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:tims@tolani.org,www.tolani.org/tims
JULY 2011
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ACKNOWLEDGEMENT
Debt repaid. be repai but co-operation extended and t e guidance given by someone can never be

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 Indias 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, 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.
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Head office
KANDLA
Kalol
Aonla
Phulpur
Paradeep
Aonla -1 Aonla-2 Phulpur-1 Phulpur-2
IFFC (GFC
as made strategi investments in several j int ventures G davari Fertilisers and C emi als td Indian P tas td (IP in India, Industries C imiques du Senegal (ICS in Senegal and ( MIFC in man are imp rt nt ertiliser j int ventures Ind a s part strategi diversi i ati n, ra int
man India Fertiliser C mpan
Eg ptian Fertiliser C (IEFC in Eg pt is under implementati n IFFC
as entered int several ke se t rs IFFC T ki General Insuran e td (ITGI) is a as rmulated new servi es ver t ene it t
general insuran e se t r T r ug ITGI, IFFC Sankat Haran Bima
armers ag of IFFC
jana pr vides ree insuran e
armers along wit ea
a fertiliser pur ased To take t e enefits of emerging on epts like agri ultur l ommodit trading, IFFC as taken equit in ational Commodit and erivative Ex ange ( C EX) and C attisgar Power td (ICP ) w i ational is under
Collateral Management Servi es td ( CMS ). IFFC
implementation is et anot er fora to move into ore area of power. IFFC is also e ind several ot er ompanies wit t e sole intention of enefiting farmers. T e
-operative societies. T e entire distri ution of IFFC s fertili er is undertaken t roug over 40,000 o activities of at ew istri ution, Sales and Promotion are co-coordinated Marketing Central ffice (MKC ) the Marketing offices in the field. In addition, essential agro-inputs for crop
elhi assisted
n production are made availa le to the farmers through a chai of 158 Farmers Service Center FSC). IFFC has promoted several institutions and organi ations to work for the welfare of f armers, evelopment Foundation,
strengthening cooperative movement, improves Indian agriculture. Indian Farm Forestr Cooperative td (IFFDC), Cooperative Rural Development Trust (C RDET), IFFC elongs to this categor . Kisan Sewa Trust
n am itious proje ICT Initiatives for Farmers and ct obsessively nurtures its relations
Cooperatives is launched to promote e-culture in rural India. IFFC
with farmers and undertakes a large number of agricultural extension activities fortheir benefit every
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Page |7 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 Project 2. IFFCO And National Commodity And Derivatives Exchange Limited 3. 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
S.R. NO. 1 2 3 4
COMPETITORS MARKET CAPT RE IN% IFFCO KRIBHCO GNFC OTHERS Total 50 24 21 05 100
MARKET
APTURED BY
OTHERS 5%
GNFC 21% IFFCO 50%
KRIBHCO 24%
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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
y
To provide to farmers high quality fertilizer in right time and in adequate quantity with an objective to increase crop productivity
y y
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.
y y
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.
y y y
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
Emerging as dynamic organisation, focusing on strategic strengths, seizing opportunities for generating and building upon past success, enhancing earnings to maximize the shareholders value
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COMPANY PROFILE
KANDLA Unit Location State State Capital District Distance from New Delhi Distance from Mumbai Nearest Airport Gujarat, India Gandhinagar Kutch Approx. 1100 kilometers by rail Approx. 800 kilometers by rail KANDLA Airport, Near Gandhidham ,and BHUJ Airport 65 KM from Gandhidham. 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 Area under Township Temperature ( o C ) Rainfall (mm) Longitude 70.61 Hectares 79.65 Hectares 47 (Max.) in summer to 7 (Min.) in winter. Scarcity 70o 13'26" E
P a g e | 13 Latitude Address 23o 00'00" N IFFCO, KANDLA Unit, Post BoxNo.12, Gandhidham - 370201, KANDLA (Kutch), Gujarat, INDIA Phones :91-2836-270381,-270382,-270539 ,-270639, -270641. FA Website E-Mail : 91-2836-270642, -270658, -270685. : www. Iffco.nic.in : iffco_KANDLA@iffco.in
IFFCOs NPK Plant is located on the water front adjacent to KANDLA Port Trust Oil Jetty. The plant was built at a cost of about Rs. 30 crores with two streams (called train A and train B) and with the licensed capacity of 127000 tonnes of P2O5. This plant was designed by 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.
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ACHIEVEMENTS OF IFFCO KANDLA UNIT
y y y y
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.
y y
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 Offices 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 :
y y y y y y y
Pay roll section Raw materials Misc Bills payable Section Works Bills Payable Section Purchase Bills Payable Section Finance Concurrence Section Books & Budget Section
P a g e | 16 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 :
y y y y y y
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:
y y y
Passing of bills of miscellaneous nature; Accounting of cash imprest and advances for expenses; Miscellaneous recoveries from outside agencies.
Miscellaneous bills includes rates contracts for service contract for air conditioner, water coolers, weighing machines, franking machines, knitting of chairs, etc. Others miscellaneous bills includes telephone rentals, STD calls, local calls, teleprinters, fax, service bills, advertisement bills, electricity bills, printing and block making bills, bills of travel agents, bills of canteen purchases, etc. Annual Contracts and Hiring of taxi, motors, etc. is also included in this.
P a g e | 17 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:y
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 SO RCES
MANAGEMENT QUESTION RESEARCH QUESTION
EXPLORATION
INTERNAL SOURCES
EXTERNAL SOURCES
Management document Financial document Human resources document and database
Maga ine Web Source Head office
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BUDGET AND BUDGETARY CONTROL
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Introduction
For effective running of business, management must know:
y y y y
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:

y y y y y
Division of organisation on functional basis into different sections known as budget centre. Preparation of separate budgets for each budget centre. 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.
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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 B DGETS
ACCORDING TO TIME
ACCORDING TO FUNCTION
ACCORDING TO FLEXIBILITY
1. Long term budget 2. Short term budget 3. Current budget 4. Rolling budget
1.Sales budget 2. Production budget 3.Cost of production budget 4. Purchase budget 5. Personnel budget 6. R & D budget 7. Capital Expenditure budget 8. Cash Budget 9. Master Budget
1. Fixed budget 2. Flexible budget
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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:
y y y y
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 intoy y y
Material cost budget Labour cost budget Overhead cost budget
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 intoa. Labour requirement budget b. Labour recruitment budget
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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: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:-
P a g e | 28 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 AprilMarch.
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.
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 namelya. Cost centre
P a g e | 29 b. profit centre c. Investment centre Principles of responsibility accounting are as follows: 1. Fixation of targets for each responsibility centre 2. Actual performance is compared with the target 3. The variances therein are analyzed so as to fix the responsibility of centres. 4. Taking corrective action.
CONCLUSION:y y y y y
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:
y y y
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.
y y y y y
Availability of power and related policy of Gujarat Electricity Board. Availability of water and related policy of state water supply board. Availability of packing materials. Industrial relation position. Availability of railway wagons and other transportation media for distribution of finished products form plants etc.
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.
P a g e | 31 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:
y y y y
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.
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.
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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:
y y y y y
Raw materials Chemicals Water Fuel oil- LSHS Packing materials- bags & stitching threads
In addition to the above, production department is also responsible for furnishing the following information:
Transportation cost of various raw materials and utilities e.g. transportation cost of urea form Kalol to KANDLA, cost of transportation of potash from jetty to plant site, transportation of fuel oil from oil installation to plant site etc.
y y y y y
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.
P a g e | 34 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:
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:
y y y
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:
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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.
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:
y y y
Consumption of stores spares and steel consumption. Contractual jobs Procurement budget for non-stock items of spares and Stores.
P a g e | 36
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

y
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.
y y
Expenditure on maintenance and up keep of township properties. Estimation of salaries, wages, allowances, overtime, medical and other welfare expenses, awards etc expenditure on direct and indirect and indirect employees.
Other establishment expenses like communication expenses printing & stationery, rents, rates & taxes vehicles hire charges and running expenses, courtesy and entertainment expenses, legal expenses, legal expenses celebration expenses, traveling and conveyance expenditure, professional charges and such other expenditure, which are directly controlled by personnel & administration department.
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:
P a g e | 37
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:

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
P a g e | 38 purchase section. At the time of placing order/Financial Concurrence Finance Department assures & made entry in FAS for control of Budget.
REVISION OF BUDGET ESTIMATES

After approval of budget estimates for the ensuing period, actual expenditure vis--vis budget allocations are reviewed on monthly basis and quarterly report is submitted to Head Office as above. Due to various factors like raw materials constraints, economic factor, marketing factors and other variable factors, generally necessity arises for revision of the approve budget estimates based on the actual trend observed, sine budgeting process for the ensuing period normally start about 5/6 months before start of the budget period. Accordingly, there is a system of revision of the budget proposals. Normally actual expenditure for the first 6 months are reviewed and based on the same, revised estimates for the next six months are compiled. Budgeting process for revised revenue budget is more or less same as of compiling the revenue budget. The following steps are taken:
y
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,
P a g e | 39 Kalol unit from where part of ammonia requirements and total urea requirements for production process of KANDLA unit are met intimates revised transfers quantity price in respect of ammonia and urea to be adopted for revised budget proposals. Based on the above, revised budget proposals are compiled. The fixed cost and overheads are thoroughly discusses with concerned HODs and with Unit Head and after approval, the following documents are prepared and submitted to Head Office. 1. Revised Revenue Budget. 2. Revised Purchase Budget.
On approval of the revised budget, monthly break-up of fixed cost and variable cost are also worked out and submitted to Head Office for approval. On approval, budgetary control is exercised on monthly basis based on the revised monthly budget allocations.
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Budget Committee
The responsibility for the preparation of budgets lies with the budget committee, which includes the following executives:
y y y y y y
Chief executives, who will be the chairman of the committee. Production manager Materials manager Standards and control manager Finance manager Other department heads
The main functions of the budget committee are as follows:

y
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.
y y y y
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.
P a g e | 41
Budget Center
Department for which budget is prepared is known as budget center.
Budget Period:
A budget period is the length of time for which a budget is prepared and remains operative. No definite indication can be given as to what should be the period for which the budget for a particulars or business will be established. However, the budget period depends upon the following: 1. The type of budget, i.e. sales, production, capital expenditure, cash etc. 2. General economic situation and the growth & stability of the product market. 3. Nature of demand for the products of the undertaking. 4. Length of trade cycle of the business (length of cycle in the case of seasonal various. 5. Timing of the availability of finance. 6. Extent of control required over the operations. 7. Probability of changes in products or product mix.
P a g e | 42
BUDGET AND BUDGETARY CONTROL AT IFFCO: KANDLA UNIT METHOD OF BUDGETING AT IFFCO-KANDLA :
IFFCO-KANDLA follows Zero Based Budgeting system to prepare its budgets What is Zero Based Budgeting ???? The technique of Zero Based Budgeting starts with the premise that the budget for next period is Zero so long the demand for a function, process, project, or activity is not justified for each rupee from the first rupee up. The assumption is that without such a justification, no sending will be allowed. The burden of proof thus shifts to each manager to justify why the money should be spent to all and to indicate what would happen if the proposed activity is not carried out and no money is spent. In this way, he is required to carry cost-benefit analysis of each of the activities etc. under his control for which he is responsible. Such analysis would reveal that some activities may be eliminated or curtailed or made into productive and profitable ones. Thus Zero Based Budgeting affords a choice amongst the alternatives so that the activities would be selected in the order of their importance. However, Zero Based Budgeting is particularly suitable discretionary cost areas such as marketing, administration, production services, research, etc. and in Govt. departments where the decision for the extent of spending rest with the management or authorities and it is here that each rupee of the budget had to be justified.
P a g e | 43
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:
y y y y y y y y y
Phosphoric Acid Potash Ammonia Urea Sulphuric Acid Filler MAP Utilities (power, fuel oil, water) Bagging
Such situations are met by IFFCO by asking the managers to determine the minimum or basic requirements for running their departments; any cost above the basic requirement would be treated as added increments which would be critically reviewed and justified, they are to be eliminated resulting in cost saving to IFFCO. At KANDLA Unit, budget is prepared, got approved from Head Office and controlled at Plant level cost. Being Manufacturing Unit, budget is prepared only for Production activities. At KANDLA unit following types of budgets are prepared. 1. Revenue & Purchase Budget 2. Capital Budget 3. Loans to Employees Budget
P a g e | 44
We can break the Budget Process into following stages. 1. Proposal to be sent to Head Office for approval of Board of Directors. 2. Approved budget to be allocated amongst actual user / indenters. 3. Monthly / Quarterly / Yearly control on actual expenses v/s budget.
We will see the above aspects in detail of various budgets in following pages.
P a g e | 45
REVENUE, PURCHASE BUDGET & BUDGETARY CONTROL
P a g e | 46
BRIEF DESCRIPTION OF REVENUE BUDGET

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

y y y y y y
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.
P a g e | 47
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 decisions. On receipt of intimation from Unit Head, Finance and Accounts Department came into action to get all related details from various department / Head Office.
Following are major informations which are to be collected from various Departments / Head Office:y y y y y y y y
Production Targets. C& F Price of imported Raw Materials. Rates to be adopted for packing material. Exchange rates to be adopted for US $. Norms of actual input Qty of various raw material, utilities and Packing materials. Stream days estimates for production targets. All estimates of various types of direct / indirect expenses related to production activities.
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)
P a g e | 48 Production is estimated in bulk keeping in the mind the term P2O5 ratio. In above fertilizer N stands for Nitrogen P stands for Phosphorous and K stands for Potash. DAP stands for Dia Ammonium Phosphate. Technical Department estimates grade wise production which normally equals for 100% capacity utilization in terms of P2O5 output. Technical Department before estimating estimate of production target keeps in mind the estimate of shut down of Plant due to shortage of raw material , shut down of plant due mechanical maintenance, power failure etc. This production estimates are sent by them to Tech service, H.O. through Unit Head for approval. Since production Targets are to be approved by Head Office, Head Office at the same time get sales estimates from their respective Central Marketing Office .Production Targets are reviewed by H.O. in consideration with sales Targets . Since production of various grades is to be done as per Market demand, Head Office is the final authority to approve Production Targets. On receipts of Production Target from Head Office, Tech services Department intimate the final Production Target to F&A Department.
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 3. Potash 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. (NH3) (MOP)
P a g e | 49
III.
RATES TO BE ADOPTED FOR PACKING MATERIAL
Like major Raw Materials, Head Office also Procure / finalize Purchase Orders for purchase of packing material from indigenous suppliers. At KANDLA Unit bags are procured in various sizes depending upon the general demand of packing materials i.e. HDPE Bags:HDPE Bags: 50 Kgs HDPE Bags: 40 Kgs HDPE Bags: 25 Kgs Head Office intimate per bag rate of above sizes to KANDLA Unit after considering long term contract with major suppliers, upward / downward trend of above bags .
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
P a g e | 50
y y y y y y
Phosphoric Acid Ammonia Potash Filler MAP Urea
2. Utilities
y y y
Power Water Fuel Oil
3. Packing Materials
y y y
HDPE Bags: 50 Kg HDPE Bags: 40 Kg HDPE Bags: 25 Kg
V.
STREAM DAYS ESTIMATES FOR PRODUCTION TARGETS
KANDLA Plant runs all the days in three shifts. To achieve the production target, Technical Department estimate the actual running of plant considering holidays, Shortage of raw materials, shut down of plant due to electrical maintenance, mechanical maintenance, power failure etc. These stream days figures are required for allocating various fixed expenses amongst total cost to grade wise cost. Stream Days varies with each grade wise production.
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.
P a g e | 51
3. COLLECTION
OF
VARIOUS
DATA
IN
SPECIALLY
DESIGNED
STATEMENT / ANNEXURE.
The various data collected from various sources are compiled in specially designed Proformas / Annexures to derive profitability of Plant, total cost of production, grade wise cost of production and further per MT cost of production. Following are the main proforma / Annexures for compilation of various data:Sr No. STATEMENT / ANNEXURE reference 1 2 3 4 5 STATEMENT I STATEMENT II STATEMENT III STATEMENT IV ANNEXURE- I Production And Sales Targets Profitability Statement Total Cost Of Production Purchase Budget Break up of Unit price of Raw Materials / Utilities / Packing Materials 6 ANNEXURE- II Norms of consumption for raw materials /utilities/packing material 7 8 ANNEXURE- III ANNEXURE- IV Township recoveries and other revenues Consumption of raw materials / Utilities / packing materials 9 10 11 ANNEXURE- V ANNEXURE- VI ANNEXURE- VII Employees remuneration & benefits Repairs and maintenance expenses Chemicals Particulars
P a g e | 52
12 13 14 ANNEXURE- VIII ANNEXURE- IX ANNEXURE- X Insurance expenses a) Factory overheads & b) R & D expenses 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 plants installed capacity in terms of P2O5, stream days estimates, production target in bulk & in terms of P2O5 is estimates. Based on plant capacity and estimates production capacity utilization in % is derived. Sales estimate figures are shown by H.O. after sending this budget proposal to Head Office for approval. Also for comparison purpose last three years actual, current year budget and revised budget estimates are also shown in this statement. Based on this statement, Total cost of production is estimated / derived.
Production & Sales Target
Statement-I
ACTUAL
ORIGINAL BUDGET 2007-08 2008-09
REVISED ESTIMATES 2008-09
ITEMS UNIT
BUDGET
2005-06
2006-07
2009-10 INSTALLED CAPACITY P2O5 STREAM DAYS PRODUCTION LAK H TE DAYS
P a g e | 53
NPK- 10:26:26
NPK- 12:32:16
DAP- 18:46:00 LAK H TE LAK H TE LAK H TE
TOTAL NPK/DAP
LAK H TE
IN TERMS OF P2O5 CAPACITY UTILIZATION
LAK H TE
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.
P a g e | 54
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
ORIGIN AL BUDGE T
REVISED ESTIMATE S
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
P a g e | 55
3. Other revenue A. Plant B. Share of HO & MKTG
Total Other Revenue

6.EXCHANGE RATE VARIATION 7.INCREASE/(DECREAS E)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 OFFIC
Total Administration expenses

4.EXCHANGE RATE VARIATION 5.INTEREST COST a. Long term b.Short term c.Intrest on others
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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:

Total cost consists of two costs, variable and fixed cost.
P a g e | 57
Total Cost of Production
Variable cost
Fixed cost
Variable cost:
Variable expenses are those which are directly related to the production of fertili ers. These expenses incurred on various inputs of the product. The variable expenses are related to the expenses incurred on y y y Raw materials Utilities Packing materials
The unit produces the fertili ers under the three grades. They are Grade- 1 10: : Grade 12:32:16 DAP 18:46:00 P 20:20:0
The products produced in the firm are fixed by certain norms. The norms are fixed for pro ducing per metric tonn fertili er. 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 derivedby 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 c alculate the estimates of cost of raw materials by including various governmen levis like custom duty, wharfage and other statutory t levis. The variable cost is derived as:
Bu g & Bu g
ry Con rol
P a g e | 58 Production * Norms= Quantity * Rate= Amount.
Fixed cost:
Fixes cost include following items: 1. 2. 3. 4. 5. 6. 7. 8. Chemicals Employees remuneration & benefits Repairs & maintenance Insurance R&D expenses Other manufacturing and unit administration Security expenses Depreciation
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
y y y y y
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:

Employees remuneration and benefit are considered to be fixed expenses because number of employees on an average is same in each financial year. It comprises of: 1. salaries and wages 2. PF & FPF contribution 3. Welfare expense
P a g e | 59
Salaries and wages:

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

It includes: a) b) c) d) e) PF contribution employees FPF contribution/ pension/ employer PF admin charges Group gratuity- cum life assurance Societys contribution to insurance
P a g e | 60
The PF is calculated at 12% of BP+ DA excluding pension fund, where- group gratuity and societys contribution is provided by H.O.
Welfare expenses
It includes: a. b. c. d. e. f. g. h. i. j. k. l. m. n. o. p. q. r. Reimbursement of medical expense Medical expense: recruitment Hospital supplies Doctors honorarium Liveries: protective clothing Liveries: shoes Liveries: stitching charges Liveries: others Staff welfare expenses Family planning incentive Children transportation subsidy Awards to employees Sport expenses Celebration expenses Club house expense Transfer expenses School expenses Employer contribution to PF
3. Repairs and maintenance:

Repairs and maintenance is broadly divided into A. Plant & machinery B. Civil maintenance y Factory y Township C. Furniture & fixtures Repairs and maintenance budget consists of:
y 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
P a g e | 61
y 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 todays 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 y New Admin. Building & furniture and fixtures y Township and public utilities/ buildings b. Marine policy y Marine open cover- imported spares y Marine open cover- inland transit. c. Mega policy y All the building, plants & machineries, stocks, etc. y Loss of profit policy. d. Misc. policies y Cine project at cinema ground, township. y Cash in transit, cash in safe. y Third party risks of pay loaders. y All risks policies for laptop & mobile phones. y Vehicles policy y Contractors all risk- ammonia tank. Some of the policies are taken by H.O. for all the plants jointly, these include:
y y y y
Mega policy Public liability as per public liability act. Public liability for industrial risks. Terrorist cover
Policies are taken from the sister concern- M/s IFFCO- Tokyo general insurance company
P a g e | 62
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 200708 2008-09 REVISEDES TIMATES 2008-09 BUDGET ITEMS
200405
200506
200607
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 C. Water Total Power, Fuel Oil & Water
3. Bagging/ Packing expenses
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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
P a g e | 64
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 :y y y y y y y
Phos Acid (P2O5) Ammonia (NH3) Urea Potash Filler MAP Sulphuric Acid
2. Utilities :
y
Fuel Oil
3. Packing Materials:
y y y
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.
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.
P a g e | 65
ANNEXURES:
ANNEXURE I: BREAK-UP OF UNIT PRICE OF RAW MATERIALS / UTILITIES / PACKING MATERIALS:

In this statement, landed cost is derived by taking all possible expenses for purchasing the material. Landed cost is derived for all raw materials / utilities / packing materials taking into consideration of following elements. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Thread 11. Miscellaneous bank charges directly related to Purchase. Landed cost so derived is further considered at statement -4 (purchase budget) to ascertain total purchases to be made during the financial year to produce the targeted production. Based on purchase Qty / rate and opening stock of Qty / rate, weighted average rate is derived for applying the same to consumption Qty. C & F price / basic price Insurance Stamp Duty Service Charges Freight (in case of indigenous items) Custom Duty Excise Duty Wharfage / Port Expenses etc. Sales Tax
ANNEXURE- II: NORMS FOR CONSUMPTION FOR RAW MATERIAL / UTILITIES / PACKING MATERIALS
P a g e | 66 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
y y y
Rent Electricity Water
2.
y y y y y y y y y y y y
Other Revenue: Interest from staff HBL (House Building Loan) Conveyance Loan Hire Charges (pay loader, cranes etc.) & Interest. Insurance Claim Realized. Sale Of Scrap Transport Recoveries Fro Staff, Contractor. Interest Received on Deposits Income from Liquid Cargo Jetty. Provision No Longer Required Written Back Tender Fee / Sale Of Tender Forms Depreciation Charges Sundries / Miscellaneous Income
P a g e | 67
y y y y y y y
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 experie nce 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
y y
Variable Cost. Fixed Cost
Variable cost is the cost which generally varies with the production activity. Variable cost consists of following three items. 1. 2. 3. Raw Materials Utilities Packing Materials
Since variable cost is linked directly with production figures there is no control on the cost of variable cost. In case of nil production, variable cost will also be nil. In this statement grade wise cost of production and total cost of production is derived based on production targets, norms and average unit rate. Production Targets are taken from statement 1, norms are taken from annexure -2 and average unit rate is taken from statement -4. Based on above grade wise Qty (production x norms) and grade wise cost (Qty x Average rate) is derived. By totaling of all the three grades cost , total cost of individual raw material , utilities and packing material is derived. By totaling all Raw Materials, utilities and
P a g e | 68 packing materials total cost of production is derived. This total cost of production is shown at statement -3 items wise. Raw materials are shown under A: raw material cost, utilities are shown at B: operating expenses & packing materials are shown at C: bagging expenses: bags & thread.
ANNEXURE V: EMPLOYEES REMUNERATION AND BENEFITS

Employees remuneration and benefits is a fixed cost type expenses. Fixed cost is cost which generally not varies with the production activities. Whether there is any production or not, this types of expenses occur. Here employees remuneration and benefits remains constant irrespective of production. In this group all type of expenses are covered which directly or indirectly pertains to the employees including railway staff. Budget estimates are given by personal & administration department for almost expenses: To simplify the format expenses are shown under following groups:y y y
Salaries & Wages PF & FPF Contribution Welfare Expenses.
Following are the major budget head & their respective user / indenter:Sr No. A-1 1 2 3 4 5 6 7 Particulars Salaries & Wages Basic Personal pay / Allowance DA (Dearness Allowance) Special Allowance House Rent Allowance(HRA) EL Encashment on Actuarial Basis Kandla Allowance Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Indenter
P a g e | 69 8 9 10 A-2 A-3 A-4 A-5 Stipend To Trainees / DA Railway Staff Salary Employees Furnishing Allowance Incentive Payments Indirect Wages Contractor / Labour Provision For Salary Revision Non Practicing Allowance Personal & Administration Transportation Section Personal & Administration Head Office Personal & Administration Head Office To Personal & Administration
Medical Officers LTC Employees Shift Allowance Washing Allowance Children Education Allowance EL Encashment Cash Handling Allowance Overtime VRS Expenses PF & FPF Contribution PF Contribution FPF Contribution / Pension Employer PF Administration Charges Group Gratuity-Cum-Life Assurance Personal & Administration Personal & Administration Personal & Administration Head Office Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration
A-6 A-7 A-8 A-9 A-10 A-11 A-12 A-13 B B-1 B-2 B-3 B-4
P a g e | 70 B-5 C C-1 C-2 C-3 Societys Contribution To Insurance Welfare Expenses Reimbursement Of Medical Exp. Medical Expenses : Recruitment Fixed Medical Assistance Personal & Administration Personal & Administration Personal & Administration Head Office
C-4 C-5 C-6 C-7 C-8 C-9 C-10 C-11 C-12 C-13 C-14 C-15 C-16 C-17 C-18
Hospital Supplies Doctors Honorarium Livenies Protective Clothing - Shoes - Stitching Charges - Others Staff Welfare Expenses Family Planning Incentive Children Transport Subsidy Awards To Employees Cinema Show Celebration Expenses Club House Expenses Transfer Expenses School
Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration
P a g e | 71 C-19 Employees Benevolent Fund C-20 Honorarium To Staff Personal & Administration Contribution To Personal & Administration
Above budget estimates are given by concerned section based on last 3 years actual, present strength of employees, next year retirement cases, transfers, natural death of employees & new recruitment etc. As mentioned above at Sr Nos A-2, A-4, B-4 and B-5 since payments are made by Head Office directly estimates are asked from Head Office and incorporated in Kandla Units budget. The total of above three groups is shown at B-3 statement III (Cost of Production) under operating expenses.
ANNEXURE- VI: REPAIRS AND MAINTENANCE EXPENSES

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

Sr. No
1. 2. 3. 4. 5. 6. 7.
Particulars
Factory Liquid Cargo Jetty Factory- Railway Siding Factory- Office Building Factory- Factory Building Factory- Roads ,Culverts Township : Buildings Township: Drains Roads, Culverts & Civil Section
Indenter
Civil Section Civil Section Civil Section Civil Section Civil Section Civil Section
C. FURNITURE & FIXTURES
Sr. No
1. 2.
Particulars
Furniture & Fixtures Office Equipments
Indenter
Personal And Administration Personal And Administration
P a g e | 74 Above budget estimates are given by concerned sections based on last 3 years actuals , present volume of assets , next years additions , deletion of assets etc . The total of above three groups is shown at B .4. a) Of statement 3 (cost of production) under operating expenses.
ANNEXURE-VII: CHEMICALS
Consumptions of various chemicals are also treated as fixed cost expenses. Consumption of various chemicals remains constant irrespective of production activities. In this group all types of chemical
are covered which directly or indirectly pertains to consumption of chemicals to be used in plants, tanks, lab etc. Budget estimates are given by all departments for their area or where they are custodian of particular chemicals.
In this group some chemicals are of stock item in nature & some chemicals are of non stock type items. Stock type items of chemical are being procured through stores & non stock type of chemicals are being procured directly by actual users. Following are major budget heads & their respective users / indenters :-
Sr. No
1. 2. 3. 4. 5.
Particulars
Spent Acid Defoamer Chemicals Sulphuric Acid Ammonia Bi-Sulphate
Indenter
Utilities Production Dept/Stores Lab/R & D Utilities Utilities
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.
P a g e | 75 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 con sultation with technical service department .Since technical service department is the custodian of main plant & machinery. Following are the major policies to cover different types of risks prevailing in day to day transactions: 1. Fires & Allied Peril Policy a. New admin building & furniture & fixtures. b. Township &public utilities / buildings
2. Marine Policies a. Marine open cover- imported spares b. Marine open cover- Inland (rail / road) Transit
3. Mega Policy a. All buildings, plant and machinery, stocks, jetty, Pipelines etc. (Everything the ground. b. Loss of profit policy which is on
P a g e | 76 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.
y y y
Public liability as per Public Liability Act Public liability for industrial risk Terrorist cover.
All above policies are taken by Kandla Unit from their sister concern M/S IFFCO Tokio general insurance Co.LTD. Above budget estimates are estimated by F & A Dept based on last 3 years actuals & re-instate value of the assets. The total of insurance expenses is shown at of Statement III (cost of production) under operating expenses.
ANNEXURE-IX:
FACTORY
OVERHEADS
&
RESEARCH
AND
DEVELOPMENT EXPENSES
Factory overheads & research & development expenses are also treated as fixed cost expenses. These types of expenses are remaining constant irrespective of production activities. In this group those fixed cost type expenses are covered which are not covered in Annexure 5 to 8 budget estimate are given all departments for their area or where they are custodian of particular items . However in this group major expenses are of service nature. Following are the major budget heads & their respective user / indenters
P a g e | 77 Sr.No 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Particulars Travelling Expenses Local Conveyance Fixed Local Travel Concession Ground Rent Rent , Rates & Taxes Postage Charges Telephone Charges Telex / NIC / Lease Charges Courier Charges Printing & Stationery Periodicals, Books& Newspapers Indenter Personal And Administration Personal And Administration Personal And Administration Personal And Administration Personal And Administration Personal And Administration Personal And Administration Personal And Administration Personal And Administration Personal And Administration Personal And Administration
Subscription to membership fees for Personal And Administration society
13. 14. 15. 16. 17. 18. 19. 20.
Seminar Expenses Vehicle Running Expenses Advt. for tender &recruitment Legal Expenses Professional &Consul Charges Entertainment expense Courtesy Expenses Laboratory Expenses
Training Section Personal And Administration Personal And Administration Personal And Administration Personal And Administration Personal And Administration Personal And Administration Laboratory / Technical Services
P a g e | 78 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31 32. 33. 34. 35. 36. 37. Bank Charges Pocket Expenses (Auditors) Other Sundry Expenses Stores Overheads EDP Charges Product Advertisement Vehicle Hire Charges License Fees Loose Tools Written Off Horticulture Expenses Electricity Expenses Water Township Guest House Expenses Training Expenses Provision For Bad Debt Loss on Disposal of asset Assets Written Off F & A Department F & A Department Personal And Administration Materials Dept System Department Personal And Administration Personal And Administration Personal And Administration Stores Section / Material Dept. Personal And Administration Electrical Department Personal And Administration Personal And Administration Training Section Finance & Accounts Dept Finance & Accounts Dept Finance & Accounts Dept
38. 39. 40.
Emp. Contribution To KSF Honorarium To Visitors Township Expenses-Others
Personal And Administration Training Section Personal And Administration
P a g e | 79 41. 42. Vehicle Maintenance Auto Sec. / Maintenance Dept
Cost of Diesel for Pay loader / Auto Sec. / Maintenance Dept Mobiles
43. 44. 45. 46.
Gifts Expenses (Emp / Others) IRDP Expenses R & D Expenses Security Expenses
Personal And Administration Personal And Administration Laboratory / R &D Dept Personal And Administration
Above budget estimates are given by concerned section based on last 3 years actuals & normal increase in activity as well as normal like in rates of various procurement & services etc. The total of above groups is shown at of Statement III (Cost of Production) under operating expenses. ANNEXURE X: GRADE WISE COST OF PRODUCTION
This Annexure X is prepared to derive grade wise cost of production and further to Per MT cost of each grade. In this Annexure total variable cost and fixed cost is appropriated as per norms & stream hours respectively. Grade wise stream hours based on budgeted production is given by technical service department. Fixed Cost is divided by total stream hours run & multiply by grade wise Stream hours run. Thus grade wise fixed cost is derived. Once grade wise cost is derived, the same is divided by grade wise production. All raw materials, utilities, packing material & fixed cost are divided by grade wise production to get Per MT cost. In this statement first we get cost of bulk production and subsequently by adding bagging expenses we get t tal cost of bagged production. o This is an important statement to take final decision about profitability of the organization.
GENERAL:
Following type of expenses directly taken at statement III for which no annexure are prepared. 1. Depreciation which is directly calculated by finance & accounts department by considering assets in books , estimated additions & deletion of the assets during the budgeted year. 2. Bagging expenses cost of diesel loco which is estimated by production department based last 3 years consumption of diesel used for running of locomotives for moving of railway wagons etc.
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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 assumin all g 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 Units budget, marketing departments budget & put-up a consolidated budget to the Board of Directors through Finance Director and Managing Directors. In due course once budge proposals are approved by Board of Directors, Head Office t 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

y y y y
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:
y y y y
Non profit projects, i.e. the projects to meet legal and safety requirements. Non measureable profit projects, i.e. the projects with intangible and long term advantages. Capital replacement project, i.e. the projects undertaken to replace worn- out or obsolete equipment. Expansion projects, i.e. the projects undertaken to add to the companys working capacity.
CAPITAL BUDGETING 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 TECHNIQ ES OF EVAL ATION
TRADITIONAL OR NON-DISCOUNTING
TIME-ADJUSTED OR DISCOUNTED CASH FLOWS
1) PAYBACK PERIOD 1) NET PRESENT VALUE 2) ACCOUNTING RATE OF RETURN 2) PROFITABILITY INDEX 3) INTERNAL RATE OF RETURN
Bu g & Bu g
ry Con rol
P a g e | 84
TRADITIONAL OR NON-DISCOUNTING TECHNIQUES 1. PAYBACK PERIOD

y y y
The payback period is defined as the the number of years required for the proposals 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) y The ARR may be defined as the annualized net income earned on the average funds invested in a project. y The annual returns of a project are expressed as a percentage of the net investment in the project.
COMPUTATION OF ARR
ARR=
Average profit (after tax) __________________________________*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:

y
y y y
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. 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.
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CAPITAL BUDEGTING PRACTICES IN INDIA

y
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.
y y
P a g e | 87
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 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-forma1. Proposals for New Items.
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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 2009-10
Expenditure 20010-11 2011-12
N-I N-II N-III N-IV N-V N-VI
Energy saving system /scheme Operational necessity Reliability improvement Safety equipments Replacement of agening equipments Statutory requirements of Govt. directives/requires of input supplies Minor modifications Inspection Facilities Research & development equipments Admn. Office building, furniture, colony amenities, etc. Associated areas like welfare, colony amenities, etc.
N-VII N-VIII N-IX N-X
N-XI
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N-XII N-XIII Computer and computer systems 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. 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.
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N-IV: Safety Equipments:Against this group those items are to be estimated which are meant for protection against Fire & keep the safety of Plant, its employees, contract labours etc. Example: - 1. Installation of sliding / barriers type gate system for Railway Crossings in the Plant. 2. Multi purpose encapsulated protection suit for Handling Acids & Ammonia. 3 . Fire Extinguishers.
N-V: Replacement of Ageing Equipments:Against this group those items are to be estimated which replace the old aged equipments in Plant who have completed their useful life or are beyond economical repairs. Example: - 1. Diesel operated Fork lift. 2. Pay loaders. 3. Copying Machines. 4. Lathe Machines. 5. Air Coolers, Air Conditioners, Fridges etc.
N-VI: Pollution Control / Environmental Protection Schemes:Against this group those items are to be estimated which are to be kept in Plant as per Statutory requirement or as per directives of Central Government or state government increasing / improvement in Pollution Control / Environment Protection Schemes. Example: - 1. Spiro meter. 2. Construction of Check dams etc.
N-VII: Minor Modification:This group is used for procuring those minor capital items which are not covered in other groups. Normative budget of Rs. 15 lakh for Plant and Rs. 5 Lakh for Township is sanctioned for these groups. Example: - 1. Lawn Movers.
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2. Mobile Phones 3. Two wheelers, cycles etc.
N-VIII: Inspection Facilities:Against this group those items are to be estimated which are meant for inspection of various equipments, metals, atmosphere etc.:Example: - 1. Induction heater. 2. Machine condition Analyzer. 3. Measuring Instruments & Tools.
N-IX: Research & Development Equipments:Against this group those items are to be estimated which are meant for Laboratory and Research & Development equipments:-. Example: - 1. Chemistry Modules. 2. Multi purpose Pilot Plan 3. Misc R & D Equipments like PH Meter, KF Titrator etc.
N-X: Admn. Office Building, Furniture, Fixtures, and Vehicles etc.: Against this group those items are to be estimated which relates to run Administration Building Office, Furniture, Fixtures etc. Example: - 1. Xerox Machines. 2. Franking Machines. 3. Cars 4. Security items
N-XI: Associated Areas Like Welfare Colony Amenities, G.H.etc.

Against this group those items are to be estimated which relates to welfare of employees, township, Public Buildings, Guest House etc.
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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 :Sr. no Cost Estimates Items Approved Present Commitments Est. up to 31-032009 1. Energy saving system /scheme Operational necessity Reliability improvement Safety equipment Replacement of ageing equipments Balance to be made Expenditure Est. Up to 3103-2009 200910 201011 20 1112
2. 3.
4. 5.
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6. Statutory requirements of Govt. directives/requires of input supplies Minor modifications Research & development equipments Admn. Office building, furniture, colony amenities, etc. Associated areas like welfare, colony amenities, etc. Computer and computer systems CISF facility
7. 8.
9.
10.
11.
12.
Total ON- Going Items
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.
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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: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. Year of No 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
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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 __________
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.. : Items 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 : : : :
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a. Detailed description of the proposal b. Are there any ancillary facilities needed? c. Time required for completion (in months) 05. Justification a. Category of the proposal. b. Present status c. Financial benefits/ advantages expected to be Derived out of the proposal d. Details of alternatives available and why this Alternative is the best one e. Disadvantages, if the proposal is not Implemented f. If the proposal is one of replacement, please indicate the following.
-
Cost of original equipment. Year of installation Terminal value Residual/ resale value :
06. Financial A. Total cost of proposal - F.C. Rs. - I.C. Rs. - Total Rs. B. Have budgetary quotations been obtained C. Basis of cost estimate D. Break up of cost estimate ( enclose Statement giving activity wise purchase/ Job 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. B. C. D. IRR ROI (on cash flows discounted @ 16.5 p.a.) Pay Back Period (on discounted cash flows) Net present value. : : : :
09. Risk Analysis 10. Ranking in term of priority
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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. 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
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Budget Module meant for Budget Control in Financial Accounting Systems. Each items of capital budget is given 10 digit code where first two digit indicate group, next two digit indicate Rs No. of item in that particular group & last 4 digit indicate the year in which budget is sanctioned. Example 02 0010 0910, Here, 02 indicate group II, 0010 indicate Sr No of item of group II, 0708 indicate year 2009-10 in which budget is sanctioned. After receipt of intimation of sanctioned budget & these 10 digit code, indenter raise MPR/WOI (Material Purchase Requisition / work of indent) and send it to F & A Department through Materials Department for Budget Availability Certification. F & A Department certify Budget Availability after scrutiny of MPR/W01 comparing the same with Budget sanctioned & sent it to materials Department for further action for procurement. Once material Department completes all formalities for placing of order on supplier/contractor, proposal sent to F&A for entering the landed cost in Budget Module. F&A dept is responsible to assure that the material is not procured/contract is not placed beyond the sanctioned budget. To control Capital Budget commitment, monthly meetings are held under the Chairmanship of Unit Head with all HODs / SHs and measures are taken to utilize the budget timely. For this monthly commitment/expenditure report is prepared by F & A Dept & is circulated to all HODs/SHS. To appraise Head office about the progress of capital Budget, Quarterly report for high value items are sent to Head Office in prescribed proformas.
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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 employees requirements:y House Building Loan y Conveyance Loan y Personal Loan /One month salary advance
House Building Loan

All permanent employees are given House Building Loan as per their entitlement. This Loan is given only once during tenure of employees service period. Loan is given fora. Purchase of plot b. Purchase of ready build house c. Construction of house on plot d. Additional work is to be done on present house property. Administration Section of P & A Department is responsible to get budget sanctioned from Head Office through F & A Department. For this, they send the estimate amount / budget required for budget period based on various data of employee who have yet not availed HBL.
Conveyance Loan
All permanent employees are given conveyance loan as per their entitlement. This loan is given more than once during tenure of employees service period. Loan is given fora. Purchase of car b. Purchase of scooter / motor cycle / moped. P & IR Section of Personal & Administration Department is responsible to get budget sanctioned from Head Office through F & A Department. For this, they send the estimated amount / budget required for budget period based on various data of employees who are entitled to avail this facility.
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Personal Loan /One month salary advance :All permanent employees are given one month salary advance (personal loan) one in a year. This advance is recovered in a year. This advance is recovered in ten equal monthly installments from employees salary. Here also, P & IR section of Personal & Administration Department is responsible to get budget sanctioned from Head Office through F & A Department. For this they send the estimated amount / budget required for budget period based on present employees strength & their yearly basic + D.A. After getting budget estimates from P & A Department for above 3 type of loans / advance, F & A Department prepare data in following format and send it to H.O. for approval of competent Authority :Sr no 1 2 3 4 5 Op. Balance Commitment(Budget) Total Less:Estimate Recoveries Cl. Balance HBL Conv loan Personal Loan
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.
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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. 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.
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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 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.
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BUDGETARY CONTROL
Budgetary control is defined as the establishment of budgets relating the responsibilities of executives to the requirements of a policy and the continuous comparison of the actual with the budgeted results. It follows that a budgetary control system secures control over performances and related costs in different parts of the business, 1. By establishing budgets. 2. By comparing actual attainments against budgets. 3. Taking corrective actions and remedial measures or revision of budgets, if necessary. The budgets put a concrete form and follow up action to see that the plan is adhered to complete the system of control. In other words, while budgeting is the art of planning, budgetary control is the act of adhering to the plan. The advantages of a budgetary control system which arises from the achievement of the objective of budgeting are as follows: Budgetary control aims at maximization of profit through effective planning and controlling of the income and expenditure- directing capital and resources to the best and most profitable channel. It provides a clear definition of the objective and policies of the concern and a tool for subjecting these policies to periodic examination. The function and performance of the various branches and sphere of the organization is closely coordinate 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.
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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:
y
There should be an organizational chart laying out clear terms the responsibilities and duties at each level of executive, and the delegation of authority to the various levels. The objectives, plans and policies of the business should be defined in clear cut terms. The areas to be covered by the budgetary scheme should be clearly laid down. The output level for which budgets are fixed, i.e. the budgeted output should be stated. There should be an efficient system of accounting to record and provide data line with the budgetary control system. It is actually the effort of the management and the accountant that make a budgetary control system successful. For the establishment and the efficient execution of the plan, a budget committee should be set up. There should be proper system of communication and reporting between the various levels of management. There should be a charter of the programme. This is usually in the form of a budget manual where in all details regarding the plan and its procedure of operation are given. The manual will also specify the length of the budget period. The budget should primarily be prepared by those who are responsible for the performance. The budgets should be complete, continuous and realistic. When the budget is approved, a master budget entry is made in FAS (Financial Accounting System), where each and 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.
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Budgetary control at IFFCO- Kandla

At IFFCO- Kandla budgetary control has been implemented at every step which can be summarized as: In this 10 digit code first two numbers indicate the group; next four digits indicate serial number of item in that particular group and last four digits indicate the year in which the budget was sanctioned.
For e.g.: 0200100910
Where, 02 indicates group 2 0010 indicates serial number of the item of group 2 0910 indicates year of sanctioning, i.e. 2009-10
Then the amount sanctioned in the budget for that item is recorded. When as intender sends a request for the item to the purchase department. Purchase department verifies it with the items in the stock. If the item is not available the purchase department sends the enquiry to the various suppliers, the order goes to that supplier who fulfills all technical specifications and who bids the lowest price. When the order is placed, this information is passed on to F&A department with all the papers to be recorded properly. An entry is made in FAS to check whether the amount asked for, does not exceed the amount sanctioned. As IFFCO- Kandla is a huge unit it is not possible to verify numerous transactions so, a cut off is set at the level of rupees one lakh and all the items with amount equal to or less than rupees one lakh are sanctioned without scrutiny if the budget is available. If the amount is more than one lakh it goes to financial concurrence, where a deep study is done and the amount is sanctioned only if everything is found to be correct.
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y
Budgetary control is again seen at the payments to various parties, at this stage it is verified that the bills received from third parties match with the amount specified in the contract. IFFCO- Kandla also implements the budgetary control by dividing the annual budgets into monthly budgets. Progress report for each item of revenue budget as well as for capital budget is prepared monthly. Quarterly progress report of capital budget for the items valuing more than Rupees fifty lakhs is sent to H.O to report the stages of high value items. IFFCO- Kandla also prepares the monthly variance report to ensure the controllability of different items. Moreover to control the capital budget commitment, monthly meetings are held under the chairmanship of unit head with all the HODs. In this meeting measures are to timely utilize the budget.
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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
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.
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y
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 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.
y y y y y y y y y y y y y y
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.
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iii.
y y y y y y y y y
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. New workers not been allowed full normal wages. Direct labour efficiency variance Poor working conditions. Poor/stick supervision than specified. Incorrect scheduling of production process Insufficient training to workers. Poor repairs and maintenance of machines. Abnormal idle time. Use of sub standard material Use of employees with low efficiency. Work on new machines requiring less time than provided for. Setting incorrect standards Go slow techniques of workers. Increase in labour turnover. Incorrect record of performance.
iv.
y y y y y y y y y y y y y
IV. Overhead expenditure variance y Seasonal conditions. y Improper use of available facilities. y Inefficiency in the various services. y Use of different services. y Improper standards. y Change in the level of activity. y Change in the working time. v. Overhead efficiency variance Same as labour efficiency variance
P a g e | 111 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
y y y y y y
Disposition of variance A wide degree of opinion exists among accountants regarding disposition of variances. It is very difficult to lay down hard and fast rules to be followed for this purpose. It is commonly recognized that disposition of various variances is a very important decision, which affects both inventory valuation and income valuation. Following are the important consideration relevant for disposition of variances:
y y y
Materiality of variances. Cost of inefficiency. Cost of the product.
The choice of method depends on:

y y y y y
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

y y y y
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
P a g e | 112 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:
y
The executive concerned should be informed about, what the cost performance should have been. How close actual performance was with reference to standard cost performance. The analysis of causes of variances to enable the control action to be taken appropriately. Reporting activity should be guide by the principle of management by exception based on this principle, accost accountant communicates to appropriate level of management only essential facts from the great mass of his cost data. The magnitude of variances.
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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:

y y
Rate variance Usage variance
Whereas for fixed overheads actual cost incurred are compared with the budget for that period and the actual of the previous corresponding period. All the monthly variance reports are sent to H.O. with the reasons for variance for the purpose of review.
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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. Also to evaluate and ascertain financial position correctly of organization lik IFFCO, a student e like me of 22 years age is too less. We were interested to study following topics but couldnt make it, in absence of any information, as is handled by Head Office, New Delhi.
o cash budget o sales budget
It was advised to go through only in procedural information & not to use any financial data pertaining to IFFCO as a whole or for IFFCO KANDLA UNIT. However at many places figures shown are as sample/Estimate figures & not the actual figures.
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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 IFFCOs annual report for the financial year 2010-11 and found that IFFCO is financially very strong due to its large reserves and has good credit in market, due to its high share of equity. It has paid 20% dividend which is ever highest by any P.S.U. or co-operative society in India. Successful realization of VISION 2010 and MISSION will definitely made the society to emerge at top position in India. Also this would solve to its objective of being a socially responsible organization and work for welfare of farmers not only in India but also in abroad. IFFCO is also Socially Responsible Organization who does not only look after the wellbeing of their employees and share holder only but they also look after the welfare of farmers by many promotional programmers carried out under the schemes of IFFCO Kisan Sewa Trust and by the Indian Farm Forestry Development Cooperative (IFFDC).
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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 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 doesnt 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
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BIBLIOGRAPHY.
Books: Name Financial management Cost Accounting Author I. M. Pandey George Foster
Annual reports of IFFCO- Kandla
Magazines : SAHYOG, IFFCO KANDLA
Website
: www.iffco.nic.in
Internet
: www.investopedia.com www.businessdictionary.com
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BUDGET AND BUDGETARY CONTROL AT IFFCO-KANDLA

Tolani Institute of Management Studies PB No.11,Lilashah Kutiya Road,Adipur-370205(Kachchh). Ph:(02836)261466,262187 Email:tims@tolani.org,www.tolani.org/tims

Budget & Budgetary Control

Budget & Budgetary Control

Budget & Budgetary Control

Budget & Budgetary Control

man India Fertiliser C mpan

Eg ptian Fertiliser C (IEFC in Eg pt is under implementati n IFFC

general insuran e se t r T r ug ITGI, IFFC Sankat Haran Bima

jana pr vides ree insuran e

armers along wit ea

Collateral Management Servi es td ( CMS ). IFFC

Cooperatives is launched to promote e-culture in rural India. IFFC

Budget & Budgetary Control

Budget & Budgetary Control

Budget & Budgetary Control

Market share of IFFCO

GNFC 21% IFFCO 50%

VISION AND MISSION

Budget & Budgetary Control

Budget & Budgetary Control

Budget & Budgetary Control

ACHIEVEMENTS OF IFFCO KANDLA UNIT

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

Budget & Budgetary Control

INTRODUCTION TO F & A DEPARTMENT OF IFFCO

FUNCTIONS OF FINANCE AND ACCOUNTS DEPARTMENT

Budget & Budgetary Control

Budget & Budgetary Control

Budget & Budgetary Control

Budget & Budgetary Control

The present study contemplated an exploratory research.

Budget & Budgetary Control

Budget & Budgetary Control

DATA COLLECTION SO RCES

MANAGEMENT QUESTION RESEARCH QUESTION

Management document Financial document Human resources document and database

Maga ine Web Source Head office

BUDGET AND BUDGETARY CONTROL

Budget & Budgetary Control

WHAT IS BUDGETARY CONTROL?

This system involves:

Budget & Budgetary Control

The Objectives Of Setting the Budgets

Budget & Budgetary Control

1. Fixed budget 2. Flexible budget

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

Material cost budget Labour cost budget Overhead cost budget

Budget & Budgetary Control

Budget & Budgetary Control

Budget & Budgetary Control

Budget & Budgetary Control

STEPS IN FIXATION OF BUDGET:

Budget & Budgetary Control

3. DELEGATION OF RESPONSIBILITY FOR FORMULATING REVENUE Budget proposals at unit level.

Budget & Budgetary Control

Budgeting process at unit level:

Budget & Budgetary Control

CONTRIBUTION OF VARIOUS DEPARTMENTS IN BUDGETING PROCESS

Consumption of chemicals & deformer.

Budget & Budgetary Control

3. TECHNICAL SERVICE DEPARTMENT:

Budget & Budgetary Control