct Selling Expense

Salesmens salaries15,000

Salesmens commission4,500

Travelling expenses21,000

Total40,500

Distribution Expense

Warehouse wages4,000

Warehouse rent, rate, electricity 5,500

Lorry expenses12,000

Total21,500

Sales Office Expenses

Salaries16,000

Rent, rates, electricity 12,000

Depreciation 2,000

Stationery, postage, and telephone 12,500

General expenses 3,000

Total45,500

Advertising

Press4,500

Radio and television 18,500

Shop window displays 4,000

27,000

Total1,34,500

Table 19ADMINISTRATIVE EXPENSES BUDGET FOR THE YEAR ENDING MARCH 31st, 2012PARTICULAR AMOUNT

Salaries of clerical staff28,000

Executive salaries 8,000

Audit fee600

Depreciation on office equipment 800

Insurance250

Stationery 1,250

Postage and telegrams 950

Telephones850

Miscellaneous 5,300

Total administrative expenses 46,000

Table 20BUDGETED INCOME STATEMENT FOR YEAR ENDING MARCH 31st 2012

AMOUNT AMOUNT

Sales11,70,000

Less. Cost of goods sold 8,13,000

Gross margin 3,57,000

Less : Selling and distribution expenses1,36,500

Less : Administrative expenses46,0001,82,500

Profit before interest and taxes1,74,500

Interest expenses (assumed)50,000

Profit before tax1,24,500

Income tax (50% assumed)62,250

Net profit62,250

BUDGET BALANCE SHEET MARCH 31st, 2012

AMOUNTAMOUNTAMOUNT

Capital3,50,0004,79,000

Retained income1,29,000

Represented by:Plant and machinery 3,40,000

Less: provision for depreciation 60,0002,80,000

Raw materials 5,750

Finished goods77,500

Debtors1,10,000

Cash37,7502,31,000

Less : Creditors 32001,99,000

4,79,000

APPENDIX

BALANCE SHEET -2012Rs in 000 SOURCE OF FUNDS

Capital29.85

Reserves11.63

Net worth130.5

Secured loans129.79

Un secured loans10.00

Total Debt139.79

Total Liabilities311.77

APPLICATION OF FUNDS

Fixed assets113.78

Capital Work In progress3.10

Inventories95.00

Sundry Debtors167.4

Cash and Bank Balances5.03

Total Current Assets270.53

Total CA, Loans & Advances270.53

Loans & Advances22.39

(Current Liabilities)94.93

(Total CL & Provision)94.93

Net Current Assets197.99

Total Assets311.77

COMPARATIVE BALANCE SHEET FOR THE YEAR 2011-2012Rs in 000SOURCE OF FUNDSAMOUNT2011AMOUNT2012INCREASE/DECREASE

Capital29.8529.850

Reserves11.6311.630

Net worth141.48130.5-10.98

Secured loans70.51129.7959.28

Un secured loans10.0010.000

Total Debt80.51139.7959.28

Total Liabilities221.99311.7789.78


Gross Block137.89-137.9

(Less Accum Depreciation)25.60-25.6

Net Block112.29-112.3

Capital Work In progress2.893.100.21

Investments4.58-4.58

Inventories98.5395.00-3.53

Sundry Debtors75.60167.491.8

Cash and Bank Balances6.565.03-1.53

Total Current Assets180.69270.5389.84

Loans and Advances10.0022.3912.39

Fixed deposits0.85-0.85

Total CA, Loans & Advances191.54270.5378.99

(Current Liabilities)75.8994.9319.04

(Provision)13.42-13.42

(Total CL & Provision)89.3194.935.62

Net Current Assets102.23197.9995.76

Total Assets221.99311.7789.78


Capital29.8529.850

Reserves96.6011.63-84.97

Net worth126.45141.4815.03

Secured loans26.2570.5144.26


Total Debt26.2580.5154.26



Gross Block90.11137.8947.78

(Less Accum Depreciation)18.8325.606.77

Net Block71.28112.2941.01

Capital Work In progress25.772.89-22.88

Investments11.364.58-6.78

Inventories35.8698.5362.67


Cash and Bank Balances3.506.563.06


Loans and Advances38.4710.00-28.47

Fixed deposits0.590.850.26



(Provision)42.2713.42-28.85



Total Assets152.69221.9969.3


Capital29.8529.850

Reserves87.9996.608.61

Net worth117.84126.458.61

Secured loans35.9226.25-9.67


Total Debt35.9226.25-9.67

Total Liabilities153.76152.70-1.06


Gross Block59.0290.1131.09


Net Block43.7771.2827.51


Investments15.0011.36-3.64

Inventories43.4135.86-7.55





Fixed deposits35.550.59-34.96

Total CA, Loans & Advances149.16127.17-21.99


(Provision)32.4142.279.86


Net Current Assets79.4544.28-35.17

Total Assets153.75152.69-1.06


Capital21.4029.858.45

Reserves16.7887.9971.21

Net worth38.18117.8479.66

Secured loans36.0735.92-0.15


Total Debt36.0735.92-0.15



Gross Block48.9959.0210.03


Net Block37.0743.776.7


Investments0.0015.0015

Inventories30.9943.4112.42





Fixed deposits0.1535.5535.4



(Provision)13.0332.4119.38



Total Assets74.23153.7579.52

PROFIT AND LOSS ACCOUNT FOR THE YEAR -2012Rs in 0000INCOME

Sales764.51

Other Income5.07

Stock Adjustments32.28

Total Income801.86

EXPENDITURE

Raw Materials552.41

Power And Fuel2.91

Employee Cost37.48

Other Manufacturing Expenses3.99

Selling and Admin Expenses122.26

Miscellaneous Expenses3.55

Total Expenses722.60

Operating Profit 74.19

PBDIT79.26

Interest12.22

PBDT67.04

Depreciation7.94

Profit Before tax59.10

Extra Ordinary items0.00

PBT (Post Extra Ord. Items)59.10

Tax16.47

Reported Net profit42.64

COMPARATIVE PROFIT AND LOSS ACCOUNT FOR THE YEAR 2011-2012Rs in 0000INCOMEAMOUNT2011AMOUNT2012INCREASE/DECREASE

Sales479.11764.51285.4

Other Income1.125.073.95

Stock Adjustments52.0032.28-19.72

Total Income532.23801.86269.63

EXPENDITURE

Raw Materials354.44552.41197.97

Power And Fuel2.852.910.06

Employee Cost26.8137.4810.67

Other Manufacturing Expenses2.833.991.16

Selling and Admin Expenses89.93122.2632.33

Miscellaneous Expenses2.863.550.69

Total Expenses479.72722.60242.88

Operating Profit 51.3974.1922.8

PBDIT52.5179.2626.75

Interest5.8312.226.39

PBDT46.6867.0420.36

Depreciation7.157.940.79

Profit Before tax39.5359.1019.57

Extra Ordinary items(0.04)0.000.04

PBT (Post Extra Ord. Items)39.4959.1019.61

Tax14.0016.472.47

Reported Net profit25.4742.6417.17


Sales340.23479.11138.88

Other Income3.281.12-2.16

Stock Adjustments(10.03)52.0062.03

Total Income333.48532.23198.75

EXPENDITURE

Raw Materials205.53354.44148.91








PBDIT35.4052.5117.11

Interest5.085.830.75

PBDT30.3246.6816.36



Extra Ordinary items0.00(0.04)-0.04


Tax8.9314.005.07



Sales299.83340.2340.4

Other Income30.293.28-27.01

Stock Adjustments12.94(10.03)-22.97

Total Income343.06333.48-9.58

EXPENDITURE

Raw Materials201.65205.533.88








PBDIT61.0035.40-25.6

Interest5.105.08-0.02

PBDT55.9030.32-25.58


Profit Before tax52.4326.27-26.16

Extra Ordinary items0.000.000

PBT (Post Extra Ord. Items)52.4326.27-26.16

Tax15.018.93-6.08

Reported Net profit37.4217.35-20.07

COMPARATIVE PROFIT AND LOSS ACCOUNT FOR THE YEAR 2008-2009Rs in 0000INCOME

AMOUNT2008AMOUNT2009INCREASE/DECREASE

Sales234.57299.8365.26

Other Income5.3730.2924.92

Stock Adjustments9.1612.943.78

Total Income249.10343.0693.96

EXPENDITURE

Raw Materials152.56201.6549.09








PBDIT32.3561.0028.65

Interest4.005.101.1

PBDT28.3555.9027.55



Extra Ordinary items0.030.00-0.03


Tax7.2015.017.81


FINDINGS Budgeted sales in 2012 are Rs 1170000. Required budgeted production unit in 2012 is 13000 units. Budgeted raw material requirement in 2012 is Rs 363000. Budgeted labour cost in 2012 is Rs 227000. Budgeted factory overhead in 2012 are Rs 118000. Cost of finished goods produced per unit of product 1 is 49and product 2 is 53.

SUGGESTIONS After preparing the budget it should make confirm that budget is not too high or not too low from actual. After preparing various budgets it should inform to concerned department. After informing the budget proper feedback is made to analyze whether the actual performance is comply with the budgeted result. While comparing the actual result with budgeted result if there were any variations in these two corrective actions are taken for eliminating the same. If the budgeted result is too high or too low revised budget is prepared. The responsibility of the person who prepare budget is identified. Material order is placed in accordance with production budget. Collection from debtors is compared with cash collection budget and proper step is taken if there was any shortage in collection. Quarterly sales are compared with quarterly budgeted sales and attain the targeted sales. Budget related to all expense are compare which will help to reduce the cost.

CONCLUSION An attempt was made with an idea of studying the budgetary control of St Marys Rubbers . For this purpose, the various budgets of the company has been prepared. By this study, a control is exercised by comparing the actual results with budgeted results frequently. The suggestion offered by me may be considered by the company for the further improvement of financial performance. I conclude that the budget help the company to make proper control in their operation.

BIBLIOGRAPHYBOOKS:

Dr. S.N. Maheswari - Financial Management Principles and Practices, 10th Edition, Sultan Chand and Sons Publishers, New Delhi. R.K. Sharma and S.K. Gupta - Management Accounting Principles and Practices, 8th Edition Kalyani Publication. C.R. Kothari - Research Methodology, 2nd Edition, New Age International (P) Ltd. P.R. Vittal - Business Mathematics and Statistics, 6th Edition, Margham Publications, Chennai.

Website www.google.com www.wikkiepedia.com

Documents

Budgetary Control of Hanani