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CHAPTER-I

INTRODUCTION

INTRODUCTION
A budget is a quantitative expression of a plan of action relating to the forthcoming
budget period. It represents a written operational plan of management for the budget
period. A plan expressed in money. It is prepared and approved prior to the budget
period and may show income, expenditure, and the capital to be employed, may be drawn
up showing incremental effects on former budgeted or actual figures, or be compiled by
zero based budgeting. Budget and Budgetary control. The terms budget and budgetary
control are often used interchangeable to refer to a system of managerial control.
Budgetary control implies the use of a comprehensive system of budgeting to aid
management in carrying out its functions like planning, co-ordination and control.
BUDGET:
According to Institute of Chartered Management Accountants (ICMA) England A plan
qualified in monetary term prepared and approved prior to a defined period of time
usually showing planned income to be generated and or to be incurred during that period
and the capital to be employed to attain a given objective.
BUDGETORY CONTROL:
The Chartered Institute of Management Accountants (CIMA) London defines
budgetary control as establishment budget relating to the responsibility of executives to
the requirement policy and the continuous comparison of actual with budgeted results
either to secure individuals action the objective of policy or to provide a basic for its
revision.
A budget is the monetary and quantitative expressions of business
plans and policies to be pursued in the future period of time the term budgeting is used
for preparing budgets and other procedures for planning co-ordination and control of
business enterprise. 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 variations, if any first of all budgets are
prepared and then actual results are recorded.

NEED OF THE STUDY


1). To know about the budget and budgetary control of HERITAGE FOODS.S LTD.
2). To know about the status of company by different financial Budgetary policies.
3). To know about the present scenario of Investment estimation that are existed in the
market.
4). to know about the present impact of budgetary control on the Financial position of the
company.
5). to know about the Past performance to based on future Estimation of the budgetary
control of the techniques.

SCOPE OF THE STUDY


The scope of the study limited to collecting the data published in the reports of
the company and opinions of the employees of the organization with reference to the
objective stated above and theoretical framework of the data. With a view to suggest
solutions to various problems relating to budget and budgetary control.

OBJECTIVE OF THE STUDY


1. To know foods industry profile.
2. To know company profile of HERITAGE FOODS.S LTD. Company.
3. To study the budgeted estimates and accruals of the revenue expenditure and
revenue receipts.
4. To study the variations of the accruals from the budgeted estimates.
5. To study the working of the financial department at HERITAGE FOODS.S LTD.

METHODOLOGY OF THE STUDY


Research is the systematic investigation of fact that seeks to establish relationship
between two types.
Primary data:

Officers of accounts sections.

Executives and staff of financial and accounts department.

Meeting with concerned people.

Personal observation.

Secondary data:

Annual reports of HERITAGE FOODS.S LTD. Financial management text


books.

Printed Materials.

Journals and magazines

News papers.

LIMITATIONS
1. The study is purely based on the information provided by the company and the
data is collected from the reports, annual reports, and magazines of the company.
2. To study is restricted to HERITAGE FOODS.S LTD.
3. To study is restricted to limited period.
4. Estimates are used as basis for budget plan and estimates are based mostly on
available facts and best managerial judgment
5. Budgetary control cannot reduce the managerial function to a formula. It is only a
managerial.
6. Tool which increase effectiveness of managerial control.
7. The use of budget may be to restricted use of resources. Budgets an often taken as
limits.
8. Efforts may therefore not be made to exceed the performance beyond the
budgeted targets.
9. Frequent changes may be called for in budgets due to first changing industrial
climate.

CHAPTER-II
REVIEW OF LITERATURE

REVIEW OF LITERATURE
INTRODUCTION TO BUDGET AND BUDGETARY CONROL
Financial Management is the process of managing the financial resources,
including accounting and financial reporting, budgeting, collecting accounts receivable,
risk management, and insurance for a business.
The financial management system for a small business includes both how you are
financing it as well as how you manage the money in the business.
In setting up a financial management system your first decision is whether you
will manage your financial records yourself or whether you will have someone else do it
for you. There are a number of alternative ways you can handle this. You can manage
everything yourself; hire an employee who manages it for you; keep your records inhouse, but have an accountant prepare specialized reporting such as tax returns; or have
an external bookkeeping service that manages financial transactions and an accountant
that handles formal reporting functions. Some accounting firms also handle bookkeeping
functions. Software packages are also available for handling bookkeeping and
accounting.
Bookkeeping refers to the daily operation of an accounting system, recording
routine transactions within the appropriate accounts. An accounting system defines the
process of identifying, measuring, recording and communicating financial information
about the business. So, in a sense, the bookkeeping function is a subset of the accounting
system. A bookkeeper compiles the information that goes into the system. An accountant
takes the data and analyzes it in ways that give you useful information about your
business. They can advise you on the systems needed for your particular business and
prepare accurate reports certified by their credentials. While software packages are
readily available to meet almost any accounting need, having an accountant at least
review your records can lend credibility to your business, especially when dealing with
lending institutions and government agencies.

Setting up an accounting system, collecting bills, paying employees, suppliers,


and taxes correctly and on time are all part of running a small business. And, unless
accounting is your small business, it is often the bane of the small business owner. Setting
up a system that does what you need with the minimum of maintenance can make
running a small business not only more pleasant, but it can save you from problems down
the road.
The basis for every accounting system is a good Bookkeeping system. What is the
difference between that and an accounting system? Think of accounting as the big picture
of how your business runs -- income, expenses, assets, liabilities -- an organized system
for keeping track of how the money flows through your business, keeping track that it
goes where it is supposed to go. A good bookkeeping system keeps track of the nuts and
bolts -- the actual transactions that take place. The bookkeeping system provides the
numbers for the accounting system. Both accounting and bookkeeping can be contracted
out to external firms if you are not comfortable with managing them yourself.
Even if you outsource the accounting functions, however, you will need some
type of Recordkeeping Systems to manage the day-to-day operations of your business - in
addition to a financial plan and a budget to make certain you have thought through where
you are headed in your business finances. And, your accounting system should be
producing Financial Statements. Learning to read them is an important skill to acquire.
Another area that your financial management system needs to address is risk. Any
good system should minimize the risks in your business. Consider implementing some of
these risk management strategies in your business. Certainly, insurance needs to be
considered not only for your property, office, equipment, and employees, but also for loss
of critical employees. Even in businesses that have a well set up system, cash flow can be
a problem. There are some tried and true methods for Managing Cash Shortages that can
help prevent cash flow problems and deal with them if they come up. In the worst case
you may have difficulties meeting all you debt obligations. Take a look at Financial
Difficulties to learn more about ways to manage situations in which you have more debt
than income.

It is possible you may even be at the a point where you want to sell the business
or simply close it and liquidate assets. There are financial issues involved for these
circumstances too. So, be certain that you know what steps you need to take in order to
protect yourself financially in the the long run.
Clearly, financial management encompasses a number of crucial areas of your
business. Take time to set them up right. It will make a significant difference in your
stress levels and in the bottom line for your business.

EFFECTIVE
FINANCIAL
MANAGEMENT

Financial Planning
Financial planning is often thought of as a way to manage debt, but a good
financial plan really is a way to make certain that you have financial security throughout
your life. Many small business owners consider their business as their investment in their
future, but that is a huge risk to take. As any economist will tell you, diversification is the
only sure way to create security in the long run. Your business is one stream of income.
Putting together a financial plan that allows for multiple streams of income is what
provides you security in the longer term.
The essential components of a good financial plan are investing, retirement
planning, insurance, borrowing and using credit, tax planning, having a will, and ensuring
the right people receive your assets. Financial planning is the process of meeting your life
goals through the proper management of your finances. Life goals can include buying a
home, saving for your child's education or planning for retirement.
The financial planning process involves gathering relevant financial information,
setting life goals, examining your current financial status and coming up with a plan for
how you can meet your goals given your current situation and future plans.
There are personal finance software packages, magazines and self-help books to help
you do your own financial planning. However, you may decide to seek help from a
professional financial planner if:

you need expertise you don't possess in certain areas of your finances. For
example, a planner can help you evaluate the level of risk in your investment
portfolio or adjust your retirement plan due to changing family circumstances.

you want to get a professional opinion about the financial plan you developed for
yourself.

you don't feel you have the time to spare to do your own financial planning.

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you have an immediate need or unexpected life event such as a birth, inheritance
or major illness.

you feel that a professional adviser could help you improve on how you are
currently managing your finances.

you know that you need to improve your current financial situation but don't
know where to start.

A financial planner is someone who uses the financial planning process to help you
figure out how to meet your life goals. The planner can take a "big picture" view of your
financial situation and make financial planning recommendations that are right for you.
The planner can look at all of your needs including budgeting and saving, taxes,
investments, insurance and retirement planning. Or, the planner may work with you on a
single financial issue but within the context of your overall situation. This big picture
approach to your financial goals may set the planner apart from other financial advisers,
who may have been trained to focus on a particular area of your financial life.
In addition to providing you with general financial planning services, many
financial planners are also registered as investment advisers or hold insurance or
securities licenses that allow them to buy or sell products. Other planners may have you
use more specialized financial advisers to help you implement their recommendations.
With the right education and experience, each of the following advisers could take you
through the financial planning process. Ethical financial planners will refer you to one of
these professionals for services that they cannot provide and disclose any referral fees
they may receive in the process. Similarly, these advisers should refer you to a planner if
they cannot meet your financial planning needs.

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Accountant
Accountants provide you with advice on tax matters and help you prepare and submit
your tax returns to the Internal Revenue Service. All accountants who practice as
Certified Public Accountants (CPAs) must be licensed by the state(s) in which they
practice.
Estate Planner
Estate planners provide you with advice on estate taxes or other estate planning issues
and put together a strategy to manage your assets at the time of your death. While
attorneys, accountants, financial planners, insurance agents or trust bankers may all
provide estate planning services, you should seek an attorney to prepare legal documents
such as wills, trusts and powers of attorney. Many estate planners hold the Accredited
Estate Planner (AEP) designation.
Financial Planner
Many financial planners have earned the Certified Financial Planners certification, or the
Chartered Financial Consultant (ChFC) or Personal Financial Specialist (CPA/PFS)
designations. Financial planners can take you through the financial planning process.
Insurance Agent
Insurance agents are licensed by the state(s) in which they practice to sell life, health,
property and casualty or other insurance products. Many insurance agents hold the
Chartered Life Underwriter (CLU) designation. Financial planners may identify and
advise you on your insurance needs, but can only sell you insurance products if they are
also licensed as insurance agents.

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Investment Adviser
Anybody who is paid to provide securities advice must register as an investment adviser
with the Securities and Exchange Commission or relevant state securities agencies,
depending on the amount of money he or she manages. Because financial planners often
advise people on securities-based investments, many are registered as investment
advisers. Investment advisers cannot sell securities products without a securities license.
For that, you must use a licensed securities representative such as a stockbroker.
Stockbroker
Also called registered representatives, stockbrokers are licensed by the state(s) in which
they practice to buy and sell securities products such as stocks, bonds and mutual funds.
They generally earn commissions on all of their transactions. Stockbrokers must be
registered with a company that is a member of the National Association of Securities
Dealers (NASD) and pass NASD-administered securities exams.
The government does not regulate financial planners as financial planners; instead, it
regulates planners by the services they provide. For example, a planner who also provides
securities transactions or advice is regulated as a stockbroker or investment adviser. As a
result, the term "financial planner" may be used inaccurately by some financial advisers.
To be sure that you are getting financial planning advice, ask if the adviser follows the six
steps.
The Financial Planning Process Consists of the Following Six Steps
1. Establishing and defining the client-planner relationship.
The financial planner should clearly explain or document the services to be
provided to you and define both his and your responsibilities. The planner should
explain fully how he will be paid and by whom. You and the planner should agree
on how long the professional relationship should last and on how decisions will
be made.

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2. Gathering client data, including goals.


The financial planner should ask for information about your financial situation.
You and the planner should mutually define your personal and financial goals,
understand your time frame for results and discuss, if relevant, how you feel about
risk. The financial planner should gather all the necessary documents before
giving you the advice you need.
3. Analyzing and evaluating your financial status.
The financial planner should analyze your information to assess your current
situation and determine what you must do to meet your goals. Depending on what
services you have asked for, this could include analyzing your assets, liabilities
and cash flow, current insurance coverage, investments or tax strategies.
4. Developing and presenting financial planning recommendations and/or
alternatives.
The financial planner should offer financial planning recommendations that
address your goals, based on the information you provide. The planner should go
over the recommendations with you to help you understand them so that you can
make informed decisions. The planner should also listen to your concerns and
revise the recommendations as appropriate.
5. Implementing the financial planning recommendations.
You and the planner should agree on how the recommendations will be carried
out. The planner may carry out the recommendations or serve as your "coach,"
coordinating the whole process with you and other professionals such as attorneys
or stockbrokers.
6. Monitoring the financial planning recommendations.
You and the planner should agree on who will monitor your progress towards
your goals. If the planner is in charge of the process, she should report to you
periodically to review your situation and adjust the recommendations, if needed,
as your life changes.

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Best Practices When Approaching Financial Planning

Set measurable goals.

Understand the effect your financial decisions have on other financial issues.

Re-evaluate your financial plan periodically.

Start now - don't assume financial planning is for when you get older.

Start with what you've got - don't assume financial planning is only for the
wealthy.

Take charge - you are in control of the financial planning engagement.

Look at the big picture - financial planning is more than just retirement planning
or tax planning.

Don't confuse financial planning with investing.

Don't expect unrealistic returns on investments.

Don't wait until a money crisis to begin financial planning.

You are the focus of the financial planning process. As such, the results you get from
working with a financial planner are as much your responsibility as they are those of the
planner.
To achieve the best results from your financial planning engagement, you will need to be
prepared to avoid some of the common mistakes by considering the following advice:

Set measurable financial goals.


Set specific targets of what you want to achieve and when you want to achieve
results. For example, instead of saying you want to be "comfortable" when you retire
or that you want your children to attend "good" schools, you need to quantify what

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"comfortable" and "good" mean so that you will know when you've reached your
goals.

Understand the effect of each financial decision.


Each financial decision you make can affect several other areas of your life. For
example, an investment decision may have tax consequences that are harmful to your
estate plans. Or a decision about your child's education may affect when and how you
meet your retirement goals. Remember that all of your financial decisions are
interrelated.

Re-evaluate your financial situation periodically.


Financial planning is a dynamic process. Your financial goals may change over the
years due to changes in your lifestyle or circumstances, such as an inheritance,
marriage, birth, house purchase or change of job status. Revisit and revise your
financial plan as time goes by to reflect these changes so that you stay on track with
your long-term goals.

Start planning as soon as you can.


Don't delay your financial planning. People who save or invest small amounts of
money early, and often, tend to do better than those who wait until later in life.
Similarly, by developing good financial planning habits such as saving, budgeting,
investing and regularly reviewing your finances early in life, you will be better
prepared to meet life changes and handle emergencies.

Be realistic in your expectations.


Financial planning is a common sense approach to managing your finances to reach
your life goals. It cannot change your situation overnight; it is a lifelong process.
Remember that events beyond your control such as inflation or changes in the stock
market or interest rates will affect your financial planning results.

Realize that you are in charge.


If you're working with a financial planner, be sure you understand the financial planning
process and what the planner should be doing. Provide the planner with all of the relevant
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information on your financial situation. Ask questions about the recommendations offered
to you and play an active role in decision-making.

BUDGET:
Budget is essential in every walk of our life national, domestic and Business. A
budget is prepared to have effective utilization of funds and for the realization of
objective as efficiently as possible. Budgeting is a powerful tool to the management for
performing its functions i.e., formulation plans, coordination activities and controlling
operations etc., efficiently. For efficient and effective management planning and control
are tow highly essential functions. Budget and budgetary control provide a set of basic
techniques for planning and control.
A budget fixes a target in terms of rupees or quantities against which the actual
performance is measured. A budget is closely related to both the management function as
well as the accounting function of an organization.

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As the size of the organization increases, the need for budgeting is


correspondingly more because a budget is an effective tool of planning and control.
Budget is helpful in coordinating the various activities (such as production, sales,
purchase etc) of the organization with result that all the activities precede according to the
objective. Budgets are means of communication. Ideas of the top management are given
the practical shape. As the activities of various department heads are coordinated at the
much needed for the very success of an organization. Budget is necessary to future to
Motivate the staff associated, to coordinate the activities of different departments and to
control the performance of various persons operating at different levels.
Budgets may be divided into two basic classes. Capital and
operating budgets. Capital budget are directed towards proposed expenditure for new
projects and often require special financing.
The operating budgets are directed towards achieving short-term operational goals
of the organization for instance, production or profit goals in a business firm. Operating
budgets may be sub-divided into various departmental of functional budgets.

Definitions of Budget:
According to Institute of Charted Management Accountants, England

A plan

quantified in monetary term prepared and approved prior to a defined period of time
usually showing planned income to be generated and / or to be incurred during that
period and the capital to be employed to attain a given objective.
According to ICMA, England, a budget is, a financial and/or quantitative
statement, prepared and approved prior to a defined period of time, of the policy to be
pursed during the period for the purpose of attaining a given objective.
It is also defined as, a blue print of projected plan of a action of a business for a
definite period of time.

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BUDGETARY CONTROL:
No system of planning can be successful without having an effective and efficient
system of control. Budgeting is closely connected with control. The exercise of control in
the organization with the help of budgets is known as budgetary control. The process of
budgetary control includes.
1

Establishment of budget for each function and section of the organization.

Executive responsibility in order to perform the specific tasks so that objectives of


the enterprise may be attained.

Continues comparison of the actual performance with that of the budget and
placing the responsibility of executives for failure to achieve the desired result a
given in the budget.
4. Taking suitable remedial action to achieve the desired

objective if there is a variation of the actual performance from the budgeted


performance.
5. Revision of budgets in the light of changed circumstances.

Definitions of Budgetary Control:


According to the Brown and Howard Budgetary control is the system of
controlling costs which includes the preparation of Budgets, co-coordinating the
department and establishing the responsibilities, comparing the actual performance with
the budgeted and acing upon the results to achieve the maximum profitability
According to the J.Betty:

A system which uses budgets as a means of

planning and controlling all aspects of producing and / or selling commodities and
services
.According to the CIMA, London, Budgetary control is the establishment of
budgets relating to responsibilities of executives to the requirement of a policy, and the
continuous comparison of actual with budged results, either to secure by individual action
the objective of that policy or to provide a basis for revision.
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BUDGET, BUDGETING AND BUDGETING CONTROL


Row land and William in their book entitled Budgeting for management control
has given the difference between budge, budgeting and budgetary control as follows:
Budgets are the individual objectives of a department etc where as budgeting
may be said to be the act of building budgets. Budgetary control embraces all this and in
addition includes the science of planning the budgets themselves and the utilization of
such budgets to effect on overall management tool for the business planning and control.
Thus, a budget is a financial plan and budgetary control results from the administration of
the financial plan.

Essential Features of a Budgetary:

Budgetary control defines the objectives and policies of the undertaking as a


whole.
It is an effective method of controlling the activities of various departments of a
business unit. It fixed targets and the various departments have to efficiently to
reach the targets.
It secures proper co-ordination among the activities of various departments.
It helps the management to fix up responsibility in case the performance is below
expectations.
It helps the management to reduce wasteful expenditure. This leads to reduction in
the cost of production.
It brings in efficiency and economy by promoting cost consciousness among the
employees.
It facilitates centralized control with decentralized activity.

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It acts as internal audit by a continuous evaluation of departmental results and


osts.

Limitations of Budgetary Control:


The preparation of a budget under inflationary conditions and changing
Government policies is really difficult. Thus, the accurate position of the business
can not be estimated.
Accuracy in budgeting comes through expenditure. Hence it should not be relied
on too much in the initial stages.
Budget is only a management tool. It is not a substitute for management. It can
not replace management in decision making.
Budgeting involves a heavy expenditure, which small concerns cannot afford.
There will be active and passive resistance to budgetary control as it points out the
efficiency or inefficiency of individuals.
The success of budgetary control depends upon wiling co-operation and team
work. This is often lacking.
Frequent changes maybe called for in budgets due to fast changing industrial
climate. It may be difficult for a company to keep pace with these fast changes,
because revision of budgets is expensive exercise.

OBJECTIVES OF BUDGETARY CONTROL:


Planning:
A budget is a plan of the policy to be pursued during the defined period of time to
attain a given objective. The budgetary control will force management at all the activities
to be done during the future periods. A budget as a plan of action achieves the following
purposes:

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Action is guided by well thought out plan because a budget is prepared after a
careful sturdy and research.
The budget serves as a mechanism through which.
Managements objectives and policies are affected.
It is a bridge through which communication is establishment between the top
management and the operatives who are to implement the policies of the top
management.
The most profitable course of action is selected from the various available
alternatives.

Co-ordination:
The budgetary control co-ordinates the various activities of the firm and secures
co-operation of all concerned so that the common objective of the firm may be
Successfully achieved. It forces executives to think and think as a group. It cocoordinating the policies, plans and actions. An organization without a budgetary control
is like a ship sailing in a chartered sea. A budget gives direction to the business and
imparts meaning and significance to its achievement by making comparison of actual
performance and budgeted performance.

Motivation:
It employees have actively participated in budget preparation and if they are
convinced that their personal interests are closely associated with the success of
organizational plan, budgets provide motivation in the form of goals to be achieved. The
budgets will motivate the workers, depends purely on how the workers have been
mentally and physically involved with the process of budgeting.

Control:
Control consists of the action necessary to ensure the performance of the
organization conforms to the plans and objectives. Control of performance is possible
with predetermined standards which are laid down in a budget. Thus, budgetary control
makes control possible by continuous comparison of actual performance with that of the

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budget so as to report the variations from the budget to the management of corrective
action.
Thus, budgeting system integrates key

managerial functions as it links top

managements planning function with the control function performed at all levels in the
managerial hierarchy. But the efficiency of the budget as a planning and control device
depends upon the activity in which it is being used. A more accurate budget can be
developed for those activities where direct relationship exists between inputs and outputs.
The relationship between inputs and outputs becomes the basis for developing budgets
and exercising control.

Approved Plan:
A mater budget provides an approved summary of results to be expected from
proposed plan of operations. It concerns all functions of organization and serves as a
guide to executives and departmental heads responsible for various departmental
objectives.

Communication:
The employees of an organization should know organizational aims, objectives of
subunits( budgets centers) and the part that they have to play for their attainment.
Budgets effectively communicate this information to employees. Besides, budges keep
Different sections of the organization informed about the contribution of different
subunits in the attainment of overall organizational objective.

Budget procedures:
Having the budget organization and fixed the period, the actual work or budgetary
control can be taken upon the following pattern.

STEPS IN BUDGETING CONROL:


Organization for budgeting:
The setting up of a definite plan of organization is the first step towards installing
budgetary controlling system in an organization a budget manual should be prepared

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giving details of the powers, duties, responsibilities and areas of operation of each
executive in the organization.

Budget Manual:
A Budget manual lays down the details of the organizational set up, the routine
procedures and programmers to be followed for developing budgets for various items and
the duties and responsibilities of the executives regarding the operation of the budgetary
control system. CIMA England defines a budget manual as a document schedule or
Booklet which sets out, inter alia, the routine of and the forms and records required for
budgetary control. Thus, it is a written document which guides the executives in
preparing various budgets. Budgets are to be drawn keeping in view the objectives of the
organization given in the budget manual. Responsibility and functions of each executive
in regard to budgeting are written down in the budget manual to avoid any duplication or
overlapping of responsibilities. Steps and the methods for developing various budgets and
the methods of reporting performance against the budget are written down in the budget
manual. In short it is a written document which gives everything relating to the
preparation and execution of various budgets. It should be clear and there should be no
ambiguity in it.
The following are some of the most important matters covered in a Budget manual:
a

Introducing and brief explanation of the objects, benefits and principles of


budgetary control.

Organization chart giving the titles to different personnels with full


explanation of the duties of each to operating system and preparation of
departmental and functional budgets.

Length of budget periods and control periods should be clearly stated.

A method of accounting and control of expenditure.

A statement showing the responsibility and of authority given to each manger


for approval of budgets, vouchers and all other forms and documents which
authorize them to spend the money. The authority for granting approval must
be clearly stated.

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The entire process of budgeting programme including the time table for
periodical reporting. A schedule should be drawn for this.

Purpose, specimen form and number of copies to be used for each report and
statement. Budget centers involved should also be stated clearly.

Outline of main budgets and their accounting relationships.

Explanation of key budgets.

FIXATION OF BUDGET PERIOD:


The budget period mean the period for which a budget is prepared and employed.
The budget period will depend upon the type of business and the control aspect.
Budget period mean the period for which a budge is prepared and employed. The
budget period depends upon the nature of the business and the control techniques. For
example, in case of seasonal industries (i.e., food or clothing) the budget period should be
a short one and should cover one season. But in case of industries with heavy capital
expenditure such as heavy engineering works, the budget period should be long enough
to meet the requirements of the business. From control point of view, the budget period
should be a short one so that the actual results may be compared with the budget each
week end or month end and discussed with and discussed with the Budget committee.
Long term budgets should be supplemented by short term budgets to make the budgetary
control successful, as short-terms budgets will helping exercising control over day-today
operations. In short, the budget period should not be too long so that there may be
sufficient time before budget implementation. For most business, annual budget is quite
common because it compares with the financial accounting year.
There should be a regular time plan for budget preparation. It may be on the following
lines.
Long-term budgets for three to five years should be prepared for expansion and
modernization of the undertaking, introduction of new products or new projects
and undertaking heavy advertisement.
Annual budgets coinciding with financial accounting year should be prepared for
the operations activities (i.e., sales, purchases, and production etc, of the business)

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For control purposes, short-term budgets-monthly or even weekly budget-should


be prepared for watching progress of actual performance against targets. Shortterm budgets are prepared to see that actual performance is proceeding according
to the budgets and early corrective action may be taken if there is any pitfall.
The responsibility for preparation and implementation of the budgets may be
fixed as under.

Budgetary controller:
Although the chief executive l finally responsible for the budgetary programme. It
is better if a large part of the supervisory responsibility is deluged to an official
designated as Budget Controller or Budget Director. Such a person should have
knowledge of the technical details of the business and report directly to the president or
the chief executive.

Rolling (Continues) Budget:


This is a budget which is updated continuously by adding a further period (a
month\quarter) and deducting a corresponding earlier period. Budgeting is a continuous
process under these methods of preparation of budget. Once the first period elapses, the
forecast for that period is dropped and the forecast for the future period beyond the
existing could not be predicted and forecast reliably, this method is useful. However, it is
a costly exercise but matched by considerable reduction in operational variances.

Annual Vs Continues budgeting system:


In some organizations budgets are prepared on annual basis. But annual budgets
may not help the management to have control because variances due to rapidly changing
conditions affect the sales in quantity and prices, severe rapidly changing conditions
affect the sales in quantity and prices, severe inflationary conditions exist resulting fast
increase in the prices of inputs without reflecting in sales prices immediately and wide
range of products being produced making it not feasible to have precise estimate of levels
of activity for a year.

26

The procedure in continuous budgeting will be that a year will be divided into four
quarters. Monthly budgets for the first quarter and three quarterly budgets for the next
year can be prepared. For the first quarter precise estimates can be drawn up monthly.
The budget estimates for the second quarter may be revised working out separately
monthly estimates on more precise basis for control purposes before the starting of the
second quarter.
Similarly procedure may be followed for third and fourth quarters. This method a
time which need not be in respect of or coincide with the financial year. It will enable to
evolve a precise plan of action and control of variance functions at least for the
immediate quarter and a broad tentative one the subsequent three quarters on a continues
basis.

Principal Budget (limiting) factor:


Principal budget factor is such an important factor that it would affect all the
functional budgets to a large extent. The extent of its influence must be assessed first in
order to ensure that functional budgets are reasonably capable of fulfillment. This is the
factor in the activities of an undertaking which at a particular point in time or over a
period will limit the volume of output. It is the governing factor which is a major
constraint on all the operational activities of the organization, so this factor is taken into
consideration to determine whether the budgets are capable of attainment. It is essential
to locate the limiting factor may be any one of the following:
Is there sufficient demand for the product? (customer demand)
Will a required quality and quantity of materials be available? (availability of raw
material)
Is the plant capacity sufficient to cope up with the expected sales? (plant capacity)
Is the required type of labor available? (available of labor)
Is cash position sufficient to finance the expected volume of sales? (cash position)
Are there any Government restrictions? (Government restrictions)
For example, a concern has the capacity to produce 50,000 units of particular item per
year. But only 30, 000 units can be sold in the market. In this case, low demand for the
product is the limiting factor. Therefore, sales budget should be prepared first and other
functional budgets such as production budget, labor budget, plant utilization budget, cash
27

budget etc. should be prepared in accordance with this case plant capacity is limited.
Therefore, production budget should be prepared first and other budgets should follow
the production budget.
Thus, the budget relating to limiting factor should be prepared first and the other
budgets should be prepared in the light of that factor. All budgets should be cocoordinated keeping in view the principal budget factor if the budgetary control is to
achieve the desired results.
Principal budget factor is not static. It may vary rapidly from time to time due to
internal and external factors. It is of temporary nature and in the long run can be
overcome by suitable management taking sales promotion steps as increasing sales staff
and advertising. Plant capacity can be improved by better planning, simplification of
product or extension of plant.

DIFFERENT TYPES OF BUDGET:


Different types of budgets have been developed keeping in view the different
purposes they serve. Budgets can be classified according to:
The coverage they encompass;
The capacity to which they are related;
The conditions on which they are based; and
The periods which they cover.

Functional Budget:
A functional budget is a budget which relates to any of the functions of an
undertaking e.g., sales, production, research and development, cash etc, the following
budgets are generally prepared.

Budget

prepared by

1. Sales Budget including selling and

Sales Manager

Distribution Cost Budget


2. Production Budget

Production Manager

3. Material Budget

Purchase Manager

4. Labor and Personnel Budget

Personnel Manager

28

5. Manufacturing Overheads

Production Manager

6. Administration Cost Budget

Finance Manager

7. Plant Utilization Budget

Production Manager

8. Capital Expenditure Budget

Chief Executive

9. Research and Development


Cost Budget

R&D Manager

10. Cash Budget

Finance Manager

Sales Budget:
Sales budget is the most important budget and of primary importance. It forms the
basis on which all the budgets are built up. This budget is a forecast of quantities and
values of sales to be achieved in a budget in a budget period. Every effort should be made
to ensure that its figures are as accurate as possible because this is usually the starting
budget (sales being limiting factor on which all the other budgets are built up). The sales
Manger should be made directly responsible for the preparation and execution of the
budget. The sales budget may be prepared according to products, sales territories, types
of customers; salesmen etc., in the preparation of the sales budget, the sales manager
should take into consideration the following factors:
1

Past Sales Figures and Trends.

Salesmens Estimation.

Plant Capacity.

Availability of Raw Material and other Supplies.

General Trade Prospects.

Orders in Hand.

Seasonal Fluctuations.

Financial Aspect.

Adequate Return on Capital Employed.

10 Competition.
11 Miscellaneous Considerations.

Production Budget:

29

Production budget is a forecast of the total output of the whole organization


broken down into estimates of output of each type of product with a scheduling of
operations (by weeks and months) to be performed and a forecast of the closing finished
stock. This budget may be expressed in quantitative (weight, units etc) r financial
(rupees) units or both. This budget is prepared after taking into consideration the
estimated opening stock, the estimated sales and the desired closing finished stock of
each product. The works manger is responsible for the total production budget and the
departmental managers are responsible for the departmental production budget. In
preparing the production budget, the following factors are considered.
The time lag between the production in the factor and sales to the customer should
be considered so as to allow fro the time required or the dispatch of goods from the
factory to the place of the customers.
The stock of goods to be maintained both at the factorys go gown and at he sales
centers.
The level of production needed to meet the sales programme. Monthly production targets
should be fixed and it should be seen that production is kept more or less at
uniform level throughout the year. The material labor and plant requirements should be
ascertained to have the desired production to meet the sales programme.
The sales and the production are inter-dependant because production
budget is governed by the sales budget and the sales budget is largely determined by the
production capacity and by production costs.

Cost of production Budget:


After determining the volume of output the cost of procuring the output must be
obtained by preparing a cost of production budget. This budget is an estimate of cost of
output planned for a budget period and may be classified into material cost budget, labor
cost budget and overhead budget because cost of production includes material, labor and
overheads.

Materials Budget:

30

In drawing up the production budget, one of the first requirements to be


considered is material. As we know, materials may be direct or indirect. The materials
budget deals with the requirements and procurement of direct materials. Indirect
materials are dealt with under the works overhead budget. The budget should be related
to the production budget and the period of the budget should be of short duration because
this budget has an important bearing on the cash budget

Purchase Budget:
Purchase Budget is mainly dependent on production budget and material
requirement budget. This budget provides information about the materials to be acquired
from the market during the budget period.
Purchase budget should be prepared by the purchase manger by getting relevant
information about capital items, tools, general supplies and direct materials required
during the budget period from other related departments. Like other budgets, the purchase
budget has to be approved by the budget committee. After approval it becomes the
responsibility of the purchase officer to see that purchases are made as per the purchase
budget. Sometimes additional purchases which are not covered by the purchase budget
are made under the following circumstances.
If there is increase in production not anticipated while preparing the purchase
budget and purchase of larger quantities of materials becomes necessary.
If accumulation of stock becomes necessary to avoid shortage of materials.
If overstocking is desired to take advantage of lower prices and there is fear that
price will increase in near future.
The purchase manger should get additional sanctions from the higher authorities
for making the additional purchases not covered by the purchase budget.

Direct Labor Budget:


This budget gives as estimate of the requirements of direct labor essential to meet
the production target. This budget may be classified into labor Requirements budget and
recruitment budget. The labor recruitment budget is developed on the basis of
31

requirement of the production budget given and detailed information regarding he


different classes of labor e.g., fitters, welders, turner, millers, and grinders and drillers
etc., required for each department, their scales of pay and hours to be spent. This budget
is prepared with a view too enable the personnel department to carry out programmers of
training and transfer and to find out sources of labour needed so that every effort may be
made to remove difficulties arising in production the available workers in each
department, the expected changes in the labour force during the budget period due to the
labour turnover. This budget gives information about the personnel specification for the
jobs for which workers are to be recruited, the degree for skill and experience required
and the rates of pay. Where standard costing system is applied, the labor cost budget is
dev eloped on the basis of standard labor cost per unit multiplied by the quantity of
anticipated production determined in the production budget. If standard costing system is
not being followed in the organization, the information of labour cost may be obtained
from past records or estimated cost.
Sometimes another budget known as Manpower budget is prepared. This
budget gives the requirements of direct and indirect labour necessary to meet the
programme set out in the sales, manufacturing, maintenance, research and development
and capital expenditure budgets. The labor terms are expressed of rupee value, number of
labour hours, number and grade of workers etc. this budget makes provision for shift and
overtime work and for the effective training for new workers on labour cost.

Manufacturing Overheads Budget:


This budget gives an estimate of the works overhead expenses to be incurred in a
budget period to achieve the production target. The budget includes the cost of indirect
material, indirect labour and indirect works expenses. The budget may be classified into
fixed cost, variable cost and semi-variable cost. It can be broken into departmental
overhead budget to facilitate control. In preparing the budget, fixed works overhead can
be estimated on the basis of past information after taking into consideration the expected
changes which may occur during the budget period. Variable expenses are estimated on
the basis of the budgeted output because these expenses are bound to change with the
change in output.

32

The Cost Accountant prepares this budget on the basis of figures available in the
manufacturing overhead ledger or the head of the workshop may be asked to give
estimates for the manufacturing expenses. A good method is to combine the estimates of
the Cost Accountant and the shop executive.

Administrative Expenses Budget:


This budget covers the expenses incurred in framing policies, directing the
organization and controlling the business operations. In other words, the budget provides
as estimate of the expenses of the central office and of management salaries. The budget
can be prepared with the help of past experience and anticipated changes. Budget may be
prepared be prepared for each administration department so that responsibility for
increasing such expenses. This budget covers the expenses incurred in framing policies,
directing the organization and controlling the business operations. In other words, the
budget provides an executive. Much difficulty is not experiences in developing such
budget as most of the administration expenses are of a fixed nature. Although fixed
expenses remain constant and are not related to sale volume in the sort run, they are
dependent upon sales in the long run. With a small change in output, they do not change.
However, if there is persistent fall in output, administration expenses will have to be
reduced by discharging the services of some members of the staff and taking other
economy measures. On the other hand, with persistent increase in output or business
activity, administration expenses will increase but they may lag behind business activity.

Budgeted Income Statement:


A budgeted income statement summarizes all the individual budges i.e., sales
budget, cost of goods sold budget, selling budget, and administrative sales budget. This
budget determines income before taxes. If the tax rate is available net income after taxes
can also be computed.

Selling and Distribution Costs Budget:


33

This budget is the forecast of the cost selling and distribution for budget
period and is clearly related to the sale budget. All expenses related to selling and
distribution of the various products as indicated in the sales budget are included in it.
These expenses are based on the volume of sales set in the sales budget and budget and
budgets are prepared for each item of selling and distribution overhead. Long term
expenses.
As advertisement are spread over more than one period. Selling and distribution
overheads are divided into fixed and variable category with reference to volume of sales.
Separate budgets are prepared for variable and fixed items of selling and distribution
overheads. Certain items of selling and distribution costs as cost of transport department
are included in the departmental production cost budget from control point of view rather
that including in selling and distribution costs budget.

Plant Utilization Budget:


This budget lays down the requirements of plant capacity to carry out the production as
per the production programme. This budget is terms of convenient physical units as
weight or number of products or working hours. The main functions of this budget are:
It will show the machine load in each department during the
Budget period.
It will indicate the overloading on some departments, machine or group of
machine and alternative courses of actions as working overtime, off loading,
procurement or expansion of plants, sub-contracting etc., can be taken.
Idle capacity in some departments may be utilized by making efforts to increase
the demand for the products by providing after sale service, conducting
advertisement campaign, reducing prices, introducing lucky prize coupons,
recruiting efficient sales staff etc.

Capital Expenditure Budget:


The capital expenditure budget gives an estimate of the amount of capital that
may be needed for acquiring the assets required for fulfilling production requirements a
specified in the production budget. The budget is prepared after taking into consideration
in the available productive capacities, probable reallocation of the existing assets such as
34

plant and equipment budget, building budget etc. The capital expenditure budget is an
important budget proving for acquisition of assets, necessitated by the following factors:

RESEARCH AND DEVELOPMENT COST BUDGET:


While developing research and development cost budget, it should be clear in
mind that work relating to research and development is different from that relating to the
manufacturing function. Manufacturing function gives quicker results than research and
development which may go on for several years. Therefore, these budgets are established
on a long term basis; say for 5 to 10 years which can be further subdivided into shortterm budgets on annual basis. As a rule research workers are less cost conscious; so they
are not susceptible to strict control. A research and development budget is prepared
taking into consideration the research projects in hand and the new research projects in
hand and the new search and development projects to be taken up. Thus this budget
provides an estimate of the expenditure to be incurred on research and development
during the budget period.
After fixation of the research and development cost budget, the research executive
fixes priorities for the various research and development projects and submits research
and development project authorization forms to the budget committee. The projects are
finally approved by the senior executive. Before giving the approval, the expenditure on
research and development is matched against the benefits likely to be availed of from the
new project; after the approval of the budget, a close watch is kept on the expenditure so
that it may not exceed budget provisions. It is also seen that extent of progress made is
commensurate with the expenditure incurred.

CASH (FINANCIAL) BUDGET;


The cash budget can be prepared by any of the following method:
1

Receipts and payments method

The adjusted profit and loss method

35

3
1

The balance sheet method

Receipts and payments method: In case of this method the cash receipts from
various sources and the cash payments to various agencies are estimated. In the
opening balance of cash, estimated cash receipts are added and from the total of
estimated cash payments are deducted to find out of the closing balance.

The adjusted profit and loss method: In case of this method the cash budget is
prepared n the basis of opening cash and bank balance of the various assets an
liabilities.

The balance sheet method: With the help of budget balances at end except cash
and bank balances, a budgeted balance sheet can be prepared and the balancing
figure would be the estimated closing cash\bank balance.

Thus under this method, closing balances, other than cash\bank will have to be found out
first to be put in the budget balance sheet. This can be done by adjusting the anticipated.

Master Budget (Finalized Profit Plan):


The Master Budget is consolidated summary of the various functional budgets. It
has been defined as a summary of the budget schedules in capsule form made for the
purpose of presenting, in one report, the highlights of the budget forecast.

The

definition of this budget given by the Chartered Institute of Management Accountant,


England, is as follows:
Thus summary budget incorporating its components functional budgets and
which are finally approved and employed.
The master budget is prepared by the budget committee on the basis of cocoordinated functional budgets and becomes the target for the company during the budget
period when it is finally approved by the committee. This budget summaries functional
budget to produce a budgeted Profit and Loss Account and a Budget Balance Sheet as at
the end of the budget period.

Fixed Budget:

36

This budget is drawn for one level of activity and one set of conditions. It has
been defined as a budget which is designed to remain unchanged irrespective of the
volume of output or turnover attained. It is rigid budget and is drawn on the assumption
that there will be no change in the budgeted level of activity. A fixed budget will,
therefore, be useful only when the actual level of activity corresponds to the budgeted
level of activity. A master budget tailored to a single output level of (say) 20,000 units of
sales is a typical example of a fixed budget. But in practice, the level of activity and set
conditions will change as a result of internal limitations and external factors like changes
in demand and price, shortage of materials and power, acute competition etc. It is hardly
of any use as a mechanism of budgetary control because it does not make any distinction
between fixed, variable and semi-variable costs and provides for no adjustment in the
budget fixed as result of change in cost due to change in level of activity. It is also not
helpful at all in the fixation of price and submission of tenders.

Flexible Budget:
The Chartered Institute of Management Accountants, defines a flexible budget
also called sliding scale budget as a budget which, by recognizing the difference in
behavior between field an d variable costs in relation to fluctuations in output, turnover,
or other variable factors such a number of employees, is designed to change appropriately
with such fluctuations. This, a flexible budget gives different budgeted costs for different
levels of activity. A flexible budget making an intelligent classification of all expenses
between fixed, semi-variable and variable because the usefulness of such a budget
depend upon the accuracy with which the expenses can be classified. Such a budget is
prescribed in the following cases.
Where the level of activity during the year varies from period, either due
to the seasonal nature of the industry or to variation in demand.
Where the business is a new one and it is difficult to foresee the demand.
Where the undertaking is suffering from shortage of a factor of production
such as materials, labour, plant, capacity etc. The level of activity depends
upon the availability of such a factor of production.
37

Where an industry is influenced by changes in fashion.


Where there are general changes in sales.
Where the business units keep on introducing new products or make
changes in the design of its products frequently.
Where the industries are engaged in make to order business like
shipbuilding.

Basic Budget:
A Basic budget has been defined as a budget which is prepared for use unaltered over a
long period of time. This does not take into consideration current conditions and can be
attainable under standard conditions.

Current Budget:
A Current budget can be defined a budget which is related to the current
conditions and is prepared for use over a short period of time. This budget is more useful
than a basic budget, as a target of lays down will be corrected to current conditions.

Long-Term Budget:
A Long-term budget can be defined as a budget which is prepared for periods
longer than a year. These budgets help in business forecasting and forward planning.
Capital Expenditure Budget and Research and Development Budget are examples of
long-term budgets.

Short- Term Budget:


This budget is defined as a budget which is prepared for period less than year and
is very useful to lower levels of management for control purposes. Such budgets are
prepared for those activities the trend in which is difficult to foresee over longer periods.
Cash budget and material budget are examples of short term budget.

Performance Budget:

38

Performance Budgeting has its origin in U.S.A. after second World War. It tries
to rectify some of the shortcoming in the traditional budget. In the traditional budget
amount are earmarked for the objects of expenditures such as salaries, travel, office
expenses, grant in aid etc. In such system of budgeting the money concept was given
more prominence i.e. estimating or projecting rupee value for the various accounting
heads or classification of revenue and cost.

Such system of budgeting was more

popularly used in government department and many business enterprises. But is such
system of budgeting control of performance in terms of physical units or the related costs
cannot be achieved.
Performance oriented budgets are established in such a manner that each item of
expenditure related to a specific responsibility centre is closely linked with the
performance of that centre. The basic issue involved in the fixation of performance
budgets is that of developing work programmers and performance expectation by
assigned responsibility, necessary for the attainment of goals and objectives of the
enterprise, it involves establishment of well defined centers of responsibilities,
establishment for each responsibility centre-a programmed of target performance e in
physical units, forecasting the amount of expenditure required to meet the physic al plan
laid down and evaluation of performance.

Zero Based Budgets:


This budge is the preparation of budget starting from Zero or from a clean state.
As a new technique it was proposed by Patter Peal of Texas Instruments Inc., U.S.A.
This technique was introduced in the budgeting in the state of Georgia by Mr. Jimmy
Carter who was then the Government of that state. ZBB was tried in federal budgeting as
a means of controlling state expenditures.
The use of zero-based budgeting as a managerial tool has become increasingly
popular since the early 1970s It is steadily gaining acceptance e in the business world
because it is providing it utility as a tool integrating the managerial function of planning
and control. ZBB is not based on the incremental approach and previous years figures
are not adopted as a base. Rather, zero is taken as a base aw the name goes. Taking zero

39

as a base, a budget is developed on the basis of likely activities for the future period. In
ZBB, by declining the budget from the past, the past mistakes are not repeated. Funds
required for any for the next budget period should be obtained by presenting a convincing
case. Funds will not be available as a matter of course.

ADVANTAGES OF BUDGETARY CONTROL:


The most important advantage of a budgetary control is to enable management to
conduct business in the most efficient manner because budgets are prepared to get the
effective utilization of resources and the realization of objectives as efficiently.
It lies down as objective for the business as a whole. Even though a monetary
reward is not offered the budget becomes a game a goal to achieve or a target to shoot
at and hence it is more likely to be achieved or hit that if there was no predetermined
goal or target. The budget is an impersonal policeman that maintains ordered effort and
brings about efficiency in result.

It ensures effective utilization of men, materials,

machines and money because production is planned according to the availability of these
items.
Everyone working in the concern knows what exactly to do because budgetary
control laid emphasis on the staff organization. It ensures that individual responsibilities
are clearly defined and that the required authority commensurate with the responsibility is
delegated so that buck passing ay is prevented when the budgeted results are not
achieved. Budgetary control takes the help of different levels of management in the
preparations of the budget. Budget finally approved represents the judgment of the entire
organization and not merely that of an individual or a group of individuals. Thus, it
ensures team work.
Management by exception is possible because the comparison of actual and
budgeted results points out weak spots so that remedial action is taken against weak spots
which are not in conformity with the budgeted performance.
Budgetary control creates conditions for setting up a system of standard costing.

40

It is helpful in reviewing current trends in the business and in determining further


policy of the business because current and future trends are studied in the preparation of
the budget.

DIS-ADVANTAGES OF A BUDGET:
While budgets may be essential part of activity they do have number of disadvantages,
particularly in perception terms.
Budgets can be seen pressure devices imposed by management, thus resulting in:
a

bad labor relations

Inaccurate record-keeping.

Departmental conflict arises due to:


a

dispute over resources allocation

b) Departmental 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 sped it or we will lose it. This is often coupled with empire building in
order to enhance the prestige of department. Responsibility versus controlling, i.e. some
costs are under the influence of more than one person, eg. Power costs.

41

42

CHAPTER-III
INDUSTRY PROFILE & COMPANY
PROFILE

INDUSTRY PROFILE
Today, India is 'The Oyster' of the global dairy industry. It offers opportunities
galore to entrepreneurs worldwide, who wish to capitalize on one of the world's largest
43

and fastest growing markets for milk and milk products. A bagful of 'pearls' awaits the
international dairy processor in India. The Indian dairy industry is rapidly growing, trying
to keep pace with the galloping progress around the world. As he expands his overseas
operations to India many profitable options await him. He may transfer technology, sign
joint ventures or use India as a sourcing center for regional exports. The liberalization of
the Indian economy beckons to MNC's and foreign investors alike.
Indias dairy sector is expected to triple its production in the next 10 years in view
of expanding potential for export to Europe and the West. Moreover with WTO
regulations expected to come into force in coming years all the developed countries
which are among big exporters today would have to withdraw the support and subsidy to
their domestic milk products sector. Also India today is the lowest cost producer of per
liter of milk in the world, at 27 cents, compared with the U.S' 63 cents, and Japans $2.8
dollars. Also to take advantage of this lowest cost of milk production and increasing
production in the country multinational companies are planning to expand their activities
here. Some of these milk producers have already obtained quality standard certificates
from the authorities. This will help them in marketing their products in foreign countries
in processed form.
The urban market for milk products is expected to grow at an accelerated pace of
around 33% per annum to around Rs.43, 500 corers by year 2007. This growth is going to
come from the greater emphasis on the processed foods sector and also by increase in the
conversion of milk into milk products. By 2007, the value of Indian dairy produce is
expected to be Rs 10, 00,000 million. Presently the market is valued at around Rs7,
00,000mn

Background

44

India with 134mn cows and 125mn buffaloes has the largest population of cattle in
the world. Total cattle population in the country as on October'00 stood at 313mn. More
than fifty percent of the buffaloes and twenty percent of the cattle in the world are found
in India and most of these are milch cows and milch buffaloes.
Indian dairy sector contributes the large share in agricultural gross domestic
products. Presently there are around 70,000 village dairy cooperatives across the country.
The co-operative societies are federated into 170 district milk producers unions, which is
turn has 22-state cooperative dairy federation. Milk production gives employment to
more than 72mn dairy farmers. In terms of total production, India is the leading producer
of milk in the world followed by USA. The milk production in 1999-00 is estimated at
78mn MT as compared to 74.5mn MT in the previous year. This production is expected
to increase to 81mn MT by 2000-01. Of this total produce of 78mn cows' milk constitute
36mn MT while rest is from other cattle.
While world milk production declined by 2 per cent in the last three years,
according to FAO estimates, Indian production has increased by 4 per cent. The milk
production in India accounts for more than 13% of the total world output and 57% of
total Asia's production. The top five milk producing nations in the world are India, USA,
Russia, Germany and France.
Although milk production has grown at a fast pace during the last three decades
(courtesy: Operation Flood), milk yield per animal is very low. The main reasons for the
low yield are

Lack of use of scientific practices in mulching.

Inadequate availability of fodder in all seasons.

Unavailability of veterinary health services.

45

OPERATION FLOOR
The transition of the Indian milk industry from a situation of net import to that
of surplus has been led by the efforts of National Dairy Development Board's Operation
Flood. Programmer under the aegis of the former Chairman of the board Dr. Kurien.
Launched in 1970, Operation Flood has led to the modernization of India's dairy
sector and created a strong network for procurement processing and distribution of milk
by the co-operative sector. Per capita availability of milk has increased from 132 gm per
day in 1950 to over 220 gm per day in 1998. The main thrust of Operation Flood was to
organize dairy cooperatives in the milk shed areas of the village, and to link them to the
four Metro cities, which are the main markets for milk. The efforts undertaken by NDDB
have not only led to enhanced production, improvement in methods of processing and
development of a strong marketing network, but have also led to the emergence of
dairying as an important source of employment and income generation in the rural areas.
It has also led to an improvement in yields, longer lactation periods, shorter calving
intervals, etc through the use of modern breeding techniques. Establishment of milk
collection centers, and chilling centers has enhanced life of raw milk and enabled
minimization of wastage due to spoilage of milk. Operation Flood has been one of the
world's largest dairy development programmers and looking at the success achieved in
India by adopting the co-operative route, a few other countries have also replicated the
model of India's White Revolution.
Fresh Milk
Over 50% of the milk produced in India is buffalo milk, and 45% is cow milk.
The buffalo milk contribution to total milk produce is expected to be 54% in 2000.
Buffalo milk has 3.6% protein, 7.4% fat, 5.5% milk sugar, 0.8% ash and 82.7% water
whereas cow milk has 3.5% protein, 3.7% fat, 4.9% milk sugar, 0.7% ash and 87% water.
While presently (for the year 2000) the price of Buffalo milk is ruling at $261-313 per
MT that of cow is ruling at $170-267 per MT. Fresh pasteurized milk is available in
packaged form. However, a large part of milk consumed in India is not pasteurized, and is

46

sold in loose form by vendors. Sterilized milk is scarcely available in India. Packaged
milk can be divided according to fat content as follows,
Whole (full cream) milk - 6% fat
Standardized (toned) milk - 4.5% fat
Doubled toned (low fat) milk - 3% fat
another category of milk, which has a small market is flavored milk.
Growing Volumes
The effective milk market is largely confined to urban areas, inhabited by over 25 per
cent of the country's population. An estimated 50 per cent of the total milk produced is
consumed here. By the end of the twentieth century, the urban population is expected to
increase by more than 100 million to touch 364 million in 2000 a growth of about 40 per
cent. The expected rise in urban population would be a boon to Indian dairying. Presently,
the organized sector both cooperative and private and the traditional sector cater to this
market.
The consumer access has become easier with the information revolution. The number of
households with TV has increased from 23 million in 1989 to 45 million in 1995. About
34 per cent of these households in urban India have access to satellite television channel.
Potential for further growth
Of the three A's of marketing - availability, acceptability and affordability, Indian
dairying is already endowed with the first two. People in India love to drink milk. Hence
no efforts are needed to make it acceptable. Its availability is not a limitation either,
because of the ample scope for increasing milk production, given the prevailing low
yields from dairy cattle. It leaves the third vital marketing factor affordability. How to
make milk affordable for the large majority with limited purchasing power? That is
essence of the challenge. One practical way is to pack milk in small quantities of 250 ml
or less in polythene sachets. Already, the glass bottle for retailing milk has given way to
single-use sachets which are more economical. Another viable alternative is to sell small
quantities of milk powder in mini-sachets, adequate for two cups of tea or coffee.

47

Marketing Strategy for 2000 AD


Two key elements of marketing strategy for 2000 AD are: Focus on strong brands
and, product mix expansion to include UHT milk, cheese, ice creams and spreads. The
changing marketing trends will see the shift from generic products to the packaged quasi,
regular and premium brands. The national brands will gradually edge out the regional
brands or reduce their presence. The brand image can do wonders to a product's
marketing as is evident from the words of Perfume Princess Coco Channel: In the factory,
we pack perfume; in the market, we sell hope!
Emerging Dairy Markets

Food service institutional market: It is growing at double the rate of consumer


market

Defense market: An important growing market for quality products at reasonable


prices

Ingredients market: A boom is forecast in the market of dairy products used as


raw material in pharmaceutical and allied industries

Par lour market: The increasing away-from-home consumption trend opens new
vistas for ready-to-serve dairy products which would ride piggyback on the fast
food revolution sweeping the urban India
. India, with her sizable dairy industry growing rapidly and on the path of
modernization, would have a place in the sun of prosperity for many decades to
come. The one index to the statement is the fact that the projected total milk
output over the next 15 years (1995-2012) would exceed 1457.6 million tones
which is twice the total production of the past 15 years!

Market Size and Growth


Market size for milk (sold in loose/ packaged form) is estimated to be 36mn MT
valued at Rs470bn. The market is currently growing at round 4% pa in volume terms. The

48

milk surplus states in India are Uttar Pradesh, Punjab, Haryana, Rajasthan, Gujarat,
Maharashtra, Andhra Pradesh, Karnataka and Tamil Nadu. The manufacturing of milk
products is concentrated in these milk surplus States. The top 6 states viz. Uttar Pradesh,
Punjab, Madhya Pradesh, Rajasthan, Tamil Nadu and Gujarat together account for 58%
of national production.
Milk production grew by a mere 1% pa between 1947 and 1970. Since the early 70's,
under Operation Flood, production growth increased significantly averaging over 5% pa.
About 75% of milk is consumed at the household level which is not a part of commercial
dairy industry. Loose milk has a larger market in India as it is perceived to be fresh by
most consumers. In reality however, it poses a higher risk of adulteration and
contamination.
The production of milk products, i.e. milk products including infant milk food, malted
food, condensed milk & cheese stood at 3.07 lakh MT in 1999. Production of milk
powder including infant milk-food has risen to 2.25 lakh MT in 1999, whereas that of
malted food is at 65000 MT. Cheese and condensed milk production stands at 5000 and
11000 MT respectively in the same year..
Amul's secret of success
The system succeeded mainly because it provides an assured market at
remunerative prices for producers' milk besides acting as a channel to market the
production enhanFOODS package. What's more, it does not disturb the agro-system of
the farmers. It also enables the consumer an access to high quality milk and milk
products. Contrary to the traditional system, when the profit of the business was cornered
by the middlemen, the system ensured that the profit goes to the participants for their
socio-economic upliftment and common good.
Looking back on the path traversed by Amul, the following features make it a pattern and
model for emulation elsewhere. Amul has been able to:

49

Produce an appropriate blend of the policy makers farmers board of management


and the professionals: each group appreciating its roles and limitations

Bring at the command of the rural milk producers the best of the technology and
harness its fruit for betterment

Provide a support system to the milk producers without disturbing their agroeconomic systems

Plough back the profits, by prudent use of men, material and machines, in the
rural sector for the common good and betterment of the member producers and

Even though, growing with time and on scale, it has remained with the smallest
producer members. In that sense, Alum is an example par excellence, of an
intervention for rural change.

The Union looks after policy formulation, processing and marketing of milk, provision of
technical inputs to enhance milk yield of animals, the artificial insemination service,
veterinary care, better feeds and the like - all through the village societies.
The village society also facilitates the implementation of various production
enhanFOODS and member education programs undertaken by the Union. The staff of the
village societies have been trained to undertake the veterinary first-aid and the artificial
insemination activities on their own.
Amul's success: A model for other districts to follow.
Amul's success led to the creation of similar structures of milk producers in other
districts of Gujarat. They drew on Amul's experience in project planning and execution.
Thus the 'Anand Pattern' was followed not just in Kaira district but in Mehsana,
Sabarkantha, Banaskantha, Baroda and Surat districts also. Even before the Dairy Board
of India was born, farmers and their leaders carried out empirical tests of the hypotheses
that explained Amurs success. In these districts, milk producers and their leaders
experienced significant commonalties and found easy and effortless ways to adapt Amul's

50

gameplan to their respective areas. This led to the Creation of the National Dairy
Development Board with the clear mandate of replicating the 'An and pattern' in other
parts of the country. Initially the pattern was followed for the dairy sector but at a later
stage oilseeds, fruit and vegetables, salt, and tree sectors also benefited from it's success.

51

COMPANY PROFILE
HERITAGE AT A GLANCE:
The Heritage Group, founded in 1992 by Sri Nara Chandra Babu Naidu, is
one of the fastest growing Private Sector Enterprises in India, with three-business
divisions viz., Dairy, Retail and Agri under its flagship Company Heritage Foods (India)
Limited (HFIL), one infrastructure subsidiary - Heritage Infra Developers Limited and
other associate Companies viz., Heritage Finlease Limited, Heritage International
Limited and Heritage Agro Merine Private Limited. The annual turnover of Heritage
Foods crossed Rs.347 crores in 2011-07 and is aiming for Rs.700 crores during 2012-08.
Presently Heritages milk products have market presence in Andhra
Pradesh, Karnataka, Kerala, Tamil Nadu and Maharashtra and its retail stores across
Bangalore, Chennai and Hyderabad. Integrated agri operations are in Chittoor and Medak
Districts and these are backbone to retail operations.
In the year 1994, HFIL went to Public Issue to raise resources, which was
oversubscribed 54 times and its shares are listed under B1 Category on BSE (Stock Code:
519552) and NSE (Stock Code: HERITGFOOD)
About the founder:
Sri Chandra Babu Naidu is one of the greatest Dynamic, Pragmatic,
Progressive and Visionary Leaders of the 21 st Century. With an objective of bringing
prosperity in to the rural families through co-operative efforts, he along with his relatives,
friends and associates promoted Heritage Foods in the year 1992 taking opportunity from
the Industrial Policy, 1991 of the Government of India and he has been successful in his
Endeavour.
At present, Heritage has market presence in all the states of South India.
More than three thousand villages and five lakh farmers are being benefited in these
states. On the other side, Heritage is serving more than 6 lakh customers needs,

52

employing more than 700 employees and generating indirectly employment opportunity
to more than 5000 people. Beginning with a humble annual turnover of just Rs.4.38
crores in 1993-94, the sales turnover has reached close to Rs.300 crores during the
financial year 2010-2011.
Sri Naidu held various coveted and honorable positions including Chief Minister
of Andhra Pradesh, Minister for Finance & Revenue, Minister for Archives &
Cinematography, Member of the A.P. Legislative Assembly, Director of A.P. Small
Industries Development Corporation, and Chairman of Karshaka Parishad.
Sri Naidu has won numerous awards including " Member of the World
Economic Forum's Dream Cabinet" (Time Asia ), "South Asian of the Year " (Time
Asia ), " Business Person of the Year " (Economic Times), and " IT Indian of the
Millennium " ( India Today).
Sri Naidu was chosen as one of 50 leaders at the forefront of change in the
year 2000 by the Business Week magazine for being an unflinching proponent of
technology and for his drive to transform the State of Andhra Pradesh.
Forward looking statements:
We have grown, and intended to grow, focusing on harnessing our
willingness to experiment and innovate our ability to transform our drive towards
excellence in quality, our people first attitude and our strategic direction.
Mission:
Bringing prosperity into rural families of India through co-operative efforts
and providing customers with hygienic, affordable and convenient supply of Fresh and
Healthy " food products.

53

Vision:
To be a progressive billion dollar organization with a pan India foot print by 2012.To
achieve this by delighting customers with "Fresh and Healthy" food products, those are a
benchmark for quality in the industry.
We are committed to enhanced prosperity and the empowerment of the
farming community through our unique "Relationship Farming" Model.
To be a preferred employer by nurturing entrepreneurship, managing
career aspirations and providing innovative avenues for enhanced employee prosperity.
Heritage Slogan:
When you are healthy, we are healthy
When you are happy, we are happy
We live for your "HEALTH & HAPPINESS"
Quality policy of HFIL:
We are committed to achieve customer satisfaction through hygienically
processed and packed Milk and Milk Products. We strive to continually improve the
quality of our products and services through up gradation of technologies and systems.
Heritage's soul has always been imbibed with an unwritten perpetual commitment
to itself, to always produce and provide quality products with continuous efforts to
improve the process and environment.
Adhering to its moral commitment and its continuous drive to achieve
excellence in quality of Milk, Milk products & Systems, Heritage has always been laying
emphasis on not only reviewing & re-defining quality standards, but also in
implementing them successfully. All activities of Processing, Quality control, Purchase,

54

Stores, Marketing and Training have been documented with detailed quality plans in each
of the departments.
Today Heritage feels that the ISO certificate is not only an epitome of
achieved targets, but also a scale to identify & reckon, what is yet to be achieved on a
continuous basis. Though, it is a beginning, Heritage has initiated the process of
standardizing and adopting similar quality systems at most of its other plants.
Commitments:
Milk Producers:
Change in life styles of rural families in terms of:

Regular high income through co-operative efforts.

Women participation in income generation.

Saved from price exploitation by un-organized sector .

Remunerative prices for milk.

Increase of milk productivity through input and extension activities

Shift from risky agriculture to dairy farming

Heritage

financial support for purchase of cattle; insuring cattle

Establishment of Cattle Health Care Centers

Supplying high quality Cattle feed

Organizing "Rythu Sadasu" and Video programmes for educating

the formers in dairy farming.

55

Customers:

Timely Supply of Quality & Healthy Products

Supply high quality milk and milk products at affordable prices

Focused on Nutritional Foods

More than 4 lakh happy customers

High customer satisfaction

24 hours help lines ( <10 complaints a day)

Employees:

enhancing the Technical and Managerial skills of Employees through


continuous training and development

Best appraisal systems to motivate employees

Incentive, bonus and reward systems to encourage employees

Heritage forges ahead with a motto "add value to everything you do"

Shareholders:
Returns:
Consistent Dividend Payment since Public Issue (January 1995)
Service:

56

Highest impotence to investor service; no notice from any


regulatory authority since 2001 in respect of investor service

Very transparent disclosures

Suppliers:
Doehlar: technical collaboration in Milk drinks, yogurts drinks and fruit flavored
drinks Alfa-Laval: supplier of high-end machinery and technical support Focusing on
Tetra pack association for products package.
Society:

Potential Employment Generation more than 3500 employees are working


with heritage more than 9500 procurement agents got self employment in rural
areas more than 5000 sales agents associated with the company

Employment for the youth by providing financial and animal husbandry


support for establishing MINI DAIRIES

producing highly health conscious products for the society

Qualities of management principles:


1.

Customer focuses to understand and meet the changing needs and expectations
of customers.

2.

People involvement to promote team work and tap the potential of people.

3.

Leadership to set constancy of purpose and promote quality culture trough out
the organization.

4.

Process approach to assess the efficiency and effectiveness of each process.

5.

Systems approach to understand the sequence and interaction of process.


57

6.

Factual approach to decision making to ensure its accuracy.

7.

Continual improvement processes for improved business results.

8.

Development of suppliers to get right product and services in right time at right
place.

Product/Market wise performance:


The total turnover is Rs 341 Crores during the financial year 2011089against the turnover of 292.02 Crores in 2009-08. Today Heritage distributes quality
milk & milk products in the states of A.P, Karnataka, and Kerala & Tamil nadu.
During the year 2011-09 liquid milk sales was Rs.28329.79 lakhs against
Rs.24525.23 lakhs in the previous year. The sales of milk products including bulk sales
of cream, ghee and butter were recorded Rs 5781.59 lakhs against Rs 4677.21 lakhs
Milk sales:
23% growth was recorded in AP 2.38 lakhs litres per day(LLPD) in 2011-09
against 1.93 LLPD in 2009-08. 13% growth was recorded in Tamilnadu-1.53 LLPD in
2012-08 against 1.35 LLPD in 2009-08. Over all growth of 6% was recorded- 5.49 LLPD
in 2012-08 against 5.16 LLPD. Flavored milk sales recorded a growth rate of 77% over
2009-08. Butter milk sales have gone up by 45% over 2009-08.
Outlook:
Considering the growth potential in the liquid milk market, the company
has drawn plans to increase its market share in the existing markets and to enter into new
markets there by doubling revenues in dairy business in the next 3 years. To achieve this
object, company is undertaking major expansion in dairy business by inverting over Rs20
crores during 2011-09 and over Rs10 crores during the current year to strengthen the milk
procurement.

58

BRANCHES OF HFIL:
HFIL has 3 wings. They are
1.

Dairy

2.

Retail

3.

Agribusiness

1. Dairy:
It is the major wing among all. The dairy products manufactured by HFIL are
Milk, curd, butter, ghee, flavoured milk, paneer, doodhpeda, ice cream.
2. Retail:
In the retail sector HFIL has outlets namely Fresh@. In those stores the
products sold are vegetables, milk& milk products, grocery, pulses, fruits etc.
In Hyderabad 19 retail shops are there. In Bangalore& Chennai, 3&4
respectively are there. Totally there are 26 retail shops are there.
Fresh@ is a unique chain of retail stores, designed to meet the needs of the
modern Indian consumer. The store rediscovers the taste of nature every day making
grocery shopping a never before experience.
The unique&

distinctive feature of Fresh@ is that it offers the widest

range of fresh fruits and vegetables which are directly hand picked from the farms.
Freshness lies in their merchandise and the customers are always welcomed with fresh
fruits and vegetables no matter what what time they walk in.
3. Agri Business:

59

In this business HFIL employees will go to farmers and have a deal with
them. Those farmers will sell their goods like vegetables, pulses to HFIL only. And HFIL
will transport the goods to retail outlets.
The agricultural professors will examine which area is suitable to import
vegetables from and also examine the vegetables, pulses and fruits in the lab. And finally
they report to the Head-Agribusiness. Representatives as per the instructions given by the
agri professors will approach the farmers directly and make a deal with them. It is the
process of registering the farmers

60

CHAPTER-IV
DATA ANALAYSIS AND
INTERPRETATION

61

DATA ANALYSES AND INTERPRETATION


CALCULATION OF REVENUE RECEIPTS BUDGET FOR THE
YEAR 2010-2011
S.No

DESCRIPTION

1.

Sales and other receipts

2.

Other Income

3.

Increase in Inventory

BUDGETED

Total

ACTUALS

VARIANCE

60,66,25,179

55,14,77,436

5,51,47,743

35,96,102

32,69,184

3,26,918

(-) 1,59,33,057

(-) 1,44,84,597

(-) 14,48,460

59,42,88,224

54,02,62,023

5,40,26,201

In this year it can be seen that every item actuals are bellow the budget estimate
which reprehensions a positives indications of savings, the actuals are beyond budget
estimates due to revision in pay scales. Which can be ignored, because in total budget
estimates are more then the actuals
In revenue receipts, the actuals are below the budgeted. Except in increase in
inventory value is negative. The budget estimates with a good variation percentage.

62

CALCULATION OF REVENUE EXPENDITURE BUDGET FOR


THE YEAR 2010-2011
S.
No.

DESCRIPTION

1.

Materials Consumed

2.

Consumable stores

3.

Employee

BUDGETED ACTUALS
25,16,39,707 22,87,63,370

VARIANCE
2,28,76,337

2,05,89,260

1,87,17,509

18,71,751

32,40,003

29,45,458

2,94,545

8,78,97,229

7,99,06,572

79,90,657

2,74,36,923

2,49,42,658

24,94,265

Depreciation

1,78,56,564

1,62,33,240

16,23,324

Total

40,86,59,686

37,15,08,807

3,71,50,879

Remuneration &
Benefits
4.

Administrative
&Operation
Expenses

5.

Manufacturing
Expenses

6.

63

CALCULATION OF REVENUE RECEIPTS BUDGET FOR THE


YEAR 2011-2012
S.No

DESCRIPTION

1.

Sales and other receipts

2.

Other Income

3.

Increase in Inventory

Total

BUDGETED

ACTUALS

VARIANCE

40,68,80,342

36,98,91,220

3,69,89,122

28,00,738

25,46,126

2,54,612

(-) 7,807

(-) 7,098

(-) 709

40,96,73,273

37,24,30,248

3,72,43,025

In this year, the budgeted are above the actuals. Material consumed is high value
the budget estimates among all items and in total that shows a good budgeting effort
makes the actuals.
In revenue receipts, the budgeted are above the actuals, but with a minimum
percentage of variation as compared with previous year.

64

S.
No
.

DESCRIPTION

1.

Materials Consumed

2.

Consumable stores

3.

Employee

BUDGETE
D

ACTUALS

56,21,68,072 51,10,61,883

VARIANCE
5,11,06,189

4,77,76,051

4,34,32,773

43,43,278

58,97,375

53,61,250

5,36,125

5,60,64,572

5,09,67,793

50,96,779

9,98,08,181

9,07,34,710

90,73,471

Depreciation

2,39,11,697

2,17,37,907

21,73,790

Total

79,56,25,948

72,32,96,316

7,23,29,632

Remuneration &
Benefits
4.

Administrative
&Operation
Expenses

5.

Manufacturing
Expenses

6.

CALCULATION OF REVENUE EXPENDITURE BUDGET FOR


THE YEAR 2011-2012

65

CALCULATION OF REVENUE RECEIPTS BUDGET FOR THE


YEAR 2012-2013
S.No

DESCRIPTION

1.

Sales and other receipts

2.

Other Income

3.

Increase in Inventory

Total

BUDGETED

ACTUALS

VARIANCE

79,43,88,636

72,21,71,487

7,22,17,149

28,95,385

26,32,169

2,63,216

(-) 2,73,515

(-) 2,48,650

(-) 24,865

79,70,10,506

72,45,55,006

7,24,55,500

During this year budget estimates are above actuals are below. The budgets and
actuals increasing in compared to previous year.
In revenue receipts budget estimates are above the actuals which indicates a good
variation.

66

CALCULATION OF REVENUE EXPENDITURE BUDGET FOR


THE YEAR 2012-2013

S.
No.

DESCRIPTION

BUDGETED ACTUALS

1.

Materials Consumed

2.

Consumable stores

2,34,74,752

2,13,40,684

21,34,060

3.

Employee

1,00,08,138

90,98,308

9,09,830

2,64,40,645

2,40,36,950

24,03,695

8,40,70,526

7,64,27,751

76,42,775

Depreciation

2,27,69,641

2,06,99,674

20,69,967

Total

49,44,33,132

44,94,84,667

4,49,48,465

32,76,69,430 29,78,81,300

VARIANCE
2,97,88,130

Remuneration &
Benefits
4.

Administrative
&Operation
Expenses

5.

Manufacturing
Expenses

6.

67

CALCULATION OF REVENUE RECEIPTS BUDGET FOR THE


YEAR 2013-2014
S.No

DESCRIPTION

1.

Sales and other receipts

2.

Other Income

3.

Increase in Inventory

BUDGETED

ACTUALS

VARIANCE

49,73,20,694

45,21,09,721

4,52,10,973

31,48,358

28,62,144

2,86,214

(-) 36,71,613

(-) 33,37,830

(-) 3,33,783

68

Total

49,67,97,439

4,51,63,404

45,16,34,035

This year budgets and actuals estimates are below compared to the 2005-2006
except in employee remuneration and benefits.
In revenue receipts, the budgeted are above the actuals. Increase in inventors
value in negative the budget estimates with a good percentage of variation.

CALCULATION OF REVENUE EXPENDITURE BUDGET FOR


THE YEAR 2013-2014
S.
No.

DESCRIPTION

BUDGETED ACTUALS

69

VARIANCE

1.

Materials Consumed

2.

Consumable stores

3.

Employee

54,62,62,961 49,66,02,692

4,96,60,269

95,94,838
1,25,35,153

87,22,580

8,72,258

1,13,95,594

11,39,559

8,48,91,273

7,71,73,885

78,17,388

13,48,25,637 12,25,68,761
.

1,22,56,876

Remuneration &
Benefits
4.

Administrative
&Operation
Expenses

5.

Manufacturing
Expenses

6.

Depreciation

2,28,97,612

2,08,16,011

20,81,601

Total

81,11,087,474

73,72,79,523

7,38,27,951

MATERIAL CONSUMED
YEAR
2009-2010
2010-2011

BUDGETED
41,06,22,773
25,16,39,707
70

ACTUALS
37,32,93,430
22,87,63,370

2011-2012
2012-2013
2013-2014

56,21,68,072
32,76,69,430
54,62,62,961

51,10,61,883
29,78,81,300
49,66,02,692

MATERIAL CONSUMED
600000000

500000000

400000000

300000000
BUDGETED

ACTUALS

2006-2007

200000000

100000000

0
2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

YEARS

Interpretation :
By observing the above graph the materiel consumption is fluctuating from 2009-2014.
So the company needs effective budget technique to get targeted actual.

CONSUMABLE STORES
YEAR
2009-2010
2010-2011
2011-2012

BUDGETED
3,72,07,068
2,05,89,206
4,77,76,051
71

ACTUALS
3,38,24,607
1,87,17,509
4,34,32,773

2012-2013
2013-2014

2,34,74,752
95,94,838

2,13,40,684
87,22,580

CONSUMABLE STORES
60000000

50000000

40000000

30000000
BUDGETED

ACTUALS

2006-2007

20000000

10000000

0
2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

YEARS

Interpretation :
By observing the above graph the consumable stores is fluctuating from 2009-2014. The
value is decreased from 3, 38, 24,607 in 2008 to 09, and 22,580 in 2014 so the company
needs effective budget techniques to get targeted actual.

EMPLOYEE REMUNERATION & BENEFITS


YEAR
2009-2010
2010-2011
2011-2012
2012-2013
2013-2014

BUDGETED
10,22,353
32,40,003
58,97,375
1,00,08,138
1,25,35,153

72

ACTUALS
9,29,412
29,45,458
53,61,250
90,98,308
1,13,95,594

EMPLOYEE REMUNERATION & BENEFITS


14000000
12000000
10000000
8000000
6000000

BUDGETED

ACTUALS

2006-2007

4000000
2000000
0
2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

YEARS

Interpretation :
By observing the above graph the employee remuneration and benefits are fluctuating
from 2009 to 2014. There is an increase in the values from 9, 29,412 in 2010 to 1, 13, and
95,594 in 2014 So the company should follow the same technique and also improve to
get targeted actual.

ADMINISTRATIVE & OPERATION EXPENSES


YEAR
2009-2010
2010-2011
2011-2012
2012-2013
2013-2014

BUDGETED
10,01,60,814
8,78,97,229
5,60,64,572
2,64,40,645
8,48,91,273

ACTUALS
9,10,55,285
7,99,06,572
5,09,67,793
2,40,36,950
7,71,73,885

ADMINISTRATIVE & OPERATION EXPENSES

73

120000000
100000000
80000000
60000000
BUDGETED

ACTUALS

2006-2007

40000000
20000000
0
2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

YEARS

Interpretation :
By observing the above graph the administrative and operation expenses are fluctuating
from 2009 to 2014. there is an decrease in the values from 9,10,55,285 in 2009 to
7,71,73,885 in 2014t o the company need effective budget techniques to get targeted
actual.

MANUFATURING EXPENSES
YEAR
2009-2010
2010-2011
2011-2012
2012-2013
2013-2014

BUDGETED
2,95,12,360
2,74,36,923
9,98,08,181
8,40,70,526
13,48,25,637

MANUFATURING EXPENSES

74

ACTUALS
2,68,29,419
2,49,42,658
9,07,34,710
7,64,27,751
12,25,68,761

160000000
140000000
120000000
100000000
80000000
BUDGETED

60000000

ACTUALS

2006-2007

40000000
20000000
0
2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

YEARS

Interpretation :
By observing the above graph the manufacturing expenses are fluctuating from 20092014 there is a increase in the values from 2,68,29,419 in 2006 to 12,25,68,761 in 2013.
so the company should follow the same technique and also improve to get targeted actual.

DEPRECIATION
YEAR
2009-2010
2010-2011
2011-2012
2012-2013
2013-2014

BUDGETED
1,47,38,772
1,78,56,564
2,39,11,697
2,27,69,641
2,28,97,612

DEPRECIATION

75

ACTUALS
1,33,98,884
1,62,33,240
2,17,37,907
2,06,99,674
2,08,16,011

30000000

25000000

20000000

15000000
BUDGETED

ACTUALS

2006-2007

10000000

5000000

0
2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

YEARS

Interpretation :
By observing the above graph the depreciation values are fluctuating from 2009-2014.
There is an increase in the values from 1,33,98,884 in 2009 to 16,011 2013 so the
company need effective budget techniques to get targeted actual.

SALES AND OTHER RECEIPTS


YEAR
2009-2010
2010-2011
2011-2012
2012-2013
2013-2014

BUDGETED
60,66,25,179
40,68,80,342
79,43,88,636
49,73,20,694
79,52,53,505

ACTUALS
55,14,77,436
36,98,91,220
72,21,71,487
45,21,09,721
72,29,57,732

SALES AND OTHER RECEIPTS

76

900000000
800000000
700000000
600000000
500000000
400000000

BUDGETED

ACTUALS

2006-2007

300000000
200000000
100000000
0
2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

YEARS

Interpretation :
By observing the above graph the sales and other receipts are fluctuating from 20092014.there is an increase in the values from 55,14,77,436 in 2006 to 72,29,57,732 in
2011. There is an increase in the actual so the company need effective budget techniques
to increase the sale of targeted actual.

OTHER INCOME
YEAR
2009-2010
2010-2011
2011-2012
2012-2013
2013-2014

BUDGETED
35,96,102
28,00,738
28,95,385
31,48,358
32,10,311

OTHER INCOME

77

ACTUALS
32,69,184
25,46,126
26,32,169
28,62,144
29,18,465

4000000
3500000
3000000
2500000
2000000
BUDGETED

1500000

ACTUALS

2006-2007

1000000
500000
0
2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

YEARS

Interpretation :
By observing the above graph the other incomes are also fluctuating from 2009-2014
there is a decrease in the value 32,69,184 in 2009 to 29,18,465 in 2011 so the company
need effective budget techniques to get targeted actual.

INCREASE IN INVENTORY
YEAR
2009-2010
2010-2011
2011-2012
2012-2013
2013-2014

BUDGETED
(-)1,59,33,057
(-)7,807
(-)2,73,515
(-)36,71,613
(-)1,53,54,455

INCREASE IN INVENTORY

78

ACTUALS
(-)1,44,84,597
(-)7,098
(-)2,48,650
(-)33,37,830
(-)1,39,58,596

0
2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

-2000000
-4000000
-6000000
-8000000
-10000000

BUDGETED

ACTUALS

2006-2007

-12000000
-14000000
-16000000
-18000000
YEARS

Interpretation :
By observing the above graph the increase in inventory values. The values are in
negative. The company should concentrate on this to improve the increasing in the
inventory.

CHAPTER-V
FINDINGS,SUGGESTION AND
CONCLUSION
79

FINDINGS
1. The budget and budgetary control of HERITAGE FOODS.. Was found to be
very effective when considered all categories of items.
2. In spite of having techniques many techniques of budget system, the company is
not following any of the system to control budgete.
3. .In the 2009-2014 the total budgets value was high. Where was in the next two
years it has come down drastically.
4. In all the five years budget expenditure was of high consumption a value.
5.

Material consumed which is one of the inputs for the production.

6. It is also found that the reasons for maintaining huge stock of manufacturing
expenses in 2010-2011 is due to high production of manufacturing expenses as
well as the sales is also high in the year of 2011-2012 compared to other year.

80

RECOMMENDATIONS AND SUGGESSIONS


1. It is recommended to the company that every item to be considered when
categorizing the items into budgets.
2. As company is not using any budget techniques we can suggest the company to
follow budget techniques for better and effective budget and budgetary control.
3. Pre audit of all expenditure proposals before issue of order and to check whether
the expenditure is legitimate, approved by appropriate authority and availability
of funds for the above items.
4. The budget estimations should be made that they will reach with the actual for
every year with very less variation.
5. In HERITAGE FOODS. revenue expenditure and revenue receipts are not
interdependent on each other.

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6. The revenue expenditure will be spent based on the production target irrespective
of the revenue receipts.
7. In this proves the effective financial performance of budget department in the
organization

CONCLUSIONS
Since, all the production units in HERITAGE FOODS.. Will run perpetually
through out the year, there will be minimum variations in the revenue expenditure budget
estimates and actual. As the expenditure will be incurred more or less to the estimations
made by the organization.
In concern with overhead expenses, it will also be with minimum variations
between budget estimates and actual. Since the production process will be consistent.
Any change in the items of expenditure, will lead to the review in the budget estimates by
the accounts and finance department. It is also suggested to the company that budget
techniques will be very useful to control and manage cost effectively.

82

BIBLIOGRAPHY
Books referred:
Financial Management: M.Y. Khan & P. K. Jain, Fourth edition, published by
TATA McGraw HILL.
Financial Management: Prof. Satish Inamdar, published by Symbiosis center
for distance learning, Pune.
Financial Management; I. M. Pandey, Second edition, published by TATA
McGraw HILL publishing company.
Financial Management : Prasannachandra
Management Accounting and control S.N.Maheswari

83

Internet sites:

www.HERITAGEFOODS.com

www.yahoofinance.com

www.google.com

Journals & Magazines

Springer (Jan-10)

Financial Budget.

Times of India.

Financial cornices .

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