; budgetory control
Learning Center
Plans & pricing Sign in
Sign Out

budgetory control


a budgetory control cement project

More Info
  • pg 1


                  The management is efficient if it is able to accomplish the objectives
of the enterprise it is effective when it accomplish the objectives with minimum effort
and most in attain long-rang efficiency and systematic approach in facilitate effective
management performance is profit planning and control or budgeting. Budgeting is
therefore an integral part historical combination of a”goal seteing machine for
increasing an enterprises profits and a goal setting machine for facilitating generation
coordination      and planning while achieving machine for facilitating generational
coordination and planning while achieving the budgeted gets”

           It is a financial and quantitative statement prepared and approved or to a
defined period of time of policy to be pursued during that period purpose of attaining
a gaining a given objective it may include income expenditure and employment
In other words it is a predefined detailed plan of action development distributed as a
guide operation and as partial bases for subsequent evolution of performance


    The process of planning all flows of financial resources into with in form a entity
doing some specified future period it includes providing detailed allocation of
available future resources to projects responsibilities and time period form above
definition I it clear that budgeting is the actual act of carrying budget it is the process
of evolving the final statement yet is the end product of budgetar


      It is prepared prior defined period of time.

      It is prepared for the definite future period.

      It is monitory and /or quantitative statements of the policy.


       It is the process of the establishing of the departmental budget relating the
responsibilities of executives to the requirements of a policy and the continuous
comparison of actual with budgeted results either to secure by individual action the
objectives of that policy or to provide a frame bases for revision.

       First of all budgets are prepared and then actual results are the comparison of
budgeted and actual figures will enable management to out discrepancies and take
remedial measure at a proper time the budgetary controls a continuous process which
helps in planning and coordination it provides method of control to a budget is means
and budgetary control is the end results.

       In the words of J.A.scolt budgetary control is the system of management
control and accounting in which all operations are forecast so as possible planned a
head and actual results compared with the forecast and the planned once

The primary of budgetary controls to help the management a systematic planning
controlling the operations of enterprises the primary objective can be meat only if
there is proper communication and coordination among different ogansatin. Thus the
objectives can be stated as ;
      Coordination
      Communication
      Controls and performance evolution.


       A budget is a blue print of a plan expressed in a quantitative terms budgeting
is a technique budgetary terms to the principles procedures and practice of achieving
given objectivities through budgets.

       Form the above definition we can differentiated the three terms as budgets are
the individual objectivities of a department etc where as budgeting may be said to act
of building budgets budgetary control embraces all and in addition includes the
science of planning the budgets to effect on overall management tool the business
planning and control.


         Also studied to provide a theoretical framework of budget, and budgetary
         To describe the profile of the organization as a backdrop for undertaking a
          study of budgetary control system.
         To analyze the budgetary system in practice in kesoram cement industries
          limited with particular reference to their objectives and phases of
          organizational and re-appropriation.
         In addition to the analysis of the conventional system in practice in kesoram
          cement industries limited. The study aims at evaluation and modification to
          the scope in the formulation of performance budget is.


A). Sources of the data

There are mainly two important sources through which the whole data is collected.


The primary data of the topic is collected by personal interaction with the officials of
the finance and accounting department and also from annuals of the company. The
financial data relating to the organization has been collected for the 5 years


The data collected from the websites, books and all other relevant information or
literary are taken as secondary source of data. The data thus collected is arranged in a

B). period of the data

The is the project report (live project) conducted in the month of Dec 2005 to
Jan 2010 for 45 days. The partial fulfillment of Master of Business Administration

Scope Of Study:
       The data of basanth nagar, kesoram cement industries limited, have been
collected mainly from secondary sources viz…
       1. From the concerned officers of the kesoram cement industries limited.
       2. kesoram cement industries limted-journals.
       3. Accounting books, records.
       4. Key books of concerned title.
       5. Statically records.
       6. Kesoram cement industries limited library.


   1. Estimates are used as basis for budget plan and estimates are based on
   2. Budgetary control cannot reduce the managerial function to a formula. It is
       only a managerial.
   3. Tool which increase effectiveness of managerial control.
   4. The use of budget may led to restricted use of resources.
   5. Efforts may therefore not be made to excced the performance beyond the
       budgeted targets.
   6. Frequent changes may be called for in budgets to fast changing industries
   7. In order that a system may be successful, budget education should be imparted
       at lest through the formative period. Sufficient training programs should be
       arranged to make employees gibe positive response to budgetary activities.
   8. The study is the limited up to the date and information provided by kesoram
       cement industries limited and its annual reports.



       It is the process of establishing of departmental budget relating the
responsibilities of executives to the requirements of a policy and the continuous
comparison of actual with budgeted results to secure by individual action the
objectives of that policy or to provide affirm basis for revision.


       In the words of J.A.scolt budgetary control is the system of management
control and account in which all operations are forecast so possible planned ahead and
actual results compared with the forcast and planned ones.


       The analysis and interpretation of budgetary control is used to determine the
control operation and results of operations as well a no. of devices are used to study
the relationship between different budgets.

       1. Long term budget.
       2. Short term budgets.
       3. Current budgets.
       4. Interim budgets.


Budgetary control is the system of management control and accounting in which all
operations are forecast so as possible planned ahead and actual results compared with
the forecast and planned ones.

Long term budgets:

       The long term budgets are the budgets prepared for along period of five to
years they are concerned with planning the operations of a firm over a considerably
long period of time. The financial” controller” exclusively for top management
usually prepares long-term budgets. These budgets are useful in terms of physical
units (i.e.. quantitaties) or percentage, the accurate values may be difficult to forecast
over such long period. Initial expenditure, research and development budgets, etc, are
examples term budgets.


       Short-term budgets prepared for a short period of two is. The are prepared for
those activities the trend in which cannot be seen easily over long periods. These
budgets are very useful in case of consumer good industries such as sugar, cotton,
textiles, etc they are generally, prepared in term of physical units (i.e., quantities) as
well as monetary units.(i.e., value..) materials budget, cash budget. Etc are examples
of short-term budgets. They are useful to lower level of management for control


       Current budgets are a budget, which is established for use over a short period
of time and is related to current conditions. Thus current budgets are essentially short
term budgets adjusted to current (i.e., present or prevailing) con dictions or
circumstances. They are prepared, for Avery short period. Say, a quarter or a month.
They relate to current activities of the following period.


       Interim budgets are, which are prepared in between two budgets periods.
These budgets may get integrated with budgets of the following period.


       As the name suggests, it is starting from a “scratch”, the normal technique of
budgeting is to use prvious levels as a base for preparing this year’s budget. This
method carries previous years inefficiencies to the present year because we taken last
year a guide, and decide “what is to be done this year when this much was the
performance of the last year.


                                        - 10 -

       The budgeting process is used in the performance budgeting for the
construction of phase which includes pre commissioning activities. Besides meeting
the essential requirements of managements of control. The budgeting exercises also
cover the long term capital budgeting, which is presented in the form of annual plan.


>> Direct capital outlay on works.

>> Technical consultancy.

>> Incidental construction during construction.

>> Employee cost.


                                        - 11 -

      - 12 -
                           PROFILE OF THE INDUSTRY

       The 85-years old Indian cement industry is one of the cardinals and basic
infrastructure which enjoys core sector status and play a crucial role in the economic
development and growth of a country. Being a core sector this industry was subject to
price and distribution controls almost uninterruptedly from world war-II when
government of India announced the partial decontrol of price and distribution as the
market price of cement began to raise response to decontrol manufacturing cement
became increasingly attractive and the industry experienced substantial expansion.
       As the supply in response to the 1982 partial decontrol was significant in
March 1989, price and distribution control were finally dispensed with it was one of
the first major industries in the country to be so deregulated.

                      OVERVIEW OF THE INDUSTRY

       The word cement means any substance applied for sticking things. But cement
is the most vital and important material for modern construction as a binding agent. In
the ancient times, clay, bricks and stones have been used for construction work.

       The Romans were using a binding or cementing Material that would harden
under water. The first systematic effort was made by “SMEATION” who under took
the erection of a new lighthouse in 1756. He observed that the production obtained by
burning limestone was the best cementing material for work under water.

       After Fifty years UICAT a French Chemist, produced hydraulic cement by
burning finely ground clay and clay and used it in the paste. Cement invented by
JOSEPH ASPDIN in 1824. Since hardened cement paste resembled Portland stone
found in England in color, he named it as “Portland Cement” a name, which has
carried over the century. Portland cement was first manufactured in United States of
America in 1975.

                                          - 13 -
       In India cement was produced for the first time in 1904 by South India
Industries Limited in Madras. This Unit had capacity of 30 tons per day was based on
lime from sea.

       By 1913, however three units started their operations with a combined
installed capacity of 75,000 tons per annum. In 1914, indigenous production fees for
short of domestic demand necessitating an import of 1,65,723 tones shipment
difficulties and foreign trade relations during the first world war years acted as a
catalyst for the development of indigenous industry, and by 1924 the total installed
capacity grew to 5,59800 tons per annum.

       In 1963, all the Cement Companies with the exception of SONE VALLEY
CEMENT COMPANIES LIMITED. This has more facilitated a cost reduction as well
as uniformity in quality. By 1947 the installed capacity of the Industry raised to 2.2
million tones per annum.

       After partitions, five of the cement producing units in the country went to
Pakistan and total installed capacity of the eighteen units that remained in India was
1.5 million tones per annum. This increased to 3.8 million tones by 1950-51.

       In the three decades 1950-80, the capacity expansion was between 7 to 8
million tones per decade. The targets set in respect of additional capacity generation
was released with the impetus given by the partial decontrol announced in 1982,
several units lockup project for expansions of capacity and modernization which
contributed towards increased production.


       Cement may be defined as “it is a mixture of calcium silicate and aluminates”.
Which have the property of setting and hardening under water. The amount of silica,
Alumina who is present in each crust is sufficient to combine with calcium, oxide
(Cao) to from the corresponding calcium silicate and aluminates.

                                        - 14 -

Cement is 3 types.


        It consists of mixture of silicate Calcium and Aluminum. Shows the hydraulic
property when it is in the form of powder and being mixed with suitable proportion of
lime. The rate of hardening is much slower and the comprehensive strength developed
is about a half of Portland cement. It is found more resistant to the chemical action
than others.


        This is natural occurring material. It is obtained from cement rocks. These
cement rocks are claying limestone containing solicits, aluminates of calcium. The
selling property of this cement is more than the Portland cement but is comprehensive
strength is half of its.

                                         - 15 -

   1. Ordinary Portland cement.

   2. Repaid hardening Portland cement.

   3. Lows heat cement.

   4. White or colored cement.

   5. Water proof Portland cement.

   6. Portland slag cement.

   7. Portland pozzolana cement.

   8. Sulfate Resisting cement.


       After the declining of the industry in July 1991 it reacted positively to the
policy changes. New capacities created and the volume of production increased. Form
a situation of improving cement, the country started exporting due to high quality and
cost effectiveness. After liberalization the black market in cement also disappeared.
Currently India stands second largest in the cement production worldwide after China.
On the other hand per capita consumption in India is only books as compared to the
world average of 260kgs. The industry has S 9 companies owning 11 S plants. In the
matters of exports the government considers cement as an extreme focus area.
However Indian cement in the global market is not very competitive due to high
power and full costs. In order to improve its position in the international market,
technological up gradation is essential in terms of process, product diversification cost
reduction, quality control and energy saving.

                                         - 16 -

       These chapter examiners a profile of Kesoram Cement Industries Ltd.i.e., its
history, location organization structure etc.,


       Kesoram cement industry is one of the leading manufacturers of cement in
India. It is a day process cement plant. The plant capacity is 8.26 lakhs tones per
annum. It is located at Basanth Nagar in Karim Nagar district of Andhra Pradesh,
Basanth Nagar is 8km away from the ramagundem railway station linking madras to
New Delhi. The chairman of the company is sty. B.K Birla


       The first unit at Basanth Nagar with a capacity or 2.1 lakhs tones per annum
incorporating suspension-preheated system was commissioned during the year 1969.
the second unit was setup in year 1971 with a capacity of 2.1 tens per annum and (he
third unit with a capacity of 2.5 lakhs tons per annum went on stream in the year
1978. the coal for this company is being supplied iron Singareni collieries and the
power is obtained from APSEB. The power demand for the factory is about 21 MW.
Kesoram has got 2 DG, set of 4 MW each installed in the year 1987.

       Kesoram cement has set up a 15KW capacity power plant to facilitate for
uninstall power supply for manufacturing of cement start at 24 August 2007 per hour
12MW, actual power is 15MW.

       Birla Supreme in popular brand of Kesoram Cement from its prestigious plant
of Basanth Nagar in AP, which has out standing track record. In performance and
productivity serving the nation for the last two and half decades. It has proved its
distinction by bagging several national awards. It also has the distinction of achieving
optimum capacity utilization.

                                          - 17 -
       Kesoram offers a choice of top quality portioned cement for light, heavy
constructions and allied applications. Quality is built every fact of the operations.

       The plant layout is rational to begin with. The limestone is rich in calcium
carbonate a key factor that influences the quality of final product. The day process
technology used in the latest computerized monitoring overseas the manufacturing
process. Samples are sent regularly to the bureau of Indian standards. National council
of construction and building material for certification of derived quality norms.

       The company has vigorously undertaking different promotional measures their
product through different media which includes the use of newspapers, magazines,
hoardings etc.

       Kesoram cement industry distinguished it self among all the cement factories
in India by bagging the National productivity Award consecutively.

       For two years the year 1985-1987. the federation of Andhra Pradesh Chamber
& commerce and industries (FAPPCCI) also conferred on Kesoram Cement. An
award for the best industrial promotion expansion effort in the state for the year 1984.
Kesoram also bagged FAPCCI awarded for “Best Family Planning Effort in the state”
for the year 1987-1988.

       One among the industrial giants in the county today, serving the nation on the
industrial front. Kesoram industries Ltd has a cheque red and eventful history dating
back to the twenties when the industrial House of Birla’s acquired it. With only a
textile mill under its banner 1924 it grew form strength to strength its activities 10
newer fields like transparent paper, spun pipes, refractories, tires and other products.

       Looking to wide gap between the demand and supply of a vital commodity
cement, which plays, UI important role in national building activity the Government
of India had de-licensed the cement industry in eh year 1966 with a view to attract
private entrepreneurs to augment the cement production. Kesoram rose to the
occasion and divided to set up a few cement plants in the country.

                                          - 18 -
       Kesoram cement undertaking marketing activities extensively in the states of
Andhra Pradesh, Karnataka, Tamilanadu, Kerala, Maharashtra and Gujarat. In AP
sales depots are located in different areas like Karim Nagar, Warangal, Nizamabad,
Vijayawada and Nell ore. In other states it has opened around 10 depots.


       Kesoram cement bagged prestigious awards like national awards for
productivity and technology and conversation and several state awards for year 1984.
Kesoram cement is best family planning effort “in the federation of Andhra Pradesh
chamber of commerce and industry and also national award for two successive years
1985 and 1986. National award for mines safety for two years 1985-86 & 1986-1987.
It has also bagged the national award for energy efficiency for the year 1989-1990 for
the performance among all cement plants in India. Thus award stall by national
council for cement and building material (NCCBM) in association with the
government of India.

               Kesoram bagged the prestigious Andhra Pradesh state productivity
award in 1987-1989 also annexed state award for industrial management in 1988-89
and also “Best industrial promotion expansion efforts” in the estate and Yajamanyza
Ratna and best efforts of an industrial unit in the state to develop rural economy was
bagged for its contribution towards the responsibility of rural and community
development programmers of the year 1991. It also bagged the May Day award “of
the government of Andhra Pradesh for the best management and the Pandit Jawaharlal
Nehru silver rolling trophy for the industrial productivity effort in the state of Andhra
Pradesh by FAPCCI and also the India Gandhi memorial national award for
excellence. Best management award of the government of Andhra Pradesh for the
year 1993.

       During the last 3 years the government of Andhra Pradesh has given the
following awards Best awards for the year 1994.

       To keep the ecological balance they have also undertaken massive tree
plantation in the factory and government of India has nominated township areas and
them for VRIKSHMITRA award. Best effort of an industrial unit in the state for rural
development 1944-95 presented by chief minister in March 1996.

                                         - 19 -
        In the year March, 2009 “Best Management award 2009” for the best
Management practices in Kesoram Cement, Presented by Chief Minister.


COUNTRY          1981         1983        1986        1989        1990        RANKS

CHINA              83          108         166        210          210          1

JAPAN              88          85           73         82          87           2

USA                65          61           71         70          72           3

INDIA              21          25           36         45          48           4

ITALY              43          40           36         34          41           5

GERMANY            30          28           24         27          40           6

        To day in India cement industry is producing 58.3 million tones per annum
indication surplus conditions while its demand is 56.7 million tones lies, per annum.
Now the cement market has become ‘buyer market’ which was a ‘selling marker’ till
1970’s and so the quality & brand taken an upper edge for cement marketing.

        To day installed at India cement industry is 771 lakhs tones. But in India 106
major plants are producing 583 lakhs tones while a India cement demand is 569 lakhs
tones leaving the balance for exports.

                                         - 20 -

                                            Cement capacity               Cement %
                                               in TPA                      of sales

LARSEN & TOURBO                                    12.0                       20

ACC                                                11.3                       93

GRASIM                                             9.7                        28

INDIAN CEMENT                                      6.6                        92

GUJARATH AMBUJA                                    6.5                        100

  a. The per capita consumption of the cement in India is very low.
  b. The transport costs in India are very high.
  c. The cement industry is facing with acute power shortage and raw material
  d. The industry is also facing major packaging problems.

  a. The industry has tremendous potential for growth in India.
  b. In near future cement is going to replace tar for the construction of roads.
  c. There are good prospects for export with cement export promotion council.
  d. The government polices of reduction in excise duty and exempting cement
      from the just packaging may act as boon to the industry.

                                       - 21 -
         The surplus levels are increasing as the production of the cement is
           much greater than the consumption.
         In the present scenario of stiff competition there is a declining trend of
         The performance of the smaller unit is badly hit by major takeovers.
         The crisis situation in South East Asian countries may create problem
           to the exports of the industry.

         Continuous effort too improving productivity.
         Evaluating individual skill trough training and motivations.
         Total involvement through participant’s management activities.
         Creating healthy and safe environment.
         Social development.

                                      - 22 -

                                             NO. OF CEMENT
  S.NO                      STATE

   01    Assam                                     1

   02    Andhra Pradesh                           19

   03    Bihar                                     7

   04    Delhi                                     1

   05    Gujarat                                  13

   06    Haryana                                   2

   07    Himachal Pradesh                          4

   08    Jammu and Kashmir                         1

   09    Karnataka                                 9

   10    Kerala                                    1

   11    Meghalaya                                 1

   12    Maharastra                                8

   13    Madhya Pradesh                           23

   14    Orissa                                    3

   15    Rajasthan                                15

   16    Tamilnadu                                 8

   17    Uttar Pradesh                             5

   18    West Bengal                               2

         TOTAL                                    123

                                    - 23 -
Directors of Kesoram industries limited

         Syt. B.K. Birla
         Smt. K.G. maheshwari
         Shri. Pramod Khaitan
         Shri. B.P. Bajoria
         Shri. P.K. Chokesy
         Smt. Neeta Mukerji
         (Nominee of I.C.I.C.I.)
         Shri. D.N Mishra
         (Nominee of L.I.C.)
         Shri Amitabha Ghosh
         (Nominee of U.T.I.)
         Shri P.K Malik
         Smt Manjushree Khaitan

         Shri S.K. Parilk

Senior Executives
         Shri K.C.Jain (Manager of the company)
         Shri J.D. Poddar
         Shri O.P. Poddar
         Shri P.K. Goyenka
         Shri D.Tandon

                                    - 24 -
            Messrs Price Waster house

Subsidiary Companies of Kesoram Industries
            Bharat General & Textile Industries Limited
            KICM Investment Limited
            Assam Cotton Mills Limited
            Softshree Estates Limited

                                      - 25 -

          - 26 -



       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 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 ie. Formulating plans, coordination activities and controlling
operations etc., efficiently. For efficient and effective management planning and
control are two highly essential functions. Budget and budgetary control provides 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.
       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 practical shape. As the activities department heads are coordinated at the much
needed for the very success of an organization. Budget is necessary to future to
motive the staff associate, to coordinate the activities of different departments and to
control the performance of various persons operating at different levels.
        Budgets maybe 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 budget maybe sub-divided into various departmental of functional budgets.

                                          - 27 -

       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, “financial and/or quantitative
statement, prepared and approved prior to be 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.”


       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 budget is known as budgetary control.
The process of budgetary control includes.

 1. Establishment of budget for each function and section of the organization.
 2. Executive responsibility in order to perform the specific tasks so that objectives
     of the enterprise maybe attained.
 3. Continuous comparison of the actual performance with that of the budget and
     placing the responsibility of executives for failure to achieve the desired results 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.

                                          - 28 -

      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 acting up on the results to achieve the maximum

       According to the j.Betty “system which uses budgets as means of planning
and controlling all aspects of producing and/ selling commodities and services”

      According to the CIMA, London, “budgetary control is the establishment of
budgets relating to responsibilities of executives to the requirements of a policy, and
the continuous comparison of actual with budgeted results , either to secure by
individual action the objective of that policy or to provide a basis for revision.
      Row land and William in their book entitled budgeting for management
control has given the difference between budget, budgeting and budgetary control as
      “Budgets are the individual objectives of an 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 efforts on overall management tool for the business
planning and control”. Thus, a budget is financial plan and budgetary control results
from the administration of the financial plan.


► budgetary control defines the objective and policies of the undertaking as a
► 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 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.

                                         - 29 -
 ► 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
 ► 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
 ►it facilitates centralized control with decentralized activity.
 ►it acts as internal audit by a continuous evaluation of departmental results and


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

 important feature of a budgetary planning and control system. Forces management
 to look ahead, to set out detailed plans for achieving the targets for each department,
 operation and (ideally) each manager, to anticipate and give the organization
 purpose and direction.

                    reas of responsibility. Requires managers of budget centers to be
made responsible for the achievement of budget targets for the operations under their
personal control.

basically a yardstick against which actual performance is measured and assessed.
Control is provided by comparisons of actual results against budget plan. Departures
from budget can then be investigated and the reasons for the differences can be
divided into controllable and non-controllable factors.

                                          - 30 -

Whilst budgets may be an essential part of any marketing activity they do have a
number of disadvantages, particularly in perception terms.

   a) Bad labor relations
   b) Inaccurate record keeping

   a) Disputes over resource allocation
   b) Departments blaming each other if targets are not attained.

  Waste may arise as managers adopt the view, "we had better spend it or we will
lose it". This is often coupled with "empire building" in order to enhance the prestige
of a department.
Responsibility versus controlling, i.e. some costs are under the influence of more than
one person, e.g. power costs.

should they overspend.

                                        - 31 -

►The preparation of a budget under inflationary conditions and changing
government policies is really difficult. Thus, the accurate position of the business
cannot 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 cannot
 be 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 in efficiency of individuals.
 ►the success of budgetary control depends upon wiling co-operation and teamwork.
 This is often lacking.
 ►frequent changes maybe called for in budgets due to fast changing industrial
 climate. It maybe difficult for a company to keep pace with fast changes, because
 revision of budgets is expensive exercise.


    A budget is a plan of the policy to be pursued during the defined period of time to
 attain a given objective. The budget 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 purpose:
   ► Action is guided by well thought out plan because a budget is prepared after a
 careful study and research.
   ►The budget serves as mechanism through which management objectives and
 policies are affected
   ►It is bridge through which communication is establish between the top
 management and the operatives who are to implement the policies of the top
   ►The most profitable course of action is selected from the various available

                                          - 32 -

      The budgetary control co-ordinates the various activities of the firm and
secures co-ordinates the various activities of the firm and secures co-operation of all
concerned so that the common so that the common objective of the firm maybe
successfully achieved. It forces executive to think and think as a group. It
coordinating the policies, plan 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 achievements by making
comparison of actual performance and budgeted performance.


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


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

                                        - 33 -

      A master budget provides an approved summary of results to be expected from
proposed plan of operations. It concerns all functions of organizations and serves as
a guide to executives and departmental heads responsible for various departmental


      The employees of an organization should know organizational aims,
objectives of sub units [budget centers] and the part that thy have to play for their
attainment. Budgets affectively communicate this information to employees.
Besides, budgets keep different sections of organization informed about the
contribution of different sub units in the attainment of over all organizational


       Having the budget organization and fix the period, the actual work or
budgetary control can be taken up to the following pattern.


Organization for budgeting setting up of definite plans of organization is a first a
step towards installing budgetary controlling system in any organization a budget
manual should be prepared giving detail of the powers, duties, responsibilities and
areas of operation of each executive in each organization.

                                       - 34 -

       A budgetary manual lays down the details of an organizational set up, the
 routine procedures and programmes 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 budgetary
 manual as “a document schedule or book let which sets out inter alias, the routine of
 and the forms and records required for budgetary control”. Thus, it is a document,
 which guides the executives in preparing various budgets. Budgets are to be drawn
 keeping in view the objectives of the organization given the budget manual.
 Responsibility and functions of each executive in regard to budgeting are return
 down in the budget manual to avoid any duplication or overlapping of
 responsibilities. Steps and the methods developing various budgets and the methods
 of reporting performance against the budget are return 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 budget manual.
 1] Introducing and brief explanation of the objects, benefits and principles of
 budgetary control.
 2] Organization chart giving the titles to different personals with full explanation of
 the duties of each to operating system and preparation of departmental and
 functional budgets.
 3] Length of budget periods and control periods should be clearly stated
 4] A method of accounting and control of expenditure.
 5] a statement showing a responsibility and of authority given to each manager for
approval of budgets , vouchers and all other forms and documents which authorized
them to spend money. The authority for granting approval must be clearly stated.
6] the entire process of budgeting programme including the timetable for
periodically reporting. a schedule should be drawn for this
7] Purpose, specimen form and other number of copies to be used for each report and
statement. Budget centers should also be clearly stated.
8] Outline of main budgets and their accounting relationships
9] Explanation of key budgets.

                                         - 35 -

          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
          Budget period mean the period for which a budget 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 (ie., 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 the discussed with
the Budget committee. Long term budgets should be supplemented by short term
budgets to make the budgtary 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 (ie., sales, purchases, and production
             etc., of the business).
           For control purposes, short-term budgets-monthly or even weekly budget-
             should be prepared for watching progress of actual performance against
             targets. Short-term 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.

                                              - 36 -
       The responsibility for preparation and implementation of the budgets may be
fixed as under.


       Although the chief executive I 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.

       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 reliably, this
method is useful. However, it is a constly exercise but matched by considerable
reduction in operational variances.

       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.

       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.

                                           - 37 -
       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 the
least for the immediate quarter and a broad tentative one the subsequent three quarters
on a continues basis.


       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 capacble 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
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 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.

                                          - 38 -
       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 co-
coordinated 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 log 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 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.


       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.

                                          - 39 -
Budget                                        Prepared by
   1. Sales Budget including selling and Sales Manager
         Dustribution Cost Budget
                                              Production Manager
   2. Production Budget
   3. Material Budget                         Purchase Manager

   4. Labor and Personnel Budget              Personnel Manager

   5. Manufacturing Overheads                 Production Manager

   6. Administration Cost Budget              Finance Manager

   7. Plant Utilisation 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 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 manager 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.
         2. Salesmen’s Estimation
         3. Plant Capacity
         4. Availability of Raw Material and other Supplies
         5. General Trade Prospects

                                         - 40 -
       6. Orders in Hand
       7. Seasonal Fluctuations
       8. Financial Aspect
       9. Adequate Return on Capital Employed
       10. Competition
       11. Miscellaneous Considerations


       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)
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 manager 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 factory’s 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 a uniform level throughout the year.       The material labor and plant
requirements should be ascertained to have the desired production to meet the sales

                                         - 41 -
       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.


       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.


       In drawing up the production budget, one of the first requirements to be
considered is material. As we know, materials may be direct or findirect. 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 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 manager 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

                                         - 42 -
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 manager should get additional sanctions from the higher
authorities for making the additional purchases not covered by the purchase 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 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 developed on the basis of standard
labor cost per unit multiplied by the qluantity 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.

                                           - 43 -
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 labour terms are expressed of rupee value, number
of labor 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.


       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.

       The Cost Account 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.

       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

                                         - 44 -
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.


       A budgeted income statement summarizes all the individual budget ie., 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.


       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.

                                          - 45 -

       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 prise coupons, recruiting efficient sales staff etc.


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

                                          - 46 -

       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 short-term 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


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

       1. Receipts and payments method
       2. The adjusted profit and loss method
       3. The balance sheet method
   1. 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 re deducted to find out of the closing

                                         - 47 -
   2. The adjusted profit and aloss method: In case of this method the cash budget
        is prepared in the basis of opening cash and bank balance of the various assets
        an liabilities.
   3. 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


       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 co-
coordinated 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.

                                        - 48 -

       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 budgetand is drawn on the
assumption that there will be no change in the budgeted level of activity. A fixed
budget will, therefsdore, 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.


       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 and 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.

                                          - 49 -
               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
               Where the undertaking is suffering from shortage of a factor of
                 production such as materials, labors, plant, capacity etc. The level of
                 activity depends upon the availability of such a factor of production.
               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 ship


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.

       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


       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.

                                           - 50 -

       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 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 ie., 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 attaining 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 physical
plan laid down and evaluation of performance.


       This budget 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..USA. 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.

                                         - 51 -
          The use of zero based budgeting as a managerial tool has become increasingly
popular since the early 1970’s It is steadily gaining acceptance 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
year’s figures are not adopted as a base. Rather, zero is taken as a base of the name
goes. Taking zero 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

          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 and 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 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 judgement 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.

                                          - 52 -

       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
               b) 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.

                                         - 53 -

            - 54 -
                            (RS IN CRORES)

                                 BUDGETED                  ACTUAL
                                 ESTIMATED                 FOR    THE
SI NO   PARTICULARS              FOR         THE           YEAR
                                 2010-2011                 2010-2011
C                                AMOUNT            RS/MT   AMOUNT       RS/MT
2       RAW MATERIAL             420               42.0    450          45.0
3       LIME STONE               450               45.0    470          47.0
4       TOTAL OF .1              870               87.0    920          92.0

6       CHEMICALS           AND 130                13.0    150          15.0

7       REPAIRS&MAITAINCE        280               28.0    300          30.0
8       EMPLOYEE COST            320               32.0    350          35.0
9       STATIONAR&GENRAL         65                6.5     80           8.0
10      REBATE                   11                1.1     13           1.3
11      SHARE OF OPERATING 8                       0.8     10           1.0
12      TOTAL-2                  1684              168.4   903          90.3

14      DEPRECITION              42                4.2     15           1.5
15      INTEREST ON FIXED        18                1.8     15           1.5
16      TOTAL-3                  60                6.0     35           3.5
17      GLAND TOTAL              1744              17.44   1916         191.6

                                 - 55 -

       Observed from the above table that the “operational expenditure budget” of
kesoram cement industries limited in the year 2010-2011. in the year 2010-
2011variable cost components, raw material consumption 45% increased and the lime
store consumption 47% also increased.

       In operating & maintain aces cost components, chemical&water, repair &
maintenance employee cost, stationary&genral expenses rebate and share of other
expenses in all are fluctuating expenses of the year 2010-2011. How ever the total
operation maintenance costs are 90.3% decreasing respectively.

       In finance charges depreciation and interest on fixed capital, has bee included
the total finance charges recording decreasing of 3.5% in the year 2010-

       Finally with regard to the operational expenditure budget of kesoram cement
industries limited the total profit has increase with 191.6% during the year 2010-2011.
       The overall budget results of kesoram cement is industries limited is earning
more profits.

                                        - 56 -

                              BUDGETED                        ACTUAL
                              ESTIMATED                       FOR THE
SI NO        PARTICULARS FOR             THE                  YEAR
                              2010-2011                       2010-2011
C                             AMOUNT              RS/MT       AMOUNT      RS/MT
2            RAW              420                 42.0        450         45.0
3            LIME STONE       450                 45.0        470         47.0
4            TOTAL OF .1      870                 87.0        920         92.0


     800                                                 BUDGETED
     400                                                 ESTIMATED

     200                                                 ACTUAL FOR THE
                                                         YEAR 2008-2009
        0                                                ACTUAL FOR THE
            SI NO   C         2      3      4            YEAR 2008-2009

FORM above table it can be under that the estimated amount and actual amount of
kesoram cement was recorded at raw materiel 420 during the year 2010-2011it is
increased to actual raw material 450 in the year 2010-2011. It shows that there is an
increased in budget the more extent of 30. The highest amount in budget was recorded
in year 2010-2011.

                                         - 57 -

                             BUDGETED                   ACTUAL
                             ESTIMATED                  FOR THE
SI NO   PARTICULARS          FOR          THE           YEAR
                             2010-2011                  2010-2011
6       CHEMICALS            130                13.0    150         15.0
7       REPAIRS&MAITAINCE 280                   28.0    300         30.0
8       EMPLOYEE COST        320                32.0    350         35.0
9       STATIONAR&GENRAL 65                     6.5     80          8.0
10      REBATE               11                 1.1     13          1.3
11      SHARE             OF 8                  0.8     10          1.0
12      TOTAL-2              1684               168.4   903         90.3

                                 - 58 -

    2500                                              ACTUAL FOR THE
                                                      YEAR 2008-2009
    2000                                              ACTUAL FOR THE
                                                      YEAR 2008-2009
    1000                                              ESTIMATED
      500                                             ESTIMATED

             SI            7     9      11


        1. Form the above table it can be understood that the budget of kesoram
cement was recorded the estimated value 1684 during the year 2010-2011.and it is
decreased to 903 during the year 2010-2011.
        2. It shows that there is on decreased in the budgetary to the lowest 781.
        3. The lowest investment in budgetary was recorded in year 2010-2011form
the total of the table 2

                                         - 59 -
FINANCIAL CHARGES (expenditure budget)

                                 BUDGETED                        ACTUAL
                                 ESTIMATED                       FOR THE
SI      PARTICULARS              FOR THE 2010-                   YEAR
NO                               2011                            2010-2011
13      FINANCE
14      DEPRECITION              42                   4.2         15           1.5
15      INTEREST          ON 18                       1.8         15           1.5
16      TOTAL-3                  60                   6.0         35           3.5

                                                  ACTUAL FOR
     100%                                         THE YEAR 2008-
       80%                                        2009
       60%                                        ESTIMATED
       20%                                        ESTIMATED
             SI NO        CAPITAL

       1. Form the above table it can be understood that the budgetary of kesoram
cement was recorded at 60 value of estimation during the year 2010-2011.and it
decreased to 35 of actual value in during year 2010-2011.
       2. It shows that there is decrease in the budgetary the lower value is 25.
       3. The lowest investment in budgetary was recorded in year 2010-2011.

                                         - 60 -

NO      PARTICULARS     BUDGETED                ACTUAL
                        ESTIMATED               FOR THE
                        FOR      THE            YEAR
                        YEAR                    2010-2011
                        AMOUNT          SMTP    AMOUNT      RS/MT

1       SALES

        FIXED      AND 724              72.4    618         61.8
2       RECOVERY
        VARIABLE        840             84.0    740         74.0
3       COST
        FUEL      PRICE 820             82.0    863         86.3
        OWN             132             134.2   148         14.8
        TOTALOF.1       2516            251.6   2369        236.9
        AVERAGE         102             10.2    98          9.8
        OTHER           56              5.6     49          4.9
8       INCOME

        GRAND TOTAL     2674            267.4   2516        251.6
9       (1+2+3)

                               - 61 -

       The data pertaining to the to the generation and consumption of cement at
roam industries limited have been obtained from the year 2010-2011.and presented in
table-1. the aspect included are total generation of cement in(cores rs) and utilization
for auxiliary consumption, raw material consumption and line store respectively.

       During the year 2010-2011. The sales, fixed cost, variable cost, fuel price,
consumption was decreased. When the estimated budgeted, so consumption is

       During the year 2010-2011. The average intensives are decreased 9.8% there
income also decreased 4.9% respectively,

       Finally, with regard to the result in revenue budget of kesoram cement
“industries limited, totally decreased 251.6% in the year 2010-2011.respectively.

                                         - 62 -
MARCH, 2011:

Cash flow from operating activities
       Net profit before tax                     3,41,78,32,892       80, 92, 92132
Adjustments for:

       Depreciation                              58, 30, 64,022       51, 57, 16,762

       Loss/profit on food assets sold/disable   5, 45, 85,229        5, 76, 15,772

       Loss on sale of long term investments     3, 58,952                  -----
       Income from
       long term investment(other trader)        4,91,46,881          2,61,37,771

       Interest paid/payable on loans etc        33, 50, 30,376       32, 75, 37,771

       Interest receivable on loans              2, 50, 55,563        9, 05, 21,426

       Provision for doubtful
        Debts/deposits in add                    3,82,15,119          --------
       Provision for doubtful
       Debts/deposits (net)                      ------------------   93, 92,067

       Debt/advance/deposits written off         5, 34, 50,070        55, 44,394

       Long term investmeast written off         -----------          7,700

       Unrealized loss/gain on
       Foreign currency fluctuation              2, 95, 96,073        19, 16,075

       Provision for diminution in
       Value of investment                       ---------------      1, 10, 09232

                                            - 63 -
Operating profit before working capital changes:

Adjustment for:
       Inventories                           (1, 21, 69, 75,334)   (24, 94, 24,615)

       Trade and other receivable            (50, 17, 40, 397)     2, 92, 62,288

       Trade payables                        65, 61, 02,594        (20, 01, 35,318)

Cash generated from operations

       Direct taxes/ refund                  (93, 49, 80,671)      (20, 01, 35,318)

       Net cash from operating activities    1,98,37,48,569        1,10,42,01,672


       Observed from the above table that “cash flow statement “ of kesoram cement
industries limited in the year 2010-2011.
       In the year 2010-2011variable net profit before tax, deprecation, loss/profit on
food asset sold/disable, loss on sale of long term investments, interest paid/payble on
loans etc have been increased.
       In operating profit before working capital changes of inventory, trade
receivable and trade payables of the year 2010-2011. how ever the total operating
profits is increasing respectively.
       In cash generated from operations the direct taxes/refund has been included,
the total cash generated from operations increase in the year 2010-2011respectively.
       Finally with regard to the cash flow statement of kesoram cement industries
limited the total cash flow has been increased during the year 2010-2011.
       The overall budget results of kesoram cement is industries limited is earning
more cash flows.

                                        - 64 -

                               RS                 Rs
Schedule                       2009-2010          2010-2011

         Sales                 18,17,81,55,294    25,16,45,89,369
         Less excise duty      2,04,63,80,752     3,07,41,00,000
         Net sales             16,13,17,74,542    22,06,9660,339
         Other income          53, 74, 29,621     49, 04, 06,410

                               16,66,92,64,153    22,58,00,66,749

         Finished goods        7,61,14,89,922     9,20,98,35,678
         Manufacturing selling 7,40,51,67,576     9,03,43,03,781
         Deprecation           59, 52, 33,509     53, 05, 56,255
         Rescue of assets      1, 48,449,493      1, 21, 74,437
         Schedule              51, 57, 16,762     53, 30, 64,022
         Interest              32, 75, 37,771     33,50,30,375
Profit before taxation
         Provision for
         Current taxation      75, 00, 00,000     34, 00, 00,000
         Provision benefit tax 1, 22, 00,000      1,10,00,00
Profit after taxation          45,70,92,132       2,65,68,32,892

Profit available for appropriation
                               45,70,92,132       2,65,68,32,892
         Proposed dividend     13, 72, 29,954     ------------------
         Tax on proposed
         Dividend              1, 92, 46,501      -------------------

                                         - 65 -
           In tend Dividend      --------------                18, 29, 73,272
           Tax on in tend
           Dividend              ---------------               2, 56, 62,001
           General resend        5, 00, 00,000                 30, 00, 00,000
           Balance carried to
           shcedule2             20, 64, 70,455                50, 86, 35,273

                                 25, 06, 15,677                2,14,81,97,619
           Earning per share     9.99%                         58.08%

Notes on the accounts:
The schedules referred to above from an integral part of the profit and loss
This is the profit and loss accrue referred to in our repeat of case


           Observed from the above table that the” profit and loss account “of kesoram
cement industries limited in the year 2010-2011
           In the year 2010-2011.sales and income increased EXPENDITURE of
finished goods, manufacturing selling, and administration expenses are also increased,
deprecation, less transfer from capital, rescue of assets is decreased.
           Profit before taxation increased from Rs.34, 00, 00,000 to 75, 00, 00,000 and
profit after taxation also increased from Rs.45, 70, 92,132 to 2,65,68,32,892 in the
year 2010-2011 respectively.
           Finally with regard to the profit and loss account of kesoram cement industries
Limited the total profit have been increased the year 2010-2011.
           The overall budget result of kesoram cement is industries limited is earning

                                             - 66 -

GRAPH OF INCOMES (in corers)

   YEARS                BUDGETED ACTUALS
   2006-07              877            836
   2007-08              681            737
   2008-09              760            737
   2009-10              756            821
   2010-11              916            836

    In the year 2006-07the actual amount is less compared to budgeted amount as the
budget is accurate. In the 2006-07 it shows a slight change between budgeted amount
and actuals. In the year 2010-11 budgeted amount is more compared to actuals it
shows that the quantity is more compared to market. Selling of cement products, less
than the estimates.

                                       - 67 -

 YEARS             BUDGETED                          ACTUALS
 2006-07           70                                79
 2007-08           30.4                              35
 2008-09           45                                35
 2009-10           65                                28
 2010-11           62                                79

   In the year 2005-06 civil expenses are at a very high range. Actuals are high
compared to budgeted because of construction of cold storage sector,cement plant and
bore wells. In the year 2006-07 actuals are less compared to budgeted because as the
expenses are less. In the year 2010-11 it incurred high volume of expenses than the
budgeted because it incurred heavy expenses.

                                       - 68 -

 2006-07             18                 12
 2007-08             20                 22
 2008-09             18                 22
 2009-10             20                 12
 2010-11             19                 12

In the year 2006-07, 2009-10 and 2010-11 represents actuals are less than budgeted

so less purchases made in every department. In the year 2007-08and 2008-09

actuals are more than budgeted it shows that greater importance given to purchases.

                                        - 69 -



    - 70 -

       Every organization has pre-determined set of objectives and goals, but
reaching those objectives and goals only by proper planning and executing of the
plans economically.

       The Kesoram Cement Industries Limited is objectives of planning promoting
and organizing an integrated development of Cement Company.

       The corporation mission of Kesoram Cement Industries is to make available
and quality cement in increasingly large quantities, the company will spear head the
process of accelerated development of cement sector by expeditiously.

       The organization needs the capable personalities as management to lead the
organization successfully, the management makes the plans and implement of these
plan are expressed in terms of budget and budgetary control.

       The Kesoram Cement Industries Limited has budget process in two stages.
One is the capital expenditure budget and another is operating maintenance budget,
the capital expenditure budget shows the list of capital projects selected for
investment along with their estimated cost, operating & maintenance budget refers to
the repairs & maintenance budgets, the special budgets are rarely used in the
organization like long-term budgets, research & development budget and budget for

       The Kesoram Cement Industries Ltd. Is to make available and quality cement
efficient resources and implementation of sophisticated technology and cement
generation and also creating ambience of collective working of its employees.

                                        - 71 -

       Planning has become the primary function of management most of the
planning relates to individual and individual proposals. Budgets are nothing but his
expressions, largely in financial terms, budgetary control has, therefore become and
essential tool of management for controlling and maximizing profits.

    The company objectives of the organization and how they can be achieved
       through budgetary control
    Time tables for all stages of budgeting follow
    Reports, statements, forms and other record to be maintained
    Continuous comparison of actual performance with budgeted performance.

                                        - 72 -







                         - 73 -

To top