CHAPTER - 1 INTRODUCTION

BUDGETARY CONTROL

The economic structure and development of a state depend upon its budget which reflects the formulation of policies, coordination of economic activities and control of operation required to achieve the targets assigned to a period of time. A system of budged is necessary to plan and control the activities pertaining to production and sales.

A Budget is prepared to have effective utilization of funds and for the realization of objectives as efficiently as possible. Budgeting is a powerful tool to the management for performing its function efficiently. Budgetary control is useful to the management to prepare detailed plans and exercise effective co-ordination and control.

WHAT IS AN BUDGETARY CONTROL

A budget is monetary and/or quantitative expression of business plans and policies to be pursued in the future period of time. Budgeting is preparing budgets and other procedure for planning, coordinating and control of business enterprises.

Budgetary control 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 variances.
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Budgetary control is a system of controlling cost which includes the preparation of budgets, co-coordinating the department and establishing responsibilities, comparing actual performance with the budgeted and acting upon results to achieve maximum profitability.

Features of budgetary control are:

o o o

Planning Co-ordination Control

Functions of Budgeting

o o o o o o

Sales Budgeting Production Budget Material Budget Labour and Personnel Budget Cash Budget Purchase Budget

INDUSTRY PROFILE

India has been known as the original home of sugar and sugarcane. Indian mythology supports the above fact as it contains legends showing the origin of sugarcane. With over 450 sugar factories located throughout the country, the sugar industry is amongst the largest agro processing industries in India, with an annual turnover of Rs.l50bn.
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India is the largest consumer and the second largest producer of sugarcane next to Brazil. Presently, about 4 million hectares of land is under sugarcane with an average yield of 70 tons per hectare.

India is the largest single producer of sugar including traditional sugarcane sweeteners, Khandsari and Gur equivalent to 26 million tons raw value followed by Brazil in the second place at 18.5 million tones. Even in respect of white crystal sugar, India has ranked No.l position in 7 out of last 10 years. During 2005-2006 India produced 17.0 million tons (155 lakh tons of white sugar) while Brazil in 1 s t place produced 18.5 million tons.

Mostly the rural population in India consumes traditional sweeteners Gur and Khandsari. In the early 1930's nearly 2/3 r d of sugarcane production was utilized for production of alternate sweeteners, Gur and Khandsari. With better standard of living and higher incomes, the sweetener demand has shifted to white sugar. Currently, about 1/3rd sugarcane production is utilized by the Gur and Khandsari sectors. Being in the small-scale sector, these two sectors are completely free from controls and taxes, which are applicable to the sugar sector.

The advent of modern sugar processing industry in India began in 1930 with grant of tariff protection to the Indian Sugar Industry. The number of sugar mills increased from 30 in the year 1930-31 to 135 in the year 1935-36 and the production during the same increased from 1.20 lakh tons to 9.34 lakh tons under the dynamic leadership of private sector.
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SUGAR INDUSTRY STRUCTURE

Indian Sugar Industry can be broadly classified into two sub sectors, the organized sector i.e., sugar factories and the

unorganized sector i.e., manufacturers of traditional sweeteners like Guru and Khandsari.

Since the sugar industry in the country uses only sugarcane as an in input, sugar companies have been established in large cane growing states like Uttar Pradesh, Maharashtra, Tamil Nadu, Karnataka, Punjab and Gujarat. Uttar Pradesh leads the tally b y contributing 24% of the countries total sugar production and Maharashtra stands next with 20% contribution.

Out of 453 sugar mills in the country, 252 are in the cooperative sector, 134 are in the private sector and 67 are in the public sector.

TECHNOLOGY ADOPTED IN SUGAR INDUSTRY

Double sulphitation process is employed for production of plantation of white sugar which has a pol of 99.8%. Government has laid down quality standards in terms of grain size namely Large (T), Medium (M), Small (S) and in the colour series of 31, 30 and 29.

The mill extraction is generally around 94 to 96% while the overall extraction is about 85% and the losses account for about 2% to 2.5%. Owing to small capacity of the individual units automation in the sugar industry has not received a high priority. Some units
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however, have pH control, auto feed system and boiler control equipments.

SUGAR POLICY

Under the present policy of partial decontrol 30% of production by each unit is supplied for public distribution system known as the levy sugar . The levy sugar is distributed to the public irrespective of the economic status. The balance 70% is sold in the free market against monthly releases issued by the government. This policy has been continuing since 1967-68 expect for brief periods of decontrol mainly during the years of surplus production and accumulated sugar stocks.

Government

announces

the

Statutory

Minimum

Price

[SMP] for sugarcane every year based on the recommendations of the Commission for Agricultural Costs and Prices [CACP].

PROFILE OF THE COMPANY

DHARANI Sugars and chemicals limited is one the unit of PGP Group of companies promoted by Non-Resident Indian's based at United States of America under the dynamic leadership of Dr.Palani.G.Periyasamy.M.A.,M.A.,Ph.D., a leading economist and Industrialist.

LOCATION OF THE FACTORY

Dharani sugars and chemicals limited is the first sugar factory setup in southern part of Tamilnadu, the most industrially backward area. The factory is situated at Naranapuram Village at Sivagiri Taluk in Tirunelveli District. It is one of few heavy industries of the District and it is the first agro based industry of the district. It caters to the needs of cane growers and three district's Viz. Major parts of Tirunelveli the western parts of Tuticorin and western parts of Virudhunagar.

CAPACITY OF THE FACTORY

The installed capacity of the sugar unit is 2500 TCD. (Tons Crushing per Day)

Date of Commission: 06.03.1989

The Distillery unit has been installed with the capacity of 30 KLD (Kilo Liter/Day) of Rectified spirit and 10 KLD of Extra neutral alcohols.

DHARANI SUGAR ORGANISATION STRUCTURE

Executive Directors Sugar Division

General Manager Administration

General Manager Works

Asst. General Manager Administration

Manager (Cane)

Assistant Personal

Deputy Manager Account

Assistant Manager Electrical Development Process

Deputy Manager Transport

Manager Distillery

Head Time Keeper

Cashier

Account

Programmer

Time Keeper

Assistant

Computer Operator

PRODUCT PROFILE

CANE PRODUCTION

The factory has commenced its Maiden season in March 1989 and has successfully completed. 12 crushing seasons with total crushing of around 40 lakhs tons of cane.

CANE PROCUREMENT MANAGEMENT

Cane, an agro based Raw material is cultivated in 100 kilometer radius like other Raw materials, industry cannot procure and store it in the industry and use according to their requirement. Whereas, the planting at cane itself has to planned well in advance in accordance with the crushing programme of the factory for the next year. Hence, the cane planting as well as the harvesting in the field has to be controlled by the industry to suit their Requirement of cane for the crushing programme. Dharani sugars have opened 14 Divisional offices with one cane officer and 4 or 5 cane assistance in each division to approach the farmers and advise them in planting of cane, development, harvesting supply to the factory.

Around 1500 cane growers are under their fold and they have been provided with crop loans through local financial institutions. The can cultivation is completed Monitored by cane department. The farmers are advised in method of preparation of seed method of cultivation, Manuring, Post controlling and harvesting.

SOCIO ECONOMIC FACTORS

The Real growth of the country is scaled at the growth of villages. The growth of villages is scaled at the growth of agro based industries. Dharani sugar is also taking part in developing the socio economic growth of the villages in all three districts.

EMPLOYEMNT OPPORTUNITY

Around 1000 employees are being directly benefited

by

offering themselves for the promotional operations of sugar cane production.

Around 40 to 50 crores of money is generated for a season and transacted in the Rural area which, strengthen's the economic growth of the area.

SUGAR FACTORY OPERATION

Dharani sugar factory is one of the Modern factories in Tamilnadu and is the first one setup with auto setting mill in the worlds. Which contributes to the maximum efficiency of the industry.

MILLING

The Delivered cane is weight sampled for cane quality and unloaded in the feeder table. The cane is prepared by means of cane preparation devices arranged in the yard. Aeries of three roller mills
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crush the prepared cane and extract the Raw juice. The Residue left after extraction of the juice is called bagasse which is used as the fuel in the boilers and also be used for paper manufacturing.

CLARIFICATION

The Raw juice is heated and Milk lime is added to cause impurities such as Mud to settle. Clarifies separate the juice into clarified juice and Muddy juice. The Muddy juice is sent to filter where the juice is Removed leaving Mud (Filter cake) which is used as manure.

EVAPORATION

The clarified juice is then boiled in evaporators which remove most of the water leaving thick scrub.

CRYSTALISATION AND CENTRIFUGAL

The scrub is boiled at low temperature under vacuum to get sugar. Massuit (Raw sugar crystal mixed with molasses) moves to centrifugal which separate the two.

BOILER & POWER GENERATION

The power Requirement at Industry is self generated with the use of bagasse as fuel one of the waste products of the industry is bagasse which is used in the boiler for production of steam. The steam in utilized in the turbine which is connected to an alternator
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to produce the power. The self generated power is utilized within the factory premises.

DHARANI SUGARS AND CHEMICALS LTD PLANTS AND BRANCHES COMPANY LOCATIONS

Regional Office :

PGP House, No.57, Sterling Road, Nungambakkam, Chennai - 600 034.

Factory Plant

Dharani 1, Dharani Nagar, Tirunelveli Dist - 627 760.

Factory Plant

Dharani 2 Karaipoondi Village, Chettepet Road, Polur Taluk - 606 803.

FUNCTIONAL AREAS There are four Major departments in Dharani Sugars 1. Administration Department 2. Cane Department 3. Production Department 4. Engineering Department

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ADMINISTRATION DEPARTMENT

The

Administration

department

is

headed

by

General

Manager and Assistant General Manager. The Administration department is controlled the following section. 1. Personal Section 2. Accounts Section 3. Computer Section 4. Stores Section 5. Transport Section 6. Sales Section

They above section are headed by Manger. They are Reporting to other Assistant Manager and General Manager.

CANE DEPARTMENT

The cane department is vital Role in the sugar Industry. It is headed by Manager cane under the Manager cane two assistant manager and seven cane officers. The cane officers are appointed at divisional officer's each division there are 5 to 6 cane assistant are working. They are under way direct control of cane officer's and assistant Manager cane.

ENGINEERING DEPARTMENT

The engineering department is headed by General Manager Works. The assistant Manager a mechanical and two Manager

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electrical are working under General Manager Works. General Manager works is controlled all factory area.

PRODUCTION DEPARTMENT

The Production department is headed by Manager Production. He is controlled by all the production area. He is Responsible for the sugar production. Sugar is a carbohydrate that occurs naturally in every fruit and vegetable. It is a Major product of

photosynthesis, the process by which plant's transforms the sun's energy into food. Sugar occurs in greatest quantities in sugarcane and sugar beet's from which it is separated for commercial use. The quality of the cane is mainly depends on its location.

The

process

of

sugar

refining

in

Dharani

Sugars

and

Chemicals limited are given below.

The natural sugar stored in the cane stalk is separated from the rest of the plant material through a process known as refining.

For sugarcane, the process of refining is carried out in the following steps. Pressing of sugarcane to extract the juice. Boiling the juice until it begins to thicken and sugar begins to crystallize. Spinning the crystals in a centrifuge to remove the syrup, producing raw sugar. Shipping the crystals in a centrifuge to remove the syrup, producing raw sugar.
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 Shipping the Raw sugar to refinery where it is washed and filtered to remove remaining non-sugar ingredient's and colour. Crystallizing, drying and packaging the refined sugar. In Dharani sugar Industry the capacity utilization mainly depends on these crucial factors. The actual number of ton of sugarcane crushed in a day. The recovery rate, which generally depends on the quality of the cane. Actual length of the crushing season. The length of the crushing.

Season also depends upon location with the maximum being in South India.

Production of sugar and its by product details. 100 tons of sugar cane 9.2 tons of sugar 4.5 tons of molasses 3% at filter cake 30 tons of bagasse Crushed Produced Produced Produced Produced

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PRODUCTION PROCESS FLOW CHART CANE

MILLING

JUICE

BAGASSE

BOILERS

CLARIFICATION

PRESSURE MUD

STEAM GENERATION

EVAPORATION

PANS

CRYSTALLIAZATION

CENTRIFUGAL

MOLASSES

FERMENTATION

DISTILLATION

DNA

RS

AA

DAD

REDISTILLATION

ENA

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C H A P T E R - II

Objectives of the study

1. To familiarize with the method of preparing budget and its control in this general. 2. To study the detailed plans for achieving the targets of each department. 3. To compare the actual cost with Budgeted cost showing any variances and disclosing the reasons for them. 4. To give suggestions to take appropriate actions as variance emerge.

Scope of the study

This study has been undertaken on behalf of the company in order to identify the possible benefit's and disadvantages of implementation at various tools with special references to the finance function. It aim's also at identifying the benefits for forecasting the sales and production budget for the current year. The main scope at this study is to Provide Budgeted information to management for decision making.

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Limitation of Study

1. 2.

The Study is limited to the extent of data provided. With in the short duration data could be analyzed only in certain perspectives.

3.

The success utility of budgeting depends in the co-operation & participation of all members of management.

4.

The Establishment of a budgeting process takes time. Also, sometimes too much expensive.

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CHAPTER III

RESEARCH METHODOLOGY

Meaning of Research

Research is a matter of gathering information from varying sources, for example, if writing a news articles yopu may want to incorporate both literary investigation of the topic align interviews of specialist on the topic.

Research Definition

The word Research is used to describe a number of similar and ofter overlapping activities involving a search for information. For example, each of the following activities involves such a search, but the differences are significant and worth examining.

Research Design

The research design for the study undertaken is Analytical Research. Analytical Research involves in depth study, evaluation of available information and generating the quantitative data used for the statistical assistance.

Period of coverage (sampling)

The study covers the period of 3 year from 2008 - 2011 . The study covers Income budget, and expenditure Budget, sales Budget, Production Budget, Cash Budget.

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Method of Data Collection

The source for collection of data are through primary and secondary data helped in knowing more about the organization, the function and working at finance department and about.budget preparation from direct and personal talk with financial experts in the department. The secondary data obtained from compan y broacher's annual reports, company files and reports.

Statistical tools used for study

Different statistical tools like tabulations and charts.

Problem of study

Dharani Sugars has incurred a lot at problems with regard to the cost of its producing sugar and distribution to different part of India and other country. So the researcher has opted, one of the cost control measures viz, budgetary control, in order to study in depth the underlying factors in the cost incurred and suggesting way's to highlight improving its cost function.

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CHAPTER IV

REVIEW OF RELEVANT LITERATURE

George R. Terry "Budget is an estimate of future needs arranged according to an orderly basis, covering some or all of the activities at an enterprise for definite period of time"1.

James "A Budget is a comprehensive and coordinated plan, expressed in financial terms, for the operations and resources at an enterprise for some specific period in the future".

Brown and Howard "A Budget is a pre-determined Statement of Management Policy during a given period which provides a standard for comparison with the results actually achieved".

As per the views of Charles T. Horgnren and its associates, budgeting is the common accounting tool company's use for planning and controlling what they must do to satisfy their customers and succeed in the market place. They also added that budgeting is most useful when it is an integral part of a company's strategy analysis. It shows how resources will be deployed to implement strategy.

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Gany L. Sunduram and Stration in their study on the budget has revealed that budget tell employees what is expected of them. A good budget process communicates both from the top down and from the bottom up. All the planned activities of all submit of an organization sales, production, distribution and finance are clearly summarized in the master budget. Such budget even quantities targets for sales, cost - driver activities, purchases, production, net income, and cash position. Hence, the budgetary process compels manager to think and to prepare for changing conditions. And also the success of a budget depends heavily on employee reaction to it.

M.M. Arora has pointed that, many business fail because of lack of efficient planning which could have revealed that business should not be started or proper preparation should have be done is advance. If the budget system in the business is to be successful it must be fully supported by every member of management and the impetus and direction must come from the very top, management. Hence, in order to derive maximum benefits from the budget system, well defined responsibility centers should be built up within the organization.

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CHAPTER - IV

DATA ANALYSIS AND INTERPRETATION

TABLE IV 1 (A) Income and expenditure Budget on Dharani Sugars and Chemicals Limited in the year 2008 2009

Particular Income Sugar Molasses Bagasse Industrial Alcohol Power Others Other in come Total Less Excise duty Increase/Decrease in Stock Total income Expenditure Raw Material Sugar cane Raw Sugar Molasses Power Fuel for co-generation Stores and spares consumed Salaries and wages Administrative expenses Packing expenses

Budget Rs. in Lakhs

Actual Rs. In Lakhs

11776 300 1800 918 50 14844 14844

28896.84 28.3 84.98 1878.51 1838.76 14.9 89.41 32831.7

26147.33

9200 600 400 520 250 329 22

7122.26 10652.95 384.81 88.08 1806.86 519.62 551.07 225.29 738.24

Repair and maintenance Interest Depreciation

250 400 550

294.41 1624.67 555.04

Total Less Excise duty Total expenditure Profit after depreciation

13409 13409 1435

24563.3 -271.89 24291.41 1855.92

(Source: Secondary Data)

Interpretation

1. The table IV 1 (a) respondents that the company estimated Rs. 1435 lakhs. Profit 2008-2009. But the actual profit 1855.92 lakhs. The profit is decreased. Mainly due to more expenditure on Administrative expenses and Interest and Depreciation. 2. The firm estimated total income Rs. 14844 lakhs. Is mainly due to products of sugar from raw sugar the cane available is less this year. 3. In this year company Budgeted expenditure Rs. 13409 lakhs. But the actual expenditure is Rs.24291.41 lakhs. Is mainly due to process of raw sugar at higher price.

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DIAGRAM IV 1 (A)

DIAGRAM SHOWING THE INCOME AND EXPENDITURE BUDGET ON DHARANI SUGARS AND CHEMICAL LIMITED IN THE YEAR 2008 - 2009.

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TABLE IV 1 (B)

Income and expenditure Budget on Dharani Sugars and Chemicals Limited in the year 2009 2010

Particular Income Sugar Molasses Bagasse Industrial Alcohol Power Others Other in come

Budget Rs. in Lakhs

Actual Rs. In Lakhs

23460 565 1800 1224 50

23933.92 225.98 411.20 2441.82 1255.39 46.67 172.79

Total Less Excise duty Increase/Decrease in Stock Total income Expenditure Raw Material Sugar cane Raw Sugar Molasses Power Fuel for co-generation Stores and spares consumed Salaries and wages Administrative expenses Packing expenses Repair and maintenance Interest

27099 27099

28487.71 -818.72 1742.34 25926.65

20160 500 120 250 700 650 250 552 250 1700

17068.28 597.90 115.49 233.64 266.57 736.93 679.33 249.21 1177.14 311.49 1865.37

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Depreciation

550

558.05

Total Less Excise duty

25682 -

23859.3 38.45

Total expenditure Profit after depreciation

25682 1417

23820.85 2105.86

(Source: Secondary Data) Interpretation 1. The table IV. 1 (b) represents that the company estimated profit Rs. 1417 lakhs for the 2009-2010. But the actual profit they get Rs. 2105.86 lakhs, the profit is increased. 2. Mainly this is because at more expenditure on packing forwarding expenses and stores and spared consumed and interest. 3. In this year the company in not Budgeted for exports sales. So the export live charges is more as compare to Budget. 4. The firm has estimated total income Rs.27099 lakhs. But they get Rs.25926.65 lakhs. The income is decreased Rs.1172.35. lakhs. The stores and consumption is more as compare to Budget Rs.36.93 lakhs. This is because of the increase in the cost of chemicals. 5. In this year the company estimated expenditure Rs.25682 lakhs. But the actual expenditure Rs.23820.85 lakhs. The expenditure is decreased.
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DIAGRAM IV 1 (B) DIAGRAM SHOWING THE INCOME AND EXPENDITURE BUDGET ON DHARANI SUGARS AND CHEMICAL LIMITED IN THE YEAR 2009 2010

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