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ANNUAL BUDGETS

PRODUCTION BUDGET
PRODUCTION BUDGET AW all Models Particulars Year 2006 Sale of units Add: Closing Stock (as on 31st December) 750000 110500 860500 Less: Opening Stock (As on 1st January) Total Production in Units INTERPRETATION: Here production budgets for three years i.e., from the year 2006 to 2008 are compared. The production, by observation, to the chart above is self explanatory that the estimations or the budgeted figures of production in units has constantly decreased and increased in the year 2008. The slight change in the production of units is acceptable as it shows a favourable change. The product cost figures are available in the following chart for the reference purpose only. While calculating percentage changes year 2006 is taken as base year. The percentage change in the year 2007 decreased to 72.6%. The percentage change in the year 2008 decreased to 82.67%, but slightly increased from the year 2007. 110500 750000 2007 625000 30000 655000 110500 544500 2008 600000 50000 650000 30000 620000 In Units

PRODUCTION COST PER UNIT AW (Domestic and Exports) all models Particulars Year 2006 AW 1500 Q Actual Material Cost Add: Consumables Rejection Cost Power Cost Wage Cost (Labour) New Lines (Stomat, Talent, and Lamination) Freight Inwards (1.14%) Warranty PRODUCTION COST PER UNIT 181 27 100 290 186 25 85 250 175 20 65 278 2387 2417 2782 2007 2008

30 29 40

29 44

22 38

3084

3036

3380

ACTUAL PRODUCTION AW all Models Particulars Year 2006 Total Production in Units 411013 2007 591323 2008 213476 In Units

Total Production in Units

411013

591323

213476

CALCULATION OF PRODUCTION VARIANCE (BUDGETED VS ACTUALS) In Units Year 2006 2007 2008 Budgeted 750000 544500 155000 1449500 Actuals 411013 591323 213476 1215812 Variance -338987 46823 58476 -233688 Result Adverse Favourable Favourable

INTERPRETATION:

The variance in the year 2006 comparing to budget vs. actuals is very unsatisfactory and the result is expressed as adverse. The reason behind is, the overestimation of the budgeted figures over actuals. In the year 2007 & 2008, the variance is positive and it is expressed to be favourable performance. The overall variance of the three years i.e., from 2006 to 2008 is negative. Hence, there is a curious requirement to review the budgets. Concentration of performance appraisal in production is at most desired.

Note: In the year 2008, the actual production units are available only till March '08 i.e., for three months. Hence budgeted figures for variance purpose are adjusted for three months.

DIRECT LABOUR BUDGET


DIRECT LABOUR BUDGET Particulars Year 2006 Production in Units Labour hours per unit (in hrs) Total Hours (in Hrs) Rate per hour (in Rs.) Total Direct Labour Amount INTERPRETATION: From the above data direct labour budget for three years right from 2006 to 20078are compared. The direct labour cost has increased in tune with decreased production. This shows there is a lot of expenditure incurred in the year 2007. A gradual decrease has been found in the year 2008 comparing to the base year 2006. The level of expenditure is controlled up to a maximum level by thorough revisions. While calculating percentage changes, 2006 is taken as base year. The percentage change in the year 2007 increased to 106.16%, which is beyond the limit. This shows over expenditure. The percentage change in the year 2008 decreased to 78.17%, showing that the strict management control on this issue in this year. 750000 3.93 190600 78.17 119193770 2007 544500 1.93 280825 56.32 126531000 2008 600000 2.24 267300 43.56 93169261

ACTUAL LABOUR COST Particulars Year 2006 Production in Units Labour hours per unit (in hrs) Total Hours (in Hrs) Rate per hour (in Rs.) Total Direct Labour Amount 411013 2.45 167480 68.35 91581564 2007 591323 2.72 217087 55.99 97243000 2008 213476 3.74 56967.5 59.18 26974347

CALCULATION OF DIRECT LABOUR VARIANCE (BUDGETED VS ACTUALS)

Year 2006 2007

Budgeted 119193770 126531000

Actuals 91581564 97243000

Variance 27612206 29288000 3682031.8 53218174

Result Favourable Favourable

2008

23292315 269017085

26974347 215798911

Adverse

INTERPRETATION:

In The year 2006 and 2007, all the budgeted actual and variance figures are showing positive expenditures hence the variance is favourable, but whereas in the year 2008 the variance is showing adverse as the actual expenditure is exceeding the budgeted figure. It is suggested that strict supervision may yield favourable results.

Note: In the year 2008, the actual direct labour costs are available only till March '08 i.e., for three months. Hence budgeted figures for variance purpose are adjusted for three months.

SALES BUDGET

SALES BUDGET Particulars Year (Rs. In Lakhs) 2006 Domestic Sales: Rate Quantity Value (Rs. In Lakhs) 3765 175000 6589 4492 100000 4492 4205 100000 4205 2007 2008

Exports: Rate Quantity Value (Rs. In Lakhs) 3600 575000 20700 3918 525000 20570 4145 500000 20725

Combined Sales Value (Domestic and Exports):

Value (Rs. In Lakhs)

27289

25062

24930

INTERPRETATION:

The year 2006 is clearly indicating high sales while comparing to the successive years. It is the combination of total sales including domestic and exports. The increase in sales in the year 2006 is due to excess production. In the year 2007, the total sales value has drastically decreased due to less production. Quite improvements are required for further recovery. In the year 2008, though the production has increased, sales did not improve. Variation is very huge. Hence, quick redressal to the problem of sales is desired. The percentage decreased to 92 and 91 for the years 2007 and 2008 respectively compared to base year 2006.

ACTUAL SALES Particulars Year 2006 Combined Sales Value (Domestic and Exports): 2007 2008

2115514759

2313188784

727495314

Value (Rs. In Lakhs)

2115514759

2313188784

727495314

CALCULATION OF SALES VARIANCE Year 2006 2007 2008 Budgeted 27289 25062 6233 Actuals 21155 23132 7275 Variance -6134 -1930 1042 Result Adverse Adverse Favourable

INTERPRETATION:

The budgeted sales value is overestimated to the actual sales through which the result of sales budget in the year 2006 and 2007 is showing adverse. In the year 2008, excellent improvement is evident from the above graph and as such it indicates favourable result. The performance in sales budget in the year 2008 is expressed to be excellent. Keeping the same spirit may yield fruitful results and leads to further growth opportunities. Domestic sales are to be increased as a remedy.

Note: In the year 2008, the actual sales value is available only till March '08 i.e., for three months. Hence budgeted figures for variance purpose are adjusted for three months.

BUDGETED INCOME STATEMENT


BUDGETED INCOME STATEMENT (RECIP, ROTARY AND CADEM) Particulars Year (Rs. In Lakhs) 2006 Net Sales Less: Cost of Sales (total) or COGS Gross Profit Less: Total Overheads Profit Before Tax Add: Other Income/DEPB CADEM Profitability Profit (including other income) Before Tax Less: Tax Provisions Net Profit/Net Income/(Loss) 41159 36218 4941 4698 243 1829 2072 30 2042 2007 37632 32503 5129 4639 490 1298 1788 1788 2008 30707 26522 4185 5106 -921 1245 270 594 594

INTERPRETATION:

From the year 2006-2008 there is a gradual decrease in the budgeted figures of profit or income statement, which is evident from the above chart. This is due to unexpected increase in the value of raw materials (copper per kilogram increased thrice to the normal value). The variation between 2006 and 2008 is negligible as we see only a normal difference, but there is a drastic decline in the year 2008 almost predicting losses. The percentage change has been showing a drastic decrease to 87.56% in the year 2007 and to 29% in the year 2008 comparing to the base year 2006.

ACTUAL INCOME STATEMENT Particulars Year 2006 Net Profit/Net Income/(Loss) 6192051 2007 -76331610 2008 93310955

CALCULATION OF INCOME VARIANCE (BUDGETED VS ACTUALS) Year 2006 2007 2008 Budgeted Actuals 2042 1788 149 62 -763 933 Variance -1980 -2551 785 Result Adverse Adverse Favourable

INTERPRETATION:

There is an over estimation with regards to profits in the year 2006 by looking into the chart, as the actual income is very less comparing to the budgeted income/profit which has resulted in adverse result. Lack of proper planning is visualized. Though the budgeted income/profit statement in the year 2007 is declined, even then the actual profit went into losses. i.e., the actual loss is above 7 crores. Hence, the result is adverse. In the year 2008, due to proper revisions and effective budgetary controlling techniques they recouped their profit back. This is evident by seeing only three months statement, which is above 9 crores. This is indicated to be excellent progress.

MATERIAL PURCHASE BUDGET

MATERIAL PURCHASE BUDGET Particulars Year (In Units) 2006 Annual Production Add: Closing Inventory Quantity Less: Opening Inventory Materials to be Purchased 750000 131400 881400 36000 845400 2007 544500 23140 567640 107438 460202 2008 620000 32806 652806 32903 619903

INTERPRETATION: A zigzag curve is framed if a graph is plotted, by observing the above chart. In the year 2006, material purchase is very high. This may be due to high production volume. In the year 2007, a sudden steep decline is visualized showing very less material volume. The reason behind is the decrease in production volume. The performance in this year is very poor, which can be affidavit by seeing income statements for the year 2007. In the year 2008, a good estimation, a proper revise, strict supervisory control enabled the management to have an effective control over materials purchased.

QUARTERLY BUDGETS

SALES VOLUME BUDGET

SALES VOLUME BUDGET MODEL UNITS JAN FEB MAR APR

AW RN AK AK- Kits AWJ Kits

67541 1000 750 20833

70805 2500 750 20833

57060 2500 1800 20833

81169 7500 1800 20833

8333

8333

8333

8333

Total

98457

103221

90526

119635

INTERPRETATION: The above mentioned configured figures are the extracts from sales volume budget prepared in the year 2008, which is the latest data. The models included in the sales volume budget are AW, RN, AK, AK Kits, and AWJ Kits. Keen concentration required on sales volume in the month of March in the successive years. Seasonal fluctuations should be considered as very severe factors for sales variances. As the booms and depressions (business cycles) changes at a fast phase during odd months or off seasons.

BUDGETED INCOME STATEMENT

BUDGETED INCOME STATEMENT 2008 (RECIP, ROTARY AND CADEM) Particulars AMOUNT (Rs. In Lakhs) Jan Net Total Sales Less: Cost of Sales (total) or COGS: Materials Consumed Copper Hedging savings (50:50) Consumables Power Rejection Warranty Repairs and Maintenance Direct Labour - Variable Fixed Salary - Direct (Unionised) Fixed Salary - Indirect (White collar) Depreciation - US GAAP - Prod. Depreciation - US GAAP - Prod. Bldg Depreciation - US GAAP - Admin 2110 -5 150 50 16 10 15 79 101 97 100 3 4 2252 -4 157 53 17 13 15 79 101 97 100 3 4 1888 -2 134 45 15 16 15 79 101 97 100 3 4 2716 -1 183 64 21 19 15 79 101 97 100 3 4 3102 Feb 3302 Mar 2804 Apr 3961

Depreciation - US GAAP - Admin computers Travel Administration OHSAS implementation E&Y Audit fee Freight Outwards Publicity Sea Freight Commission C&F agents commissions Interest TDC expenses - Gen & Elec Contingency Total Cost

9 10 81 0 9 50 4 20 10 1 113 8 6 3051

9 10 81 0 9 55 4 20 10 1 113 8 6 3213

9 10 81 0 9 50 4 13 7 1 113 8 6 2806

9 10 81 0 9 68 4 21 11 1 106 8 6 3735

Profit Before Tax DEPB AW DEPB RN DEPB AK

51 146 0 0

89 146 1 0

-2 97 1 0

226 158 4 0

Profit (including other income) Before Tax CADEM Profitability Total Profitability INTERPRETATION:

197 -19 178

236 -20 216

96 -7 89

388 7 395

The quarterly budgeted income statement mentioned above is the pictorial connotation of the year 2008. The months are taken from January to April. The net total sales are expressed to be satisfactory in the month of Jan, Feb, and April. Whereas in the month of March, a slight decrease is notified. Basically, the total cost of sales is to be controlled as it is an outcome of the expenditure incurred on material consumed, consumables, power, rejection, labour, a major difference in freight outwards and so on. The risk hedging factors by preparing quarterly budgets is indicated as one of the effective budgeting control tool. The profit before tax in the month of March is Negative, whereas in April an unexpected hike is visualized. The DEPB rate is running at 7% in the current year. The profits including other income like DEPB benefit is leading the profits towards satisfactory paths. The CADEM Profitability is already in negative figures in the month of Jan, Feb, and March. Hence the total profit ability is the outcome. Expertise guidance, strict supervision, in controlling costs is almost required for keeping the same growth pace in total profitability

TOTAL MATERIAL COST BUDGET

TOTAL MATERIAL COST BUDGET MODEL AMOUNT (Rs. In Lakhs) JAN FEB MAR APR

AW

1761

1696

1838

1772

RN AK AK- Kits AWJ - Kits

54 18 124 49

92 18 124 49

160 44 124 49

121 44 124 49

Total

2006

1979

2215

2110

INTERPRETATION: The quarterly total material cost budget witnessed above is the clear indication for the months of January to April, 2008. The values are expressed in Rupees in Lakhs for the models combined, naming AW, RN, AK, AK Kits, and AWJ Kits. The material cost is moderately high in the month of January, March, and April. The costs incurred for AK, AK Kits, and AWJ Kits are expressed to be absolutely normal. The costs incurred on AW and RN models had drastic changes. The total material cost control is absolutely satisfied. The performance in handling material cost is very high in the current year.

TOTAL LABOUR ABSORBTION BUDGET

TOTAL LABOUR ABSORBTION BUDGET MODEL AMOUNT (Rs. In Lakhs) JAN FEB MAR APR

AW RN AK AK- Kits AWJ - Kits

174 5 2 12 5

167 9 2 12 5

181 16 4 12 5

174 12 4 12 5

Total

198

195

218

207

INTERPRETATION:

Total labour absorption budget in the above chart is the imitation for the months of Jan to Apr 2008. The allocation of budget on permanent workers is constant, whereas on temporary and contract basis workers are fluctuating. Expenditure on blue collars and technicians is always desired, whereas opting for badlis who are called to be surplus workers is to be reduced. For fruitful results and getting excellent profitability labour budget controlling is always suggested. Utilization of skilled labour progressively gives desired results and it is also possible to curtail down unnecessary expenditure on untrained workers.

FINDINGS

The study at Tecumseh Products India Pvt. Ltd. at Hyderabad Plant is defined to be the most technical and analytical study. The professionalism that encapsulates the various degrees of performances at every step of financial study is like a new game. The actual subject matter, naming the project work on BUDGETING and BUDGETARY CONTROL in a manufacturing concern is the practical exposure drawn out from the efforts of management of Tecumseh, Hyderabad. The various budgets called financial budgets, operating budgets, and their performances are studied and interpreted according to the actual performance evidenced from past three years. Preparation of master budgets, fixed budgets, flexible budgets are desired to be prepared to have easy and fast access to the data required by the staff and line management. As the company incurred huge unexpected losses in the previous two years there is a lot of requirement to review its standards, estimations and follow accordingly. The overall performance of the company is found to be improving, well, and satisfactory.

CONCLUSIONS

From the study conducted on Budgeting and Budgetary control at Techmseh Products India Pvt.ltd The following conclusions are drawn.

From this study it is observed that Annual Budgets and Quarterly Budgets it is well understood that the estimates their revisions are factualised according to the past performances which are over estimated in initial stages and got adjusted in their successive stages.

As the business of the company depends on exports up to a larger extent increasing global standards is a vital element and that has to be practised the over all performance of the company found to be improving and satisfactory.

RECOMMENDATIONS
Financial interpretations for each and every budget are required to be clearly analysed and frequent revisions for setting dynamic goals according to the changing market conditions may lead to the chasing of the actual target i.e., becoming the global leader in the markets which ever they choose to participate.

Good review of mission, not from the point of theory, but required exact practical implementations. Preparation of complicated data always leads to many conflicts, requires lot of time and labour and this may delay decision making as well as the information costs. Collection of latest market information regarding the cost of raw materials, quality of raw materials, competitor prices, alternative suppliers, growth opportunities, the diversifying marketing expansion, upgradation of technology, observation of business cycles, SMART production methods, SWOT analysis, concentration of skilled labour are some of the important pre-requisites. As the business of Tecumseh depends basically on exports up to a larger extent, increasing global standards is a vital element that has to be practiced. Taking timely appropriate steps may reduce the strain of incurring further losses is assured. The effective six-sigma and participatory budgeting will be beneficial for the organization.