Deep Project

Budget and Budgetary control
Indian Farmer Fertilizer CoOperative Limited

The Report contain, in depth understanding of Budget and Budgetary control. Adding it also features IFFCOS round over knowledge and all happenings Deepak S. Gyanchandani
precious guide in the field. I would also like to
Acknowledgement
Even if a Project Report is in the end the sole responsibility of student, it is always the final result of the efforts of a larger group of people that contributed to it in different ways, providing information and critical review, suggesting alternative approaches and new ideas, sharing their experiences and providing guidance and support. Also in my case this project report would have not been possible if it was not for the contribution of many people. I would like to thank all the people at IFFCO, with whom I had the pleasure to spend the two
thank Dr. Renu Choudhary who also provided countless valuable thinking and reviewed part of the project report.
I would like to mention also two people who provided imperative contributions for the discussion, namely Mr. V J. Mankodi In addition I would also like to thank Mr. D C Maheshwari for the time they dedicated me.
Furthermore I would like to thank some people who did not actively participated in the work of this project report but whose support has been essential for developing in my studies, namely Mr. Satish Kakani IFFCO, for being my first valuable contact in the
months in which I have worked on this project report. In particular I would like to give special acknowledgments to Mr. D D Pandya, Mr. H T. Bhambhani, Mr A G.
company and friends, for always reminding me to believe in myself.
Radhakrishnan, Mr. Dushyant Chouhan, Mr. K M. Patel, Mr. Ranjit Kumar, Mr. V H. Ambawani, Mr. V Shrinivasan, Mr. H J. Finally my greatest thank you goes to my mother, and my father, without whose support, assistance and love nothing of this, for the little value it may have, would have ever been written
Devaria And Mr.D N josh Mr. S C. Bhoummik for the time he dedicated me in reading, revising and discussing the contents of this work.
A special thank goes to Professor Nandini Sinha for her valuable comments, corrections and suggestions and especially for being a
Budget and Budgetary Control
Contents
Acknowledgement ..................................................................................................................... 1 OBJECTIVE .............................................................................................................................. 6 PREFACE .................................................................................................................................. 7 RESEARCH METHODOLOGY............................................................................................... 8 STEPS IN RESEARCH DESIGN ............................................................................................. 9 DATA SOURCES ..................................................................................................................... 9 Primary data ........................................................................................................................... 9 Secondary sources ................................................................................................................ 10 BENEFICIARIES .................................................................................................................... 11 INTRODUCTION OF INDIAN FERTILIZER INDUSTRY ................................................. 12 Major Players in Indian Fertilizer Market ............................................................................... 13 Public Sector Companies in Indian Fertilizer Market.............................................................. 14 INTRODUCTION TO IFFCO ................................................................................................. 20 Ownership ................................................................................................................................ 23 Investment of IFFCO in other Firms. ...................................................................................... 24 UNITS OF IFFCO ................................................................................................................... 28 COMPANY PROFILE ............................................................................................................ 29 ACHIEVEMENTS OF IFFCO KANDLA UNIT.................................................................... 32 INTRODUCTION TO F & A DEPARTMENT OF IFFCO ................................................... 33 BUDGET AND BUDGETARY CONTROL .......................................................................... 37 Introduction .......................................................................................................................... 37 The Objectives of Setting the Budgets..................................................................................... 39 What is Budgeting? .................................................................................................................. 40 Fixed budget......................................................................................................................... 45 Flexible Budget .................................................................................................................... 46 Basic Budget ........................................................................................................................ 46 Current Budget ..................................................................................................................... 46 Continuous Budget............................................................................................................... 47 Rolling Budget ..................................................................................................................... 47 Types of budget.................................................................................................................... 47 Responsibility Budget .......................................................................................................... 47 Program Budget ................................................................................................................... 48 Operational Budget .............................................................................................................. 48 Functional Budget ................................................................................................................ 48 Financial Budget .................................................................................................................. 48 Capital Budget ..................................................................................................................... 48 Performance Budget............................................................................................................. 48 FIXATION OF TARGETS.................................................................................................. 51 COMMUNICATION OF TARGETS: ................................................................................ 51 DELEGATION OF RESPONSIBILITY FOR FORMULATING REVENUE .................. 52 Budget proposals at unit level. ............................................................................................. 52 Budgeting process at unit level: ........................................................................................... 52 PRODUCTION DEPARTMENT ........................................................................................ 54 MAINTENANACE DEPARTMENT: ................................................................................ 55 TECHNICAL SERVICE DEPARTMENT: ........................................................................ 56 CIVIL DEPARTMENT ....................................................................................................... 57 FIRE & SAFETY SECTION: .............................................................................................. 57
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TRAINING SECTION: ....................................................................................................... 57 PERSONNEL & ADMINISTRATION DEPARTMENT ................................................... 58 MATERIALS DEPARTMENT: .......................................................................................... 58 FINANCE & ACCOUNTS DEPARTMENT:..................................................................... 58 INCOME/OTHER REVENUE ............................................................................................ 59 INSURANCE EXPENSES .................................................................................................. 59 BANK CHARGES............................................................................................................... 59 DEPRECIATION ON FIXED ASSETS ............................................................................. 59 PROCEDURE FOR USING THE BUDGET APPROVED:............................................... 60 REVISION OF BUDGET ESTIMATES............................................................................. 61 Budget Period....................................................................................................................... 64 Key Factor ............................................................................................................................ 64 Budgeting Methods .................................................................................................................. 65 BUDGET AND BUDGETARY CONTROL AT IFFCO: KANDLA UNIT .......................... 68 REVENUE, PURCHASE BUDGET ....................................................................................... 71 & .............................................................................................................................................. 71 BUDGETARY CONTROL ..................................................................................................... 71 COLLECTION OF VARIOUS ESTIMATES FROM INDENTORS / H.O: ..................... 72 PRODUCTION TARGETS ................................................................................................. 72 C& F PRICE OF IMPORTED RAW MATERIALS .......................................................... 73 RATES TO BE ADOPTED FOR PACKING MATERIAL................................................ 74 EXCHANGE RATES TO BE ADOPTED FOR US $: ....................................................... 74 NORMS OF ACTUAL INPUT QUANTITY OF VARIOUS RAW MATERIAL, UTILITIES AND PACKING MATERIALS: ..................................................................... 74 STREAM DAYS ESTIMATES FOR PRODUCTION TARGETS................................... 75 ALL ESTIMATES OF VARIOUS TYPES OF DIRECT / INDIRECT EXPENSES RELATED TO PRODUCTION .......................................................................................... 75 COLLECTION OF VARIOUS DATA IN SPECIALLY DESIGNED STATEMENT / ANNEXURE........................................................................................................................ 76 BRIEF EXPLANATIONS OF STATEMENTS / ANNEXURES: ......................................... 77 STATEMENT I: PRODUCTION AND SALES TARGET .............................................. 77 Budgeted profitability .......................................................................................................... 79 STATEMENT III: TOTAL COST OF PRODUCTION .................................................. 80 Variable cost: ....................................................................................................................... 81 Fixed cost: ............................................................................................................................ 81 Chemicals ............................................................................................................................. 82 Employees remuneration and benefits:............................................................................... 82 Salaries and wages: .............................................................................................................. 82 PF & FPF contribution ......................................................................................................... 83 Welfare expenses ................................................................................................................. 83 Repairs and maintenance: .................................................................................................... 84 Insurance .............................................................................................................................. 84 Depreciation: ........................................................................................................................ 85 STATEMENT IV: PURCHASE BUDGET ..................................................................... 87 ANNEXURES: ........................................................................................................................ 88 ANNEXURE III: TOWNSHIP RECOVERIES AND OTHER REVENUE ........................ 89 A. Plant Machinery .............................................................................................................. 94 Meeting by Unit Head with various HODs / SHs:- ........................................................... 101 FINAL PROPOSAL TO BE SENT TO H.O.:- ................................................................. 102 REVENUE / PURCHASE BUDGET CONTROL ................................................................ 102
CAPITAL BUDGETING ...................................................................................................... 103 What is capital budgeting? ................................................................................................. 103 Capital budgeting techniques: ............................................................................................ 104 Intimation from Head Office to send proposals for Next F.Y. :-....................................... 105 Collection of various estimates from Indentors :-.............................................................. 106 Compilation of various data in specially designed Proformas :- ....................................... 106 Proposals for New Items :- ............................................................................................. 107 N-I: Energy Saving System / Schemes:-............................................................................ 108 N-II: Operational Necessity:- ............................................................................................ 108 N-III: Reliability Improvement:- ....................................................................................... 108 N-IV: Safety Equipments:- ................................................................................................ 109 N-V: Replacement of Ageing Equipments:- ...................................................................... 109 N-VI: Pollution Control / Environmental Protection Schemes:- ...................................... 109 N-VII: Minor Modification:- ............................................................................................ 110 N-VIII: Inspection Facilities:-............................................................................................ 110 N-IX: Research & Development Equipments:- ................................................................. 110 N-X: Admn. Office Building, Furniture, Fixtures, and Vehicles etc.:- ............................. 111 N-XI: Associated Areas Like Welfare Colony Amenities, G.H.etc. ................................. 111 N-XII: Computer & Computer System:- ......................................................................... 111 Proposal for ongoing items: ............................................................................................... 112 Completed items of current year:- ..................................................................................... 114 Dropped items of current year:- ......................................................................................... 114 Re-appropriated items:- ..................................................................................................... 115 Re-conciliation ................................................................................................................... 115 Proforma ............................................................................................................................ 116 What is this project about? ................................................................................................. 118 Why was the nee for this project felt? ............................................................................... 118 Financial Benefits/ Advantages arising from the project? ................................................. 119 Financial:............................................................................................................................ 119 Break up of cost estimate ................................................................................................... 120 Are any ancillary facilities needed? ................................................................................... 120 What are basis of cost estimates?....................................................................................... 120 If the proposal is not implemented? ................................................................................... 120 BUDGET FOR LOANS & ADVANCESTO EMPLOYEES ............................................... 122 House Building Loan ......................................................................................................... 122 Conveyance Loan............................................................................................................... 122 Personal Loan /One month salary advance:- ..................................................................... 123 BUDGETARY CONTROL ................................................................................................... 126 Variance Analysis .............................................................................................................. 130 Selling price changes. ........................................................................................................ 130 Material price variance ...................................................................................................... 131 Material usage variance ..................................................................................................... 131 Direct wage rate variance................................................................................................... 131 Direct labour efficiency variance ....................................................................................... 132 Overhead expenditure variance.......................................................................................... 132 Overhead efficiency variance ............................................................................................ 133 Overhead volume variance ................................................................................................ 133 Disposition of variance ...................................................................................................... 133 The choice of method depends on: .................................................................................... 133 Methods of variance disposal............................................................................................. 133
LIMITATIONS OF THE STUDY......................................................................................... 136 Findings & SUGGESTIONS ................................................................................................. 137 FINDINGS: ........................................................................................................................ 137 SUGGESTIONS: ............................................................................................................... 138 CONCLUSION. ..................................................................................................................... 139 BIBLIOGRAPHY. ................................................................................................................. 141
OBJECTIVE
Management student has to apply his theoretical knowledge in the practical field and compare with the results. he has to find new ways for further improvement in the practical field. Industrial training for management student is the first stage towards the industrial exposure which tells him what difficulties he has to face while entering into corporate world.
The main idea was to know the methods followed in IFFCO-KANDLA for preparation of budget, budgetary control and to compare the same with the concepts.
PREFACE
This report is prepared at Indian Farmers Fertilizers Co-operative Limited ( IFFCO ), KANDLA Unit on functional areas of IFFCO KANDLA. It contains the brief description of the company and all its departments. It also covers the different functions performed in different departments at IFFCO KANDLA.
The report contains the details regarding the information related to BUDGET & BUDGETARY CONTROL of Indian Farmers Fertilizers Limited (IFFCO KANDLA). In this report it is mentioned that how budget is being managed at Indian Farmers Fertilizers Limited (IFFCO KANDLA).
RESEARCH METHODOLOGY
As the main objective of the study is to know about the budgeting process and techniques and insights to it, the research carried out is descriptive in nature. The information needed has to be clearly defined to carry out descriptive research. Thus the information available is from secondary sources. The data mainly consists of budget reports of the company and annual reports of the company.
The data is also obtained from primary sources such as from staff of the Finance and Accounts department of IFFCO KANDLA.
STEPS IN RESEARCH DESIGN

There are various steps which have to be followed while for budgetary process. Various budgets have to be prepared and on basis of that they are analyzed and revised. The following budgets have to be prepared:
Capital budget
Revenue budget.
These budgets include production budget, expense budget, sales budget, consumption budget, procurement budget, cash budget.
DATA SOURCES
Primary data
The primary data has been collected in the following way.
I used to have discussion with the financial staff of the company
Other staff of the company helped me to gather the information and provided with necessary guidance about the project.
Secondary sources
The secondary sources have been obtained in the following way.
The data has been collected from the annual reports and the budget reports of the company.
Some data has been collected from the official site of IFFCO ltd.
BENEFICIARIES
To student: The study of budget and the budgeting process would help me in enhancing my skills and gain practical knowledge about the budgeting process being carried out. The study would help me to understand the various concepts of budgeting and to deal with the difference arising. To the company: The Company would be able to find out any variances arising due to inappropriate budgeting and methods to solve those variances. Thus the company would be able to make proper estimates and thus would increase the companys profit. To customers: The customers would be able to buy goods at a cheaper rate which will be arrived after solving the variances. Thus the customers would be benefited in terms of good quality and affordable cost.
INTRODUCTION OF INDIAN FERTILIZER INDUSTRY

The Indian fertilizer industry has been meeting a substantial portion of the growing demand of fertilizer now. As on today the demand-supply gap in the fertilizer industry is very marginal. The industry had a very humble beginning in 1906, when the first manufacturing unit of Single Super Phosphate (SSP) was set up in Ranipet near Chennai with an annual production capacity of 6000 M.T. The Fertilizer and Chemicals Travancore ltd. (FACT) at Cochin in Kerala and the Fertilizer Corporation of India Ltd, Sindhri in Jharkhand were the first large sized fertilizer plant set up in forties and fifties with a view to establish a base for industrialization and achieving selfPresently there are 66 large sized fertilizer plants in the country manufacturing a wide range of nitrogenous, phosphatic and other complex fertilizer. Besides there are about 80 medium and small-scale single super phosphate plants. As of now the country is almost self-sufficient in case of nitrogen but in case of phosphates the scarcity of domestic raw material constraints the attainment country. of self-sufficiency in rock the and eighties witnessed a significant addition to the fertilizer industry.
Indigenous
phosphates
supplies meet only a small percentage (5%-10%) of total requirement of P2O5. also there are no known commercially exploitable reserves of potash in the country and hence the entire requirement are met through imports.
sufficiency in food grains. The seventies
Major Players in Indian Fertilizer Market

The development trajectory of the agricultural industry derives its main stimulus from the growth in production of fertilizers in India. The fertilizer industry earlier witnessed the preponderance of the public sector units who still retain their status as the major players in Indian fertilizer market. Coupled with the private enterprisers manufacturing fertilizers, India has emerged as the third largest producer of the agro-input. The country has also emerged as one of the largest consumers of fertilizers along with China and the United States of America.
The fertilizer sector in India holds a major share among the energy intensive industries of the country. The industry has shown unparalleled growth in the past few years. Although growing in an accelerating rate, the industry is faced with a number of challenges, interalia, and the lack of major plant resources such as nitrogen, phosphate and potassium. Notwithstanding these specificities, India produces both nitrogenous and phosphatic fertilizers in the domestic market. Urea and ammonium are the two popularly manufactured nitrogenous fertilizers in India. The various companies dedicated to the manufacture of fertilizers also produce straight phosphatic fertilizers such as single super phosphate and complex fertilizers such as di-ammonium phosphate or DAP. The lack of indigenous reserves of potash in India has stunted the production of potassic fertilizers in the country.
The Indian fertilizer industry has a capacity of 56 lakh MT of phosphatic nutrient and 121 lakh MT of nitrogen. While the private sector has a huge installed capacity for phosphatic fertilizers, capacity utilization of nitrogenous fertilizers is higher in the public sector.
Public Sector Companies in Indian Fertilizer Market

There are a number of public sector companies in Indian fertilizer market producing complex fertilizers, ammonium sulphate, DAP, calcium ammonium nitrate and urea. At present, there are nine public sector undertakings in the Indian fertilizer market and one cooperative society. These function under the supervision of the Department of Fertilizers of India. Of the 63 large units producing fertilizers in India, 9 units are dedicated to the production of ammonium sulphate and 38 units produce urea. There are 79 small and medium scale units dedicated to the production of single super phosphate. The Indian industries producing fertilizers have to total capacity of 56 lakh MT of phosphatic nutrient and 121 lakh MT of nitrogen.
Some of the public sector undertakings in this sector are mentioned below:
Fertilizer Corporation of India Limited (FCIL) Hindustan Fertilizer Corporation Limited (HFC) Pyrites, Phosphates & Chemicals Limited Rashtriya Chemicals and Fertilizers Limited (RCF) National Fertilizers Limited (NFL) Projects &Development India Limited (PDIL)
The Fertilizers and Chemicals Travancore Limited (FACT) Madras Fertilizers Limited (MFL) FCI Aravali Gypsum & Minerals India Limited, Jodhpur
Some of the other companies engaged in the production of fertilizers are listed below:

Paradeep Phosphates Limited (PPL) Neyveli Lignite Corporation Ltd. (NLC) Hindustan Copper Limited (HCL) Steel Authority of India Limited (SAIL)
Private Companies in Indian Fertilizer Market

A number of private companies in the Indian fertilizer market are engaged in production of the agro-input. Most of the companies also engage in exporting fertilizers in the global market, earning foreign capital from the business. The country stands at the third position among the largest producers of the product in the world. India is also ranks among the highest consumers of fertilizers. The euphoric growth in the business has also facilitated the agricultural industry of India, which is dependent for its optimization on the fertilizer industry.
Private Companies Producing Fertilizer in India:

Khaitan Chemicals and Fertilizers Limited Mangalore Chemicals Nagarjuna Fertilizers Zauri Chambal BEC Fertilizers Gujarat State Fertilizers &Chemicals Limited DSCL
Some of the other private companies engaged in the production of fertilizers in India are listed below:
The Scientific Fertilizer Co Pvt Ltd Coromandel Fertilizers Deepak Fertilizers and Petrochemicals Corporation Limited Apratim International Aries AgroVet Devidayal Agro Chemicals
The production of nitrogenous fertilizer in the private sector has been increasing in the past few years. The private sector had only 13% share in the production in 196061. The private sector has always retained a higher share in the production of phosphatic fertilizer production
Cooperative Companies Producing Fertilizer in India

Indian Farmers Fertilizers Co-operative Ltd.(IFFCO) Krishak Bharati Cooperative Limited KRIBHCO
What is Cooperative Society?
Meaning: Co - operation refers to an organization of individuals for achieving a common economic objective by mutual help and collective efforts. The word Co - operation has been derived from the Latin word Co-operate which, means to work together, to labor together, to endeavor for some common purpose.
Features or Characteristics of Co -operative Society: The following are the characteristics and/or features of the co operative societies:
1. Voluntary Association 2. Equal Voting Rights 3. Democratic Management 4. Service Motive 5. Limited Interest on Capital 6. Distribution of Profits or Surpluses 7. Cash Trading 8. State Control 9. Serving all at Market Price without discrimination between members and Nonmembers. 10. Member renders Honorary Services 11. Political and Religious Neutrality 12. Honest Trading 13. Principle of Thrift
Difference Between Co-operative society & Company.
S. 1
Item Object
Cooperative Society Interest of members and community
Company Self interest either of management or the share holders
Number of members
Minimum number of members should be 50 for a multi state cooperative society from each state in case of individual membership In case societies are members of a Multi State Cooperative Society, two societies from different states should sign the application of registration of the society If a Multi State Cooperative Society is a member then the multi state cooperative and a society should sign the application of registration
In a public limited company, minimum number of members should be 7 and in a private limited company minimum number of members should be 2
Management
Chairperson is elected by the Board of Directors from among themselves. The Managing Director / Chief executive is appointed by the Board of Directors
Usually, Chairperson / Managing Director are persons with maximum number of shares in the company
Share Capital
The shares of cooperative society are not issued to general public by advertisement and can be issued any time. Shares can
Shares are issued to general public or by invitation. In a company shares cannot be withdrawn by a share
be withdrawn member / society as prescribed by rules in their byelaws. 5 Types of shares 6 Voting Power Member of a cooperative society have right of only one vote, irrespective of the number of shares held of any denomination 7 Distribution of Profits Minimum 25% of net profits should be transferred to the General reserve and the maximum dividend cannot exceed 20% 8 Taxes Cooperatives are exempt from few taxes in some states like stamp duty. Tax rates also vary 9 Workers participation Provision for workers participation in the management through a representative exists 10 MRTP Act Not applicable to Multi State Societies 11 Control The Central registrar of Cooperatives advises in the affairs of a multi state society Only equity shares are available
holder.
Equity and preferential shares may be issued Voting rights depend directly on the holding of shares
No restrictions on a company
No exemptions provided
No such provision for workers
Applicable
Companies are governed by the Company Registrar of the states where its registered office is located
INTRODUCTION TO IFFCO
During mid- sixties the Co-operative sector in India was responsible for distribution of 70 per cent of fertilisers consumed in the country. This Sector had adequate infrastructure to distribute fertilisers but had no production facilities of its own and hence dependent on public/private Sectors for supplies. To overcome this lacuna and to bridge the demand supply gap in the country, a new cooperative society was conceived to specifically cater to the requirements of farmers. It was a unique venture in which the farmers of the country through their own Co-operative Societies created this new institution to safeguard their interests. The number of co-operative societies associated with IFFCO has risen from 57 in 1967 to 38,155 at present.
Indian Farmers Fertilizer Co-operative Limited
MARKET CAPTURED BY IFFCO

OTHERS 5% GNFC 21% IFFCO 50% KRIBHCO 24%
(IFFCO) was registered on November 3, 1967 as a Multi-unit Co-
operative Society. On the enactment of the Multistate Co-operative Societies act 1984 & 2002, the Society is deemed to be registered
as a Multistate Co-operative Society. The Society is primarily engaged in production and distribution of fertilisers. The bylaws of the Society provide a broad framework for the activities of Indian Farmers Fertilizer Cooperative Limited as a Co-operative Society.
IFFCO commissioned ammonia - urea complex at Kalol and the NPK/DAP plant at Kandla both in the state of Gujarat in 1975. Ammonia - urea complex was set up at Phulpur in the state of Uttar Pradesh in 1981. The ammonia - urea unit at Aonla was commissioned in 1988. In 1993, IFFCO had drawn up a major expansion programme of all the four plants under overall aegis of IFFCO VISION 2000. The expansion projects at Aonla, Kalol, Phulpur and Kandla have been completed on schedule. Thus all the projects conceived as part of Vision
2000 have been realized without time or cost overruns. All the production units of IFFCO have established a reputation for excellence and quality.
A new grow th path has been realize greater 2010 newer heights which is S.R. NO. 1 2 3 4 IFFCO KRIBHCO GNFC OTHERS Total COMPETITORS MARKET CAPTURED IN% 50 24 21 05 100 chalked dreams through presently out to and Vision under
implementation. vision, IFFCO has unit at Paradeep in September 2005.
As part of the new acquired fertiliser Orissa in
As a result of
these expansion projects and acquisition, IFFCO's annual capacity has been increased to 3.69 million tonnes of Urea and NPK/DAP equivalent to 1.71 million tonnes of P2O5.
Head Office
Kandla
Kalol
Aonla
Paradeep
Phulpur
Kandla
Kandla 2
Aonla -1
Aonla-2
Phulpur-1
Phulpur-2
IFFCO has made strategic investments in several joint ventures. Godavari Fertilisers and Chemicals Ltd (GFCL) & Indian Potash Ltd (IPL) in India, Industries Chimiques du Senegal (ICS) in Senegal and Oman India Fertiliser Company (OMIFCO) in Oman are important fertiliser joint ventures. Indo Egyptian Fertiliser Co (IEFC) in Egypt is under implementation. As part of strategic diversification, IFFCO has entered into several key sectors. IFFCO-Tokio General Insurance Ltd (ITGI) is a foray into general insurance sector. Through ITGI, IFFCO has formulated new services of benefit to farmers. 'Sankat Haran Bima Yojana' provides free insurance cover to farmers along with each bag of IFFCO fertiliser purchased. To take the benefits of emerging concepts like agricultural commodity trading, IFFCO has taken equity in National Commodity and Derivative Exchange (NCDEX) and National Collateral Management Services Ltd (NCMSL). IFFCO
Chattisgarh Power Ltd (ICPL) which is under implementation is yet another foray to move into core area of power. IFFCO is also behind several other companies with the sole intention of benefiting farmers.
The distribution of IFFCO's fertilizer is undertaken through over 40,000 co-operative societies. The entire activities of Distribution, Sales and Promotion are co-coordinated by Marketing Central Office (MKCO) at New Delhi assisted by the Marketing offices in the field. In addition, essential agro-inputs for crop production are made available to the farmers through a chain of 158 Farmers Service Centre (FSC). IFFCO has promoted several institutions and organizations to work for the welfare of farmers, strengthening cooperative movement, improves Indian agriculture. Indian Farm Forestry Development Cooperative Ltd (IFFDC), Cooperative Rural Development Trust (CORDET), IFFCO Foundation, Kisan Sewa Trust belongs to this category. An ambitious project 'ICT Initiatives for Farmers and Cooperatives' is launched to promote e-culture in rural India. IFFCO obsessively nurtures its relations with farmers and undertakes a large number of agricultural extension activities for their benefit every year.
At IFFCO, the thirst forever improving the services to farmers and member co-operatives is insatiable, commitment to quality is insurmountable and harnessing of mother earths' bounty to drive hunger away from India in an ecologically sustainable manner is the prime mission. All that IFFCO cherishes in exchange is an everlasting smile on the face of Indian Farmer who forms the moving spirit behind this mission. IFFCO, to day, is a leading player in India's fertilizer industry and is making substantial contribution to the efforts of Indian Government to increase food grain production in the country.
Ownership
One of the strongest parts in Ownership of the IFFCO is in the hand of the Farmers who are the part of Co-operative society who are holding the major share holder part in share capital of company. So we can say farmers are the real owner of IFFCO.
The membership of IFFCO is open to the following: National Cooperative Federations of agricultural credit / marketing / processing / supply and other agricultural Cooperative societies; State level Cooperative Federations of agricultural credit / marketing / processing / supply and other agricultural cooperative Societies; District, Regional and Primary cooperative credit / marketing / processing / supply and other agricultural Cooperative Societies including Cane Unions Primary Agricultural Cooperative credit, service, multi-purpose, cane, irrigation, farming societies and other village agricultural societies; National cooperative Development Corporation; Government of India; Public Financing Institutions. Any cooperative society activities of which are augmentative to the activities and conducive to overall growth of IFFCO.
Investment of IFFCO in other Firms.

IFFCO has started the joint venture in all below mention firms in India as well as in other country and all the detail regard all the joint venture of IFFCO: International Industries Chimiques du Senegal (ICS). Industries Chimiques du Senegal (ICS) is producing Phosphoric Acid at Darou (Senegal) which IFFCO needs in producing the NPK/DAP. Its production capacity is 1.5 million TPA of Phosphoric acid. Its paid up capital as on 31st March, 2000 was Rs 6.5 billion out of which IFFCO's share was Rs 927.4 million i.e.14.32% of paid up capital. Indian consortium, consisting of Government of India, IFFCO & SPIC, entered into a long term agreement with Industries Chimiques du Senegal (ICS) in March 1980. The agreement was for purchase of Phosphoric Acid by setting up a plant at Darou, Senegal. The plant with a capacity of 313000 TPA phosphoric acid started commercial production in February 1984. ICS had been consistently supplying phosphoric acid to Kandla unit since commencement of production. Doubling of the capacity of the existing plant for production of an additional 313000 TPA was taken up at a total investment of US$ 250 million. IFFCO has committed to purchase the entire quantity of the acid that would be produced by the ICS expansion project.
Oman India Fertilizer Project

IFFCO and KRIBHCO have entered into a Joint Venture Agreement with Oman Oil Company (OOC), Oman for setting up of a Urea - Ammonia Fertilizer Plant at a Capital Cost of US$ 969 million, with a Debt : Equity Ratio of 2:1. The Fertilizer Plant would be located on the east coast of Oman, and have a capacity of producing 16.52 lakh MT of urea per annum and surplus Ammonia of 2.5 lakh MT per annum.
Raw Material (Natural Gas) will be supplied by Omani Government under a long Term Gas Supply Agreement. Entire Urea will be purchased by Government of India for 15 years under a Urea Off take Agreement. Surplus Ammonia will be purchased by IFFCO for 10 years under Ammonia Off take Agreement. The main project Agreements, Urea Off take (UOTA), Ammonia Off take (AOTA) and Gas supply (GSA) were signed on 29th May 2002. Other Project Agreements have been finalized amongst the Sponsors and the Arranging Banks. The Arranging Banks, a consortium of International Banks, appointed for arranging Debt finalized the financing arrangements for the Project. All the contracts leading to the Financial Closure for the Project have been executed. The zero date for the project was 15 August, 2002. The construction of the Project will be completed in 35 months.
IFFCO and National Commodity & Derivatives Exchange Limited

IFFCO has picked up 12% stake in Commodity Exchange NCDEX recently. IFFCO's endeavor had always been to ensure that the farmers receive best quality fertilizer input at economical price. The present association facilitates enhancement in the scope of services for farmers wherein the farmers can realize higher prices, minimize risk and strive for reliable market conditions. With this new relationship, farmers & cooperatives will have a new platform floated by reputed national institutions to herald a new era in Indian agriculture. The on-line multi commodity exchange promoted by ICICI Bank Limited (ICICI Bank), Life Insurance Corporation of India (LIC), National Bank for Agriculture and Rural Development (NABARD) and National Stock Exchange of India Limited (NSE). Punjab National Bank (PNB) and CRISIL Limited (formerly the Credit Rating Information Services of India Limited) by subscribing to the equity shares have joined the initial promoters as shareholders of the Exchange.
NCDEX is a public limited company incorporated on April 23, 2003 under the Companies Act, 1956. It obtained its Certificate for Commencement of Business on May 9, 2003. It has commenced its operations on December 15, 2003.
NCDEX has an independent Board of Directors and professionals not having any vested interest in commodity markets. It is committed to provide a world-class commodity exchange platform for market participants to trade in a wide spectrum of commodity derivatives driven by best global practices, professionalism and transparency.
NCDEX currently facilitates trading of fifteen commodities - Gold, Silver, Soy Bean, Refined Soy Bean Oil, Rapeseed-Mustard Seed, Expeller Rapeseed-Mustard Seed Oil, RBD Palmolein, Crude Palm Oil, and Cotton - medium and long staple varieties, Pepper, Rubber, Jute Sacking, Chana and Guar Seeds. At subsequent phases trading in more commodities would be facilitated.
IFFCO - Tokio General Insurance Company Limited (ITGI)

IFFCO had done the amalgamation with the Tokio General Insurance Company Limited and started serving the insurance sector in India as well as in other countries. It involve in General Insurance Activity, its Corporate Office is situated at New Delhi. The total paid up capital of Tokio General Insurance Company Limited was Rs 1 billion as on 31st March, 2001. Out of which IFFCO's share was Rs 510 million i.e. 51% of its paid up capital. Godavari Fertilisers & Chemicals Limited (GFCL) Godavari Fertilisers & Chemicals Limited (GFCL) is situated at Kakinada in Andhra Pradesh. It is producing NPK/DAP fertilisers, its production capacity in P2O5 terms is 1.5 million TPA. The paid up capital of Godavari Fertilisers & Chemicals Limited (GFCL) was Rs 320 million as on 31st March, 2000. Out of which IFFCO's share was Rs 79.7 million i.e.24.9% of its paid up capital.
Indian Potash Limited (IPL)

Indian Potash Limited (IPL) mainly involve in activities like supply of imported potash as well as supply of imported fertilizers. The paid up capital of Indian Potash Limited (IPL) was Rs 95 million as on 31st March, 2000. Out of which IFFCO's share was Rs 32.4 million i.e. 34% of its paid up capital.
UNITS OF IFFCO
KANDLA
PHULPUR
Kalol
l AONLA
PARADEEP
COMPANY PROFILE
INTRODUCTION OF IFFCO-KANDLA
Kandla Unit Location

State State Capital District Distance from New Delhi Distance from Mumbai Nearest Airport Railway Station Gujarat, India Gandhinagar Kutch Approx. 1100 kilometers by rail Approx. 800 kilometers by rail Kandla Airport, Near Gandhidham,and Bhuj Airport 65 KM from Gandhidham. Gandhidham (12 Km from plant and 3 Km from IFFCO's township at Gandhidham) and Kandla (3 Km from the plant) Adjacent to Kandla Port Trust on National Highway 8-A, 365 Km. from Ahmedabad 70.61 Hectares 79.65 Hectares 47 (Max.) in summer to 7 (Min.) in winter. Scarcity 70o 13'26" E 23o 00'00" N IFFCO, Kandla Unit, Post BoxNo.12, Gandhidham - 370201, Kandla (Kutch), Gujarat, INDIA :91-2836-270381,-270382,-270539 ,-270639, -270641. : 91-2836-270642, -270658, -270685.
Road Area under Plant Area under Township Temperature ( o C ) Rainfall (mm) Longitude Latitude Address
Phones FAX
Website E-Mail
: www. Iffco. nic. In : iffco_kandla@iffco.nic.in
IFFCOs NPK plant is located on the water front adjacent to Kandla Port Trust Oil Jetty. The plant was built at a cost of about Rs. 30 crores with two streams (called train A and train B) and with the licensed capacity of 127000 tonnes of P2O5. This plant was designed by the M/s Door Oliver-Inc to produced three grade ok NPK based on DAP, the plant was commissioned on 26th November, 1974 and its commercial production started on 1st January, 1975.
With increase in demand for complex fertilizers, the capacity of NPK has been doubled at a cost of about Rs. 28.6 crores. Two more streams (train C and train D) had been added with the increased licensed capacity from 127000 MT P2O5 to 260000 MT P2O5 per annum. The new two streams are called Kandla Phase 2 was completed one month ahead of the projected schedule. This is a rare phenomenon not only in India but in entire South East Asian region. Kandla Phase 2 commissioned on 4th June 1981 with the production record for IFFCO. The production of Kandla Phase 2 was started from 6th September 1981.
VISION To augment the incremental incomes of farmers by helping them to increase their crop productivity through balanced use of energy efficient fertilizers, maintain the environmental health and to make cooperative societies economically & democratically strong for professionalized services to the farming community to ensure an empowered rural India
IFFCO went for expansion of their unit at Kandla in 1996-97. Kandla phase-II NPK/DAP project conceptualized the setting up of two additional streams (train E and train F) for manufacture of the same grades of NPK/DAP fertilizers with an annual production capacity of 2,10,700 MTPA thus increasing the total capacity from 3,09,000 MTPA of P2O5 to 5,19,700 MTPA of P2O5. The actual cost of the project was Rs. 205.30 crores against a budgeted cost of Rs. 212.20 crores. The total annual production of the Kandla unit was 127000 MTPA as on 26th November, 1974 with two streams (train A and train B), which was increased by 182000 MTPA as on 6th
September, 1981 by starting two more stream (train C and train D), which was further increase to 210700 MTPA as on 1999 by introducing two more streams (train E and train F). So currently the total production capacity of the both plant at Kandla unit is 519700 MTPA. Currently all six streams (train A, B, C, D, E and F) is working in its full-fledged capacity and giving its optimum output. In 1974 when the Kandla Unit was started IFFCO was importing its raw material with help of Kandla Port Trust Oil Jetty and currently Kandla unit has its own Oil Jetty.
ACHIEVEMENTS OF IFFCO KANDLA UNIT

Nineteen Safety Awards from National Safety Council - U.S.A. Fourteen Safety Awards from the National Safety Council, Bombay, government of India. Twenty-six Safety Awards from Gujarat Safety Council, Baroda. Six Fertilizers Association of India (FAI) Awards for the best overall production performance during the years 1981, 1982, 1996-97, 1997-98, 1998-99 & 2002-03. One National Productivity Council (NPC) Best Productivity Award for the year 199798 in the category of Fertilizers Industry - Phosphatic Sector presented in August'00. One Safety award from FAI for Excellence in Safety for 1999-2000. One Safety award from Directorate General Factory Advice Service & Labour Institutes, Ministry of Labor, Government of India Runner, National Safety award 1999. One Labour, Government of India Runner, National Safety award - 1999".
INTRODUCTION TO F & A DEPARTMENT OF IFFCO

Finance is the lifeblood of the business. According to Howard and Upton Finance is that administrative area or set of administrative function in an organization which relate with the arrangements of cash and credit so that the organization may have the means to carry out of its objective as possible.
FUNCTIONS OF FINANCE AND ACCOUNTS DEPARTMENT

Finance & Accounts Department of At present to carry out all the related activities, following four sectional heads are reporting to him for work connected to their Sections. All the four sectional heads independently report to Departmental
KANDLA Unit is controlled by Head Of the Department i.e. CM (F & A). His main function is to co-ordinate all activities related to Finance & Accounts and report to Head Offices Finance & Accounts Department / Finance Director as well Unit Head. Finance & Accounts Department
Head. However, in case, Departmental Head happens on tour or on leave, the next senior sectional head takes the charge of the department and remaining here
function various type of activities as per the Guidelines issued by Head Office, Purchase Procedure, Service Rules,
sectional head will report to him for all the work connected to their Sections.
Powers of officer etc.
Finance department comprises of :
Pay roll section Raw materials Fixed assets & insurance Works bill section
Purchase bill section Books & budgets Financial concurrence
PAY ROLL SECTION
Pay roll section takes care of all the financial issues of employees in co-ordination with Administrative & Personnel Department. Its functions includes management of salaries, TA/DA, loans & advances, misc payment related to employees, Perk/There allowance payments etc. Here records of each employee are maintained regarding basic pay, leave encashment, medical, salary, increments, promotion based perks , etc.
RAW MATERIALS
Different types of Raw Materials that are required at IFFCO KANDLA Unit are as follows : P2O5 Imported Ammonia Imported & Indigenous Potash - Imported MAP - Imported Urea Kalol Filler
Raw Material section in F & A department does the accounting of above mentioned raw material which includes receipt of raw material are purchased, monthly consumption as pert the production department and payment to the suppliers.
MISCELLANEOUS ACCOUNTS
The miscellaneous jobs can be broadly divided into following categories: Passing of bills of miscellaneous nature; Accounting of cash imprest and advances for expenses; Miscellaneous recoveries from outside agencies.
Miscellaneous bills includes rates contracts for service contract for air conditioner, water coolers, weighing machines, franking machines, knitting of chairs, etc. Others miscellaneous bills includes telephone rentals, STD calls, local calls, teleprinters, fax, service bills, advertisement bills, electricity bills, printing and block making bills, bills of travel agents, bills of canteen purchases, etc. Annual Contracts and Hiring of taxi, motors, etc. is also included in this.
WORKS BILLS
Work bills section is entrusted with the task of checking and authentication of APF received from various departments such as Civil, Plant, and Township etc. They have to keep record and maintain account. They have to verify W.R.T. measurements, Tax provisions like TDS and other deductions like EMD, Security and penalty etc.
PURCHASE BILLS
In purchase bill, treatment is given to the bills on purchase of machinery and tools and spares etc. for accounting requirements and book keeping as well as record maintenance and tax deductions and authentication of AFP on purchase of Goods and Services.
FINANCIAL CONCURRENCE
Financial concurrence deals with crosschecking and green signaling the requisition for purchases made by various indent departments of the unit. They check for the availability of budget and ascertain its necessity and critically for regular and smooth operations of the plants and activities of various departments.
BOOKS & BUDGETS
Books and budget deal with revenue budget compilation, monitoring and control, reconciliation of inter unit accounts, maintenance of books of accounts and submission of monthly / quarterly / annual reports, COP processing and attending internal / statutory / tax auditors.
BUDGET AND BUDGETARY CONTROL

Introduction
Complexities are increasing in on the planning of its activities with great care and foresight. The running the modern business and management has to face a number of problems, which are to be solved with utmost care. Number of new tools and techniques are being
management gets ready to face the challenges of future contingencies by peeping into the future. They are thus able to keep off the heavy financial losses and fatal errors. It is through budgeting that the management is able to guide the business Budgeting controlling, in is two proper direction. and planning most
evolved and used by management in modern times to solve such complex problems of business. Budgeting is one of such effective tools in the hands of management. Now
planning has become an inevitable part of business management. They have come to realize that success in business depends to a large extent
important
functions of management. It is perhaps a very important tool for achieving business objectives.
Concept of Budget
A budget is a financial and / or quantitative statement, prepared prior to a defined period of time, of the policy to be perused during that period for purpose of attaining objectives. It may include income, expenditure and employment of capital Budgeting is an exercise in allocating scarce economic resources among alternative uses. The necessary of budgeting arises out of the scarcity of economic resources and the number of alternative uses in which these resources can be deployed.
An analysis of this definition will reveal the essential features of the budget, namely that:
1. A budget can be expressed in terms of money or quantity, or both. 2. It should be developed prior to the period during which it is to operate. 3. It is set for definite period. 4. Before its preparation, the objective to be attained and the policy to be pursued to achieve that objective are required to be laid down.
The Objectives of Setting the Budgets

A budget is blue print of desired plan of actions or operations. Plans covering the entire organization and all its functions like purchase, production, sales, financial management, research & development are expressed through budget. The budget serves as a declaration of policies and also defines the objective for executives at all levels of management. Budgets provide a means of co-ordination of the business as a whole. In the process of establishing budgets, the various factors like production capacity, sales possibilities, are procurement of material, labor, etc. are balanced and co-ordinate so that all the activities proceed according to the objective. The budgets inculcate team spirit and are like putting so many heads together to solve a common problem. Budgets are means of communication. Complex plans lead down by the top management are passed on to those whole are responsible for putting them into action. Budgets facilitate centralized control with delegated authority and
responsibility. Group according to the responsibilities of different executive levels, they facilitate decentralization of work. Budgets are instruments of managerial control by means of which the management can measure performance in every part of the concern and take corrective actions as soon as any deviations from budgets come to light.
What is Budgeting?
Institute of Cost and Management Accountants, England defines A Budget is a financial and/or quantitative statement, prepared and approved prior to a defined period of time, of the policy to be pursued during that period for the purpose of attaining objectives. It may include income, expenditure and employment of capital.
Budgeting is an exercise in allocating scarce economic resources among alternative uses. The necessity of budgeting arises out of the scarcity of economic resources and the number of alternative uses in which these scarce resources can be deployed. In brief, budgeting can be defined as The statement of plan of activities of an organization expressed in financial and/ or quantitative terms for a definite future.
Objectives of budgeting
The following are some of the important objectives of budgeting: 1. To prevent wastes 2. To control economic expenditures 3. To ensure availability of adequate working capital for efficient operation of plants. 4. To ensure adequate return on capital employed. 5. To identify and bring to the light areas where prompt action/remedial actions are required to be taken up by the management.
Essentials of Budgeting?
Top Management Clear and realistic goals Assignment of authority and responsibility Creation of responsibility centers Adoption of accounting system Full participation from all employees Effective communication system Budget education Flexibility
Top management support
Top management must realize that budgeting is not merely an accounting device but it is an important management tool. Top management must: Understand the nature and characteristics of budgeting. Be convinced that this particular approach to managing is preferable to their preparation. Be willing to devote the effort required to make it operative. Support the program in its entire ramification. View the results of the planning process as performance commitments.
Clear and Realistic goals
Budgeting is the means to achieve goals and objectives. All planning presupposes that objectives and goals have been clearly and unambiguously established.
Budgeting will not succeed if the goals to be achieved are not clear, budget implementation will not be systematic.
The enterprise objective and budget goals to be achieved through budgeting should be reasonable and realistic, they should be capable of attainment. Budget goals should not be set at too higher or too low level. Goals set at very high level are impossible to attain and as a result, have a depressing effect of the employees morals. Goals set at a very low level do not give any challenge to employees. Their achievement does not require any special effort and therefore, employees do not feel motivated.
Assignment of authority and responsibility
A sound organizational structure is essential for the success of the budgetary system. Authorities and responsibilities of each should be clearly identified and established. A sound organizational structure and a clear cut assignment authorities and responsibilities provide an effective means to achieve the enterprise objective and budget goals in a coordinate manner. The budgetary system should be established in terms of the assigned authorities and responsibilities, the performance of each manager should be evaluated accordingly.
Creation of the responsibility centre

A small firm can possibly be managed by an individual or a small group of individual but the activities of the large firm cannt be supervised by an individual or few individuals. For the effective control of all activities, a large firm is divided into meaningful segment, departments or divisions. Each sub units has certain activities to perform and its manager is assigned specific authority and responsibility to carry out those activities, and is held responsible for his decision affecting those activities. The subunits of an enterprise for the purpose of control are called responsibility centers or the decision centers.
For planning and control purposes, responsibility centers are usually classified into three classes.
Cost centers:
A cost centers is a responsibility center where the manager is responsible only for costs (expenses) incurred in the sub unit. It is not responsible for profit on investment in the center. Thus, costs are the primary planning and control data in a cost center.
Profit center
A profit center is a responsibility centre where is manager is responsible for both costs and revenue and thus, for profit. A profit is more effective assessment of performance is both costs and revenues are measure in financial terms. A profit is more relevant for profit planning and controls it allows measurement of both output and input units of centers.
Investment center
An investment is responsibility center where the manager is responsible for costs and revenue as well as investment in assets used by the center. In an investment center, performance is assessed not only by profit but by relating profit to investment. Thus, return on investment is used as the performance evaluation criterion in an investment center. In a business, investment are treated as separate firms where manager is responsible for overall activity affecting cost revenues and investment.
Adoption of the accounting system

Budgeting is based on the data generated by the accounting system. Therefore, the accounting system should be suitably adopted to facilitate the planning and
control process; it should be structured around the areas of responsibility. In fact, a sound budgetary system is primarily creation of a responsibility accounting system. A responsibility accounting system is primarily oriented towards the organizational responsibilities and a means to achieving effective control. Accounting system has two primary aims:1) To measure the cost of production 2) To furnish data for planning and control
Full participation
Participation tends to increase commitment; commitment tends to heighten motivation; motivation which is job oriented tends to make managers work harder and more productively; and harder more productive work by managers tend to enhance the companies prosperity; therefore, participation is good.
Effective communication
Communication is the process of the transmitting the ideas or information from one person to another. The basic purpose of communication is to generate mutual trust between two or more persons by creating similar understanding of ideas and thoughts. A sound budgeting system requires effective communication of objectives and budget goals and means of implementing budget through the organization so that a unified effort be directed to accomplish those objectives and goals.
Budget education
The success of budgeting, everyone in the enterprise should have confidence in the budgeting system and should be involved and committed to it. The line executives, who actually prepares the budgets, but also should understand the technicalities of budgeting, they should know how to read just the budget when the circumstances change they must be able to sell the ideas of budgeting to subordinates in order to seek the meaningful participation and involvement. This requires a continuous budget educati
Flexibility
A rigidly administered budgeting program causes tension and anxiety and imposes Straight jackets in implementing the budgets. On the other hand, if the budgeting program is administrate in a flexible way, managers feel free and relaxed in implementing the budgets.
Scope of budget
A budget established either as a fixed budget or a flexible budget.
Fixed budget
A fixed budget (static budget) is which is designed for specific planned output level and is not adjusted to the level of activity attained at the time of comparison between the budgeted and actual cost. This budget is also known as a planned budget and it is prepared for short period of time. Fixed budget is most suited for fixed expenses. Fixed budget are useful where the plan permits maximum stabilization of production. A fixed budget has only a limited and is ineffective as a tool for cost control.
Flexible Budget
Flexible Budget (also known as control budget or variable budget or sliding scale budget) is a budget which is designed to change appropriately with fluctuations in output or turnover and to furnish budget cost for any level of activity attained. A flexible budget is small elastic, useful and practical. It takes into account the changes in the actual circumstances and is useful for purpose of performance evaluation and control. In order to prepare flexible budget, items of anticipated expenditure are first , classified into fixed, variable and semi variable.
There are two methods of preparing flexible budget, which are listed as below: 1) Prepare the budget of any activity level which is closer to your expectations for upcoming year then give the breakup of all items/expenses into fixed and variable. 2) Formula method: In order to prepare the budget under this method a formula Y= a + bX, is used, where a = fixed cost b = variable cost
Basic Budget
Basic budget is a budget which is established for use unaltered over a long period of time. This is generally used for capital expenditure, research and development, acquisition of capital funds, etc.
Current Budget
Current budget is a budget which is established for use over a short period of time and is related to current conditions.
Continuous Budget
In continuous budget the period is fixed. For e.g. if the budget is for January to December, then it will always remain the same. And then if the budget is revised after 6 months, the revised budget will be for July to December.
Rolling Budget
Rolling budget duration is fixed i.e. if in the budget period some months have passed then they will be deleted a same number of new months will be added. For e.g. if the budget duration is 12 months and the budget is prepare for January to December and in the budget period Jan, Feb, March have passed then the revised budget will be prepare for the April-March.
Types of budget
Depending on the requirements of the concern and the purpose of the budget is to serve; budgets are classified into several types or groups. Some of these are: 1. Responsibility Budget 2. Program Budget 3. Operational Budget 4. functional Budget 5. Financial Budget 6. Capital Budget 7. Performance Budget
Responsibility Budget
Budgets are set for operations by a department or by an executive responsible for it. The stress therefore is on the control aspect of budgeting.
Program Budget
Separate budgets are set for each plan or program of action of concern. This enables management to access the economies of various program.
Operational Budget
The operational budget shows planned operations for the forthcoming period and include the sales, production, production cost, and the selling and distribution expenses budget.
Functional Budget
This refers to budget foe each function of business, such as sales, production, research, purchase, finance etc.
Financial Budget
This includes the cash budget showing the anticipated sources and utilization of cash, budget balance sheet, and budgeted profit and loss a/c.
Capital Budget
Capital budget relates the capital expenditure. It accesses the economies of capital expenditure and investment.
Performance Budget
The performance budget is established in such a manner as to plan and control the performance of individual sectors, area and function of management.
Budgets can also be classified as:

Classification of budget
Two Factor effects Function factor Time Factor
Sales budget Production Budget Purchase Budget Personnel Budget Cash Budget Capital Budget
Long Term Budget Short Term Budget Current budget
BUDGET INTERLINKED
Sales Budget
Loan to Employees Budget Capital Expenditure Budget Marketing Budget
Head Office Administration Budget Cost of Production Budget Production Budget Purchase Budget Consumption Budget Overheads Budget
Cash Budget
STEPS IN FIXATION OF BUDGET:

At IFFCO the following steps are followed for compilation of Budgeting procedure:
FIXATION OF TARGETS
a. While initiating the budgeting exercise at the head office level, sale targets are fixed in consultation with marketing division. b. Production targets are fixed in consultation with Unit Head after giving due consideration to various constraints some of which are given below:
Plant capacity i.e. production and storage capacities for raw materials, finished stock etc. Capacity utilization. Availability of raw materials particularly imported raw materials like phos. Acid, Ammonia, Potash etc. Availability of power and related policy of Gujarat Electricity Board. Availability of water and related policy of state water supply board. Availability of packing materials. Industrial relation position. Availability of railway wagons and other transportation media for distribution of finished products form plants etc.
COMMUNICATION OF TARGETS:
After taking into consideration the above parameters and constraints, Units are advised to communicate their production plan, consumption norms and other proposals which are reviewed at Head Office. Having due regard to other constraints and parameters with in the knowledge of top management, production targets are fixed for individual production units and same are communicated to concerned units. Norms of consumption of raw materials, utilities, fuel and other items proposed by the units are also reviewed and after obtaining approval of the top management, the same are also communicated to the concerned units.
Detailed circular for initiating the budget exercise is issued to all the units by Executive Director (Finance) from Head office. The circular contains necessary information and guidelines required for the purpose of preparation of budgets. Commercial Department at Head office intimates anticipated rates and quantities of major raw material for adopting the same in the units budgets proposals particularly in respect of the following items: Imported Phos.Acid (P2O5) Imported Ammonia Imported MOP (Potash) Bags and other packing materials.
Part of ammonia requirement for Kandla unit is met from Kalol unit.
Balance
requirement is either imported or procured indigenously from KRIBHCO, GNFC and other suppliers. Quantity requirements to be met for ammonia from different sources are intimated by Head Office. Commercial department consults to Head Office finance department. Urea requirement for Kandla unit is partially fulfilled from Kalol/Aonla Plants & Partially by way of Import.
DELEGATION OF RESPONSIBILITY FOR FORMULATING REVENUE Budget proposals at unit level.

On receipt of the communication from Head office regarding formulation of budget, a meeting is arranged by Unit Head with all Head of the Departments to explain various important aspects of budget to be prepared. The compilation of revenue budget is
coordinated by Head of Finance and Accounts Department, who is responsible for collecting the required data from all the concerned and compiled budget proposals, discusses the same with the unit head and submits the budget proposal to Head Office within the scheduled date prescribed in the Head office circular/communication.
Budgeting process at unit level:

Based on the preliminary discussion, detailed circular is issued by the Unit Head for initiating budgeting exercise at unit level to all the Head of Department. The budgeting exercise at unit level to all the concerned departments like sanctioned budget and actual
expenditure up to the period of the year and other particulars/information are furnished to the concerned departmental Heads and they are advised to formulate the budget requirements for their activities on Conventional Budgeting Concept i.e. not by adopting percentage increase or decrease on the past data but all activities proposed to be taken up for the ensuring budget period, are required to be identified and budget requirements are required to be furnished accordingly with complete details and working separately item wise for each activity proposed to be taken in the ensuring budget period.
CONTRIBUTION OF VARIOUS DEPARTMENTS IN BUDGETING PROCESS

Contribution of various Departments for the purpose of compilation of budget is as described below:
PRODUCTION DEPARTMENT
Production Department is responsible for calculation the requirement in terms of the quantity for the budgeted level of production based on approved consumable items In respect of the following major inputs: Raw materials Chemicals Water Fuel oil- LSHS Packing materials- bags & stitching threads
In addition to the above, production department is also responsible for furnishing the following information:
Transportation cost of various raw materials and utilities e.g. transportation cost of urea form Kalol to Kandla, cost of transportation of potash from jetty to plant site, transportation of fuel oil from oil installation to plant site etc.
Cost of hose handling for raw material receipts Cost of internal movement of potash Cost of internal movement of the finished product within Plant. Cost of product bag handling including empty bags. Survey fees for Ammonia and P2O5 and other cost for Raw Material, packing materials, utilities etc. Consumption of chemicals & deformer.
While estimating the budgeting requirement of various raw materials, utilities, packing materials etc. the following points are considered: Quantities for various raw materials, utilities, and packing materials etc. Rehired for production of finished products are calculated by applying the approved norms of consumption.
In case of raw materials and utilities having more than one source of supply for example, receipt of Ammonia, this has more then three sources viz. Kalol unit, Import and
Indigenous supply form GNFC, KRIBHCO etc, the total production is first ascertained. Then the total requirement is broken into various sources as per Head Office guidelines /price considerations. If abnormal variations are observed in the consumption norms as compared to the earlier periods actual, details/justifications are recorded for the same.
MAINTENANACE DEPARTMENT:
Maintenance Department is responsible for estimating the expenditure of repairs and maintenance of plant and machinery equipments for mechanical maintenance, instruments maintenance & Electrical maintenance. The Electrical section of the maintenance department for plant & Township power requirement also estimates consumption of power for the budgeted level of production. Estimated power cost is worked out for the ensuing budget period by Electrical Maintenance Department.
Detailed budget proposals for repairs and maintenance of plant & Machinery equipment is worked out item wise by the maintenance department under the following broad heads:
Consumption of Stores and Spates Maintenance works to be done through contractors/under SOR jobs Procurement budget requirement for purchases of non-stock items of stores and spares for maintenance.
TECHNICAL SERVICE DEPARTMENT:

PROCESS ENGINEERING SECTION
Process engineering section of technical services department which is responsible for compiling record of Daily Production, production reporting, Monitoring the consumption of Raw materials, Flues and other process parameters, is also responsible for compiling actual consumption norms of all the raw materials, utilities fuel and other inputs consumed in the production process on day to day basis. Budgeted norms of consumption of various inputs are compiled and intimated by process engineering department which are adopted while preparation of budget after approval of top management.
GENERAL ENGINEERING SERVICES SECTION:
The General Engineering services section is responsible for introducing new and improved equipments and instruments coming out as a result of technological development for increasing efficiency and decreasing cost of production. Hence many of the budget However, for
requirements of engineering service departments are of capital nature.
routine management works of Technical Service Department, drawing, photocopying and other facilities, revenue budget requirements are worked out and furnished by engineering services section.
SYSTEMS SECTION
This section is responsible for furnishing budget requirement for EDP charges, repairs and maintenance expenditure for systems and resultant procurement budget for the same.
Budget and Budgetary Control LABORATORY SECTION
This section is responsible for furnishing budget requirement for laboratory for testing of input and finished product and R&D activities carried out at Plant level.
CIVIL DEPARTMENT
Civil section under the Technical Service Department is responsible for civil maintenance in plant and township. Their budget requirement for maintenance of buildings, roads, drains and culverts, railway siding and other facilities of civil nature in plant and township are worked out and item wise details are furnished under the following break up: Consumption of stores spares and steel consumption. Contractual jobs Procurement budget for non-stock items of spares and Stores.
FIRE & SAFETY SECTION:

Expenditure on Fire & Safety Services are estimated by Fire & Safety Section.
TRAINING SECTION:
This section compiles budget requirement for training activities for in house/outside training programmes and corporate training programmes to be conducted at unit level and furnished budget requirements for the same and other related activities.
PERSONNEL & ADMINISTRATION DEPARTMENT

This section compiles budget requirement for training activities for in house/outside training programmes and corporate training programmes to be conducted at unit level ad furnished budget requirements for the same and other realized activates.
Repairs and Maintenance for furniture, fixtures and office equipments and other appliances at Plant and at Guest House and other location s in Township under their charge.
Expenditure on maintenance and up keep of township properties. Estimation of salaries, wages, allowances, overtime, medical and other welfare expenses, awards etc expenditure on direct and indirect and indirect employees. Other establishment expenses like communication expenses printing & stationery, rents, rates & taxes vehicles hire charges and running expenses, courtesy and entertainment expenses, legal expenses, legal expenses celebration expenses, traveling and conveyance expenditure, professional charges and such other expenditure, which are directly controlled by personnel & administration department.
MATERIALS DEPARTMENT:
Materials Department is responsible for furnishing budget requirement for stores overheads expenses. It also controls the expenditure on purchase of stock items to be kept in main stores for which procurement budget is furnished by materials department after working out normal stock levels and estimated consumption for stock items within the budget period.
FINANCE & ACCOUNTS DEPARTMENT:

In addition to coordinating compilation and submission of the annual budget, Finance & Accounts Department is responsible for estimating the following:
INCOME/OTHER REVENUE
In respect of receipts from employees e.g. Interest on house building Loan, conveyance advance etc. The budget estimate is prepared in consultation with personnel &
Administration Department. Other revenue items are estimated based on the past data and operation estimated for the ensuing budget period.
INSURANCE EXPENSES
This is estimated in consolation with the Engineering Services Department
BANK CHARGES DEPRECIATION ON FIXED ASSETS

On receipt of detailed budget requirement for variable cost. Fixed cost and overheads from the concerned section/department, Finance & Accounts Department is arranging the compilation of Departments wise summary of fixed cost and overheads. Initial discussions are held at each department level with concerned HODs and Sectional Heads. Section wise individual items of budget requirements are discussed. Supporting details and documents where ever required are obtained. Revisions are made wherever required based on the discussion.
After the meeting with the concerned departments for finalization of departmental budget proposals for revenue budget and procurement budget, the following draft budget documents are prepared for the unit operations. Revenue Budget. Procurement Budget
Since variable cost part of the operations for revenue budget is worked out based on the production plan and consumption norms and other parameters already approved by the top management and by adopting procurement rates and quantity requirements intimated/finalized by Head Office, the same is compiled accordingly as per Head Offices directives.
Fixed cost and overheads portion of the revenue budget is further discussed in the meeting of all Heads of Departments with Unit Head. Individual items of fixed cost and overheads are reviewed by the Unit Head with reference to planned production priorities, resources constraints, maintenance requirement and other parameters and after discussion; fixed costs and overheads part of the revenue budget are finalized. After Compiling of Production/Consumption/Purchase Budget, same is sent to Head Office for further compilation & Approval of Board of Directors.
PROCEDURE FOR USING THE BUDGET APPROVED:

After approval of budget by board of directors same is intimated to Unit Head and concerned Finance Head of the Unit. In turn finance Head inform the Budget allocation to respective Departmental Heads/Section Heads.
An entry for each individual department is made with their respective code provided to the individual department in FAS (Financial Accounting System) Department wise/Section wise. After receiving intimation/ allocation of Budget from Finance all actual user/indenting department make their requirement on monthly basis. All stock items are controlled by Stores Section of Materials Department. Where as Non-stock items are purchased by respective section/department through Materials Department (Purchase Section).
Stores Section raise MPR based on Safety Level / Re-Ordering level. Other user sections raise MPR based on as & when on requirement basis. All Work of Indent (WOI) is raised by actual user only. Based on MPR received by Materials Departments (Purchase Section) take action for sending enquires to Approved Vendors, receive Quotation, prepare QCS (Quotation Comparative Statement) & place Purchase/Work Orders after obtaining Financial Concurrence & Budget availability.
All MPR/WOI related to Capital nature are routed through Finance by obtaining Budget Availability Certification, where as all MPR/WOI related to Revenue nature items are
directly forwarded to purchase section. At the time of placing order/Financial Concurrence Finance Department assures & made entry in FAS for control of Budget.
REVISION OF BUDGET ESTIMATES

After approval of budget estimates for the ensuing period, actual expenditure vis--vis budget allocations are reviewed on monthly basis and quarterly report is submitted to Head Office as above.
Due to various factors like raw materials constraints, economic factor, marketing factors and other variable factors, generally necessity arises for revision of the approve budget estimates based on the actual trend observed, sine budgeting process for the ensuing period normally start about 5/6 months before start of the budget period.
Accordingly, there is a system of revision of the budget proposals.
Normally actual
expenditure for the first 6 months are reviewed and based on the same, revised estimates for the next six months are compiled. Budgeting process for revised revenue budget is more or less same as of compiling the revenue budget. The following steps are taken:
Revised production plan, consumption norms and other parameters based on actual for the first six months along with revised estimates for next 6 months are worked out and communicated to Head Office for approval.
On receipt of approval from Head Office, actual for first six months are compiled by Finance & Accounts Department costs and fixed cost and overheads is furnished to the concerned departments to work out their revised budget proposals for next six months period.
Concerned departments are arranging review of actual performance against budget provision for the first six months and rework the requirements for the next six months based on approved revised production level and other norms. The revised budget requirements if any along with the complete justifications are furnished by the concerned departments to Finance & Accounts Department. Wherever, actual expenditure against budget requirement is very much on positive or negative side, detailed
justification/reasons of the same along with the revised budget requirements, if any, are to be furnished. Commercial Department of Head Office is furnishing quantitative requirement and estimated rates of raw materials utilities, packing materials etc. Applicable for the next six months, Kalol unit from where part of ammonia requirements and total urea requirements for production process of KANDLA unit are met intimates revised transfers quantity price in respect of ammonia and urea to be adopted for revised budget proposals.
Based on the above, revised budget proposals are compiled.
The fixed cost and
overheads are thoroughly discusses with concerned HODs and with Unit Head and after approval, the following documents are prepared and submitted to Head Office.
1. Revised Revenue Budget. 2. Revised Purchase Budget.
On approval of the revised budget, monthly break-up of fixed cost and variable cost are also worked out and submitted to Head Office for approval. On approval, budgetary control is exercised on monthly basis based on the revised monthly budget allocations.
Budget Committee
The responsibility for the preparation of budgets lies with the budget committee, which includes the following executives: Chief executives, who will be the chairman of the committee. Production manager Materials manager Standards and control manager Finance manager Other department heads
The main functions of the budget committee are as follows:

Assisting the managers in making budget by giving them information about past performances. Circulating broad outline of the policies framed by the top management, which should be taken under consideration while preparing budgets. Reviewing the budget estimates prepared by the various departments and suggesting modifications, if necessary. Preparing the master budget after the functional budgets are approved. Comparison reports of actual performance with the budgets and initiating follow up action. Making changes in the budget policies and procedures, Assisting in preparing the budget manual.
The management accountant performs the role of secretary to the committee, and assists in coordinating the tasks of various departments in the budget preparation.
Budget Center
Department for which budget is prepared is known as budget center.
Budget Period
A budget period is the length of time for which a budget is prepared and remains operative. No definite indication can be given as to what should be the period for which the budget for a particulars or business will be established. However, the budget period depends upon the following: 1. The type of budget, i.e. sales, production, capital expenditure, cash etc. 2. General economic situation and the growth & stability of the product market. 3. Nature of demand for the products of the undertaking. 4. Length of trade cycle of the business (length of cycle in the case of seasonal various. 5. Timing of the availability of finance. 6. Extent of control required over the operations. 7. Probability of changes in products or product mix.
Key Factor
A factor which is of such an important that it affects almost all the other function budget to a large extent, is known as the Principal Budget Factor. The principal budget factor constitutes the starting point for the preparation of the various budgets. The main factor is known as the principal budget factor or key factor and the other minor factors may not be termed limiting factors or governing factors.
Budgeting Methods
There are mainly three methods for preparing budgets, they are as follows: 1) Program budgeting 2) Performance Budgeting 3) Zero based budgeting
Program budgeting
This is a budgetary process meant to make the government operations more effective and efficient. This technique reconstructs budget under output categories rather than objective categories. It is concerned with purpose of work rather than process of work. Program budgeting is closely related with cost benefit analysis.
Performance Budgeting
The emphasis now a day is on performance oriented budget that are established in such a manner that each item of expenditure related to specific responsibility center is closely linked with performance of that center. Mostly manufacturing concerns use this technique of preparing budget.
Zero Based Budgeting
Zero Based budgeting refers to the procedure for review of the total expenditure proposed for a program instead of mere changes from the appropriation made previously from that program.
LOOPHOLES OF THE BUDGETING SYSTEM

Budgeting is a systematic approaches to the solution of problems. But it is not foolproof, it suffers from certain and limitations. The major problems in developing a budget system are:
Improper management judgment:
Budgeting is a soft science; its success hinges upon the precision of estimated. Estimates are based on facts and managerial judgment. Managerial judgment can suffer from subjectivism and personal biases. The adequacy of budgeting, thus, depends upon the adequacy of managerial judgment.
Continuous adaptation:
The installation of perfect system of budgeting is not possible in a short period. Business conditions change rapidly; therefore, budgeting program should be continuously adapted. Budgeting has to be a continuous exercise; it is a dynamic process. Management should not lose patience; they should go trying various techniques and procedures in developing and using the budgeting system. Ultimately, they will achieve the success and reap the benefits of budgeting.
Implementation:
A skillfully prepared budgetary program will be not it self improved the management of an enterprise unless it is properly implemented. For the success of budgetary program it is essential that is understood by all, and that the managers and subordinated put concerted effort for accomplishing the budget goal. All persons in the enterprise must have full involved in the preparation and execution of budgets, otherwise budgeting will not be effective.
Management Complacency:
Budgeting is a management tool-a way of managing; not the management. The presence of budgetary system should not make management complacent. To get the best result of managing, management should use budgeting with intelligence and foresight, along with other managerial techniques. Budgeting assists management; it cannot replace management.
Unnecessary details:
Budgeting will be ineffective and expensive if it is unnecessarily detailed and complicated. A budget should be precise in format and simple to understand; it should be flexible, not in application.
Goal Conflicts
The purpose of budgeting will be defeated if carelessly set budgeted goals conflict with enterprise objectives. This confuses means with the end result. Budget goals are defined targets to achieve the overall enterprise objectives. They must be in harmony with enterprise aims.
Evaluation Deficiencies
Budgeting will hide inefficiency instead of revealing them, if a proper evaluation system is lacking. There should be continuous evaluation of the actual performance. Standard also should be re-examined regularly.
Unrealistic Targets
Budgeting will lower morale and productivity if unrealistic target are set and if it is used as pressure tactic. To some extent budgeting may be used as a pressure devise, but its extent must be carefully determined.
BUDGET AND BUDGETARY CONTROL AT IFFCO: KANDLA UNIT

METHOD OF BUDGETING AT IFFCO-KANDLA:
IFFCO-KANDLA follows Zero Based Budgeting system to prepare its budgets
What is Zero Based Budgeting ????

The technique of Zero Based Budgeting starts with the premise that the budget for next period is Zero so long the demand for a function, process, project, or activity is not justified for each rupee from the first rupee up. The assumption is that without such a justification, no sending will be allowed. The burden of proof thus shifts to each manager to justify why the money should be spent to all and to indicate what would happen if the proposed activity is not carried out and no money is spent. In this way, he is required to carry cost-benefit analysis of each of the activities etc. under his control for which he is responsible. Such analysis would reveal that some activities may be eliminated or curtailed or made into productive and profitable ones. Thus Zero Based Budgeting affords a choice amongst the alternatives so that the activities would be selected in the order of their importance.
However, Zero Based Budgeting is particularly suitable discretionary cost areas such as marketing, administration, production services, research, etc. and in Govt. departments where the decision for the extent of spending rest with the management or authorities and it is here that each rupee of the budget had to be justified.
ZERO BASED BUDGETING AT IFFCO????

IFFCO as whole follows Zero Based Budgeting system. As IFFCO-KANDLA is a manufacturing Unit and it is also cost centre so in the process of conversion of raw material into finished goods cost cannot be zero because for the manufacture of goods for sale cost have to incurred for:
Purchase of raw material like: Phosphoric Acid Potash Ammonia Urea Sulphuric Acid Filler MAP Utilities (power, fuel oil, water) Bagging
Such situations are met by IFFCO by asking the managers to determine the minimum or basic requirements for running their departments; any cost above the basic requirement would be treated as added increments which would be critically reviewed and justified, they are to be eliminated resulting in cost saving to IFFCO. At Kandla Unit, budget is prepared, got approved from Head Office and controlled at Plant level cost. Being Manufacturing Unit, budget is prepared only for Production activities.
At Kandla unit following types of budgets are prepared. 1. Revenue & Purchase Budget 2. Capital Budget 3. Loans to Employees Budget
We can break the Budget Process into following stages.
1. Proposal to be sent to Head Office for approval of Board of Directors. 2. Approved budget to be allocated amongst actual user / indenters. 3. Monthly / Quarterly / Yearly control on actual expenses v/s budget.
We will see the above aspects in detail of various budgets in following pages.
REVENUE, PURCHASE BUDGET & BUDGETARY CONTROL
BRIEF DESCRIPTION OF REVENUE BUDGET

Revenue Budget is also called as Production Budget / Consumption Budget. All type of expenses pertaining to the concerned year and related to production activity whether direct expenses or indirect expenses are estimated in this budget. Budget is prepared for next financial year commencing from April to March.
PROCESS FOR PREPARATION OF BUDGET:

Intimation from H.O. to send proposals for next financial year. Collection of various estimates from indenters / H.O. Collection of various data in specially designed statement / annexure. Put-up to Unit Head for consideration Meeting by unit Head with various HODs / SHs. Final proposal to be sent to H.O.
INTIMATION FROM H.O. TO SEND PROPOSALS FOR NEXT FINANCIAL YEAR:

Generally in Oct / Nov, intimation is received from Finance Director, Head Office asking all manufacturing units / marketing offices to send their respective budgets. In this intimation all concerned are asked to submit data to respective Head of Finance at unit level. The Head of Finance of respective unit can compile the budget and sent it to Head Office through respective Unit Head. In this intimation, general guidelines and specific instructions are also issued to all units so that all units can keep uniformity in submitting their data.
COLLECTION OF VARIOUS ESTIMATES FROM INDENTORS / H.O:

On receipt of intimation from Head Office, Unit Head of Kandla Unit is intimating Finance and Accounts Department to compile Revenue Budget & put up the same to him for review and final decisions. On receipt of intimation from Unit Head, Finance and Accounts Department came into action to get all related details from various department / Head Office. Following are major informations which are to be collected from various Departments / Head Office: Production Targets. C& F Price of imported Raw Materials. Rates to be adopted for packing material. Exchange rates to be adopted for US $. Norms of actual input Qty of various raw material, utilities and Packing materials. Stream days estimates for production targets. All estimates of various types of direct / indirect expenses related to production activities.
PRODUCTION TARGETS
On receipt of above referred intimation from Head Office through Unit Head, Tech Department of Kandla Unit works out the production estimates for next financial year. Production Targets are estimated based on licensed capacity of production in terms of P2O5 output. At Kandla Unit, three type of fertilizer is produced 1. NPK (10:26:26) (Grade I) 2. NPK (12:32:16) (Grade II) 3. DAP (18:46:00)
Production is estimated in bulk keeping in the mind the term P2O5 ratio. In above fertilizer N stands for Nitrogen P stands for Phosphorous and K stands for Potash. DAP stands for Dia
Ammonium Phosphate. Technical Department estimates grade wise production which normally equals for 100% capacity utilization in terms of P2O5 output. Technical Department before estimating estimate of production target keeps in mind the estimate of shut down of Plant due to shortage of raw material , shut down of plant due mechanical maintenance, power failure etc. This production estimates are sent by them to Tech service, H.O. through Unit Head for approval.
Since production Targets are to be approved by Head Office, Head Office at the same time get sales estimates from their respective Central Marketing Office .Production Targets are reviewed by H.O. in consideration with sales Targets . Since production of various grades is to be done as per Market demand, Head Office is the final authority to approve Production Targets. On receipts of Production Target from Head Office, Tech services Department intimate the final Production Target to F&A Department.
C& F PRICE OF IMPORTED RAW MATERIALS

To manufacture all the three type of Fertilizer, following Raw Materials are required:1. Phos Acid (P2O5) 2. Ammonia 3. Potash 4. Urea 5. MAP 6. Filler (NH3) (MOP)
Since major Raw Materials like Phos Acid, Ammonia, Potash, Urea, MAP is imported by Head Office from various countries, Head Office is to provide the estimated C&F rate of above 5 Raw Materials (SrNo.-1 to 5) to Kandla Unit. Head Office intimate C&F cost per MT in US $ to Kandla Unit after considering long term contract with major suppliers, upward / downward trend of major Raw material cost in Global Market . C&F cost varies with various suppliers distance of loading port from Kandla Port & Credit facility for payment of C & F cost.
RATES TO BE ADOPTED FOR PACKING MATERIAL

Like major Raw Materials, Head Office also Procure / finalize Purchase Orders for purchase of packing material from indigenous suppliers. At Kandla Unit bags are procured in various sizes depending upon the general demand of packing materials i.e. HDPE Bags:HDPE Bags: 50 Kgs HDPE Bags: 40 Kgs HDPE Bags: 25 Kgs Head Office intimate per bag rate of above sizes to Kandla Unit after considering long term contract with major suppliers, upward / downward trend of above bags.
EXCHANGE RATES TO BE ADOPTED FOR US $:

At Kandla, major raw materials are imported and the C&F rate for above raw material is communicated by Head Office to Kandla Unit. All foreign exchange payments are done by Head Office, they intimate the Foreign Exchange Rate of US $ to be adopted for conversion of US $ into Indian Rupee. Head Office estimates the exchange rates in consultation with various Foreign Exchange Trading Banks, RBI Bulletin and also upward / downward trend of foreign exchange rate. This exchange rate is communicated to all units so that a uniform exchange rate can be applied to Foreign Exchange payments in respect of purchase of imported raw materials, Major Equipments , Spare Parts etc.
NORMS OF ACTUAL INPUT QUANTITY OF VARIOUS RAW MATERIAL, UTILITIES AND PACKING MATERIALS:
To ascertain the requirement of the input of the various Raw Materials, utilities and Packing Materials, norms are communicated by Tech Services Department to Head Office. Input norms means the Qty of input to get exact output results like Nitrogen, Phosphorous, Potash etc. as per ratio of individual grade. Also utilities norms indicate the respective units to be consumed for mixing of above raw material and packing norms means exact bags required to be packed for one MT fertilizer.
Based on above, norms are estimated by Tech Services for following
1. Raw Materials Phosphoric Acid Ammonia Potash Filler MAP Urea
2. Utilities Power Water Fuel Oil
3. Packing Materials HDPE Bags: 50 Kg HDPE Bags: 40 Kg HDPE Bags: 25 Kg
STREAM DAYS ESTIMATES FOR PRODUCTION TARGETS

Kandla Plant runs all the days in three shifts. To achieve the production target, Technical Department estimate the actual running of plant considering holidays, Shortage of raw materials, shut down of plant due to electrical maintenance, mechanical maintenance, power failure etc. These stream days figures are required for allocating various fixed expenses amongst total cost to grade wise cost. Stream Days varies with each grade wise production.
ALL ESTIMATES OF VARIOUS TYPES OF DIRECT / INDIRECT EXPENSES RELATED TO PRODUCTION

To produce the targeted Production Raw Material, Utility and packing cost is derived based on production, norms and per MT / KL cost. Other than this direct cost, many fixed cost are involved to run plant. For this, all actual users / indenter estimate their area cost based on estimated requirement and previous / last 3 years actual expenses. Such type of expenses is booked in various account codes and further into respective fixed cost groups.
COLLECTION OF VARIOUS DATA IN SPECIALLY DESIGNED STATEMENT / ANNEXURE.

The various data collected from various sources are compiled in specially designed Proformas / Annexures to derive profitability of Plant, total cost of production, grade wise cost of production and further per MT cost of production.
Following are the main proforma / Annexures for compilation of various data:Sr No. STATEMENT ANNEXURE reference 1 2 3 4 5 STATEMENT I STATEMENT II STATEMENT III STATEMENT IV ANNEXURE- I Production And Sales Targets Profitability Statement Total Cost Of Production Purchase Budget Break up of Unit price of Raw Materials / Utilities / Packing Materials 6 ANNEXURE- II Norms of consumption for raw materials / Particulars
/utilities/packing material 7 8 ANNEXURE- III ANNEXURE- IV Township recoveries and other revenues Consumption of raw materials / Utilities / packing materials 9 10 11 12 13 14 ANNEXURE- V ANNEXURE- VI ANNEXURE- VII ANNEXURE- VIII ANNEXURE- IX ANNEXURE- X Employees remuneration & benefits Repairs and maintenance expenses Chemicals Insurance expenses a) Factory overheads & b) R & D expenses Grade wise cost of production
BRIEF EXPLANATIONS OF STATEMENTS / ANNEXURES:

STATEMENTS
STATEMENT I: PRODUCTION AND SALES TARGET

In this statement the data relating to plants installed capacity in terms of P2O5, stream days estimates, production target in bulk & in terms of P2O5 is estimates. Based on plant capacity and estimates production capacity utilization in % is derived. Sales estimate figures are shown by H.O. after sending this budget proposal to Head Office for approval. Also for comparison purpose last three years actual, current year budget and revised budget estimates are also shown in this statement. Based on this statement, Total cost of production is estimated / derived.
Production budget
ORIGINA L BUDGET 2007-08 2008-09 REVISED ESTIMATES 2008-09 INSTALLED CAPACITY P2O5 STREAM DAYS PRODUCTIO N NPK- 10:26:26 NPK- 12:32:16 DAP- 18:46:00 LAKH TE LAKH TE LAKH TE TOTAL NPK/DAP LAKH TE Lakh TE DAYS BUDGET ITEMS UNIT 2009-10
ACTUAL 2005-06 2006-07
IN TERMS OF LAKH P2O5 TE CAPACITY UTILIZATIO N
STATEMENT II: PROFITABILITY STATEMENT

It states about the income and expenditure for the next budget year. Revenue It shows the detail about the income that will generate by sale of fertilizer and other income from various sources such as government subsidy etc.
Expenditure It shows about expenditure that will incur for running the plant. It includes the cost of production, distribution expenses, selling and distribution expenses , etc. By deducting the expenditure from the revenue we can come to know about the profit or loss for the budgeted period.
Budgeted profitability
Statement showing budgeted profitability is on next page ACTUAL ORIGIN AL BUDGE T 2008-09 REVISED ESTIMAT ES 2008-09 A. REVENUE 1. Sales (net of rebates & discounts) A. NPK - 10:26:26 B. NPK - 12:3216 C. DAP 18:46:00 2.subsidy TOTAL REVENUE(sales subsidy) 3. Other revenue A. Plant B. Share of HO & MKTG Total Other Revenue SUB TOTAL 4. Finished Stock Variation TOTAL OF A B. EXPENDITURE 1. Cost of production 2. Distribution expense A. Freight B. Handling & Transportation C. Storage Charges D. Empty Bags & others Total distribution expenses
ITEMS
BUDGET 2009-10
2005-06
200607
200708
3. Less Freight Subsidy 4. Net Distribution Expenses 5. Selling & Admn. Expenses A. Marketing division B. Head OFFICE Total Selling & Admn expenses 6. Financing Cost A. Long term B. Short term Total Expenditure Profit After Depreciation & Interest Net Prior Period Items PROFIT
STATEMENT III: TOTAL COST OF PRODUCTION

In this statement based on Annexure 4 to 10 total cost of production is shown in various groups and final figure is shown at statement 2. Cost of production budget is the forecast of the cost of the production which has been planned in the production budget. The physical units in the production budget are broken into the elements, i.e. material quantity and labor time, and the estimated cost of materials, labors, and manufacturing overhead.
Cost of production budget at IFFCO-Kandla:

Total cost consists of two costs, variable and fixed cost.
Total Cost of Production
Variable cost
Fixed cost
Variable cost:
Variable expenses are those which are directly related to the production of fertilizers. These expenses incurred on various inputs of the product. The variable expenses are related to the expenses incurred on Raw materials Utilities Packing materials
The u nit produces the fertilizers under the three grades. They are Grade- 1 10:26:26 Grade-2 12:32:16 DAP 18:46:00
The products produced in the firm are fixed by certain norms. The norms are fixed for producing per metric tone fertilizer. They are fixed by the technical department. There are separate norms for producing each grade of the product. The quantity of the product will be derived by calculating all the norms used in producing particular grade of the product. The utilities that are used to produce per metric tone of the product are also treated as the variable cost. They are power, water and furnace oil. The head office gives the estimated value in U.S. dollars for imported raw materials as per Foreign exchange rate except Potash. The F&A department of the unit has to clculate the estimates of cost of raw materials by including various government levis like custom duty, wharf age and other statutory levis.
The variable cost is derived as: Production * Norms= Quantity * Rate= Amount.
Fixed cost:
Fixes cost include following items: 1. 2. 3. 4. 5. 6. 7. 8. Chemicals Employees remuneration & benefits Repairs & maintenance Insurance R&D expenses Other manufacturing and unit administration Security expenses Depreciation
Chemicals
Consumption of various chemicals is also treated as fixed cost because consumption of chemicals remains constant irrespective of the production activity. Chemicals include sum total of all the chemicals to be used by the various departments like plants, tank, labs, etc. Chemicals are of two kinds stock and non stock. A special attention is paid while preparing the chemicals budget, because the chemicals which are stored are to be procured by the stores department in the budgeted year whereas, the chemicals that are non stock in nature are o be procured directly by the using department. Chemicals include Spend Acid Deformer Chemicals Sulphuric acid Ammonia Bi- sulphate
It should be noted here that though sulphuric acid is procured as a chemical presently, it is being used as a raw material. As high quantity of it mixed with the other raw materials.
Employees remuneration and benefits:

Employees remuneration and benefit are considered to be fixed expenses because number of employees on an average is same in each financial year. It comprises of: 1. salaries and wages 2. PF & FPF contribution 3. Welfare expense
Salaries and wages:

Salaries and wages comprises of: Salaries and wages employees o Basic o Personal pay and allowance o D/A o Special allowance- working plant o HRA o Kandla allowance o Stipend to trainees/ D.A. o Railway staff salary o Employees furnishing allowance
Incentive payments Indirect wages- contract labor Non practicing allowance to MO Canteen subsidy and other expenses LTC employees Shift allowance Washing allowance Children education allowance E.L. encashment Cash handling allowance Overtime VRS expense
All the above items are calculated by keeping in mind number of permanent employees which are further bifurcated into officers and workmen. The salary is calculated grade wise (A-L). The stipend to trainees is also decided in the budgeted year, it includes D/A, HRA, washing allowance. Railway staff is to be given salary as per the MOU with Indian Railways.
Moreover the employees are also given special allowance to work in the remote place like Kandla. And workers working in plant are given special allowance. Where as medical officers are given non practicing allowance.
PF & FPF contribution

It includes: a) PF contribution employees b) FPF contribution/ pension/ employer c) PF admin charges d) Group gratuity- cum life assurance e) Societys contribution to insurance The PF is calculated at 12% of BP+ DA excluding pension fund, where- group gratuity and societys contribution is provided by H.O.
Welfare expenses
It includes: a. Reimbursement of medical expense b. Medical expense: recruitment c. Hospital supplies d. Doctors honorarium e. Liveries: protective clothing f. Liveries: shoes g. Liveries: stitching charges h. Liveries: others
i. j. k. l. m. n. o. p. q. r.
Staff welfare expenses Family planning incentive Children transportation subsidy Awards to employees Sport expenses Celebration expenses Club house expense Transfer expenses School expenses Employer contribution to PF
Repairs and maintenance:

Repairs and maintenance is broadly divided into A. Plant & machinery B. Civil maintenance Factory Township C. Furniture & fixtures
Repairs and maintenance budget consists of: Stores consumption budget Store consumption budget includes those items which are stocked and are expected to be used for the purpose of maintenance in the budgeted year Outside maintenance budget A separate budget is made for the maintenance jobs that are to be done by the outside agencies in the budgeted period. This budget mostly includes the tasks that cannot be met by the unit.
Insurance
Insurance expenses are also treated as the fixed costs. As it is well known that in todays business environment it is very important to cover all the risks, so IFFCOKandla prepares a special budget for insurance. This budget shows various insurance policies and the premium to be paid in the budgeted year. Insurance budget is prepared by the F&A department in association with the technical department and H.O. Following are the major policies to cover different types of risks prevailing at IFFCO- Kandla. a. Fire & Allied Peril policy New Admin. Building & furniture and fixtures Township and public utilities/ buildings b. Marine policy
Marine open cover- imported spares Marine open cover- inland transit. c. Mega policy All the building, plants & machineries, stocks, etc. Loss of profit policy. d. Misc. policies Cine project at cinema ground, township. Cash in transit, cash in safe. Third party risks of pay loaders. All risks policies for laptop & mobile phones. Vehicles policy Contractors all risk- ammonia tank.
Some of the policies are taken by H.O. for all the plants jointly, these include: Mega policy Public liability as per public liability act. Public liability for industrial risks. Terrorist cover
Policies are taken from the sister concern- M/s IFFCO- Tokyo general insurance company
Depreciation:
Depreciation is directly calculated by F&A department by considering assets in books, estimated additions and deductions of assets during the budgeted year. Depreciation is calculated under straight line method at various rates as fixed by Management & company Law/ Income Tax Authorities.
ACTUALS
200405
200506
200607
200708
ORIGIN AL BUDGE T 2008-09
REVISED ESTIMATES ITEMS
BUDG ET
2008-09
A. VARIABLE COST 1. Raw material consumption A. Phosphoric Acid B. Ammonia Imported/ Purchased Ammonia- own Ammonia- total C. Potash Urea Filler Total raw material consumption 2. Power, Fuel & Water A. Power B. Fuel oil & Lshs C. Water Total Power, Fuel Oil & Water 3. Bagging/ Packing expenses A. Bags & Threads B. Handling Charges Total Bagging Expenses 4. TOTAL VARIABLE COST B. FIXED COST 1. Chemicals 2. Employees remuneration & benefits A. salary, wages & allowances B. Cont. to pf & other funds C. Medicals & other welfare expenses Total employees remuneration & benefits 3. Repairs & Maintenance 4. Insurance 5. Research & Development Exp 6. Other Mfg. & Unit Admin
200910
Exp 7. Security expenses 8. Depreciation TOTAL FIXED COST TOTAL COST OF PRODUCTION
STATEMENT IV: PURCHASE BUDGET

This statement is prepared to estimate the likely purchase of following Raw Material / Utilities / Packing Material etc based on estimated consumption of items , opening inventory and closing inventory based on storage capacity :1. Raw Materials : Phos Acid (P2O5) Ammonia (NH3) Urea Potash Filler MAP Sulphuric Acid
2. Utilities : Fuel Oil
3. Packing Materials: D. Others: 1. Stores 2. Spares 3. Tools 4. Cement 5. Steel etc. HDPE Bags: 50 Kg HDPE Bags: 40 Kg HDPE Bags: 25 Kg
Generally while preparing this estimate inventory of raw material, fuel oil and packing material is estimated as per maximum level of storage capacity so plant should not be shut down due to any shortage of raw material. On other hand other items like stores , spares tools, cement, steel are controllable inventory and it is always tried to keep theses stock at minimum level so unnecessary fund is not blocked and there should not be increase in inventory carrying cost.
ANNEXURES:
ANNEXURE I: BREAK-UP OF UNIT PRICE OF RAW MATERIALS / UTILITIES / PACKING MATERIALS:
In this statement, landed cost is derived by taking all possible expenses for purchasing the material. Landed cost is derived for all raw materials / utilities / packing materials taking into consideration of following elements. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Thread 11. Miscellaneous bank charges directly related to Purchase. Landed cost so derived is further considered at statement -4 (purchase budget) to ascertain total purchases to be made during the financial year to produce the targeted production. Based on purchase Qty / rate and opening stock of Qty / rate, weighted average rate is derived for applying the same to consumption Qty
C & F price / basic price Insurance Stamp Duty Service Charges Freight (in case of indigenous items) Custom Duty Excise Duty Wharfage / Port Expenses etc. Sales Tax
ANNEXURE- II: NORMS FOR CONSUMPTION FOR RAW MATERIAL / UTILITIES / PACKING MATERIALS
In this annexure the norms received from technical services department is incorporated. As already explained earlier norms are the input Qty for getting targeted output Qty in case of raw materials, required Qty to mix / produce the targeted production Qty in case of utilities and bags required to pack the bulk production in case of packing materials . Since per MT cost of production can be kept at the minimum level when norms are kept in minimum level norms are to be derived very carefully. These norms figures are further utilized at annexure -4 to derive quantity requirement of all raw materials, utilities and packing materials.
ANNEXURE III: TOWNSHIP RECOVERIES AND OTHER REVENUE

Kandla Unit is manufacturing unit only and all sale of production is made at marketing office and sale proceedings are accounted at Head Office, However, at plant level there are some incomes which are detailed as under
1.
Township Recoveries: from staff Rent Electricity Water
2.
Other Revenue: Interest from staff HBL (House Building Loan) Conveyance Loan Hire Charges (pay loader, cranes etc.) & Interest. Insurance Claim Realized. Sale Of Scrap Transport Recoveries Fro Staff, Contractor.
Interest Received on Deposits Income from Liquid Cargo Jetty. Provision No Longer Required Written Back Tender Fee / Sale Of Tender Forms Depreciation Charges Sundries / Miscellaneous Income Rental Income : from township , from plant Profit On Sale Of Asset Unclaimed Amount Written Back Penalty Recovered Other Claims Lease Charges Under Own Your Own Wagon Miscellaneous Recoveries from Staff
All above income are estimated by individual actual receiver based on past experience and future activities. The total of this revenue is shown at statement -2 (profitability statement) on revenue side.
ANNEXURE IV: CONSUMPTION OF RAW MATERIALS, UTILITIES AND PACKING MATERIALS

At Kandla Unit cost of production is estimated in two categories as under Variable Cost. Fixed Cost
Variable cost is the cost which generally varies with the production activity. Variable cost consists of following three items. 5. 6. 7. Raw Materials Utilities Packing Materials
Since variable cost is linked directly with production figures there is no control on the cost of variable cost. In case of nil production, variable cost will also be nil. In this statement grade
wise cost of production and total cost of production is derived based on production targets, norms and average unit rate. Production Targets are taken from statement 1, norms are taken from annexure -2 and average unit rate is taken from statement -4. Based on above grade wise Qty (production x norms) and grade wise cost (Qty x Average rate) is derived. By Totaling of all the three grades cost , total cost of individual raw material , utilities and packing material is derived. By totaling all Raw Materials, utilities and packing materials total cost of production is derived. This total cost of production is shown at statement -3 items wise. Raw materials are shown under A: raw material cost, utilities are shown at B: operating expenses & packing materials are shown at C: bagging expenses: bags & thread.
ANNEXURE V: EMPLOYEES REMUNERATION AND BENEFITS

Employees remuneration and benefits is a fixed cost type expenses. Fixed cost is cost which generally not varies with the production activities. Whether there is any production or not, this types of expenses occur. Here employees remuneration and benefits remains constant irrespective of production.
In this group all type of expenses are covered which directly or indirectly pertains to the employees including railway staff. Budget estimates are given by personal & administration department for almost expenses: To simplify the format expenses are shown under following groups: Salaries & Wages PF & FPF Contribution Welfare Expenses.
Following are the major budget head & their respective user / indenter:-
Sr No. A-1 1 2 3 4
Particulars Salaries & Wages Basic Personal pay / Allowance DA (Dearness Allowance) Special Allowance
Indenter
Personal & Administration Personal & Administration Personal & Administration Personal & Administration
5 6 7 8 9 10 A-2 A-3 A-4 A-5
House Rent Allowance(HRA) EL Encashment on Actuarial Basis Kandla Allowance Stipend To Trainees / DA Railway Staff Salary Employees Furnishing Allowance Incentive Payments Indirect Wages Contractor / Labour Provision For Salary Revision Non Practicing Allowance
Personal & Administration Personal & Administration Personal & Administration Personal & Administration Transportation Section Personal & Administration Head Office Personal & Administration Head Office To Personal & Administration
Medical Officers A-6 A-7 A-8 A-9 A-10 A-11 A-12 A-13 B B-1 B-2 B-3 B-4 B-5 C C-1 C-2 C-3 LTC Employees Shift Allowance Washing Allowance Children Education Allowance EL Encashment Cash Handling Allowance Overtime VRS Expenses PF & FPF Contribution PF Contribution FPF Contribution / Pension Employer PF Administration Charges Group Gratuity-Cum-Life Assur. Societys Contribution To Insu. Welfare Expenses Reimbursement Of Medical Exp. Medical Expenses : Recruitment Fixed Medical Assistance Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Head Office Head Office Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration
C-4 C-5
Hospital Supplies Doctors Honorarium
Personal & Administration Personal & Administration
C-6 C-7 C-8 C-9 C-10 C-11 C-12 C-13 C-14 C-15 C-16 C-17 C-18 C-19
Livenies Protective Clothing - Shoes - Stitching Charges - Others Staff Welfare Expenses Family Planning Incentive Children Transport Subsidy Awards To Employees Cinema Show Celebration Expenses Club House Expenses Transfer Expenses School Employees Benovent Fund Contribution
Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration To Personal & Administration
C-20
Honorarium To Staff
Personal & Administration
Above budget estimates are given by concerned section based on last 3 years actual, present strength of employees, next year retirement cases, transfers, natural death of employees & new recruitment etc. As mentioned above at Sr Nos A-2, A-4, B-4 and B-5 since payments are made by Head Office directly estimates are asked from Head Office and incorporated in Kandla Units budget. The total of above three groups is shown at B-3 statement III (Cost of Production) under operating expenses.
ANNEXURE- VI: REPAIRS AND MAINTENANCE EXPENSES

Repairs and maintenance expenses are also a fixed cost type expenses. Repairs & maintenance expenses remains constant irrespective of production. In this group all type of expenses are covered which directly or indirectly pertains to Repairing & Maintenance of Plant & Machinery, Equipments, Civil Works, Jetty, Furniture,
Fixtures etc. Budget estimates are given by all departments for their areas or where they are custodian of the equipments.
Repairs & Maintenance expenses are covered under 2 categories: - (1) Consumption of stores, spares etc & (2) Job done by outside agencies. For any items issued from stores for particular work is charged to consumption of stores , spares where as for any type of Repairs and Maintenance job is done by outside agencies are booked against contractors job .
To simplify the format expenses are shown under following groups o Plant Machinery o Civil Maintenance Factory, Township o Furniture & Fixtures Following are the major budget heads & their respective user / indenters:
A. Plant Machinery
Sr No 1. 2. 3. Particulars NPK Offsite Bagging And Handling Indenter Maintenance Department / NPK Maintenance Department /Offsite Maintenance Department /Bagging & Material Handling 4. 5. 6. Electrical Installation: Factory Electrical Installation: township Mobile Equipments Electrical Department Electrical Department Auto Section / Maintenance Department 7. 8. 9. 10. 11. Rolling Stock Air Conditioner & Cooler etc General Emergency DG Plant Water Supply Installation Maintenance Department AC Section / Maintenance Dept. Maintenance Department Electrical Department Maintenance Department /Civil Section. 12. Computer System EDP System Department
13. 14. 15. 16. 17. 18. 19. 20. 21.
Workshop Equipments Weighing Equipments Instrumentation Laboratory Equipments Other Non Plant Equipments Audio Visual Equipments Communication Equipments Guest House Equipments Stores Equipments
Workshop Section Instrumentation Section Instrumentation Section Lab / R & D Section Maintenance Department Instrumentation Section Electrical Section Personal & Administration Stores Section / Maintenance Department
22. 23 24.
Canteen Equipments R & D Equipments Hospital Equipments
Personal & Administration Lab / R & D Section Personal & Administration / Medical Section
25. 26. 27.
Fire & Safety Equipments R & M Stores (ERF)
F & S Section / Tech Services Stores Section Stores Section
Provision for non slow moving items
B. CIVIL MAINTENANCE FACTORY, TOWNSHIP

Sr. No 1. 2. 3. 4. 5. 6. 7. Particulars Factory Liquid Cargo Jetty Factory- Railway Siding Factory- Office Building Factory- Factory Building Factory- Roads ,Culverts Township : Buildings Township: Roads, Culverts & Civil Section Drains Indenter Civil Section Civil Section Civil Section Civil Section Civil Section Civil Section
C. FURNITURE & FIXTURES

Sr. No 1. 2.
Particulars Furniture & Fixtures Office Equipments
Indenter Personal And Administration Personal And Administration
Above budget estimates are given by concerned sections based on last 3 years actuals , present volume of assets , next years additions , deletion of assets etc . The total of above three groups is shown at B .4. a) Of statement 3 (cost of production) under operating expenses.
ANNEXURE-VII: CHEMICALS
Consumptions of various chemicals are also treated as fixed cost expenses. Consumption of various chemicals remains constant irrespective of production activities. In this group all
types of chemical are covered which directly or indirectly pertains to consumption of chemicals to be used in plants, tanks, lab etc. Budget estimates are given by all departments for their area or where they are custodian of particular chemicals. In this group some chemicals are of stock item in nature & some chemicals are of non stock type items. Stock type items of chemical are being procured through stores & non stock type of chemicals are being procured directly by actual users.
Following are major budget heads & their respective users / indenters Sr. No 1. 2. 3. 4. 5. Particulars Spent Acid Defoamer Chemicals Sulphuric Acid Ammonia Bi-Sulphate Indenter Utilities Production Dept/Stores Lab/R & D Utilities Utilities
Out of above items, Sr no. 4 i.e. Sulphuric Acid was procured 2-3 years back under consumption of chemical group , but at present sulphuric acid is being procured as a raw material item due to heavy Qty of this sulphuric Acid is mixed with other raw material for nutrient purpose.
Above budget estimates are given by concerned sections based on last 3 years actuals and present requirement of respective chemicals. The total of above chemicals is shown at B-1 of Statement III (cost of production) under operating expenses.
ANNEXURE- VIII: INSURANCE EXPENSES

Insurance expenses are also treated as fixed cost expenses. Insurance expenses remains constant irrespective of production activity since insurance expenses are to be incurred to cover all type of risk for material and loss of profit in case of any incident occurs due to major fire or natural calamity etc. To cover all type of risk, budget is estimated by finance & Accounts Department in consultation with technical service department .Since technical service department is the custodian of main plant & machinery.
Following are the major policies to cover different types of risks prevailing in day to day transactions:
1. Fires & Allied Peril Policy a. New admin building & furniture & fixtures. b. Township &public utilities / buildings
2. Marine Policies a. Marine open cover- imported spares b. Marine open cover- Inland (rail / road) Transit
3. Mega Policy a. All buildings, plant and machinery, stocks, jetty, Pipelines etc. (Everything
which is in ground) b. Loss of profit policy
4. Miscellaneous Policies a. Cine project at cinema ground, township b. Cash in transit, case in safe / burglary c. All risk policy for laptop & mobile phones d. Vehicle policy e. Cordet pantia farm f. Contractor all risk-ammonia tank
Some policies are taken by Head office for all the plants jointly & proportionate expenses are to be accounted by Kandla Unit. Following are some policies taken by H.O. Public liability as per Public Liability Act Public liability for industrial risk Terrorist cover.
All above policies are taken by Kandla Unit from their sister concern M/S IFFCO Tokio general insurance Co.LTD. Above budget estimates are estimated by F & A Dept based on last 3 years actuals & re-instate value of the assets. The total of insurance expenses is shown at of Statement III (cost of production) under operating expenses.
ANNEXURE-IX: FACTORY OVERHEADS & RESEARCH AND DEVELOPMENT EXPENSES
Factory overheads & research & development expenses are also treated as fixed cost expenses. These types of expenses are remaining constant irrespective of production activities. In this group those fixed cost type expenses are covered which are not covered in Annexure 5 to 8 budget estimate are given all departments for their area or where they are custodian of particular items . However in this group major expenses are of service nature. Following are the major budget heads & their respective user / indenters
Sr.No 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.
Particulars Traveling Expenses Local Conveyance Fixed Local Travel Concession Ground Rent Rent , Rates & Taxes Postage Charges Telephone Charges Telex / NIC / Lease Charges Courier Charges Printing & Stationery Periodicals,Books&Newspapers
Indenter Personal And Administration Personal And Administration Personal And Administration Personal And Administration Personal And Administration Personal And Administration Personal And Administration Personal And Administration Personal And Administration Personal And Administration Personal And Administration
Subscription to membership fees for Personal And Administration society
13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30.
Seminar Expenses Vehicle Running Expenses Advt. for tender &recruitment Legal Expenses Professional &Consul Charges Entertainment expense Courtesy Expenses Laboratory Expenses Bank Charges Pocket Expenses (Auditors) Other Sundry Expenses Stores Overheads EDP Charges Product Advertisement Vehicle Hire Charges License Fees Loose Tools Written Off Horticulture Expenses
Training Section Personal And Administration Personal And Administration Personal And Administration Personal And Administration Personal And Administration Personal And Administration Laboratory / Technical Services F & A Department F & A Department Personal And Administration Materials Dept System Department Personal And Administration Personal And Administration Personal And Administration Stores Section / Material Dept. Personal And Administration
31 32. 33. 34. 35. 36. 37.
Electricity Expenses Water Township Guest House Expenses Training Expenses Provision For Bad Debt Loss on Disposal of asset Assets Written Off
Electrical Department Personal And Administration Personal And Administration Training Section Finance & Accounts Dept Finance & Accounts Dept Finance & Accounts Dept
38. 39. 40. 41. 42.
Emp. Contribution To KSF Honorarium To Visitors Township Expenses-Others Vehicle Maintenance
Personal And Administration Training Section Personal And Administration Auto Sec. / Maintenance Dept
Cost of Diesel for Pay loader / Auto Sec. / Maintenance Dept Mobiles
43. 44. 45. 46.
Gifts Expenses (Emp / Others) IRDP Expenses R & D Expenses Security Expenses
Personal And Administration Personal And Administration Laboratory / R &D Dept Personal And Administration
Above budget estimates are given by concerned section based on last 3 years actuals & normal increase in activity as well as normal like in rates of various procurement & services etc. The total of above groups is shown at of Statement III (Cost of Production) under operating expenses.
ANNEXURE X: GRADE WISE COST OF PRODUCTION

This Annexure X is prepared to derive grade wise cost of production and further to Per MT cost of each grade. In this Annexure total variable cost and fixed cost is appropriated as per norms & stream hours respectively. Grade wise stream hours based on budgeted production is given by technical service department. Fixed Cost is divided by total stream hours run & multiply by grade wise Stream hours run. Thus grade wise fixed cost is derived.
Once grade wise cost is derived, the same is divided by grade wise production. All raw materials, utilities, packing material & fixed cost are divided by grade wise production to get Per MT cost. In this statement first we get cost of bulk production and subsequently by adding bagging expenses we get total cost of bagged production. This is an important statement to take final decision about profitability of the organization.
GENERAL:
Following type of expenses directly taken at statement III for which no annexure are prepared. 1. Depreciation which is directly calculated by finance & accounts department by considering assets in books , estimated additions & deletion of the assets during the budgeted year. 2. Bagging expenses cost of diesel loco which is estimated by production department based last 3 years consumption of diesel used for running of locomotives for moving of railway wagons etc. 3. Bagging expenses cost of demurrage which is also estimated by production department based on last 3 years demurrage incurred for loading of railway wagons.
BUDGET TO PUT-UP TO UNIT HEAD FOR CONSIDERATION:Once budget estimation as given by various sections / departments / is compiled in statement I to IV and in annexure 1 to 10 , same is put-up to Unit Head by departmental head of Finance & Accounts assuming all estimates are covered in respective groups.
Meeting by Unit Head with various HODs / SHs:After receiving complete budget proposals from F & A Dept, Unit Head review the same & call a budget review meeting with all Head of Department / Sectional Heads. In this meeting Unit head discuss all the points related to budget estimates with respective HODs / SHs , Unit
Head once is satisfied with budget estimates, he give clearance to F & A Dept to send the proposal to Head Office through him.
FINAL PROPOSAL TO BE SENT TO H.O.:Once Unit Head gives clearance to send the budget estimation to Head office , F & A Dept prepare final proposals with changes , if any, as suggested / agreed by unit Head. Revenue budget proposal are sent to Head Office. Head office further add Head Office expenses, Marketing expenses etc, compile all other Units budget, marketing departments budget & put-up a consolidated budget to the Board of Directors through Finance Director and Managing Directors. In due course once budget proposals are approved by Board of Directors, Head Office intimates all Units and Marketing department about the approval of budget of respective Units.
REVENUE / PURCHASE BUDGET CONTROL

After receiving the copy of approved Revenue / purchase budget, F & A Dept intimate all departments / sections about the approval of their areas budget. Budget for each & every account code is entered in the budget module meant for budget control in Financial Accounting System. Each type of expenses has separate account code.
All commitments made vide purchase order / work orders are entered against respective account heads while giving financial concurrence of proposed po/wo. At the same time all payments which are not against any purchase order / work order are entered against respective budget Heads / Codes. It is to be ensure that no payments or commitments exceeds to sanctioned budget.
In case of commitments / payments are required to be made beyond sanctioned amount , necessary action is to be initiated by indentor / actual user to get it re-appropriate from other
budget head of same group with the approval of unit head & from other budget head of another group with the approval of Head Office / Competent Authority.
To further rearview of budget sanctioned & commitment made a monthly report is generated for actual expenses versus budget sanctioned. This report is prepared to control the budget on monthly basis. Here total budget sanctioned is shown as per estimated monthly budget. Wherever monthly actual expenses are higher than monthly budget, justifications / reasons are asked from intender & further steps are taken to control the budget in subsequent months. At Head office level, quarterly meeting is arranged to review/discuss about the budgetary control & measures taken at Unit level to control the budget.
CAPITAL BUDGETING
What is capital budgeting?
Capital budgeting is concerned with allocation of firms scarce financial resources among the available market opportunities. The consideration of investment opportunities involves the comparison of the expected future streams of earning from a project, with the immediate and subsequent streams of expenditure for it. The important features of capital budgeting can be summarized as: Capital budgeting decision involves the exchange of current funds for the benefits to be achieved in future. The future benefits are expected to be realized over a series of years. The funds are invested in a non- flexible and long term activities. They have a long term and significant effect on the profitability of the concern. They are irreversible decisions. The projects are undertaken under capital budget may be for any of the following purposes: Non profit projects, i.e. the projects to meet legal and safety requirements. Non measureable profit projects, i.e. the projects with intangible and long term advantages.
Capital replacement project, i.e. the projects undertaken to replace worn- out or obsolete equipment. Expansion projects, i.e. the projects undertaken to add to the companys working capacity.
Capital budgeting techniques:

A number of capital budgeting techniques are used in practice. They may be grouped in two categories, which the following chart tries to show:
Capital budgeting techniques
Discounted cash flow criteria
Non- discounted cash flow criteria
NPV IRR PI DIS- PAYBACK PERIOD
PAY BACK PERIOD ARR
The capital budgeting technique should have following characteristics: It should consider all cash flows to determine the true value of the project. It should help in ranking the various projects according to their true benefits. It should recognize the fact that bigger cash flows are preferable than the smaller ones and early cash flows are preferable then later ones. It should help to choose among mutually exclusive project those projects which maximize the shareholder wealth. It should be criterion, which is applicable to any conceivable investment project independent of others.
PROCESS FOR PREPARATION OF CAPITAL BUDGET:A. Intimation from Head Office to send proposals for next F.Y. B. Collection of various estimates from Indentors. C. Compilation of various data in specially designed Proformas. D. Put-up to Unit Head for consideration. E. Meeting by Unit Head with various Head of Departments / Sectional Heads. F. Final proposals to be sent to Head Office.
Intimation from Head Office to send proposals for Next F.Y. :Generally, in Oct/Nov, intimation is received from Finance Director, Head Office asking all manufacturing Units / Marketing Offices to send their respective budgets. In this intimation all concerns are asked to submit data to respective Head of Finance at Unit level. The Head of Finance of respective Unit can compile the Budget & send it to Head Office through respective Unit Head. In this intimation general guidelines and specific instructions are also issued to all Units so that all Units can keep uniformity in submitting their data.
Collection of various estimates from Indentors :The F&A department intimate all the department head to send their proposals for capital budget estimates for the necessary items required. For preparing the budget estimates the head office has given specific groups. The required items should be listed in that group only. The groups are:
Energy saving system/ schemes Operational necessity Reliability improvement Safety Replacement of ageing equipments Statutory requirements/ government directions Minor modifications Inspection facility R&D equipments Administrative office buildings, furniture, etc. Associated areas like welfare, township, etc. Computer and computer system.
Compilation of various data in specially designed Proformas :Capital Budget proposals are to be compiled in following Proformas1. Proposals for New Items. 2. Proposals for On going items 3. Completed items of current year Budget. 4. Dropped items of Current year Budget. 5. RE-appropriated items. 6. Reconciliation of current year Budget.
Proposals for New Items :All proposals received from various Departments / Sections are thoroughly checked by Finance & Accounts Department and same is financially concurred before incorporating the same in the Performa for New Items. Estimates are checked with Budgetary Quotations received from Suppliers or with Previous Procurements. Summary of new items Kandla unit Sr. No N-I N-II N-III N-IV N-V N-VI Items Energy saving system /scheme Operational necessity Reliability improvement Safety equipment Replacement of ageing equipments Statutory requirements of Govt. directives/requires of input supplies Minor modifications Inspection Facilities Research & development equipments Admn. Office building, furniture, colony amenities, etc. Associated areas like welfare, colony amenities, etc. Computer and computer systems Security and Intelligence Cost Estimates Expenditure 20010-11 2011-12
2009-10
N-VII N-VIII N-IX N-X
N-XI N-XII N-XIII
GRANT TOTAL
Following are some assets which are to be procured / Capitalized under each group:-
N-I: Energy Saving System / Schemes:Against this group those items are to be estimated which are meant for introducing a new schemes to save energy or any equipment which relates to saving of energy.
Example: - 1. Replacement of Energy efficient street lighting fixtures 2. Lighting Transformer with stabilizer for K-1 Plant. 3. Installation of economizer in Boilers.
N-II: Operational Necessity:Against this group those items are to be estimated which are meant for running of plant smoothly or necessary operation of the plant.
Example: - 1. Diesel operated Fork Lifts. 2. Voltage Stabilizers 3. Flame Photometers.
N-III: Reliability Improvement:Against this group those items are to be estimated which are meant for increasing / improvement in reliability of plant operation / plant equipments.
Example: - 1. Retrofitting of Air circuit breaker of Voltas make at C- D Load centre. 2. Retrofitting of MOCB by VCB. 3. Replacement of Raw Material feeders.
N-IV: Safety Equipments:Against this group those items are to be estimated which are meant for protection against Fire & keep the safety of Plant, its employees, contract labours etc.
Example: - 1. Installation of sliding / barriers type gate system for Railway Crossings in the Plant. 2. Multi purpose encapsulated protection suit for Handling Acids & Ammonia. 3 . Fire Extinguishers.
N-V: Replacement of Ageing Equipments:Against this group those items are to be estimated which replace the old aged equipments in Plant who have completed their useful life or are beyond economical repairs.
Example: - 1. Diesel operated Fork lift. 2. Pay loaders. 3. Copying Machines. 4. Lathe Machines. 5. Air Coolers, Air Conditioners, Fridges etc.
N-VI: Pollution Control / Environmental Protection Schemes:Against this group those items are to be estimated which are to be kept in Plant as per Statutory requirement or as per directives of Central Government or state government increasing / improvement in Pollution Control / Environment Protection Schemes.
Example: - 1. Spiro meter. 2. Construction of Check dams etc.
N-VII: Minor Modification:This group is used for procuring those minor capital items which are not covered in other groups. Normative budget of Rs. 15 lakh for Plant and Rs. 5 Lakh for Township is sanctioned for these groups.
Example: - 1. Lawn Movers. 2. Mobile Phones 3. Two wheelers, cycles etc.
N-VIII: Inspection Facilities:Against this group those items are to be estimated which are meant for inspection of various equipments, metals, atmosphere etc.:-
Example: - 1. Induction heater. 2. Machine condition Analyzer. 3. Measuring Instruments & Tools.
N-IX: Research & Development Equipments:Against this group those items are to be estimated which are meant for Laboratory and Research & Development equipments:-.
Example: - 1. Chemistry Modules. 2. Multi purpose Pilot Plan 3. Misc R & D Equipments like PH Meter, KF Titrator etc.
N-X: Admn. Office Building, Furniture, Fixtures, and Vehicles etc.:Against this group those items are to be estimated which relates to run Administration Building Office, Furniture, Fixtures etc.
Example: - 1. Xerox Machines. 2. Franking Machines. 3. Cars 4. Security items
N-XI: Associated Areas Like Welfare Colony Amenities, G.H.etc.

Against this group those items are to be estimated which relates to welfare of employees, township, Public Buildings, Guest House etc.
Example: - 1. Horticulture Equipments. 2. Barat & Associate works. 3. Playing Gadgets in the Gardens.
N-XII: Computer & Computer System:Against this group those items are to be estimated which are directly or indirectly relates to Computer Systems / Information Technology System.
Example: - 1. PCs / Printers. 2. Back up devises. 3. Web / Network Application Servers. 4. Fire wall for oracle database.
Proposal for ongoing items:

While proposing new items to be proved in next budgeted year, all section/Departments are requested to review the physical progress of current year budget items. After reviewing physical progress of current year budget, if they feel that the scheme/ procurement shall not be completed during this year. They may propose to carry forward their budget to the next budget year with same estimate or revised estimate. However, all efforts should be taken to complete the budget during the year, but in some exceptional care, if it is not possible to complete, than only those items to be carry forward to next year.
Here indenter shall provide the expected budget to be utilized during current year & balance to be utilized during the next year, with all justification for carry forward of the budget to next year. Here also for ongoing items, same groups of new items are to be used for presentation in preformed prescribed for the purpose.
Sr. no
Items
Cost Estimates Approved Present
Commitments Est. up Balance to to be 31-03made 2009
Expenditure Est. Up 2009- 2010to 3110 11 032009
2011 -12
1.
Energy saving system /scheme 2. Operational necessity 3. Reliability improvement 4. Safety equipment 5. Replacement of ageing equipments 6. Statutory requirements of Govt. directives/requires of input supplies 7. Minor modifications 8. Research & development equipments 9. Admn. Office building, furniture, colony amenities, etc. 10. Associated areas like welfare, colony amenities, etc. 11. Computer and computer systems 12. CISF facility Total ON- Going Items
Completed items of current year:While proposing new items to be procured in next budgeted year, all section/ Departments are requested to review the physical progress of current year budgeted items. After reviewing physical progress of current year budget, if they feel that the scheme/procurement shall be completed during this year they may propose to show this scheme/ procurement as completed during the budget year. Such schemes/procurement shall be shown in this proforma with final cost. Any utilized amount/ savings shall be surrendered. Sr. No Year of Budget approval ref. Items Approved budget FC IC Final Cost Amount surrendered (cost overrun) Total
Remarks
Total FC
IC
Dropped items of current year:In this proforma those items/schemes are shown which were not required/ to be implemented after due re-consideration. Some times to reduce cost or to cut down expenditure, less priority items are reviewed and dropped.
Sr. No
Year of Budget Items approval ref.
Approved cost FC IC Total
Reason for dropping
Re-appropriated items:Many a times it happens that there is a short fall of budget for any item or a new item is to be purchased which do not cover in approved budget. In this situation budget can be reappropriated from one head to another head with the approval of competent authority. In this proforma, items are to be shown which were re-appropriated to/from another budget heads for information of competent authority.
Re-conciliation
In this proforma a statement is prepared to show re-conciliation of current year budget as under:a. New items. b. Ongoing items ___________ Total Budget ___________ 1. Ongoing items 2. Completed items. 3. Dropped items. __________ Total Budget __________
This proforma help top management about the utilization of budget already sanctioned.
Proforma
Any item that is included in capital budget has to go through a lot of screening. For e.g.. : Items usefulness in the business, cost- benefit analysis, loss to unit of item is not included; ROI, etc are to be carefully taken. Proforma for new items/ capital expenditure likely to cost more than Rs. 10 lakhs each is as follows: Proposal No. Imported/ Indigenous Cost of proposal 01 Name of proposal 02 originating department 03. Location 04. The proposal a. Detailed description of the proposal b. Are there any ancillary facilities needed? c. Time required for completion (in months) 05. Justification a. Category of the proposal. b. Present status c. Financial benefits/ advantages expected to be Derived out of the proposal d. Details of alternatives available and why this Alternative is the best one e. Disadvantages, if the proposal is not Implemented f. If the proposal is one of replacement, please indicate the following. - Cost of original equipment. - Year of installation - Terminal value - Residual/ resale value 06. Financial A. Total cost of proposal - F.C. Rs. - I.C. Rs. - Total Rs. B. Have budgetary quotations been obtained C. Basis of cost estimate D. Break up of cost estimate ( enclose Statement giving activity wise purchase/ Job orderwise details giving scope of work) E. Financial requirement of the proposal (give Yearwise break up of cash inflows & outflows)
: : : :
07. Import formalities 08. Evaluation A. IRR B. ROI (on cash flows discounted @ 16.5%p.a.) C. Pay Back Period (on discounted cash flows) D. Net present value. 09. Risk Analysis 10. Ranking in term of priority
: :
: :
Put-up to unit head for consideration:-
Once budget estimation as given by various section/ Department is complied in all proforma 1 to 6, same is put-up to unit head by Departmental head of Finance & Account assuring all items are covered in respective groups.
Meeting by Unit Head with various HODs/SHS:-.
After receiving complete capital Budget proposals from F & A Department, Unit Head review the same & call a budget review meeting with all Heads of Department/ Sectional Heads. In this meeting Unit Head discuss all the items & their estimates with respective Department Heads/Sectional Heads. Unit Head once is satisfied with Capital items to be procured/ capital nature jobs to be awarded, he gives clearance to F & A Dept to send the proposal to Head office through him.
Final proposal to be sent to Head Office:-
Once Unit Head give clearance to send the capital budget estimation to Head Office, Finance & Accounts Department prepare final proposals with changes, if any, as suggested/agreed by Unit Head.
On receiving Capital Budget proposals from all unit of the organization, Head office prepare consolidated budget of all the Units including marketing & Head Office & put up to the Board of Directors through Finance Director and managing Director.
In due course, once capital Budget proposals are approved by Board of Directors, Head Office intimate all units and marketing Department about the approval of Capital Budget of respective Unit
There are many items which are included in capital budget. I have conducted detail study/ analysis for a major item included in approved Capital Budget for Kandla Unit. A detailed study of one new item in the capital budget is as follows:
New items in the capital budget 2010-11

Name of the project: Replacement of PLC & Control Instruments of Ammonia Storage Tank B (5000 MT)
What is this project about?

This project is about replacing the complete PLC base control system with new PLC and control instruments up gradation of SCADA software in ammonia storage tank B. The work involves deign, engineering, supply, erection & commissioning of PLC, up gradation of SCADA and control instruments for Ammonia Storage Tank B.
Why was the nee for this project felt?

Presently IFFCO is using L&T Yaskawa made R84H model PLC for operation & control of 5000 Ammonia storage Tank B since 1990. Now the spares of this model of PLC are not available with OEM (Original Equipment Manufacturer) as it is old one. Hence it is proposed to upgrade PLC with new series of PLC.
Financial Benefits/ Advantages arising from the project?

Financial quantification in this case was not possible, as they were replacing obsolescent systems and it will improve in the form of reliability. This will indirectly give them benefit of better and reliable control of hazardous and environmentally sensitive area of Ammonia storage.
Details of the project:

Time required for completion (In months) :
This project is expected to be completed within the duration of 12-18 months.
Category:
Among the 13 categories under which all the capital expenditure are allotted, which have already mentioned above, this project will come under Reliability improvement head.
Financial: Total cost of proposal

F.C (Foreign Currency) Rs I.C (Indian Currency) Rs Total Rs - 0.00* - 33.00 Lakhs* - 33.00 Lakhs *
*Please note all the figures above are imaginary.
Break up of cost estimate

Hardware: PLC System CPU, I/P-O/P Cards Control instruments and SCADA up Gradation Cables, Erection & Commissioning *Please note all the figures above are imaginary. : 20 Lakhs* : 11 Lakhs* : 02 Lakhs*
Are any ancillary facilities needed?

No ancillary facilities are needed.
What are basis of cost estimates?

Cost is estimated on the basis of the Budgetary Quotation obtained from OEM.
What are the alternative available & why this alternative is the best one?
No other alternative except continuing with existing obsolete PLC and single loop controllers mounted on panel old PLC and control mounted on panel old PLC and control instruments are giving frequent problems and their spares are not available. If we replace PLC and control instruments with the latest available PLC and control instruments the operational control of environmentally critical and hazardous area will be more reliable.
If the proposal is not implemented?

It the proposal is not implemented frequent problems of control system failure will be faced and critical area of ammonia storage will be without automatic control for safety and operation.
Are there any risk?

Due to non availability of spares of PLC and control instruments, operation of the plant is seriously hampered, which is very risky in form of increase in pressure and level of the tank and other allied vessels of Ammonia storage. Thus environmentally sensitive and highly risky area of Ammonia storage will be without proper control.
CAPITAL BUDGET CONTROL

After receiving the copy of approved Capital Budget, Finance & Accounts Department intimate all Departments/Sections about approval of items related to their area. Budget for each & every item is entered in the Budget Module meant for Budget Control in Financial Accounting Systems. Each items of capital budget is given 10 digit code where first two digit indicate group, next two digit indicate Rs No. of item in that particular group & last 4 digit indicate the year in which budget is sanctioned. Example 02 0010 0910, Here, 02 indicate group II, 0010 indicate Sr No of item of group II, 0708 indicate year 2009-10 in which budget is sanctioned.
After receipt of intimation of sanctioned budget & these 10 digit code, indenter raise MPR/WOI (Material Purchase Requisition / work of indent) and send it to F & A Department through Materials Department for Budget Availability Certification. F & A Department certify Budget Availability after scrutiny of MPR/W01 comparing the same with Budget sanctioned & sent it to materials Department for further action for procurement. Once material Department completes all formalities for placing of order on
supplier/contractor, proposal sent to F&A for entering the landed cost in Budget Module. F&A dept is responsible to assure that the material is not procured/contract is not placed beyond the sanctioned budget.
To control Capital Budget commitment, monthly meetings are held under the Chairmanship of Unit Head with all HODs / SHs and measures are taken to utilize the budget timely. For this monthly commitment/expenditure report is prepared by F & A Dept & is circulated to all HODs/SHS. To appraise Head office about the progress of capital Budget, Quarterly report for high value items are sent to Head Office in prescribed proformas.
BUDGET FOR LOANS & ADVANCESTO EMPLOYEES

BRIEF DESCRIPTION OF LOANS & ADVANCES TO EMPLOYEES
As per service rules of IFFCO, employees are given following type of loans / advances from time to time and as per employees requirements: House Building Loan Conveyance Loan Personal Loan /One month salary advance
House Building Loan

All permanent employees are given House Building Loan as per their entitlement. This Loan is given only once during tenure of employees service period. Loan is given fora. Purchase of plot b. Purchase of ready build house c. Construction of house on plot d. Additional work is to be done on present house property. Administration Section of P & A Department is responsible to get budget sanctioned from Head Office through F & A Department. For this, they send the estimate amount / budget required for budget period based on various data of employee who have yet not availed HBL.
Conveyance Loan
All permanent employees are given conveyance loan as per their entitlement. This loan is given more than once during tenure of employees service period. Loan is given fora. Purchase of car b.Purchase of scooter / motor cycle / moped. P & IR Section of Personal & Administration Department is responsible to get budget sanctioned from Head Office through F & A Department. For this, they send the estimated
amount / budget required for budget period based on various data of employees who are entitled to avail this facility.
Personal Loan /One month salary advance:All permanent employees are given one month salary advance (personal loan) one in a year. This advance is recovered in a year. This advance is recovered in ten equal monthly installments from employees salary. Here also, P & IR section of Personal & Administration Department is responsible to get budget sanctioned from Head Office through F & A Department. For this they send the estimated amount / budget required for budget period based on present employees strength & their yearly basic + D.A.
After getting budget estimates from P & A Department for above 3 type of loans / advance, F & A Department prepare data in following format and send it to H.O. for approval of competent Authority :Sr no 1 2 3 4 5 Op. Balance Commitment(Budget) Total Less:EstimateRecoveries Cl Balance HBL Conv loan Personal Loan
Head office get this budget proposals approved from competent. authority and intimate F & A department about the approved budget. Pay roll section & P & A Department are jointly control this budget.
BRIEF DISCRIPTION OF SALES BUDGET

The marketing division after receiving the intimation from the Head Office asks the zonal offices to prepare the sales estimations, the State Offices asks the Area Offices and the area offices asks the Co-operative societies to prepare the sales estimations for the next financial year. This way after completing all the procedure the sales estimates are prepared and forwarded by the Co-operative societies to the marketing division and the marketing division forwards it to the Head Office for the approval. The Head Office co-ordinates the budgets prepared by the marketing division (Sales Budget) and the budgets prepared by the Manufacturing Units (Production Budget). If in the case
the sales budget increases the production budget the Head Office imports the goods from the other countries to fill up the gap. This way the Head Office co-ordinates the production budget and sales budget. Usually the first of all budgets to be compiled is the sales budget: this particular budget will be dependent for creating the other budget proposals. These figures will have been calculated by multiplying the expected number of sales by selling price of the product. Perhaps the most important of all budgets is the sales budget. It is a statement of planned sales in terms of quantity and value, and analyzed into different grades of products. The area officer with his intimate knowledge will gather the information from the Govt. office at particular area about the previous record of rainfall, Demand and Utilization of the fertilizer and also current years projection for rainfall in that area. All information gathers are sent to higher authority of marketing officer on that basis the higher authority prepare the rough estimate for next year sales. They also prepare separate sale budget according Grade wise production and also shown State wise sales to be achieved.
BRIEF DESCRIPTION OF CASH BUDGET

The budget is the link between all the individual budgets and the master budget. Cash budget forms the core of budgetary control. If adequate cash resources are available, even the best schemes are bund to fail. This budget is prepared on the basis of all the above budgets ad summaries the estimated receipts for each month from debtors, is receivable and other incomes along with opening balances shows the total receipts. It should also indicate monthwise disbursement for wages and salaries, purchases of materials and overheads charges, etc.
On the basis of this budget, the financial controller is able to determine the need for additional funds and bank borrowings, if any, and also plan the allocation of working capital. If proper care is not exercised in preparing this budget, serious troubles are likely to arise at anytime during the year, particularly if long-term cash forecast is not properly made, future progress may be frustrated due to lack of funds.
AT IFFCO THE PROCEDURE OF CASH BUDGET:

All the units of IFFCO will make forecast there expenditure such as Capital Expenditure, Revenue Expenditure, Loans & Advances etc. for whole year and the same is divided into monthly requirement and send to the Head Office. Head Office will combined all the forecast of all Units (at KANDLA, PHULPUR, KALOL, ANOLA, Marketing and his own) and prepared Master Cash budget for the year. Where it shows details all the sources of income and where it will be disturbed for expenditure full detail planning is made monthly wise for whole year.
BUDGETARY CONTROL
Budgetary control is defined as the establishment of budgets relating the responsibilities of executives to the requirements of a policy and the continuous comparison of the actual with the budgeted results. It follows that a budgetary control system secures control over performances and related costs in different parts of the business,
1. By establishing budgets. 2. By comparing actual attainments against budgets. 3. Taking corrective actions and remedial measures or revision of budgets, if necessary.
The budgets put a concrete form and follow up action to see that the plan is adhered to complete the system of control. In other words, while budgeting is the art of planning, budgetary control is the act of adhering to the plan.
The advantages of a budgetary control system which arises from the achievement of the objective of budgeting are as follows: Budgetary control aims at maximization of profit through effective planning and controlling of the income and expenditure- directing capital and resources to the best and most profitable channel. It provides a clear definition of the objective and policies of the concern and a tool for subjecting these policies to periodic examination. The function and performance of the various branches and sphere of the organization is closely co-ordinate in a well knit pattern. Deviation from budget, points out the weak spots and efficiencies so that proper remedial measures can be taken.
As the budgets are set for each item of expenditure against departments and against each executive, they provide a motivating force urging all concerned to work efficiently. Budgeting ensures sufficiency of working capital in the business during the budget period. It creates in management a habit of thinking ahead- making careful study of the problems in advance before taking decisions. It stabilizes the condition in industries which are subject to seasonal or cyclic fluctuations.
Preliminaries for adoption budgetary control.

For the successful implementation of a system of budgetary control certain pre-requisitions are to be fulfilled. They are summarized as follows: excellent good There should be an organizational chart laying out clear terms the responsibilities and duties at each level of executive, and the delegation of authority to the various levels. The objectives, plans and policies of the business should be defined in clear cut terms. The areas to be covered by the budgetary scheme should be clearly laid down. The output level for which budgets are fixed, i.e. the budgeted output should be stated. There should be an efficient system of accounting to record and provide data line with the budgetary control system. It is actually the effort of the management and the accountant that make a budgetary control system successful. For the establishment and the efficient execution of the plan, a budget committee should be set up. There should be proper system of communication and reporting between the various levels of management. There should be a charter of the programme. This is usually in the form of a budget manual where in all details regarding the plan and its procedure of operation are given. The manual will also specify the length of the budget period. The budget should primarily be prepared by those who are responsible for the performance. The budgets should be complete, continuous and realistic.
When the budget is approved, a master budget entry is made in FAS (Financial Accounting System), where each and very item is given a special 10 digit item code. There should be an assurance from the top management executive of co-operative and acceptance of the budgetary system. This requirement is so obvious that it is often missed, resulting in failure of the scheme due to disagreements which arises later.
Budgetary control at IFFCO- Kandla

At IFFCO- Kandla budgetary control has been implemented at every step which can be summarized as: In this 10 digit code first two numbers indicate the group; next four digits indicate serial number of item in that particular group and last four digits indicate the year in which the budget was sanctioned. For e.g.: 0200100910 Where, 02 indicates group 2 0010 indicates serial number of the item of group 2 0910 indicates year of sanctioning, i.e. 2009-10 Then the amount sanctioned in the budget for that item is recorded. When as intender sends a request for the item to the purchase department. Purchase department verifies it with the items in the stock. If the item is not available the purchase department sends the enquiry to the various suppliers, the order goes to that supplier who fulfills all technical specifications and who bids the lowest price. When the order is placed, this information is passed on to F&A department with all the papers to be recorded properly. An entry is made in FAS to check whether the amount asked for, does not exceed the amount sanctioned. As IFFCO- Kandla is a huge unit it is not possible to verify numerous transactions so, a cut off is set at the level of rupees one lakh and all the items with amount equal to or less than rupees one lakh are sanctioned without scrutiny if the budget is available. If the amount is more than one lakh it goes to financial concurrence, where a deep study is done and the amount is sanctioned only if everything is found to be correct.
Budgetary control is again seen at the payments to various parties, at this stage it is verified that the bills received from third parties match with the amount specified in the contract. IFFCO- Kandla also implements the budgetary control by dividing the annual budgets into monthly budgets. Progress report for each item of revenue budget as well as for capital budget is prepared monthly. Quarterly progress report of capital budget for the items valuing more than Rupees fifty lakhs is sent to H.O to report the stages of high value items. IFFCO- Kandla also prepares the monthly variance report to ensure the controllability of different items. Moreover to control the capital budget commitment, monthly meetings are held under the chairmanship of unit head with all the HODs. In this meeting measures are to timely utilize the budget.
Variance
The comparison of actual performance with the standard performance reveals some deviation; these deviations are known as variances. Variances can be either favorable or unfavorable. However, whether a variance is favorable or unfavorable is ultimately determined with reference its impact on profit.
Variance Analysis
Variance analysis is an exercise which involves efforts to isolate the cause of variance in order to report to management those situations which can be corrected and controlled with timely action. A variance analysis should be continuous process for the following reasons: Labour rate, salary levels, etc. changes the union negotiations, policy decisions or changes in composition of work force.
Selling price changes.

In a multi-product company, product mix changes and different lines have different margins, the overall profit position will change. Improvement in the system can bring about reduction in costs. Change in the level of efforts of operators, supervisors, management and clerical can affect the existing cost levels. Investment in the new equipment and scrapping of old equipment/ processes can affect the operating cost level. The prices of bought out materials vary. Changes in the product design may change cost- inputs. Policy decisions of various kinds, for example, changes in the organization structure, may affect the cost levels. The amount of ideal time may change due to holdups, strikes, lockouts and power failures.
Causes of variances Material price variance

Changes in market price. Change in quality or specification of material purchased. Failure to obtain cash or trade discount or change in discount rates. Incorrect shipping instructions Emergency purchases. Uneconomic size of purchase order. Acceptance of orders requiring special purchase, high transportation. Changes in taxes, duties, etc. Inefficient purchase system. Failure to take advantage of seasonal purchase. Use of substitute materials of different prices. Changes in material price, upkeep and storekeeping cost, if such costs are treated as direct material cost.
Material usage variance

Poor quality of material. Changes in material mix. Changes in the production methods. Change in the specification or design of the product. Careless holding Faulting machine processing. Excessive wastes. Defective machines, tools, equipments. Improper standards. Poor inspection. Labour inefficiency. Improper engineering or technical specification. Theft of materials. Accounting errors.
Direct wage rate variance

Revision of pay scales Establishment of incorrect standards by personnel department. Use of non standard grade employees. Payments of wages at higher rates Changes in methods of remuneration.
Payment of guaranteed wages to the workers who are unable to earn their normal wages, if such wages are part of direct labour. Payment of wages at lower rate to casual or temporary workers employed to meet seasonal demand. Over time and night shift payment. New workers not been allowed full normal wages.
Direct labour efficiency variance

Poor working conditions. Poor/stick supervision than specified. Incorrect scheduling of production process Insufficient training to workers. Poor repairs and maintenance of machines. Abnormal idle time. Use of sub standard material Use of employees with low efficiency. Work on new machines requiring less time than provided for. Setting incorrect standards Go slow techniques of workers. Increase in labour turnover. Incorrect record of performance.
Overhead expenditure variance

Seasonal conditions. Improper use of available facilities. Inefficiency in the various services. Use of different services. Improper standards. Change in the level of activity. Change in the working time.
Overhead efficiency variance

Same as labour efficiency variance
Overhead volume variance

Calendar variations. Abnormal idle time. Change in scheduling of the production process. Shortage of material. Labour shortage. Slump in customers demand
Disposition of variance
A wide degree of opinion exists among accountants regarding disposition of variances. It is very difficult to lay down hard and fast rules to be followed for this purpose. It is commonly recognized that disposition of various variances is a very important decision, which affects both inventory valuation and income valuation. Following are the important consideration relevant for disposition of variances: Materiality of variances. Cost of inefficiency. Cost of the product.
The choice of method depends on:

Types of variances i.e. material, labour, overhead. Size of variances. Past experience of using standard costing. Causes of variance. Timing of variances.
Methods of variance disposal

Transferring them to Profit and loss account. Prorating over cost of sales and closing inventory of WIP and finished goods. Writing of controllable variance to P&L and uncontrollable variance to prorated over cost of sales and closing inventory of WIP and finished goods. Setting up a reverse.
Reporting of variances:
Variances are not the end in themselves. They communicate signals for the future analysis, investigation and action. Variance analysis will lose its utility and objective if variance reports are not promptly made to the appropriate level of management. The report on variance analysis should be made assuming three levels of management, i.e. top management, middle management and operating management. Variance report should be made keeping in view the ultimate view of the report and the periodicity of reports. The cost account should make vivid reports highlighting-
Essentials cost variations. Possibilities of improvement.
The variance report should be prepared with due regard to the following points: The executive concerned should be informed about, what the cost performance should have been. How close actual performance was with reference to standard cost performance. The analysis of causes of variances to enable the control action to be taken appropriately. Reporting activity should be guide by the principle of management by exception based on this principle, accost accountant communicates to appropriate level of management only essential facts from the great mass of his cost data. The magnitude of variances.
Variance analysis at IFFCO- Kandla
At IFFCO- Kandla variance report is prepared every three months in order to know the deviations between the actual and budgeted cost of production. Variance report is prepared for variable costs and for fixed costs. The actual figures are compared with the budgeted as well as the actual of the previous corresponding period. For variable costs IFFCO- Kandla prepares following variances reports: Rate variance Usage variance
Whereas for fixed overheads actual cost incurred are compared with the budget for that period and the actual of the previous corresponding period. All the monthly variance reports are sent to H.O. with the reasons for variance for the purpose of review.
LIMITATIONS OF THE STUDY

This study has been carried out only based on information obtained by interviewing personals in F & A Department IFFCO KANDLA. Information received was based on secondary data and on the primary guidance given by the employees there at IFFCO KANDLA. So any Error in source data that may change the Actual Scenario. This study has been carried out in a period of 90 days which is very less to know and understand an organization like IFFCO KANDLA. Major sources of structured information and data or Records up to last 10 Years have been used. Also to evaluate and ascertain financial position correctly of organization like IFFCO, a student like me of 22 years age is too less. We were interested to study following topics but couldnt make it, in absence of any information, as is handled by Head Office, New Delhi. o cash budget o sales budget It was advised to go through only in procedural information & not to use any financial data pertaining to IFFCO as a whole or for IFFCO KANDLA UNIT. However at many places figures shown are as sample/Estimate figures & not the actual figures.
Findings & SUGGESTIONS

FINDINGS:
Sales are main source of Income. Raw Materials Cost consists of 95% of Total Cost. So Change in Raw Materials Price will strongly affect the Total Cost. For Continuity in Production there should be continuous Raw Material supply. So any deficiency in supply of Raw Materials will affect the Production. Whatever Project is undertaken at IFFCO KANDLA up to date all Projects duration and cost were achieved within the specified limit or budget figure. Continuously from last 15 Years IFFCO is providing the Dividend at the rate of 20% per Year. Punctuality in Timings and Management work is excellent at IFFCO. A well equipped System facility providing the LAN and VAN access for speedy communication. Environment control policy adopted by ISO - 14001 Certified. Best Employees welfare facility (Residence for all the employees at IFFCO Township). Every Employees Work is interlinked. EMD Security Retention Money and other amount an average of Rs. 4 -5 Crores every Year at IFFCO Kandla. No Interest is paid to vendor and same amount is being lying in the society current Account. Strong Marketing Distribution Network. A well Future Set Plan MISSION 2010. A Strong Team of Directors from all over India.
Great Support of Government of India & Fertilizer Ministry. A Strong Financial States. A team work from Top Management to Lower Grade Staff to achieve the targets. A Chain (H.O.) between Management & Plants (Kalol, Kandla, Aonla, Paradeep, Phulpur & Marketing office) all over India. IFFCO seems a good pay master for employees as well as suppliers. A good atmosphere to work at & with IFFCO. Safety level is at high point. A good training to employees.
SUGGESTIONS:
Media Support should be taken to change the minds of farmers to use fertilizer in their farms. IFFCO one of the countrys largest producer of fertilizer in industry fertilizer is situated at Kandla -Kachchh but then also there are many villages in Kachchh only where still Concept of using Scientific fertilizer in farms is not Clear & popular. Still there are many farmers using the old concept of Cow Dunk as the only way of fertilizer in there farms. So proper suggestion and guidance should be given to change there mind set up. Work Load on employees should be equally divided. No body should be loaded with too much work and too less work equal distribution of work should be there.
CONCLUSION.
I have carried out my training period of Three months in Finance and Account Department (F&A), IFFCO KANDLA. During this period I have studied in brief and have taken overview of the activities of each section of F&A Department at IFFCO KANDLA. And after the study I conclude that practices and procedures followed here at par with the industry standard and comply with legal and regulatory requirements. During out training I have studied and analyzed IFFCOs annual report for the financial year 2008-09 and found that IFFCO is financially very strong due to its large reserves and has good credit in market, due to its high share of equity. It has paid 20% dividend which is ever highest by any P.S.U. or co-operative society in India.
Successful realization of VISION 2010 and MISSION will definitely made the society to emerge at top position in India. Also this would solve to its objective of being a socially responsible organization and work for welfare of farmers not only in India but also in abroad.
IFFCO is also Socially Responsible Organization who does not only look after the wellbeing of their employees and share holder only but they also look after the welfare of farmers by many promotional programmers carried out under the schemes of IFFCO Kisan Sewa Trust and by the Indian Farm Forestry Development Cooperative (IFFDC).
Recommendations
I undersigned, have no experience and my age is too less to valuate any industry giant like IFFCO. Also the training period of one month is too less to understand and analyze the vast functions procedure and regulatory requirements that needs to be carried out in cash section of finance and account department of IFFCO KANDLA.
BIBLIOGRAPHY.
Books:
Name Financial management Financial management Financial management Financial management Research methodology
Author I. M. Pandey Khan and Jain Prasanna chandra S. N. Maheshwari C.R. Kothari
Annual reports of IFFCO- Kandla
Magazines: SAHYOG, IFFCO KANDLA
Website
: www.iffco.nic.in

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Budget and Budgetary control

Indian Farmer Fertilizer CoOperative Limited

precious guide in the field. I would also like to

company and friends, for always reminding me to believe in myself.

Budget and Budgetary Control

Budget and Budgetary Control

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STEPS IN RESEARCH DESIGN

I used to have discussion with the financial staff of the company

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INTRODUCTION OF INDIAN FERTILIZER INDUSTRY

sufficiency in food grains. The seventies

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Major Players in Indian Fertilizer Market

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Public Sector Companies in Indian Fertilizer Market

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Private Companies in Indian Fertilizer Market

Private Companies Producing Fertilizer in India:

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Cooperative Companies Producing Fertilizer in India

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What is Cooperative Society?

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Difference Between Co-operative society & Company.

Cooperative Society Interest of members and community

Company Self interest either of management or the share holders

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No such provision for workers

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Indian Farmers Fertilizer Co-operative Limited

MARKET CAPTURED BY IFFCO

(IFFCO) was registered on November 3, 1967 as a Multi-unit Co-

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implementation. vision, IFFCO has unit at Paradeep in September 2005.

As part of the new acquired fertiliser Orissa in

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