CHAPter1

INTRODUCTION
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1.1 INTRODUCTION
Budgets are an important tool of profit planning. The purpose of this chapter is to present a
general view of budgeting as a device of planning and illustrate the preparation of various
types of budgets. Section 1 of the chapter provides a brief account of the planning process
vis--vis budgeting. Section 2 LABOUR rates on the meaning of a budget and the purpose
of budgeting. The important types of budgets are discussed and illustrated in Section 3. The
major points are summarized in the last section

Section 1 - The Planning Process

Budgeting as a tool of planning, is closely related to the broader system of planning
in an organization. Planning involves the specification of the basic objectives that the
organization will pursue and the fundamental policies that will guide it. In operational terms,
it involves four stages: (i) Objectives (ii) Goals (iii) Strategies and (iv) Plans/Budgets

Section 2 Budget Definition, Meaning and Purpose

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

It may be recalled that a budget with reference to planning and control refers to a
comprehensive and coordinated budget generally known as master budget. In operational
terms, a comprehensive

or overall budget has several components. A master budget

normally consists of three types of budgets: (i) Operating budgets, (ii) Financial budgets and
(iii) Special decision budgets. Another classification of a mater budgets is : (i) Fixed/static
budget and (ii) Flexible/variable/sliding budget. In the discussions that follow we illustrate
the preparation of the various components of a master budget, namely, operating and
financial budgets. The mechanics of the preparation of a flexible budget is also discussed.

1.2 COMPANY PROFILE

NATURE AND HISTORY OF THE COMPANY
This study has been conducted in Agro Bio-tech Research Centre Ltd, situated in
Kottayam. The company is manufacturing and distributing various types of bio-fertilizers
and bio pesticides, suitable for sustainable and organic agriculture in the country. They
produce

different

bio

fertilizers

viz.

Rhizobium,

Azospirillum,

Azotobacter,

Phosphobacteria, V.A.Mycorrhiza, Bio-potash and bio control agents like Trichoderma sp.,
Pseudomonos, fluorescence, Beauveria bassiana, Verticillium lecanii, Paecilomyces
lilacinus, Metarhizium anisopliae, Nomuraea reley and organic manures like Bio-organic
manure, Super organic manure, Super meal, Super organic plus etc. under the trade name
ABTEC. The research and development wing in the company is developing many more
products, which will soon hit the market. The sources of culture are International Crop
Research Institute (ICRISAT), Regional Centre of Organic Farming, and Project Directorate
of Bio control, Indian Institute of Spices Research (IISR), Kerala Agriculture University
(KAU) and Tamil Nadu Agriculture University (TNAU).
Agro Bio Tech Research Centre Ltd was established in 1993 with the main
objective of manufacturing and distributing quality inputs suitable for organic farming and
thus promote eco-friendly and sustainable agriculture. The company utilizes the main
resources like Men, Machine, Material and Money for achieving desired goal.
Agro Bio Tech Research Centre Ltd, the pioneers in the manufacture of Bio
fertilizers and Bio-pesticides in the state of Kerala, India. The companys Bio-control agent
ABTEC TRICHO (Trichoderma spp) is the only one in Kerala to get CIB registration. To
meet the arduous task of food and fibers requirement, agriculture is to be made efficient,
economical and sustainable. It is our greed and desire for higher productivity, that we incline
ourselves to the usage of chemical fertilizers and pesticides. This has not only resulted in
causing serious environmental hazard but also destroyed the ecological balance, thus
depleting the microbes irrespective of the fact whether they are beneficial or harmful. The
pesticide residue in food also leads to various diseases like cancer and the alarming rate of
increase in such diseases is now shocking the conscience of scientists world over. The only
solution that they put forward to protect the universe and our upcoming generation is nothing
but to promote Organic Farming. Bio-fertilizers and Bio-control agents are an integral part
in performing Organic Farming in its real sense.
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Appreciations from the farmers who use the products and the feedback from the field
through the sales officers have motivated to do further research in the field of agriculture
and thus increase our product range and production capability. Now many of the farmers are
able to avoid chemical fertilizers and pesticides completely by substituting it with bio
fertilizers and Bio pesticides.

PRODUCT PROFILE
The company is producing a host of bio-fertilizers and bio-control agents including
organic manures under our brand name ABTEC. The bio inputs are manufactured in our
fully air-conditioned LABOURatory under the technical guidance and supervision of expert
senior Agricultural Scientists using modern bio-technological methods. All our products are
subjected to strict quality check in all stages of production.

Range of Organic products

Bio-fertilizer:

Bio-control agents:

Rhizobium

Tricho (Trichoderma Sp.)

Azospirillum

Pseudo (Pseudomonas fluorescence)

Azotobacter

Beauvaria (Beauvaria bassiana)

Phospho bacteria

Verticillium (Verticillium lecanii)

Bio-Potash (Frateuria aurentia)

Hirsutella (Hirsutella thompsonii)

VAM (V.A Mycorrhizae)

Bacillus (Bacillus Subtilis) (BCB 19 ICRISAT)

Bacillus thruringiensis (BT)

Paecilomyces (Paecilomyces lilacinus)

 ABTEC Azospirillum
ABTEC Azospirillum is available in liquid formulation with a high cell count of 2 X
109 c.f.u. /ml. The bacterium lives in close association with and within the root
system of crop plants and has high Nitrogen fixing capacity.

Recommended crops: Rice, wheat, maize, barley, ragi, other minor millets,
fodder grass, sugarcane, rubber, tea, coffee, coconut, cardamom, pepper, cotton,
grapes, turmeric, ginger, banana, vegetables, fruit plants, flowering plants, vanilla,
etc

Seed Treatment: Mix 100 ml. ABTEC Azospirillum with 1000 ml. of clean
water, mix 20 - 30 kg. seeds in the solution by gentle agitation. Dry the seeds in shade
for 30 min. before sowing.

Benefits of ABTEC Azospirillum

1. Better crop growth and seedling establishment
2. Helps to fix 15 - 20 kg. N/acre/year
3. Increases crop yield by 15 - 20 %
4. Helps to reduce N. fertilizer by 20 - 30 %
5. produces significant quantities of growth hormones like gibberellins,
cytokinins Indole Acetic Acid (IAA) etc.

ABTEC Azotobacter
Formulation : ABTEC Azotobacter is available in liquid form with a high cell count
of 2x 109 c.f.u/ml. cannot tolerate anaerobic condition in soil. Hence, not
recommended for wetland crops.

Recommended crops: All crops except wetland crops

Soil Application : Mix 5ml. of ABTEC Azotobater with 1 kg. organic manure and
apply at the base. For main field/nursery application, (1acre) mix 1 litre ABTEC
Azotobacter with 200kg. organic manure and broadcast when the soil is just wet. For
potted plants also ABTEC Azotobacter is very effective

Benefits
1 .Better crop growth & seedling establishment
2. Helps to fix 20kg N/acre/year
3. Increases crop yield by 15-20%
4. Helps to reduce N .fertilizers by 25%
5. Plays a minor role in biological control of crop diseases.

ABTEC Phospho bacteria

Formulation: ABTEC Phospho bacterium is available in liquid formulation. It is a
free living bacterium in soil which helps to convert the insoluble inorganic form of
phosphates to simple soluble form.

Benefits
1. Efficient utilization of rock phosphate and a saving of 15 - 20% in fertilizer cost.
2. Increase crop yield by 15 - 25 %.
3. Better nutrient uptake and thereby vigorous crop growth

ABTEC Bio-Potash (Frateuria aurentia)

Formulation: ABTEC Bio- potash is available in liquid formulation with high cell
counts of 2 X 109 c.f.u. /ml. It can tolerate a wide range of soil pH (3.5 - 8.5) and
temperature (15 - 420C). The bacteria help to mobilize the insoluble form of
potassium for crop growth at a faster rate. Seventy percent of insoluble potassium is
made available to the crop plants within 25 days of bio-potash application in soil.
Recommended crops: For all crops in all soil
Soil application: Mix 5 ml. bio-potash with 1 kg. organic manure and apply at the
base, when the soil is just wet.

Benefits
1. Reduces cost of potash application by 50-60 %
2. Improves resistance of crop plants
3. Resistant to a wide range of soil pH and temperature.
4. Suitable to apply for all crops.
5. Improves crop growth and yield by 20-30%
6. Compatible with other bio-fertilizers
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 ABTEC Tricho (Trichoderma Sp.)

Formulation: ABTEC Tricho is available in liquid form with a high spore count of
3 X 109 c.f.u./ml. It is an eco-friendly bio-fungicide containing spores, different
enzymes and antibiotics

Recommended for: Quick wilt of black pepper, foot rot of betel vine, soft rot of
ginger, turmeric, Galinga, safed musli, capsule rot of cardamom, clumprot of
cardamom, Panama wilt of banana, fusarium wilt of cotton, guava, pigeon pea,
vanilla, grapes, etc,
ABTEC Beauvaria (Beauvaria bassiana)
Formulation: ABTEC Beauvaria is available in liquid form with a high spore count
of 3 X 108 c.f.u/ml. It is an entomopathogenic fungus used for controlling insect
pests.

Recommended crop pests: Pests belonging to Lepidoptera, coleoptera, Hemiptera,

Hymenoptera and Diptera. (Leaf eating caterpillars of rice, vegetables, vanilla,
cotton, tobacco etc,

ABTEC Verticillium (Verticillium lecanii)

Formulation: ABTEC verticillium is available in liquid form with a high spore
count of 2 X 109 c.f.u/ml. It is an entomopathogenic fungus with mycoparasitic action
on rust and powdery mildew fungi
Recommended crop pests: Aphids, scales, whiteflies, thrips, red spider mites,
nematodes, etc.

ABTEC Hirsutella (Hirsutella thompsonii)

Formulation: ABTEC Hirsutella is available in liquid form with a high spore count
of 2 X 109 c.f.u/ml. It is an acaropathogenic fungus which can kill several eriophyid
mites including the coconut mites.

Recommended crop pests: Coconut eriophyid mites (Aceria guerreronis) and other
mites of vegetable and fruit crops.
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Method of application: Mix 250 ml. ABTEC Hirsutella in 50 litres of water and
spray on the coconut bunches at bimonthly intervals.

ABTEC Bacillus (Bacillus Subtilis)

Formulation: ABTEC Bacillus is available in liquid formulation with high Cell
count of 2 X 109 c.f.u./ml. It is an aerobic spore forming bacteria.
Recommended Crops: Cardamom, pepper, vanilla, vegetables, mulberry, coffee,
tea, ornamentals, cotton, grape, potato, tomato, cucurbite, etc.

ABTEC Paecilomyces (Paecilomyces lilacinus)

ABTEC Paecilomyces is available in liquid form with a high spore count of 2 X 109
c.f.u./ml. It is a soil inhabiting fungi, pathogenic to several root parasitising
nematodes (Nematopathogenic fungi). They are pathogenic to root knot nematodes
of Jasmine, Potato, tomato, chillies, brinjal, bhindi, cowpea, cucurbits, cardamom,
pepper, rice cyst nematode, lesion nematodes of cocunut, arecanut, banana, pepper,
etc. Attack both the egg masses and cysts of these nematodes.

ABTEC Pseudo (Pseudomonas fluorescence)

ABTEC Pseudo is available in liquid form with a high count of 2 X 109 c.f.u./ml.
They are a group of gram negative rod shaped, soil inhabiting bacteria coming under
plant growth promoting Rhizobacteria(PGPR) group. They are characterised by their
twin properties, i.e. disease suppression and plant growth promotion. They are
antagonistic to several root pathogenic fungi, bacteria, nematodes and several foliar
fungal and bacterial pathogens.

Recommended for: Quick wilt and pollu disease of Black pepper, soft rot of ginger,
turmeric, rot diseases of vanilla, foot rot, leaf spot of betelvine, sheath blight, sheath
rot and blast of paddy, capsule rot and chenthal disease of cardamom, shoot tip rot
of rubber seedling, fungal viral diseases of vegetables, etc

Soil application: Mix 1 litre ABTEC Pseudo (for 1 Acre) with 200 kg. organic
manure and apply in moist soil/base of trees @ I kg./potted plants @ 250 g.

Foliar spraying: Mix 250 ml. ABTEC pseudo in 50 litres of water and spray on the
foliage during evening hours.
Btk (Bacillus thuringiensis serovar kurstaki) : Btk are highly specific, eco friendly
and with no effect on humans, wild life, pollinators and other beneficial ansects.
Formulation: Btk in the form of Powder 2 X 107 c.f.u/gm
Method of application : Mainly used for foliar spraying. Mix 10-20gm powder
in1ltr. Water and spray on the spoilage.
These are the main products produces in this company they are more
beneficial to the farmers.
Kottayam-686008

LIST OF DIRECTORS

Name

Address

1. K.J.Jacob

KOCHETT, Thazhathangady.P.O
Kottayam-686005

2. Dr. D.Clarson

Designation

Managing Director

Dev Dale, Poovanthuruthu. P.O,

Kottayam-686012

Director

(Technical)
3. B.Mohan Das

Kuttakkattu House
Krishna Krupa,
West Kodungallur, Aluva-10

4. K.M.Mathen

Director

Kayalakkakathu,
Gandhinagar P.O,
Kottayam-686008.

5. Bibin.Jacob.K

KOCHETT, Thazhathangady.P.O
Kottayam-686005

6. Leela Chandrakamma

Director

Director

Kayalakkakathu,
Gandhinagar

P.O

Director

1.3INDUSTRY PROFILE
GLOBAL SCENARIO
Fertilizer demand has historically been influenced by changing and often interrelated factors
such as population and economic growth, agricultural production, prices and government
policies.
However, three developments distinguish the current state of agricultural markets from past
fluctuations, namely

That the hike in world prices concern nearly all major food and feed commodities,

That record prices are being achieved at a time not of scarcity but of abundance, and

That links between agricultural commodity markets and other markets are
strengthening.

Such phenomena already manifest in 2006 strengthened in 2007 a year characterised by

persistent market uncertainty, record prices and unprecedented volatility in grain markets.
The magnitude and nature of these changes have led some observers to refer to a paradigm
shift in agriculture away from decreasing real food prices over the past thirty years. Given
the inextricable link between food production and fertilizer use, it is opportune to consider
such changes when reviewing prospects for fertilizer demand and supply balances until
2011/12.

MACRO FACTORS AFFECTING GLOBAL AGRICULTURE AND

FERTILIZER DEMAND
Economic context
After solid and broad-based growth for three consecutive years the world economy
decreased slightly in 2007 with anticipated GDP growth back to 2005 levels at 4.9% and
3.3% forecast for 2008 by the World Bank (2007). Developing countries and economies in
transition continued their strong economic performance though with a mild reduction in
2007 growth rates when compared with the previous year, i.e. 5.9% for developing countries
and 6.5% for countries in transition. Among developing countries it sustained high though
slightly decreasing growth was shown in China and India engendered endogenous growth
through increasing South-South trade and financial linkages. This is reflected in, among
other things like continued strong demand and higher prices for energy and primary
commodities including food. Notwithstanding the strong performance by most developing
countries they remain vulnerable to any slowdown in major developed economies and to the
volatility of international commodity and financial markets.
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High oil prices contributed to price increases for most agricultural crops by raising input
costs on the one hand, and by boosting demand for agricultural crops used as feedstock in
the production of alternative energy sources (bio-fuels) on the other. The combination of
high oil prices and the desire to deal with environmental issues is driving the rapid expansion
of the bio-fuels sector. This is likely to boost the demand for feed stocks mainly maize, sugar,
rapeseed, soybean, palm oil and wheat for many years to come. However, much will also
depend on the supply and demand fundamentals of the bio-fuel sector itself. High oil prices
could depress the use of oil-based fertilizers which have been behind much of the increase
in farm production during the past half century.
Trade
World trade expanded rapidly in the recent three years driven by increased trade of both oil
and non-oil commodities as well as capital goods. Growth of world exports is more than
double that of global output indicating a further deepening of global economic integration.
The growth of world trade is expected to moderate to approximately 10% in 2015.
Freight rates
Freight rates have become a more important factor in agricultural markets than in the past.
Increased fuel costs, stretched shipping capacity, port congestion, and longer trade routes
due to altered trade patterns, have pushed up shipping costs. The Baltic Exchange Dry Index,
a measure of shipping costs for bulk commodities such as grains and oilseeds, has recently
passed the 10,000 mark for the first time with freight rates up 154 percent in November 2007
from a year earlier. High though decreasing freight values influence the geographical pattern
of trade as countries opt to source their import purchases from nearer suppliers to save on
transport costs. High freight rates are expected to last till 2009 when a large number of ships
are expected to be launched. The impact of transport costs on fertilizer prices will grow as
fertilizer is produced in fewer localities close to raw materials and ample energy availability.
Exchange rates
Exchange rate swings play a critical role in all markets including agricultural markets. Yet,
rarely have currency developments been as important in shaping agricultural prices as in
recent months. The decline in the United States dollar against most currencies since 2005
has made imports from the United States cheaper and lessens the true impact of the rise in
world prices. This is a major reason behind the brisk world import demand that, in spite of
high prices, shows little sign of retreat.

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Overall
Medium term perspectives point to a slowing down of the world economy with a smoothing
of the upward trend in emerging economies. Global growth is seen as remaining sufficiently
robust to sustain demand for food (especially high value foods such as meat, fruit and
vegetables) in emerging economies thereby strengthening demand for fertilizers.
INDIAN SCENARIO
The green revolution brought impressive gains in food production but with insufficient
concern for sustainability. In India the availability and affordability of fossil fuel based
chemical fertilizers at the farm level have been ensured only through imports and subsidies.
Dependence on chemical fertilizers for future agricultural growth would mean further loss
in soil quality, possibilities of water contamination and unsustainable burden on the fiscal
system. The Government of India has been trying to promote an improved practice involving
use of bio-fertilizers along with fertilizers. These inputs have multiple beneficial impacts on
the soil and can be relatively cheap and convenient for use.
Consistent with current outlook, the government aims not only to encourage their use in
agriculture but also to promote private initiative and commercial viability of production.
This project analyses available industry side data to find only a limited extent of success till
date. There has been no accelerated growth in distribution with time, inadequate spatial
diffusion and despite entry of small private units into the industry there is no clear indication
of the success of privatization. The project however argues that considering the social
benefits promised the government has ample grounds to intervene to set up an effective
market for the new product while encouraging private players. But the policy and the
instruments of intervention need to be designed with care.

Promoting Bio-fertilizers in Indian Agriculture

Failure of a market to build up calls for public intervention when the expected social gains
from a relatively new product outweigh the costs whereas the private gains do not.
Uncertainty about the product performance coupled with long periods of learning involved
can lead to poor demand from end users who are farmers. Even in the context of market
liberalization, the government has some role to play to induce a socially optimal investment
level and set up an effective market so long as market information is imperfect. However the
exact nature of the role and the policy instruments to be used must be decided with a clear
understanding of the strengths and weakness of agents involved (Stieglitz, 1989).
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Bio fertilizers make nutrients that are naturally abundant in soil or atmosphere usable for
plants. Field studies have demonstrated them to be effective and cheap inputs, free from the
environmentally adverse implications that chemicals have. Bio fertilizers offer a new
technology to Indian agriculture holding a promise to balance many of the shortcomings of
the conventional chemical based technology. It is a product that is likely to be commercially
promising in the long run once information becomesavailable adequately to producers and
farmers through experience and communication.
There is an ongoing attempt to promote bio fertilizer in Indian agriculture through public
intervention, and in keeping with the spirit of the times, the policy motivates private sector
and profit motive to propel the new technology. The question raised in this paper is how
successful has the intervention policy been in Indian agriculture. The Government of India
and the various State Governments have been promoting the nascent bio fertilizer market
both at the level of the user-farmer and the producer-investor through the following
measures:
(i)

farm level extension and promotion programmes

(ii)

financial assistance to investors in setting up units

(iii)

subsidies on sales

(iv)

direct production in public sector and cooperative organizations and in universities

and research institutions

Over time as the industry emerges from infancy with public guidance, the following
observations will be expected:
(a) increasing sales volumes and diffusion across the country
(b) greater role of profit motivated private enterprise. Since information on farm level usage
of bio fertilizers or profitability of units are not reported till date, one way to get about is by
following the secondary indicators
Government Intervention in Bio fertilizer Market
To attain production targets, the Government of India implemented a central sector scheme
called National Project on Development and use of Bio fertilizers (NPDB) during the Ninth
Plan for the production, distribution and promotion of bio fertilizers. A National Bio
fertilizer Development Centre was established at Ghaziabad as a subordinate office of the
Department of Agriculture and Cooperation with six regional centres. The purpose of the
scheme covered organization of training courses for extension workers and field
demonstrations and providing quality control services.

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Production and distribution of different bio fertilizers were also undertaken but subsequently
discontinued as the centres redefined their role towards R&D and HRD related activities.
Capacity creation and production was however encouraged through one time grant for new
units.
The financial assistance, given as grant-in-aid to the tune of Rs 13 lakhs and now increased
to Rs 20 lakhs per unit and thrown open for all, was routed through the State governments
but owing to delays in release of grants the onus is transferred to NABARD/NCDC. The
public sector organizations form a bulk of the units in the industry, while similar units in the
private sector are also coming forward. Different State governments also provide subsidies
sometimes up to 50% of the sales realization but the manner of subsidization is rather
unsystematic. In many cases the discrimination and manipulation in subsidizing lead to a lot
of intra industry variation in prices. The government also plays a dominant part in marketing
bio fertilizers in three possible channels:
(a) State government via District level Officers and Village level workers to farmers,
(b) State Marketing federation via cooperative bodies to farmers and
(c) State Agro-industries
The next Government in power may well have to decontrol urea prices or allow sharp farm
gate price increases if the fertiliser subsidy target for 2014-15 set in the interim budget is to
be met.
For 2013-14, the total subsidy on all fertilisers has been contained at 67,971.5 crore, as per
the revised estimates.

The fertiliser industry, on the other side, has pegged the total subsidy requirement for the
current fiscal at 1.07 lakh crore. In other words, there would be a carry over of around
39,028 crore to the coming fiscal.
However, the subsidy for 2014-15 has been budgeted at 67,970.30 crore, which after
accounting for the carryover of the current fiscal would leave hardly 28,942 crore. On top
of this, the industry estimates that the Governments proposed raising of domestically
produced natural gas from an average of $4.2 per mmbtu to $8.4 levels would straightaway
lead to higher urea production costs of 10,000 crore. It is clear from this that the only way
to keep the subsidy within the budgeted levels is to decontrol urea prices or allow a sharp
hike in prices, an industry source said.
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The scope for raising the prices of non-urea complexes such as di-ammonium phosphate
(DAP) is limited given the already declining consumption levels. In the April-September
period, consumption of non-urea complexes was down 17 per cent, while the urea sales were
up 11 per cent. Commenting on provisions made by Finance Minister P Chidambaram in his
interim budget for 2014-15, Satish Chander, Director General of the Fertiliser Association
of India, said The subsidy provided in interim budget is inadequate and not realistic. We
will still have a huge carry forward.
A Group of Ministers (GoM) was set up last year to suggest a suitable hike in urea price to
neutralise increase in energy cost, so that subsidy can be reined in. The Government,
however, has categorically ruled out any increase until general elections.

The maximum selling price (or MRP) of urea has been under control since 1957. Until the
late 70s a period of low inflation and low feedstock price the MRP was higher than
the cost of production and distribution. Hence, there was no subsidy.

Since 1977, equation was reversed, with cost exceeding selling price. The Government had
to give subsidy to manufacturers. From 266 crore in 1977-78, subsidy rose to 5,796 crore
in 1992-93 and further to 35,398 crore in 2012-13.

An increase in urea MRP holds the key to curtailing a ballooning fertiliser subsidy bill and
reducing the imbalance in nutrient use ratio. The government recognises this, yet is unwilling
to act. The fact remains that all political parties consider urea MRP as a holy cow.

In pampering mode
With effect from June 1, 1974, MRP was increased from 1,050 per tonne to 2,000 per
tonne almost 100 per cent. This was propelled by an oil crisis in the early 70s, which
led to a steep increase in the international price of urea and feedstock, that is, naphtha used
in its production.
This was followed by series of reductions viz., 1,850 from July 18, 1975; 1,750 from
March 16, 1976; 1,650 per tonne from February 8, 1977; 1,550 per tonne from October
12, 1977 and 1,450 per tonne from March 10, 1979.

15

The initial reduction in July 1975 led to a spurt in nitrogen consumption by 21.6 per cent.
Thanks to favourable weather conditions in later years, consumption would have continued
to grow even without further lowering of prices.

The price reductions were essentially political moves as various parties tried to outsmart
each other in wooing farmers. After Congress having done its bit in March 1976 and
February 1977, the Janata Party followed up with another reduction in October 1977.
The second bout of the oil crisis came in 1979-80. Faced with balance of payments (BOP)
problems, the Government approached the IMF for help and was forced to increase the price
of urea to 2,000 per tonne from June 8, 1980 and further to 2,350 per tonne from July 11,
1981.
Despite these hikes, N consumption increased from 3.498 million tonnes in 1979-80 to
3.678 million tonnes in 1980-81 and further to 4.068 million tonnes in 1981-82. Clearly, the
higher MRP was absorbed by farmers. Yet, Government relapsed into a pampering mode.

In June 1983, it adopted an ingenious method of wooing farmers by asking industry to give
a discount of 7.5 per cent. When industry refused, the price was reduced to 2,150 per tonne
from June 29, 1983. From January 31, 1986 however, this was restored to 2,350 per tonne.

At the start of the 1990s, India faced an unprecedented BoP crisis. Again, Government had
to approach the IMF. The latter insisted on stiff conditions. One of these was to eliminate
fertiliser subsidy in three years.

With effect from July 25, 1991, Government increased the MRP of all fertilisers, including
urea, by 40 per cent. However, within 2 weeks, it backtracked and from August 14, 1991,
price hike was truncated to 30 per cent. Small and marginal farmers were fully exempt.

Continuing along the same course, from August 25, 1992, it decontrolled all P (phosphorusbased) and K (potassium-based) fertilisers and abolished subsidy. However, considering the
political sensitivities associated with urea, it reduced its MRP by 10 per cent from 3,060
per tonne to 2,760 per tonne.

16

After two small steps forward (June 10, 1994 and Feb 20, 1997) taking price to 3,660, the
new NDA Government under Vajpayee increased the price by 1,000 per tonne from June
1, 1998. The objective was to rein in subsidy and improve the NPK use ratio.

This led to such a political storm that Government was forced to roll back 50 per cent of the
hike on the very next day. The balance was reversed in less than a fortnight. The ruling
dispensation, fearing a backlash, made another attempt by increasing the price to 4,000 per
tonne i.e. 9.6 per cent with effect from January 29, 1999. The timing of the move was such
as to avoid Parliament pandemonium.
From February 29, 2000, the price was increased to 4,600 per tonne and further to 4,830
per tonne from February 28, 2002. It remained stuck at this level for 8 years. From April 1,
2010, price was raised to 5,310 per tonne, a mere 10 per cent. The current MRP is 5,360
per tonne is the result of a negligible 50 per tonne less than 1 per cent increase in
October, 2012!

Reverse the trend

Between 1981 and 2012, urea price increased from 2,350 to 5360 per tonne, or 2.2 times.
In contrast, price of gas (main feedstock in urea production) went up from 0.32 per cubic
metre to 8.4 per cubic metre, or 26 times.
The price of naphtha went up from around 600 per tonne to 50,000 per tonne, or 83 times.
This led to a widening gulf between cost of production and realisation from sales, and a
skyrocketing subsidy. Given the political resistance to even a slight increase in urea price,
only the heavens can help us.

17

1.4 SCOPE OF THE STUDY

The scope of the study is limited to collecting financial data published in the annual reports
of the organization every year. This analysis is for recommend the possible solutions to the
company.
Using the budget analysis calculation, past, present and future performance of the
company can be analyzed and can evaluate the result. The company should obtain enough
revenue not only to meet the expectation of owner, but also for the expansion activities.
This study reveals the scope of budget analysis and various applications.

18

1.5 OBJECTIVES OF THE STUDY

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

19

1.6 LIMITATIONS OF THE STUDY

The inexperience makes the study less precise than professionals

The tools used for budgetary control are limited

In depth budgetary control could not be done to time constraints

20

CHAPTER ii
REVIEW OF
LITERATURE
21

2.1REVIEW OF LITERATURE
Budgets are an important tool of profit planning. The purpose of this chapter is to
present a general view of budgeting as a device of planning and illustrate the preparation of
various types of budgets. Section 1 of the chapter provides a brief account of the planning
process vis--vis budgeting. Section 2 LABOUR rates on the meaning of a budget and the
purpose of budgeting. The important types of budgets are discussed and illustrated in Section
3. The major points are summarized in the last section.

Section 1 - The Planning Process

Budgeting as a tool of planning, is closely related to the broader system of planning
in an organization. Planning involves the specification of the basic objectives that the
organization will pursue and the fundamental policies that will guide it. In operational terms,
it involves four stages: (i) Objectives (ii) Goals (iii) Strategies and (iv) Plans/Budgets

Objectives
The first stage in the planning and control system is setting the objectives which are
defined as the broad and long range desired state or position in the future. They are
motivational or directional in nature and are expressed in qualitative terms. Examples of
fundamental objectives are identification of the line of business, customer satisfaction,
employee welfare and so on. Thus, they are the basic policies.

Goals
The second stage in the planning process is specifying the goals. The terms goal, as
an element in planning, represents targets, specific in quantitative terms, to be achieved in a
specific period of time. The timing of introducing new products, purchase of new plant and
machinery and expected rate of return are examples of time and quantity oriented goals.

Strategies
The next step involves laying down the strategies. Strategies denote specific
methods/courses of action to achieve the goals, for instance, promotion of sales through price
reduction or aggressive advertisement, financial alternatives and so on.

22

Plans/Budgets
The final step is the preparation of budgets/profit plans. Basically, budgeting is the periodic
planning to implement the alternatives during a particular fiscal period, usually one year. It
converts, in other words, goals and strategies into annual operating plans.

According to this definition, the essential elements of a budget are: (i) Plan, (ii)
Operations and resources (iii) Financial terms (iv) Specified future period, (v)
Comprehensiveness and (vi) Coordination

Plan
The first ingredient of a budget is its plan. The term plan with reference to
budgeting has a specific connotation. It includes two aspects which have a bearing on the
operations of an enterprise. One set of factors, which determine a firms future operations
are wholly external and beyond
its control. Included in this category of factors are general business conditions, government
policy and size and composition of population. The second set of factors affecting future
activities are within the firms control and discretion hat is, they are internal. The
promotional programmes and manufacturing process are illustration of these factors.
Budgeting, as a plan, covers both these aspects. In other words, budgeting not only suggests
what should happen but should also make things happen. In brief (plan) is an expression
partly of what the management expects to happen and partly of what the management intends
to happen.

Operations and Resources

A budget is a mechanism to plan for the firms operations and resources. The
operations are reflected in revenues and expenses. This means that a budget should quantify
the revenues to be realized from products/services and the expenses to be incurred on
goods/services used in generating revenues.
The plan also covers the recourses of the firm. The planning of recourses means the
planning of the various assets and the sources of
Capital to finance these assets. The assets could be fixed assets as well as current assets.

23

Financial terms
Budgets are prepared in financial terms, that is, in terms of monetary value such as
the rupee, collar, and so on. The reason is that the monetary unit is a common denominator.
The various activities and operations are expressed sin different units, for example, material
in terms of weight, labour in terms of number/man-hours, sales in terms of territories,
advertisement in terms of magazine space, and so on. If they have to be integrated in a plan,
they must be expressed in comparable units of measurement. Monetary units provide such a
measure.

Specified Future Period

A budget relates to a specified period of time, usually one year. If it is not related to
a time horizon, it will be meaningless. Planning merely for a given amount of, say
sales/profits will not constitute a budget unless a time dimension is added, that is the budget
sales/profit if planned to be achieved in a predetermined time framework.

Comprehensiveness
A budget is comprehensive in that all the activities and operations of an organization
are included in it. It covers the organization as a whole and not only some segments. The
modus operandi is that budgets are prepared for each segment/facet/activity/division of an
organization. These are integrated into an overall budget for the entire organization. The
overall budget is referred to as the master budget.

Budgets Purpose
As a tool, budges serve as a guide to the conduct of operations and a basis for
evaluating actual results. The main objectives of budgeting are (i)
Explicit statement of expectations, (ii) Communication, (iii) Coordination and (iv)
expectations as a framework for judging performance.

Explicit Statement of Expectations

One purpose of budgeting is to state expectations in formal terms so that most of the
underlying assumptions may be identified. A firm has the basic objective of optimizing longrun profit. It long-range goals also include survival, consumer satisfaction, employee
welfare, personal power and prestige and so on. These long range objectives can be
achieved in successive phases over a period of time. In other words, long range objectives
have to be split into short-term operational plans. Thus, a budget can be said to be a device
to express goals which are sought to be achieved in a short period of time.
24

In other words, it is a means to establish congruence between short term goals and
the long term objectives of the firm. Therefore, budgets formulate targets expected
performance. The advantage is that by laying down targets, budgets contain an explicit
statement of expectations. These targets help direct their operations, identify problems, help
motivate lower level employees and clarify the Relationship between current activities and
future policies. Another implication is that budgets explicitly state the underlying
assumptions and goal and/or the means of attaining it. To illustrate, if the sales target
(projected sales) for any given period is Rs.5,00,000, the budget will not only indicate this
figure but will also give details about the assumed prices, quantity, sales efforts and so on.
This explicit statement of assumption is one of the most important contributions of budgeting
for managerial planning and control.
However, a budget does not lay down a statement of expectations in rigid terms.
Budgets, as observed earlier, are based on factors which are either uncertain or are beyond
the control of management. Some of these are economic, social and business conditions;
supply and demand; competitions; consumer taste; technological innovations; and so on. A
budget should be modified when necessary in the light of the changes in the
factors/assumptions on which the original estimates were based.

Communication
Another purpose of budgeting is to communicate or inform others of the goals and
methods selected by top management. Since budgeting deals with fundamental policies and
objectives, it is prepared by top management. A formal budget by itself will not ensure that
a firms operations will be automatically geared to the achievement of the goals set in the
budget. For this to happen, the managers and lower-level employees have to understand the
goals and support them and coordinate their efforts to attain them. In other words, the
employees should be aware well in advance of the level of performance expected of them.
It is for this reason that a budget is viewed as a means of communicating to the employees
the level of performance expected of them so that the goals set out in the budget can be
accomplished.

25

Coordination
Yet another purpose of budgeting is coordination. The term coordination refers to
the operation of all departments of an organization in such a way that there is no bottleneck
or imbalance. In other words Coordination implies a harmonious relationship between
various departments to ensure smooth and uninterrupted operation of each of them.
If an organization is to achieve its long run goals coordination in the activities of
all its departments is necessary. If there is no coordination, imbalances will be created which
hinder smooth operation and stand in the way of the accomplishment of the goals of the
budgets.
To illustrate, one type of imbalance may be between the manufacturing/production
and sales departments. The manufacturing department may be producing goods, which the
sales department may not be able to sell. Conversely, the sales department may like the
production department to produce goods which the production department is incapable of
producing. Another example of lack of coordination is the purchasing manufacturing
imbalance when the production schedule is not related to the raw materials purchases.
Further, the production schedule may not be based on the capability of employees and
capacity of plant and machinery.
In view of the above, coordination is a major function of budgeting. Budgets should
be drafted in such a way that the operations of the various departments are related to each
other for the achievement of the overall goal. Apart from the interdepartmental
reconciliation, budgets also provide for flexibility to accommodate plans and operations to
unexpected situations.

Expectations as Framework for Judging Performance

Finally, a budget establishes expectations as a framework for judging employee
performance. A budget, as observed earlier, defines the goals, the means of implementing
them and the level of performance by the employees. The extent to which employees have
succeeded in the task assigned to them, can be judged on the basis of a comparison of the
actual performance equals or exceeds the budgeted level, it may be termed satisfactory,
otherwise not. Thus, a budget can serve as yardstick to judge employee performance or as a
control device.

26

To conclude, budgeting, as a tool of planning and control, serves as a guide to

conduct operations and a basis for evaluating actual results. Actual
results can be judged satisfactory or unsatisfactory in the light of the relevant budgeted data
and also in the light of changes in conditions. However, a budget should not be regarded as
a rigid requirement of performance. Many of the factors upon which a budget is based are
beyond the control of management and all of them are uncertain.
The budget should, therefore, be regarded as a plan, not an immutable commitment of
performance; it is a means of control, but not a straitjacket on operations. In view of its
significance as a managerial tool, the preparation of a budget is illustrated.

Section 3 Preparation/Types of Budgets

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

Operating Budgets
Operating budgets relate to the physical activities/operations of a firm such as sales,
production, purchasing, debtors collection and creditors payment schedules. In specific
terms, an operating budget has the following components.
1. Sales budget
2. Production budget
3. Purchase budget
4. Direct labour budget
5. Manufacturing expenses budget, and
6. Administrative and selling expenses budget and so on

27

Financial Budget
Financial budgets are concerned with expected cash receipts/disbursements, financial
position and results of operations. In other words, a financial budget has the following
components.

1. Budgeted income statement

2. Budgeted statement of retained earnings
3. Cash budget, and
4. Budgeted balance sheet

28

CHAPTER III
RESEARCH
METHODOLOGY
29

3.1 RESEARCH METHODOLOGY

3.2DATA COLLECTION
Data plays a very vital role in any research program. Source of data are of mainly two
types i.e., primary and secondary. The data used in this study were collected from the
published annual reports and magazines of relevant periods of the company.

PERIOD OF STUDY
The period covered by the present study based on the financial year 2014.

CASH BUDGET
The principal of the cash budget, as a tool of planning, is to ascertain whether, at any
time, there is likely to be an excess or shortage of cash. The preparation of a cash budget
involves various steps.
The first element of a cash budget is the selection of the period of time to be covered
by the budget. Alternatively, it is referred to as the planning horizon. The planning horizon
means the time span and the sub-periods within that time span over which the cash flows are
to be projected. There is no hard and fast rule. The period coverage of a cash budget will
differ from firm to firm depending upon its nature and the degree of accuracy with which
the estimates can be made. As a general rule, the period selected should be neither too long
not too short. If it is too long, it is likely that the estimates will be upset as we cannot visualize
them at the time of the preparation of the budget. If on the other hand, the time span is too
small, the disadvantage are: (i) Failure to take into account important events which lie just
beyond the period covered by the budget; (ii) Heavy workload in preparation; and (iii)
Abnormal factors that may be operative.
The planning horizon of a cash budget should be determined in the light of the
circumstances and requirements of a particular case. For instance, if the flows are expected
to be stable and dependable, such a firm may prepare a cash budget covering a long period,
say, a year and divide it into quarterly intervals. In the case of a firm whose flows are
uncertain, a quarterly budget divided in to monthly intervals may be appropriate. Where
flows are affected by seasonal verifications, monthly sub-divided into weekly or even daily
budgets may be necessary.
30

If the flows are subject to extreme fluctuations, a daily budget may be called for.
The idea behind sub diving the budget period into smaller intervals is to highlight the
movement of cash from one sub period to another. The sub division will provide
information on the fluctuations in the cash reservoir level during the time span covered by
the budget.
The second element of the cash budget is the factors that have a being on cash flows.
The items included in the cash budget are the cash only, non- cash items such depreciation
are excluded. The factors that generate cash flow are generally divided, for purposes of
constricting a ash budget, into two broad categories: (a) Operating and (b) Financial. This
twofold classification of cash budget items is based on their nature. While the former
category includes cash flows generated by the operations of the firms and are known as the
operating cash flows the latter consists of the financial cash flows.

SPECIAL DECISION BUDGETS

The third category of budgets are special decision budgets. They relate to inventory
levels, breakeven analysis, and so on. These are discussed comprehensively in other
operators of this volume. The long term capital budgets are covered in detail in chapters
10 and 11.

FLEXIBLE BUDGETS
The discussion of the master budget and its components in the preceding section was
based on the assumption of fixed level of activity. In other words, the budgets were related
to a specific level of operation implying thereby that a firm can accurately and precisely
forecast the level of its behavior/operations in a given period of time. If the business
environment is capable of accurate prediction, this approach to budgeting is likely to yield
dependable results. It however, changes take place during the budget period, the budget will
serve no useful purpose. Such a budget is technically referred to as a fixed/static budget. In
other words, budgets prepared at a single level of activity, with no prospect of modification
in the light of the changed circumstances, are fixed or static budgets. The alternative to fixed
budgets is flexible/variable/sliding budgets. The term flexible is the most apt description
of the essential features/characteristics of these budgets and is used here to refer to such
budgets.

31

A flexible budget estimates costs at several levels of activity. The merit of a flexible
budget is that instead of one estimate it contains several estimates/plans in different assumed
circumstances. Since business activities cannot be accurately predicted as the
conditions/environments are uncertain, it is a useful tool in real business situations, that is,
an unpredictable environment. In view of its significance as a more realistic basis of
budgeting, the setting up of a flexible budget is demonstrated in the discussions that follow.
It may at the outset be noted that the construction of a flexible budget is similar to
that of a fixed budget except in one respect. While the fixed budget is based on costs and
other business operations/activities at one level, the flexible budget considers several
alternative/levels/volumes of activity. The term volume/level of activity refers to the usage
of capacity. In other words, volume/level of activity signifies the percentage use of capacity.
The term capacity means the installed capacity of plant and personnel, that is, the fixed
amount invested in these. For instance, if a plant when fully operated can produce 5,000
units, its capacity is 5,000 units of production. Assuming 2,500 units of production in a given
period, the volume/level of activity is 50 per cent.
Thus, the essence of a flexible budget is the presentation of estimated cost data in a
manner that permits their determination at various levels of volume. This means that all costs
must be identified as to how they behave with a change in volume whether they very or
remain fixed. The conceptual framework of flexible budgeting, therefore, relates to: (i)
Measure of volume and (ii) Cost behavior identified with change in volume.
Measure of Volume
The volume measure selected for any given department/firm should be that quantity
which displays the greatest degree of correlation with those costs that very with the level of
operating.

32

CHAPTER iv
DATA ANALYSIS
AND
INTERPRETATION
33

TABLE 4.1
DETAILS OF FINISHED GOODS
Particular

Product I

Product II

Units sold

6,000

9,000

Selling Prince / unit

Opening Stock

75
1,000

80
2,500

500

1000

Closing stock

INTERPRETATION

In the case of finished goods the product1 actually sold 6000 units and the final closing
stock was 500 units. The product 2 sold with 9000 units and the closing stock at ending
was 1000 units.

34

DETAILS OF FINISHED GOODS

10000

9000

9000
8000
7000

6000

6000
5000
4000
2500

3000
2000

1000

1000

75

80

500

1000

0
Units Sold

Selling Price
Product 1

Opening stock

closing Stock

Product2

35

TABLE 4. 2
DETAILS OF INVENTORY
Type of material

Grade I

Grade II

Unit requirement

12 units / finished product

4 units / product A
2 units/ product B

Cost profit

1.50

2.50

Closing stock

3,000

500

Opening stock

4,000

300

INTERPRETATION

The grade 1 material had the cost profit was 1.50 and grade 2 was 2.50, due to this
variations the closing stock for grade 1 is 3000 units and 500was grade 2.

36

DETAILS OF INVENTORY

4500
4000
4000
3500
3000
3000
2500
2000
1500
1000
500
500
12

150 250

300
5

0
Unit requiremnet

Cost profit
Grade 1

Closing stock
Grade 2

Opening stock

Column1

37

TABLE 4.3
DETAILS OF LABOUR COST
Particular

Product I

Product II

Direct LABOUR per unit

10

Budget cost / Low

INTERPRETATION
The product one has the LABOUR cost of 7 per unit and product 2 occurred 10 per unit,
but the budgeted cost was RS:2, for both product

38

DETAILS OF LABOUR COST

12
10
10

4
2

0
Direct labour per unit

Budgetcost/Low

Product 1

Product 2

Column1

39

TABLE4.4
DIRECT SELLING EXPENSE
Salesmens salary

15,000

Salesmens commission

4,500

Travelling expense

21,000

Total

40,500

INTERPRETATION
In the case of selling expenses the salesmen salary was 15000, and salesmen commission
was 4500.the travelling expenses occurred the amount of 21000.

40

DIRECT SELLING EXPENSE

50000

45500

45000

40500

40000
35000
30000

25000

21000

20000
15000
10000
5000

1500

0
salesmen"s salary

salesmancommission
Column1

Column3

travelling expenses

total

Column2

41

TABLE 4. 5
DISTRIBUTION EXPENSE
Ware house wages

4,000

Ware house rent, rates, electricity

5,500

Lorry expense

12,000

Total

21,500

INTERPRETATION
In the case of distribution expenses the total cost occurs during the year was 21500

42

DISTRIBUTION EXPENSE
25000
21500
20000

15000
12000
10000
5500
5000

4000

0
Warehouse wages

Warehouse
rent,retes,electricity

Lorry expense

Total

43

TABLE 4. 6
SALES OFFICE EXPENSE
Salaries

16,000

Rent, rate, electricity

12,000

Depreciation
Stationary , postage, telephone
General expense
Total

2,000
12,500
3000
45,500

INTERPRETATION
In the case of sales office expenses the total cost was 45500, out of this the salary were
16000 and rent rate was 12000

44

SALES OFFICE EXPENSE

50000

45500

45000
40000
35000
30000
25000
20000
15000

12500

12000

10000
5000

2000

3000

45

TABLE 4.7
ADVERTISING
Press

4,500

Radio And Television

18,500

Shop window display

4,000

Total

27,000

INTERPRETATION
The companies advertising cost was 27000 .18500 for radio and television and shop window
display cost was 4000.

46

ADVERTISING

30000
27000
25000

20000

18500

15000

10000

4000

5000

0
Radio and T.V

Shop window display

Total

47

TABLE 4. 8
SALES BUDGET FOR THE YEAR ENDING MARCH, 31ST ,2014
UNITS
Product I

6,000

Product II 9,000
TOTAL

SELLING PRICE

TOTAL

Per unit(Rs.)
75

(Rs.)
4,50,000

80

7,2,0000
11,70,000

INTERPRETATION
In the case of sales budget the product 1 selling price is 75 per unit and the total cost was
450000. In the case of product 2 the total units was 9000 and selling price per unit was 80
so the total cost was 720000.

48

SALES BUDGET FOR THE YEAR ENDING MARCH, 31ST ,2014

1400000
1200000
1000000
800000
600000
400000
200000
0
Product I 6000

Poroduct II 9000
Selling price

Total
Total

Column1

49

TABLE 4. 9
PRODUCTION BUDGET IN UNITS FOR THE YEAR ENDING MARCH,31st 2014
PARTICULARS
Budgeted sales

PRODUCTS I

PRODUCTS II

6,000

9,000

500

1,000

Total quantity required

6,500

70,000

Less : Opening stock

1,000

2,500

Units to be produced

5,500

7,500

Add: Desired closing

INTERPRETATION
In the case of production budget the budgeted sales was 6000for product 1 and 9000 for
product 2, the actual production was 5500 for product 1 and 7500 for product 2.

50

PRODUCTION BUDGET IN UNITS FOR THE YEAR ENDING MARCH,31st 2014

80000
70000
70000
60000
50000
40000
30000
20000
10000

9000
6000

6500
10002500

500 1000

7500
5500

0
Budgeted sales

Add:Desired Closing
Product1

Total Quantity
required
Product2

Less : Opening stock

Units to be
produced

Column1

51

TABLE 4.10
DIRECT MATERIAL PURCHASED BUDGET FOR THE YEAR
ENDING MARCH 31st 2014
PARTICULAR

MATERIALS

MATERIALS

Desired closing stock (units)

3,000

500

Units required for production

1,56,000

52,000

Add: total needs

Less: opening stock (units)

1,59,000
4,000

52,500
300

Units to be purchased

1,55,000

52,200

Unit price (Rs.)

Purchase cost( Rs.)

1.50
2,32,500

2.50
1,30,500

TOTAL

3,63,000

INTERPRETATION
In the case of direct material the total purchase cost was 232500 for material x and material
y have 130500, so total cost were 363000.

52

DIRECT MATERIAL PURCHASED BUDGET FOR THE YEAR

ENDING MARCH 31st 2014

400000

363000

350000
300000
232500

250000
200000
156000

159000

155000
130500

150000
100000
52000

52500

52200

50000
4000300

1.5 2.5

0
Units required Add:total needs
for production

less:opening
stock
3000

500

Units to be
purchased

Unit price

Purchase cost

Column1

53

TABLE 4. 11
DIRECT- LABOUR COST BUDGET FOR YEAR ENDING MARCH
31st,2014
Units

Direct LABOUR

purchased

hour, per unit

Total hours Total budget cost

(Rs.)@ Rs. 2 per
hour

Product A

5,500

38,500

77,000

Product B

7,500

10

75,000

1,50,000

1,13,500

2,27,000

Total

INTERPRETATION
In the case of direct labour cost the product A have total cost of 77000and product B have
the cost of 150000 and the total cost were 227000.

54

DIRECT- LABOUR COST BUDGET FOR YEAR ENDING MARCH

31st,2014

160000
140000
120000
100000
80000
60000
40000
20000
0
Product A
Units purchased

Product B

Direct labor hour, per unit

Total hours

Total budget cost (Rs.)@ Rs. 2 per hour

55

TABLE 4. 12
ENDING INVENTORY BUDGET MARCH 31st ,2014
Units

Units cost

Amount

Total (Rs.)

Direct materials
Grade I

3,000

1.50

4,500

Grade II

500

2.50

1,250

Grade I

500

49.00

24,500

Grade II

1,000

53.00

53,00

5,750

Finished goods

Total

77,500
83,250

INTERPRETATION
In the case of inventory budget the grade 1 materials total cost was 5750and the finished
goods total cost was 77500, and the total cost for inventory is 83250.

56

ENDING INVENTORY BUDGET MARCH 31st ,2014

90000
80000
70000

60000
50000

Units

40000

Unit cost

30000

Amount
Total

20000

Column1

10000
0

57

TABLE 4.13
COST OF GOODS SOLD BUDGET FOR THE YEAR ENDING MARCH 31ST 2014
PARTICULARS

AMOUNT

Direct material

3,64,000

Direct LABOUR

2,27,000

Factory overhead

1,18,000

Total manufacturing costs

7,09,000

Add: finished goods(opening)

1,81,500
8,90,500

Less : finished goods (closing)

Total cost of goods sold

77,500
8,13,000

INTERPRETATION

In the case of cost of goods sold the total cost was 813000.it includes the
manufacturing cost and other factory overheads

58

COST OF GOODS SOLD BUDGET FOR THE YEAR ENDING MARCH 31ST 2014

1000000
900000
800000
700000
600000
500000
400000
300000
200000
100000
0

Amount

Column2

59

TABLE 4.14
ADMINISTRATIVE EXPENSES BUDGET FOR THE YEAR ENDING
MARCH 31st, 2014
PARTICULAR
Salaries of clerical staff
Executive salaries

AMOUNT
28,000
8,000

Audit fee

600

Depreciation on office equipment

800

Insurance

250

Stationery

1,250

Postage and telegrams

950

Telephones

850

Miscellaneous
Total administrative expenses

5,300
46,000

INTERPRETATION
In the case of administrative expenses the salaries was high and the executive salaries were
8000, the depreciation cost was 800 and the insurance , stationery postage and telegram,
telephones miscellaneous were 250,1250,950,850,5300 respectively .so the total cost
occurred for administrative expenses were 46000

60

ADMINISTRATIVE EXPENSES BUDGET FOR THE YEAR ENDING

MARCH 31st, 2014

50000
40000
30000
20000
10000
0

Amount

61

CHAPTER-V
FINDINGS,
SUGGESTIONS
AND
CONCLUSION
62

5.1FINDINGS

Budgeted sales in 2014 are Rs 1170000.

Required budgeted production unit in 2014 is 13000 units.
Budgeted raw material requirement in 2014 is Rs 363000.
Budgeted labour cost in 2014 is Rs 227000.
Budgeted factory overhead in 2014 are Rs 118000.
Cost of finished goods produced per unit of product 1 is 49and product 2 is 53.

63

5.2 SUGGESTIONS

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

64

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

65

BIBLIOGRAPHY
BOOKS:

Dr. S.N. Maheswari - Financial Management Principles and Practices, 10th

Edition, Sultan Chand and Sons Publishers, New Delhi.

R.K. Sharma and S.K. Gupta - Management Accounting Principles and

Practices, 8th Edition Kalyani Publication.

C.R. Kothari - Research Methodology, 2nd Edition, New Age International

(P) Ltd.

P.R. Vittal - Business Mathematics and Statistics, 6th Edition, Margham

Publications, Chennai.

Website
www.google.com
www.wikkiepedia.com

66

ANNEXURE

67

BALANCE SHEET -2014

Rs in 000

SOURCE OF FUNDS
Capital

29.85

Reserves

11.63

Net worth

130.5

Secured loans
Un secured loans

129.79
10.00

Total Debt

139.79

Total Liabilities

311.77

APPLICATION OF FUNDS
Fixed assets
Capital Work In progress

113.78
3.10

Inventories

95.00

Sundry Debtors

167.4

Cash and Bank Balances

5.03

Total Current Assets

270.53

Total CA, Loans & Advances

270.53

Loans & Advances

22.39

(Current Liabilities)

94.93

(Total CL & Provision)

94.93

Net Current Assets

197.99

Total Assets

311.77

68

COMPARATIVE BALANCE SHEET FOR THE YEAR 2012-2013

Rs in 000

SOURCE OF FUNDS

AMOUNT

AMOUNT

INCREASE/

2012

2013

DECREASE

Capital

29.85

29.85

Reserves

11.63

11.63

Net worth

141.48

130.5

-10.98

Secured loans

70.51

129.79

59.28

Un secured loans

10.00

10.00

Total Debt

80.51

139.79

59.28

Total Liabilities

221.99

311.77

89.78

APPLICATION OF FUNDS
Gross Block

137.89

-137.9

25.60

-25.6

112.29

-112.3

(Less Accum Depreciation)

Net Block
Capital Work In progress

2.89

Investments

4.58

Inventories

98.53

95.00

-3.53

Sundry Debtors

75.60

167.4

91.8

6.56

5.03

-1.53

Total Current Assets

180.69

270.53

89.84

Loans and Advances

10.00

22.39

12.39

Cash and Bank Balances

Fixed deposits
Total CA, Loans & Advances

3.10

0.21
-4.58

0.85

-0.85

191.54

270.53

78.99

(Current Liabilities)

75.89

94.93

19.04

(Provision)

13.42

(Total CL & Provision)

89.31

94.93

5.62

102.23

197.99

95.76

221.99

311.77

89.78

Net Current Assets

Total Assets

-13.42

69

COMPARATIVE BALANCE SHEET FOR THE YEAR 2011-2012

Rs in 0000
SOURCE OF FUNDS

AMOUNT

AMOUNT

INCREASE/

2011

2012

DECREASE

Capital

29.85

29.85

Reserves

96.60

11.63

-84.97

Net worth

126.45

141.48

15.03

26.25

70.51

44.26

0.00

10.00

10

26.25

80.51

54.26

152.70

221.99

69.29

Gross Block

90.11

137.89

47.78

(Less Accum Depreciation)

18.83

25.60

6.77

Net Block

71.28

112.29

41.01

Capital Work In progress

25.77

2.89

-22.88

Investments

11.36

4.58

-6.78

Inventories

35.86

98.53

62.67

Sundry Debtors

48.75

75.60

26.85

3.50

6.56

3.06

Total Current Assets

88.11

180.69

92.58

Loans and Advances

38.47

10.00

-28.47

0.59

0.85

0.26

127.17

191.54

64.37

(Current Liabilities)

40.62

75.89

35.27

(Provision)

42.27

13.42

-28.85

(Total CL & Provision)

82.89

89.31

6.42

Net Current Assets

44.28

102.23

57.95

152.69

221.99

Secured loans
Un secured loans
Total Debt
Total Liabilities
APPLICATION OF FUNDS

Cash and Bank Balances

Fixed deposits
Total CA, Loans & Advances

Total Assets

69.3

70

COMPARATIVE BALANCE SHEET FOR THE YEAR 2010-2011

Rs in 0000
SOURCE OF FUNDS

AMOUNT

AMOUNT

INCREASE/

2010
29.85

2011
29.85

Reserves

87.99

96.60

8.61

Net worth

117.84

126.45

8.61

35.92

26.25

-9.67

0.00

0.00

35.92

26.25

-9.67

153.76

152.70

-1.06

Gross Block

59.02

90.11

31.09

(Less Accum Depreciation)

15.25

18.83

3.58

Net Block

43.77

71.28

27.51

Capital Work In progress

15.53

25.77

10.24

Investments

15.00

11.36

-3.64

Inventories

43.41

35.86

-7.55

Sundry Debtors

37.94

48.75

10.81

3.02

3.50

0.48

Total Current Assets

84.37

88.11

3.74

Loans and Advances

29.24

38.47

9.23

Fixed deposits

35.55

0.59

-34.96

149.16

127.17

-21.99

(Current Liabilities)

37.30

40.62

3.32

(Provision)

32.41

42.27

9.86

(Total CL & Provision)

69.71

82.89

13.18

Net Current Assets

79.45

44.28

-35.17

153.75

152.69

-1.06

Capital

Secured loans
Un secured loans
Total Debt
Total Liabilities

DECREASE
0

APPLICATION OF FUNDS

Cash and Bank Balances

Total CA, Loans & Advances

Total Assets

71

COMPARATIVE BALANCE SHEET FOR THE YEAR 2009-2010

Rs in 0000
SOURCE OF FUNDS

AMOUNT

AMOUNT

INCREASE/

2008

2009

DECREASE

Capital
Reserves

21.40
16.78

29.85
87.99

8.45
71.21

Net worth

38.18

117.84

79.66

Secured loans

36.07

35.92

-0.15

0.00

0.00

Total Debt

36.07

35.92

-0.15

Total Liabilities

72.45

153.76

81.31

Gross Block

48.99

59.02

10.03

(Less Accum Depreciation)

11.82

15.25

3.43

Net Block

37.07

43.77

6.7

Capital Work In progress

2.99

15.53

12.54

Investments

0.00

15.00

15

Inventories

30.99

43.41

12.42

Sundry Debtors

27.14

37.94

10.8

1.30

3.02

1.72

Total Current Assets

59.43

84.37

24.94

Loans and Advances

16.60

29.24

12.64

0.15

35.55

35.4

Total CA, Loans & Advances

76.18

149.16

72.98

(Current Liabilities)

28.98

37.30

8.32

(Provision)

13.03

32.41

19.38

(Total CL & Provision)

Net Current Assets

42.01
34.17

69.71
79.45

27.7
45.28

Total Assets

74.23

153.75

79.52

Un secured loans

APPLICATION OF FUNDS

Cash and Bank Balances

Fixed deposits

72

PROFIT AND LOSS ACCOUNT FOR THE YEAR -2014

Rs in 0000
INCOME
Sales
Other Income
Stock Adjustments
Total Income

764.51
5.07
32.28
801.86

EXPENDITURE
Raw Materials

552.41

Power And Fuel

2.91

Employee Cost

37.48

Other Manufacturing Expenses

Selling and Admin Expenses
Miscellaneous Expenses
Total Expenses

3.99
122.26
3.55
722.60

Operating Profit

74.19

PBDIT

79.26

Interest

12.22

PBDT

67.04

Depreciation
Profit Before tax
Extra Ordinary items

7.94
59.10
0.00

PBT (Post Extra Ord. Items)

59.10

Tax

16.47

Reported Net profit

42.64

73

COMPARATIVE PROFIT AND LOSS ACCOUNT FOR THE YEAR 2012-2013

Rs in 0000
INCOME

AMOUNT

AMOUNT

INCREASE/

2012

2013

DECREASE

479.11

764.51

285.4

Other Income

1.12

5.07

3.95

Stock Adjustments

52.00

32.28

-19.72

Total Income

532.23

801.86

269.63

354.44

552.41

197.97

Power And Fuel

2.85

2.91

0.06

Employee Cost

26.81

37.48

10.67

Other Manufacturing Expenses

2.83

3.99

1.16

Selling and Admin Expenses

89.93

122.26

32.33

Miscellaneous Expenses

2.86

3.55

0.69

Total Expenses

479.72

722.60

242.88

Operating Profit

51.39

74.19

22.8

PBDIT

52.51

79.26

26.75

Interest

5.83

12.22

6.39

PBDT

46.68

67.04

20.36

Depreciation

7.15

7.94

0.79

Profit Before tax

39.53

59.10

19.57

Extra Ordinary items

(0.04)

0.00

0.04

PBT (Post Extra Ord. Items)

39.49

59.10

19.61

Tax

14.00

16.47

2.47

Reported Net profit

25.47

42.64

17.17

Sales

EXPENDITURE
Raw Materials

74

COMPARATIVE PROFIT AND LOSS ACCOUNT FOR THE YEAR 2011-2012

Rs in 0000
INCOME

AMOUNT

AMOUNT

INCREASE/

2011

2012

DECREASE

340.23

479.11

138.88

3.28

1.12

-2.16

Stock Adjustments

(10.03)

52.00

62.03

Total Income

333.48

532.23

198.75

205.53

354.44

148.91

Power And Fuel

0.95

2.85

1.9

Employee Cost

19.06

26.81

7.75

Other Manufacturing Expenses

1.46

2.83

1.37

Selling and Admin Expenses

68.96

89.93

20.97

Miscellaneous Expenses

2.12

2.86

0.74

Total Expenses

298.08

479.72

181.64

Operating Profit

32.12

51.39

19.27

PBDIT

35.40

52.51

17.11

Interest

5.08

5.83

0.75

PBDT

30.32

46.68

16.36

Depreciation

4.05

7.15

3.1

Profit Before tax

26.27

39.53

13.26

Extra Ordinary items

0.00

(0.04)

-0.04

PBT (Post Extra Ord. Items)

26.27

39.49

13.22

Tax

8.93

14.00

5.07

Reported Net profit

17.35

25.47

8.12

Sales
Other Income

EXPENDITURE
Raw Materials

75

COMPARATIVE PROFIT AND LOSS ACCOUNT FOR THE YEAR 2010-2011

Rs in 0000
INCOME

AMOUNT

AMOUNT

INCREASE/

2010

2011

DECREASE

Sales

299.83

340.23

40.4

Other Income

30.29

3.28

-27.01

Stock Adjustments

12.94

(10.03)

-22.97

Total Income

343.06

333.48

-9.58

201.65

205.53

3.88

Power And Fuel

0.60

0.95

0.35

Employee Cost

15.43

19.06

3.63

Other Manufacturing Expenses

1.30

1.46

0.16

Selling and Admin Expenses

61.34

68.96

7.62

Miscellaneous Expenses

1.74

2.12

0.38

Total Expenses

282.06

298.08

16.02

Operating Profit

30.71

32.12

1.41

PBDIT

61.00

35.40

-25.6

Interest

5.10

5.08

-0.02

PBDT

55.90

30.32

-25.58

Depreciation

3.47

4.05

0.58

Profit Before tax

52.43

26.27

-26.16

Extra Ordinary items

0.00

0.00

PBT (Post Extra Ord. Items)

52.43

26.27

-26.16

Tax

15.01

8.93

-6.08

Reported Net profit

37.42

17.35

-20.07

EXPENDITURE
Raw Materials

76

COMPARATIVE PROFIT AND LOSS ACCOUNT FOR THE YEAR 2009-2010

Rs in 0000
INCOME

AMOUNT
2009

Sales

AMOUNT

INCREASE/

2010

DECREASE

234.57

299.83

65.26

Other Income

5.37

30.29

24.92

Stock Adjustments

9.16

12.94

3.78

249.10

343.06

93.96

152.56

201.65

49.09

Power And Fuel

0.40

0.60

0.2

Employee Cost

9.85

15.43

5.58

Other Manufacturing Expenses

0.72

1.30

0.58

52.13

61.34

9.21

1.09

1.74

0.65

216.75

282.06

65.31

Operating Profit

26.98

30.71

3.73

PBDIT

32.35

61.00

28.65

Interest

4.00

5.10

1.1

PBDT

28.35

55.90

27.55

2.94

3.47

0.53

25.41

52.43

27.02

0.03

0.00

-0.03

25.44

52.43

26.99

7.20

15.01

7.81

13.32

37.42

24.1

Total Income
EXPENDITURE
Raw Materials

Selling and Admin Expenses

Miscellaneous Expenses
Total Expenses

Depreciation
Profit Before tax
Extra Ordinary items
PBT (Post Extra Ord. Items)
Tax
Reported Net profit

77