Project to Be Submitted to Tims by Roll No 4 & 13

BUDGET AND BUDGETARY CONTROL

AT

IFFCO-KANDLA

A PROJECT REPORT

Submitted by

KOMAL ADVANI

(10004)

KHUSHBOO BHAMBHANI

(10013)

BATCH: 2010-12

TO

Prof.A.J.BHAMBHANI

Director (PGDM)

In partial fulfilment of the requirements of

Tolani Institute of Management Studies,Adipur

for the award of the degree of

Post Graduate Diploma in Management

Tolani Institute of Management Studies

PB No.11,Lilashah Kutiya Road,Adipur-370205(Kachchh).

Ph:(02836)261466,262187 Email:[email protected],www.tolani.org/tims

JULY 2011

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ACKNOWLEDGEMENT

“Debts can be repaid, but co-operation extended and the guidance given by someone can never be repaid.”

It was a great pleasure to work at IFFCO-KANDLA. We take this opportunity to extend our gratitude towards all those officials who have directly or indirectly contributed to this project.

We are indebted to Shri L.Murugappan, Sr.Executive Director, who gave us an opportunity to undertake this project at IFFCO-KANDLA.

Further, we are grateful to Mr.A.E.Kadu, Jt. General Manager (T/S) and Mr.H.H.Chauhan, Sr.Manager (Training) who gave us an opportunity to undertake this project at IFFCO-KANDLA, and also for their help and tips whenever needed.

We would like to thank Mr.V.J.Mankodi, Jt. General Manager (F&A) & Mr. D.C.Maheshwari, Dy.General Manager (F&A) for preparing training schedule for us.

We take this opportunity to express our sincere appreciation and gratitude to Mr.H.T.Bhambhani, Manager(Accounts) and Mr. Dushyant Chauhan, ,Assistant Manager(Accounts) whose friendly co-operation made this analysis and study of project data information regarding IFFCO-KANDLA more fascinating and interesting experience.

We also appreciate the supportive attitude of all the staff members of Training Centre and F&A Department of IFFCO-KANDLA ,who briefed the procedures and practice in the sections by sparing their valuable time from their heavy work schedule and busy working hours.

Budget & Budgetary Control

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EXECUTIVE SUMMARY

Indian Farmers Fertiliser Co-operative Limited (IFFCO) today is a leading player in India’s fertiliser

industry and is making substantial contribution to the efforts of Indian Government to increase food

grain production in the country. Indian Farmers Fertiliser Co-operative Limited, popularly known as

IFFCO emerged as a pioneer venture on the horizon of fertiliser production and marketing with the

objective of attaining self-sufficiency in food grain production. Nowadays, there are 40000 co-operative

societies associated with IFFCO. They have diversified their business in the field of insurance, power

plant and raw material production.

This report is a study of “BUDGET & BUDGETARY CONTROL AT IFFCO KANDLA”. It contains

detailed information regarding various types of budgets pertaining to IFFCO KANDLA. We have also

studied the procedures and steps for preparing the budget and steps taken to control it. In this report we

have covered all types of budgets prepared at IFFCO KANDLA namely Revenue budget, Purchase

budget, Capital budget, Loans and Advances to employees. We have also mentioned various formats

and tables Showing the Budget and Budgetary Control procedure.


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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

40000 at present.

Indian Farmers Fertilizer Co-operative Limited (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 five plants under overall aegis of IFFCO VISION 2010. The

expansion projects at Aonla, Kalol, Phulpur, Paradeep and KANDLA have been completed on schedule.

Thus all the projects conceived as part of Vision 2010 have been realized without time or cost overruns.

All the production units of IFFCO have established a reputation for excellence and quality.

A new growth path has been chalked out to realize newer dreams and greater heights through Vision

2015 which is presently under implementation. As part of the new vision, IFFCO has acquired fertiliser

unit at Paradeep in Orissa in September 2005. As a result of these expansion projects and acquisition,


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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 Phulpur

Aonla -1 Aonla-2 Phulpur-1 Phulpur-2

Paradeep

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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 BimaYojana' 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 Center 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


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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.

Major Investment of IFFCO in other firms:-

IFFCO has started the joint venture in all below mentioned firms in INDIA as well as in other countries.

1. Oman Indian Fertilizer Project2. IFFCO And National Commodity And Derivatives Exchange Limited3. IFFCO-Tokio General Insurance Company Limited


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Units of IFFCO

KANDLA UNIT

PHULPUR UNIT


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KALOL UNIT

AONLA UNIT

PARADEEP UNIT


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Market share of IFFCO

MARKET CAPTURED BY IFFCO

IFFCO50%

KRIBHCO24%

GNFC21%

OTHERS5%


S.R. NO. COMPETITORS MARKET CAPTURED IN%

1 IFFCO 50

2 KRIBHCO 24

3 GNFC 21

4 OTHERS 05

Total 100

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VISION AND MISSION

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.

MISSION

To provide to farmers high quality fertilizer in right time and in adequate quantity with an

objective to increase crop productivity

To make plants energy efficient and continually review various schemes to conserve energy.

Commitment to health, safety, environment and forestry development to enrich the quality of

community life.

Commitment to social responsibility for a strong social fabric.

To institutionalize core value and create a culture of team building, empowerment and

innovation which would help in incremental growth of employees and enable achievement of

strategic objectives.

Building a value driven organization with an improved and responsive customer focus. A true

commitment to transparency, accountability and integrity in principle and practice.

To acquire, assimilate and adopt reliable efficient and cost effective technology and sourcing raw

materials for production of phosphate fertilizers at economical cost by entering into joint venture

outside India.

To ensure growth in core and non-core sector.

A true cooperative society committed for fostering cooperative movement in the country

Foster a culture of trust, openness and mutual concern to make working a stimulating and

challenging experience for stakeholders


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Emerging as dynamic organisation, focusing on strategic strengths, seizing opportunities for

generating and building upon past success, enhancing earnings to maximize the shareholders

value

COMPANY PROFILE

KANDLA Unit – Location

State Gujarat, India

State Capital Gandhinagar

District Kutch

Distance from New Delhi Approx. 1100 kilometers by rail

Distance from Mumbai Approx. 800 kilometers by rail

Nearest Airport KANDLA Airport, Near Gandhidham ,and

BHUJ Airport 65 KM from Gandhidham.

Railway Station Gandhidham (12 Km from plant and 3 Km

from IFFCO's township at Gandhidham)

and KANDLA (3 Km from the plant)

Road Adjacent to KANDLA Port Trust on National

Highway 8-A, 365 Km. from Ahmedabad

Area under Plant 70.61 Hectares


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Area under Township 79.65 Hectares

Temperature ( o C ) 47 (Max.) in summer to 7 (Min.) in winter.

Rainfall (mm) Scarcity

Longitude 70o 13'26" E

Latitude 23o 00'00" N

Address IFFCO, KANDLA Unit, Post BoxNo.12,

Gandhidham - 370201, KANDLA (Kutch),

Gujarat, INDIA

Phones :91-2836-270381,-270382,-270539 ,-270639,

-270641.

FAX

Website

: 91-2836-270642, -270658, -270685.

: www. Iffco.nic.in

E-Mail : [email protected]

IFFCO’s 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 M/s Door Oliver-Inc to

produce three grade of NPK & 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-II and 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- II commissioned

on 4th June 1981 with the production record for IFFCO. The production of KANDLA Phase II was

started from 6th September 1981.


mailto:[email protected]

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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 1997-98 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 Labour, Government of India Runner, National Safety award – 1999.

One Labour, Government of India Runner, National Safety award - 1999".


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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 KANDLA Unit is controlled by Head of the Department i.e. JGM

(F&A). His main function is to co-ordinate all activities related to Finance & Accounts and report to

Head Office’s Finance & Accounts Department / Finance Director as well Unit Head. Finance &

Accounts Department function various type of activities as per the Guidelines issued by Head Office,

Purchase Procedure, Service Rules, Powers of officer etc.

At present to carry out all the related activities, following three sectional heads are reporting to him for

work connected to their Sections. All the three sectional heads independently report to Departmental

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 sectional head will report to him for all the work

connected to their Sections.

Finance department comprises of :

Pay roll section

Raw materials


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Misc Bills payable Section

Works Bills Payable Section

Purchase Bills Payable Section

Finance Concurrence Section

Books & Budget Section

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 SECTION

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 – Imported & Indigenousl

Filler

Raw Material section in F & A department does the accounting of above mentioned raw material which

includes receipt of raw material purchased, monthly consumption as per Monthly Consumption figures

reported by Technical Department and payment to the suppliers.

MISCELLANEOUS BILLS PAYABLE SECTION

The miscellaneous bills payments 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.


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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 PAYABLE SECTION .

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 PAYABLE SECTION

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.


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OBJECTIVES

Management student has to apply his theoretical knowledge in the practical field and compare with

the results. He has to find out 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,

methods of budgetary control and to compare the same with the actual expenditures.


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RESEARCH METHODOLOGY

The research methodology which, we had adopted at IFFCO was conducting exploratory research

and personal interviews. Exploratory research design is the unstructured and informal research

undertaken to gain background information about the organization. Under this, the method adopted

here was conducting experience survey. Experience survey had been conducted in order to gather

information from the knowledgeable person on the issues relevant to the research project.

Research methodology defines the purpose of the research, how it proceeds, how to measure

progress and what constitute success with respect to the objectives determined for carrying out the

research study.

The appropriate research design formulated is detailed below:-

Exploratory research: this kind of research has the primary objective of development of

insights into the problem. It studies the main area where the problem lies and also tries to

evaluate some appropriate courses of action.

The research methodology for the present study has been adopted to reflect these realities

and help reach the logical conclusion in an objective and scientific manner.

The present study contemplated an exploratory research.


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DATA COLLECTION

Sources of data:

Primary data which included the input received from directly from the employees through interview /

interaction.

Secondary data from the books, journals and internet.

Method of collecting data:

Interview method.

Personal enquiries


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DATA COLLECTION SOURCES

EXPLORATION

Management document Magazine

Financial document Web Source

Human resources document Head office


MANAGEMENT QUESTION

RESEARCH QUESTION

INTERNAL SOURCES EXTERNAL SOURCES

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and database

BUDGET

AND

BUDGETARY

CONTROL Budget & Budgetary Control

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Introduction

For effective running of business, management must know:

Where it intends to go i.e. its organizational objectives How it intends to accomplish its objective i.e. its plans Whether individual plans fit in the overall organizational objective i.e. coordination Whether operations conform to the plan of operations relating to that period i.e. control

“Budgetary control is the device that a company uses for all these purposes”

WHAT IS A BUDGET?

“A plan expressed in money. It is prepared and approved in prior to the budget period and may show income, expenditure and the capital to be employed. May be drawn up showing incremental effects on former budgeted or actual figures, or be complied by zero-based budgeting ”.

WHAT IS BUDGETARY CONTROL?

Budgetary control is the use of comprehensive system of budgeting to aid management in carrying out its functions like planning, coordination and control

This system involves:

Division of organisation on functional basis into different sections known as budget centre.

Preparation of separate budgets for each “budget centre”.


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Consolidation of all functional budgets to present overall organizational objectives during the forthcoming budget period.

Comparison of actual level of performance against budgets. Reporting the variances with proper analysis to provide basis for future course of action.

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.

1. The budget serves as a declaration of policies and also defines the objective for executives at

all levels of management.

2. 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.

3. The budgets inculcate team spirit and are like putting so many heads together to solve a

common problem.

4. 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.

5. Budgets facilitate centralized control with delegated authority and responsibility. Group

according to the responsibilities of different executive levels, they facilitate decentralization

of work.

6. 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.


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CLASSIFICATION OF BUDGETS

ACCORDING ACCORDING ACCORDING

TO TO TO

TIME FUNCTION FLEXIBILITY

1. Long term budget 1.Sales budget 1. Fixed budget

2. Short term budget 2. Production budget 2. Flexible budget

3. Current budget 3.Cost of production budget

4. Rolling budget 4. Purchase budget

5. Personnel budget

6. R & D budget


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7. Capital Expenditure budget

8. Cash Budget

9. Master Budget

SALES BUDGET:-

Sales budget is the most important budget based on which all the budgets are built up. The budget is a forecast of quantities and values of sales to be achieved in budget period.

PRODUCTION BUDGET:-

Production budget involves planning the level of production which in turn involves the answer to the following questions:

What is to be produced? When is it to be produced? How is it to be produced? Where is it to be produced?

COST OF PRODUCTION BUDGET:-

This budget is an estimate of cost of output planned for a budget period and may be classified into-

Material cost budget Labour cost budget Overhead cost budget


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PURCHASE BUDGET :-

This budget provides information about the materials to be acquired from the market during the budget period.

PERSONNEL BUDGET:

This budget gives an estimate of the requirements of direct labour essential to meet the production target.

This budget may be classified into-

a. Labour requirement budgetb. Labour recruitment budget

RESEARCH & DEVELOPMENT BUDGET:-

This budget provides an estimate of expenditure to be incurred on R & D during the budget period.

R & D budget is prepared taking into consideration the research projects in hand and new R & D projects to be taken up.

CAPITAL EXPENDITURE BUDGET:-

This is an important budget providing for acquisition of asset necessitated by the following factors:

a. Replacement of existing assets.b. Purchase of additional assets to meet increased production.c. Installation of improved type of machinery to reduce costs.

CASH BUDGET:-

This budget gives an estimate of the anticipated receipts and payments of cash during the budget period.

Cash budget makes the provision for minimum cash balance to be maintained at all times.

MASTER BUDGET:-


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CIMA defines this budget as, “The summary budget incorporating its component functional budget and which is finally approved, adopted and employed,”

Thus master budget is a summary of all functional budgets in capsule form available in on report.

FIXED BUDGET:-

This is defined as a budget which is designed to remain unchanged irrespective of the volume of output or turnover attained.

This budget will, therefore, be useful only when the actual level of activity corresponds to the budgeted level of activity.

FLEXIBLE BUDGET:-

CIMA defines the budget as one “which, by recognizing the difference in behaviour between fixed and variable costs in relation to fluctuations in output, turnover or other variable factors such as number of employees, is designed to change appropriately with such fluctuations”.

CONTINUOUS BUDGET:-

In continuous budget the period is fixed. For eg. 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 eg. 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.

PERFORMANCE BUDGETING:-

These days budgets are established in such a way so that each item of expenditure is related to specific responsibility centre and is closely linked with the performance of that standard.


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ZERO BASED BUDGETING:-

The zero base budgeting is not based on the incremental approach and previous figures are not adopted as the base.

Zero is taken as the base and a budget is developed on the basis of likely activities for the future period.

A unique feature of ZBB is that it tries to help the management answer the question, “Suppose we are to start our business from scratch, on what activities would we spent out money and to what activities would we give the highest priority?”

RESPONSIBILITY ACCOUNTING:-

Responsibility accounting fixes responsibility for cost control purposes by establishing responsibility centres namely-

a. Cost centreb. profit centrec. Investment centre

Principles of responsibility accounting are as follows:1. Fixation of targets for each responsibility centre2. Actual performance is compared with the target3. The variances therein are analyzed so as to fix the responsibility of centres.4. Taking corrective action.

CONCLUSION:-

Preparation of budgets is the first step in the budgetary control system. Implementation of budgets is the second phase. But preparation and implementation of budgets alone will not achieve much unless a comparison

is made regularly between the actual performance and the budgeted performance. Continuous and proper reporting makes this possible To ensure the success of budgetary control system, proper follow up action has to be taken

immediately for the reports submitted.


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STEPS IN FIXATION OF BUDGET:

At IFFCO the following steps are followed for compilation of Budgeting procedure:

1. 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.


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Industrial relation position.

Availability of railway wagons and other transportation media for distribution of finished

products form plants etc.

2. 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 within 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 Phosphoric 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.


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3. 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.


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CONTRIBUTION OF VARIOUS DEPARTMENTS IN BUDGETING PROCESS

Contribution of various Departments for the purpose of compilation of budget is as described below:

1. 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


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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.

2. MAINTENANACE DEPARTMENT:


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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

Procurement budget requirement for purchases of non-stock items of stores and spares for

maintenance.

3. TECHNICAL SERVICE DEPARTMENT:

a. 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,

Fuels 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.

b. 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 requirements of engineering

service departments are of capital nature. However, for routine management works of Technical

Service Department, drawing, photocopying and other facilities, revenue budget requirements are

worked out and furnished by engineering services section.


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c. 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.

d. 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.

4. 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.

a. FIRE & SAFETY SECTION:

Expenditure on Fire & Safety Services are estimated by Fire & Safety Section.

b. 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.

5. PERSONNEL & ADMINISTRATION DEPARTMENT

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.


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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.

6. 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.

7. 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

PROCEDURE FOR USING THE BUDGET APPROVED:


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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-à-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.


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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.


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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


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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:


P a g e | 42

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.

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


P a g e | 43

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


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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.


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We will see the above aspects in detail of various budgets in following pages.


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REVENUE,

PURCHASE BUDGET

&

BUDGETARY CONTROL

BRIEF DESCRIPTION OF REVENUE BUDGET


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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.

1. 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.

2. 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


P a g e | 48

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 information’s 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 day’s estimates for production targets.

All estimates of various types of direct / indirect expenses related to production activities.

I. 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


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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.

II. 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 (NH3)

3. Potash (MOP)

4. Urea

5. MAP

6. Filler

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.

III. RATES TO BE ADOPTED FOR PACKING MATERIAL


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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.

IV. 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.

V.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


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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

V. STREAM DAY’S 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.

VI. 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.


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3. COLLECTION OF VARIOUS DATA IN SPECIALLY DESIGNED

STATEMENT / ANNEXURE.

The various data collected from various sources are compiled in specially designed Proforma’s /

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

Particulars

1 STATEMENT – I Production And Sales Targets

2 STATEMENT – II Profitability Statement

3 STATEMENT – III Total Cost Of Production

4 STATEMENT – IV Purchase Budget

5 ANNEXURE- I Break –up of Unit price of Raw Materials / Utilities /

Packing Materials

6 ANNEXURE- II Norms of consumption for raw materials /utilities/packing

material

7 ANNEXURE- III Township recoveries and other revenues

8 ANNEXURE- IV Consumption of raw materials / Utilities / packing

materials

9 ANNEXURE- V Employees remuneration & benefits

10 ANNEXURE- VI Repairs and maintenance expenses

11 ANNEXURE- VII Chemicals

12 ANNEXURE- VIII Insurance expenses


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13 ANNEXURE- IX a) Factory overheads & b) R & D expenses

14 ANNEXURE- X Grade wise cost of production

4. BRIEF EXPLANATIONS OF STATEMENTS / ANNEXURES :

A. STATEMENTS

STATEMENT– I: PRODUCTION AND SALES TARGE T

In this statement the data relating to plant’s installed capacity in terms of P2O5, stream day’s 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 & Sales Target Statement-I

ACTUAL ORIGINAL BUDGET

REVISED ESTIMATES

ITEMS UNIT

BUDGET

2005-06 2006-07 2007-08 2008-09 2008-09 2009-10

INSTALLED CAPACITY

P2O5

LAKH

TE

STREAM DAYS DAYS

PRODUCTION


P a g e | 54

NPK- 10:26:26

NPK- 12:32:16

DAP- 18:46:00

LAKH TE

LAKH

TE

LAKH TE

TOTAL NPK/DAP LAKH TE

IN TERMS OF P2O5

LAKH TE

CAPACITY UTILIZATION

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.


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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:-

ACTUAL ORIGINAL BUDGET

REVISED ESTIMATES ITEMS BUDGET

2009-10

2007-08 2008-09 2009-10 2010-11 2010-11

A. REVENUE

1. SALES (NET OF REBATES & DISCOUNTS)

Products

2.PRODUCT SUBSIDY FROM GOI

3.FREIGHT SUBSIDY FROM GOI

4.TOTAL TURNOVER

(SALES+SUBSIDY)

5.OTHER REVENUE

A. Plant

B.Share Of Head Office & Marketing

Total other revenue


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3. Other revenue

A. Plant

B. Share of HO & MKTG

Total Other Revenue

6.EXCHANGE RATE VARIATION

7.INCREASE/(DECREASE)IN STOCKS

8.TOTAL REVENUE

B. EXPENDITURE

1. Cost of production

2. Distribution expense

a. Freight

b. Handling & Transportation

Total distribution expenses

3.ADMINISTRATION EXPENSES

A. Marketing division

B. Head OFFICE

Total Administration expenses

4.EXCHANGE RATE VARIATION

5.INTEREST COST

a. Long term

b.Short term


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c.Intrest on others

d.net short term(b-c)

Total Interest Cost(a+d)

7.TOTAL EXPENDITURE

C.PROFIT/(LOSS)FOR THE YEAR

D.PRIOR PERIOD & OTHER ADJUSTMENTS

1.PRIOR PERIOD ITEMS(NET)

2.OTHER ADJUSTMENTS

F.PROFIT/(LOSS)

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 labour time, and the estimated cost of materials, labours, and manufacturing overhead.

Cost of production budget at IFFCO-Kandla:


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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 unit produces the fertilizers under the three grades. They are

Grade- 1 Grade-2 DAP NP

10:26:26 12:32:16 18:46:00 20:20:0

The products produced in the firm are fixed by certain norms. The norms are fixed for producing per metric tonn 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 tonn 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 calculate the estimates of cost of


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raw materials by including various government levis like custom duty, wharfage and other statutory levis.

The variable cost is derived as:

Production * Norms= Quantity * Rate= Amount.

Fixed cost:

Fixes cost include following items:

1. Chemicals2. Employees remuneration & benefits3. Repairs & maintenance4. Insurance5. R&D expenses6. Other manufacturing and unit administration7. Security expenses8. Depreciation

1. 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.

2. Employees’ remuneration and benefits:


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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 wages2. PF & FPF contribution3. Welfare expense

Salaries and wages:

Salaries and wages comprises of:

Salaries and wages – employeeso Basico Personal pay and allowanceo D/Ao Special allowance- working planto HRAo Kandla allowanceo Stipend to trainees/ D.A.o Railway staff salaryo Employees furnishing allowance

Incentive payments Indirect wages- contract labour 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


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It includes:

a) PF contribution employeesb) FPF contribution/ pension/ employerc) PF admin chargesd) Group gratuity- cum life assurancee) Society’s contribution to insurance

The PF is calculated at 12% of BP+ DA excluding pension fund, where- group gratuity and society’s contribution is provided by H.O.

Welfare expenses

It includes:

a. Reimbursement of medical expenseb. Medical expense: recruitmentc. Hospital suppliesd. Doctors honorariume. Liveries: protective clothingf. Liveries: shoesg. Liveries: stitching chargesh. Liveries: othersi. Staff welfare expensesj. Family planning incentivek. Children transportation subsidyl. Awards to employeesm. Sport expensesn. Celebration expenseso. Club house expensep. Transfer expensesq. School expensesr. Employer contribution to PF

3. Repairs and maintenance:

Repairs and maintenance is broadly divided into

A. Plant & machineryB. Civil maintenance

Factory Township

C. Furniture & fixtures

Repairs and maintenance budget consists of:


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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.

4. Insurance

Insurance expenses are also treated as the fixed costs. As it is well known that in today’s business environment it is very important to cover all the risks, so IFFCO- Kandla 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.


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Public liability for industrial risks. Terrorist cover

Policies are taken from the sister concern- M/s IFFCO- Tokyo general insurance company

5. 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.

Statement III : Cost of Production

ACTUALS ORIGINAL BUDGET

REVISEDESTIMATES

ITEMS

BUDGET

2004-05

2005-06

2006-07

2007-08

2008-09 2008-09 A. VARIABLE COST 2009-10

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


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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 Exp

7. Security expenses

8. Depreciation

TOTAL FIXED COST

TOTAL COST OF PRODUCTION


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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:

HDPE Bags: 50 Kg

HDPE Bags: 40 Kg

HDPE Bags: 25 Kg

4. Others:

1. Stores

2. Spares

3. Tools

4. Cement

5. Steel etc.


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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. C & F price / basic price

2. Insurance

3. Stamp Duty

4. Service Charges

5. Freight (in case of indigenous items)

6. Custom Duty

7. Excise Duty

8. Wharfage / Port Expenses etc.

9. Sales Tax

10. Thread

11. Miscellaneous bank charges directly related to Purchase.


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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.

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

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


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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.

1. Raw Materials

2. Utilities

3. Packing Materials


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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

Employee’s 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 employee’s 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. Particulars Indenter

A-1 Salaries & Wages

1 Basic Personal & Administration

2 Personal pay / Allowance Personal & Administration

3 DA (Dearness Allowance) Personal & Administration


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4 Special Allowance Personal & Administration

5 House Rent Allowance(HRA) Personal & Administration

6 EL Encashment on Actuarial Basis Personal & Administration

7 Kandla Allowance Personal & Administration

8 Stipend To Trainees / DA Personal & Administration

9 Railway Staff Salary Transportation Section

10 Employees Furnishing Allowance Personal & Administration

A-2 Incentive Payments Head Office

A-3 Indirect Wages Contractor / Labour Personal & Administration

A-4 Provision For Salary Revision Head Office

A-5 Non Practicing Allowance To

Medical Officers

Personal & Administration

A-6 LTC Employees Personal & Administration

A-7 Shift Allowance Personal & Administration

A-8 Washing Allowance Personal & Administration

A-9 Children Education Allowance Personal & Administration

A-10 EL Encashment Personal & Administration

A-11 Cash Handling Allowance Personal & Administration

A-12 Overtime Personal & Administration

A-13 VRS Expenses Personal & Administration

B PF & FPF Contribution

B-1 PF Contribution Personal & Administration


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B-2 FPF Contribution / Pension Employer Personal & Administration

B-3 PF Administration Charges Personal & Administration

B-4 Group Gratuity-Cum-Life Assurance Head Office

B-5 Society’s Contribution To Insurance Head Office

C Welfare Expenses

C-1 Reimbursement Of Medical Exp. Personal & Administration

C-2 Medical Expenses : Recruitment Personal & Administration

C-3 Fixed Medical Assistance Personal & Administration

C-4 Hospital Supplies Personal & Administration

C-5 Doctor’s Honorarium Personal & Administration

C-6 Livenies –Protective Clothing Personal & Administration

C-7 - Shoes Personal & Administration

C-8 - Stitching Charges Personal & Administration

C-9 - Others Personal & Administration

C-10 Staff Welfare Expenses Personal & Administration

C-11 Family Planning Incentive Personal & Administration

C-12 Children Transport Subsidy Personal & Administration

C-13 Awards To Employees Personal & Administration

C-14 Cinema Show Personal & Administration

C-15 Celebration Expenses Personal & Administration


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C-16 Club House Expenses Personal & Administration

C-17 Transfer Expenses Personal & Administration

C-18 School Personal & Administration

C-19 Employees Contribution To

Benevolent Fund

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 Unit’s 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 contractor’s job .

To simplify the format expenses are shown under following groups

oPlant Machinery

oCivil Maintenance –Factory, Township

oFurniture & Fixtures

Following are the major budget heads & their respective user / indenters:


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A. Plant Machinery

Sr No Particulars Indenter

1. NPK Maintenance Department / NPK

2. Offsite Maintenance Department /Offsite

3. Bagging And Handling Maintenance Department /Bagging &

Material Handling

4. Electrical Installation: Factory Electrical Department

5. Electrical Installation: township Electrical Department

6. Mobile Equipments Auto Section / Maintenance Department

7. Rolling Stock Maintenance Department

8. Air Conditioner & Cooler etc AC Section / Maintenance Dept.

9. General Maintenance Department

10. Emergency DG Plant Electrical Department

11. Water Supply Installation Maintenance Department /Civil Section.

12. Computer System EDP System Department

13. Workshop Equipments Workshop Section

14. Weighing Equipments Instrumentation Section

15. Instrumentation Instrumentation Section

16. Laboratory Equipments Lab / R & D Section

17. Other Non Plant Equipments Maintenance Department

18. Audio Visual Equipments Instrumentation Section

19. Communication Equipments Electrical Section

20. Guest House Equipments Personal & Administration


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21. Stores Equipments Stores Section / Maintenance Department

22. Canteen Equipments Personal & Administration

23 R & D Equipments Lab / R & D Section

24. Hospital Equipments Personal & Administration / Medical Section

25. Fire & Safety Equipments F & S Section / Tech Services

26. R & M –Stores (ERF) Stores Section

27.

Provision for non slow moving items

Stores Section

B. CIVIL MAINTENANCE –FACTORY, TOWNSHIP

Sr. No Particulars Indenter

1. Factory –Liquid Cargo Jetty Civil Section

2. Factory- Railway Siding Civil Section

3. Factory- Office Building Civil Section

4. Factory- Factory Building Civil Section

5. Factory- Roads ,Culverts Civil Section

6. Township : Buildings Civil Section

7. Township: Roads, Culverts &

Drains

Civil Section

C. FURNITURE & FIXTURES



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1. Furniture & Fixtures Personal And Administration

2. Office Equipments 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 :-



1. Spent Acid Utilities

2. Defoamer Production Dept/Stores

3. Chemicals Lab/R & D

4. Sulphuric Acid Utilities

5. Ammonia Bi-Sulphate Utilities

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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


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a. All buildings, plant and machinery, stocks, jetty, Pipelines etc. (Everything which is on

the 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


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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 Particulars Indenter

1. Travelling Expenses Personal And Administration

2. Local Conveyance Personal And Administration

3. Fixed Local Travel Concession Personal And Administration

4. Ground Rent Personal And Administration

5. Rent , Rates & Taxes Personal And Administration

6. Postage Charges Personal And Administration

7. Telephone Charges Personal And Administration

8. Telex / NIC / Lease Charges Personal And Administration

9. Courier Charges Personal And Administration

10. Printing & Stationery Personal And Administration

11. Periodicals, Books& Newspapers Personal And Administration

12. Subscription to membership fees for

society

Personal And Administration

13. Seminar Expenses Training Section

14. Vehicle Running Expenses Personal And Administration

15. Advt. for tender &recruitment Personal And Administration

16. Legal Expenses Personal And Administration

17. Professional &Consul Charges Personal And Administration


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18. Entertainment expense Personal And Administration

19. Courtesy Expenses Personal And Administration

20. Laboratory Expenses Laboratory / Technical Services

21. Bank Charges F & A Department

22. Pocket Expenses (Auditors) F & A Department

23. Other Sundry Expenses Personal And Administration

24. Stores Overheads Materials Dept

25. EDP Charges System Department

26. Product Advertisement Personal And Administration

27. Vehicle Hire Charges Personal And Administration

28. License Fees Personal And Administration

29. Loose Tools Written Off Stores Section / Material Dept.

30. Horticulture Expenses Personal And Administration

31 Electricity Expenses Electrical Department

32. Water – Township Personal And Administration

33. Guest House Expenses Personal And Administration

34. Training Expenses Training Section

35. Provision For Bad Debt Finance & Accounts Dept

36. Loss on Disposal of asset Finance & Accounts Dept

37. Assets Written Off Finance & Accounts Dept

38. Emp. Contribution To KSF Personal And Administration


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39. Honorarium To Visitor’s Training Section

40. Township Expenses-Others Personal And Administration

41. Vehicle Maintenance Auto Sec. / Maintenance Dept

42. Cost of Diesel for Pay loader /

Mobiles

Auto Sec. / Maintenance Dept

43. Gifts Expenses (Emp / Others) Personal And Administration

44. IRDP Expenses Personal And Administration

45. R & D Expenses Laboratory / R &D Dept

46. Security Expenses 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.


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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.

6. 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.

I. 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.

7. 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 Unit’s budget, marketing

departments budget & put-up a consolidated budget to the Board of Director’s through Finance Director and

Managing Director’s. 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.


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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 review 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.


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CAPITAL BUDGETING

Capital budgeting is a decision situation where large funds are committed (invested) in the initial stages of the project and the returns are expected over a long period of time. These decisions are related to allocation of investible funds to different long-term assets.

Capital budgeting is a continuous process and it is carried out by different functional areas of management such as production , marketing ,engineering, financial management.

BASIC FEATURES OF CAPITAL BUDGETING

Capital budgeting decisions have long-term implications. These decisions involve substantial commitment of funds. These decisions are irreversible and require analysis of minute details. These decisions determine and affect the future growth of the firm.

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 company’s working capacity.

CAPITAL BUDGETING DECISION INVOLVES THREE STEPS:-

1. Estimation of costs and benefits of a proposal or of each alternative.2. Estimation of the required rate of return, i.e., the cost of capital.3. Selection and applying the decision criterion.


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DECISION CRITERIA

TECHNIQUES OF EVALUATION

TRADITIONAL TIME-ADJUSTED

OR OR

NON-DISCOUNTING DISCOUNTED CASH FLOWS

1) PAYBACK PERIOD 1) NET PRESENT VALUE2) ACCOUNTING RATE OF RETURN 2) PROFITABILITY INDEX

3) INTERNAL RATE OF RETURN


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TRADITIONAL OR NON-DISCOUNTING TECHNIQUES

1. PAYBACK PERIOD The payback period is defined as the “the number of years required for the

proposal’s cumulative cash inflows to be equal to its cash outflows” The payback period is the length of time required to recover the initial cost of the

project. The payback period may be suitable if the firm has limited funds available and

has no ability or willingness to raise additional funds.

2. ACCOUNTING RATE OF RETURN (OR) AVERAGE RATE OF RETURN (ARR) The ARR may be defined as “the annualized net income earned on the average funds

invested in a project. The annual returns of a project are expressed as a percentage of the net investment in the

project.

COMPUTATION OF ARR

Average profit (after tax)ARR= __________________________________*100 Average Investment in the project


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DISCOUNTED CASH FLOWS OR TIME ADJUSTED TECHNIQUES

These are based upon the fact that the cash flows occurring at different point of time are not having same economic worth.

I. NET PRESENT VALUE (NPV) METHOD:

The NPV of an investment proposal may be defined as the sum of the present values of all the cash inflows less the sum of present values of all the cash outflows associated with the proposal. The decision rule is “Accept the proposal if its NPV is positive and reject the proposal if the NPV is negative.”

II. PROFITABILITY INDEX METHOD:

This technique is a variant of the NPV technique is also known as benefit-cost ratio or present value index

PI= Total present value of cash inflows ________________________________ Total present value of cash outflows.

Accept the project if it is PI is more than 1 and reject the proposal if the PI is less than 1.

III. INTERNAL RATE OF RETURN (IRR) METHOD: The IRR of a proposal is defined as the discount rate which produces a zero NPV, i.e.,

the IRR is the discount rate which will equate the present value of cash inflows with the present value of cash outflows.

The IRR is also known as Marginal Rate of Return or Time Adjusted Rate of Return.


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The time-schedule of occurrence of future cash flows is known but the rate of discount is not.

The discount rate calculated will equate the present value of cash inflows with the present value of cash outflows.

CAPITAL BUDEGTING PRACTICES IN INDIA

Capital budgeting decisions are undertaken at the top management level and are planned in advance. The Corporates follow mostly top-down approach in this regard.

Discounted cash flow techniques are more popular now.

High growth firms use IRR more frequently whereas Payback period is more widely used by small firms.

PI technique is used more by public sector units than by private sector units.

Capital budgeting decisions are of paramount importance as they affect the profitability of a firm, and are the major determinants of its efficiency and competing power.


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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.

A. 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.

B. 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


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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.

C. Compilation of various data in specially designed Pro-forma: -

Capital Budget proposals are to be compiled in following Pro-forma-

1. 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.

1. 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 Items Cost Estimates Expenditure

2009-10 20010-11 2011-12

N-I Energy saving system /scheme

N-II Operational necessity

N-III Reliability improvement

N-IV Safety equipments

N-V Replacement of agening equipments


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N-VI Statutory requirements of Govt. directives/requires of input supplies

N-VII Minor modifications

N-VIII Inspection Facilities

N-IX Research & development equipments

N-X Admn. Office building, furniture, colony amenities, etc.

N-XI Associated areas like welfare, colony amenities, etc.

N-XII Computer and computer systems

N-XIII Security and Intelligence

GRANT TOTAL

Following are some assets which are to be procured / Capitalized under each group:-

N-I: Energy Saving System / Schemes:-

Against t 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.


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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.


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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.


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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.

Proforma :-


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Sr. no

Items

Cost Estimates Commitments Expenditure

Approved Present Est. up to

31-03-2009

Balance to be made

Est. Up to 31-03-2009

2009-10

2010-11

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


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2. Proposal for on-going 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.

2. 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.

PROFORMA

Sr. No

Year of approval

Budget ref.

Items Approved budget Final Cost Amount surrendered (cost overrun) Remarks

FC IC Total FC IC Total

3. Dropped items of current year:-


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In this pro-forma 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.

PROFORMA

Sr. No

Year of approval

Budget ref.

Items Approved cost Reason for dropping

FC IC Total

3. 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 re-appropriated 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.

4. 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

__________


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This proforma help top management about the utilization of budget already sanctioned.

Pro-forma (V)

Any item that is included in capital budget has to go through a lot of screening. For e.g.. : Item’s usefulness in the business, cost- benefit analysis, loss to unit of item is not included; ROI, etc are to be carefully taken.

Pro-forma(v) for new items/ capital expenditure likely to cost more than Rs. 50 Lacs 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 proposalb. Are there any ancillary facilities needed?c. Time required for completion (in months)

05. Justification :

a. Category of the proposal.b. Present statusc. 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 notImplemented

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.


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- I.C. Rs.- Total Rs.

B. Have budgetary quotations been obtainedC. Basis of cost estimateD. Break up of cost estimate ( enclose

Statement giving activity wise purchase/

Job order-wise details giving scope of work)

E. Financial requirement of the proposal (give Year-wise break up of cash inflows & outflows)

07. Import formalities :

08. Evaluation :

A. IRRB. 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 :

D. 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.

E. 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.

F. 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.


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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.

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


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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 & ADVANCES

TO EMPLOYEES


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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 employee’s 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 employee’s service period.


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Loan is given for-

a. 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 employee’s service period.

Loan is given for-

a. 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 employee’s 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 :-


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Sr no HBL Conv loan Personal Loan

1 Op. Balance

2 Commitment(Budget)

3 Total

4 Less:Estimate Recoveries

5 Cl. Balance

Head office get this budget proposals approved from competent authority and intimate F & A Department about

the approval of the budget.

Pay roll section & P & A Department are jointly control this budget.

BRIEF DESCRIPTION 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.


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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 bound 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 month-wise 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


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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, PARADEEP<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.


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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 of budgetary control.

For the successful implementation of a system of budgetary control certain pre-requisitions are to be fulfilled. They are summarized as follows:

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.


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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 every 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


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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.


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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 HOD’s. 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 favourable or unfavourable. However, whether a variance is favourable or unfavourable is ultimately determined with reference its impact on profit.

Variance Analysis


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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

i. A)Material price variance


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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.

ii. B)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.

iii. C)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.


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New workers not been allowed full normal wages.

iv. 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.

IV. 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.

v. Overhead efficiency variance Same as labour efficiency variance

vi. 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


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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.


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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


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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 60 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.


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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 couldn’t 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:


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CONCLUSION.

We have carried out our training period of Two months in Finance and Accounts Department

(F&A), IFFCO KANDLA. During this period we 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 we conclude

that practices and procedures followed here at par with the industry standard and comply with legal

and regulatory requirements.

During our training we have studied and analyzed IFFCO’s annual report for the financial

year 2010-11 and found that IFFCO is financially very strong due to its large reserves and has good


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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

We undersigned, have no experience and my age is too less to valuate any industry giant like

IFFCO. Also the training period of two months 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. Yet we have tried our best and declare that

the below mentioned few suggestions that can be better coated that recommendations are no way an

attempt or intention to criticize organization like IFFCO & its management or employees, but only


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they are to serve as indicators of level of our understanding of the activities carried out in various

sections of Finance and Account Department of IFFCO KANDLA.

The whole process of implementing zero based budgeting is not only a tedious job, but also a

costly affair. Moreover, the insight of experience gained in several years of preparing budget

is not being used.

All the cost are allocated to a single factory overhead. Moreover, budget for Township is

combined with Plant which doesn’t give a clear picture of the expenses to be incurred in the

budgeted year for the plant only.

Trend of re-appropriation of budgets is not a healthy task

BIBLIOGRAPHY.

Books:

Name Author

Financial management I. M. Pandey


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Cost Accounting George Foster

Annual reports of IFFCO- Kandla

Magazines : SAHYOG, IFFCO KANDLA

Website : www.iffco.nic.in

Internet : www.investopedia.com

www.businessdictionary.com


http://www.businessdictionary.com/

http://www.investopedia.com/

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Project to Be Submitted to Tims by Roll No 4 & 13

Documents

Transcript of Project to Be Submitted to Tims by Roll No 4 & 13