BUDGETING AND BUDGETARY CONTROL

AT

TECUMSEH PRODUCTS INDIA PRIVATE LIMITED M. HARISH KUMAR

151109672042

Project submitted in partial fulfillment for the award of the Degree of MASTER OF BUSINESS ADMINISTRATION By
PULLA REDDY INSTITUTE OF COMPUTER SCIENCE DOMADAGU VILLAGE NEAR DUNDIGAL AIR FORCE ACADEMY JINNARAM MANDAL MEDAK DIST. 2009-2011

Osmania University, Hyderabad -500007

DECLARATION

I hereby declare that this Project Report titled Budgeting and Budgetary Control submitted by me to the Department of Business Management, O.U., Hyderabad, is a bonafide work undertaken by me and it is not submitted to any other University or Institution for the award of any degree diploma / certificate or published any time before.

Name and Address of the Student

M.HARISH KUMAR H.No. 2-78/2 GAJULARAMARAM VILLAGE ASHRAMAM LANE JEEDIMETLA HYDERABAD-500055

Signature of the Student

ABSTRACT
Budget is one of the important and powerful tools available to the organization to have estimates about expenses and income for a definite period of time. Budgetary control involves the use of budget and budgetary reports, throughout the period to coordinate, evaluate and control day to day operations in accordance with the goals specified by the budget. In this present scenario it is very necessary to reduce the cost in regard of all terms to sustain in the market. So i have taken budgetary control as my study, which carries huge weight age to reduce the wastages and does the process efficiently. The following are the objectives of the study
To study the budgetary control system and techniques implemented in Tecumseh Products India Pvt. Ltd. To study the performance of the company and various cost

control techniques implemented and their impact. The findings that I have come out of study 1. The actual subject matter, naming the project work on and BUDGETARY CONTROL in a manufacturing

BUDGETING

concern is the practical exposure drawn out from the efforts of management of Tecumseh, Hyderabad.

2. Preparation of master budgets, fixed budgets, flexible budgets are desired to be prepared to have easy and fast access to the data required by the staff and line management. 3. As the company incurred huge unexpected losses in the previous two years there is a lot of requirement to review its standards, estimations and follow accordingly.

ACKNOWLEDGMENTS

I express my humble gratitude to Mr. Sanjay Tangri (Senior ManagerAccounts Dept.) Tecumseh products India Pvt. Ltd., who provided an opportunity and helped me a lot for successful completion of my project work.

I am thankful to our internal guide and head of the department, Mrs. Suvarchala Devi for his motivation, help and continuous support, which made this project, happen. I also indebted to his for his valuable suggestions, which made me correct my faults and improve myself.

I am very much obliged to Pulla Reddy Institute of computer science, which has given me an opportunity to carry out our project work in its premises. I feel privileged to thank wholeheartedly our Principal, Prof. GD PAWAN KUMAR for giving us this great opportunity.

M.Harish Kumar.

CONTENTS

1. INTRODUCTION 2. REVIEW OF LITERATURE 3. THE COMPANY 4. DATA ANALYSIS & PRESENTATION 5. SUMMARY AND CONCLUSIONS BIBLIOGRAPHY

TABLE OF CONTENTS:
Contents List of tables List of figures Chapter 1 1.1 Introduction 1.2 Need 1.3 Objectives of study 1.4 Scope 1.5 Methodology Chapter 2 2.1 Literature review 2.2 Conceptual framework Chapter 3 3.1 Industry profile 3.2 Company profile Chapter 4 4.1Data analysis and interpretation Page numbers 45-60 45-60 8 9 10 11 12 14-29

31-34 36-46 48-63

Chapter 5 5.1 Findings 5.2 Conclusion 5.3 Suggestions 5.4 Limitations Bibliography 65 66 67 68 70

CHAPTER-1 INTRODUCTION

INTRODUCTION

A budget is a comprehensive plan of action expressed in physical and financial terms. Its a blue print of a companys financial estimates for the future. Budgeting forms the most important part of the planning function. Its a system of planning and control covering all the segments of an organization and also giving a sense of direction to the goals and objectives of an organization. A budget constitutes the principal instrument for projecting the future cost revenues, which form an essential part of the management accounting and the foundation of firms financial control. A budget system should be such that it becomes imperative for the management to establish goals and objectives, define policies, allocate resources, set targets, and try to take corrective action if there are any deviations. A management is said to be effective if it can accomplish the objectives of an organization. But it is equally important for the organization to attain the objectives efficiently with minimum amount of resource utilization. In order to attain these set goals within a given set of constraints is a difficult job; hence with the help of a proper budget one can achieve the organizational goals and objectives.

Electronics has made life simple. All of us in some form or other, directly or indirectly are using electronics goods. Demand for electronics goods has led to the establishment of many manufactures and development is on day-to-day basis. The thermal, hydro, nuclear plants and power transmission industries play a vital role for the establishment of heavy electronics industry.

The industry having a wide scope because of rapid improving technologies because of such wide applications of electronics, there are several producers in different fields of electronics, with the announcement of new industrial policy (NIP) in 1991 all the Indian firms were exposed to global competition and foreign currency transactions in a big way.

NEED FOR THE STUDY

The day-todays cut throat competition in the world of business, trade and commerce is leading to many complexities which when is not predicted properly according to the fast growing changes that are taking place in the market situations may result in adverse progress and some times may leads to exit from the industry or domestic markets. To avoid these kinds of threats endangering the survival prospects, there is a compulsion today to have a proper plan of action in predicting the prices, costs, funding the proposals, controlling the same and implementing the framed budgets and utilize the scarce resources avoiding maximum extent of wastage. Budget shows the real need to know the SWOT-analysis, which in turn is simply known as Strengths, Weaknesses, Opportunities, and Threats. Following these guidelines it is very simple to make proper budget allocations according to requirement and make timely decisions. Budgeting and Budgetary control helps in this context of dynamism. Preparation of Budgets in various fields like purchases, production, salaries and wages, and sales process of the company on a monthly basis, quarterly and half-yearly basis gives effective control system in financial management and thus makes the management aware of the regular price changes.

OBJECTIVES OF THE STUDY

The study has been undertaken with the following objectives: To study the budgetary control system and techniques implemented in Tecumseh Products India Pvt. Ltd. To study the performance of the company and various cost control techniques implemented and their impact. To examine the feasibility of present system in Tecumseh Products India Pvt. Ltd. To compare the present sales, production, raw materials and others with actuals.

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SCOPE OF THE STUDY

The study is conducted with the available data from the Annual Reports, Internal Reports, and other available data from several interactions with the staff of Tecumseh Products India Pvt. Ltd., and analysis was made accordingly. The budgeting is done only for the three years and it clearly explains the coverage regarding the duration of the study. All the budgets are prepared in the organization by the concerned departments and they share the same as and when they required for proper adjustments and necessary updates. Hence the data collected from them is regarded as fair and absolute. The intention behind preparation of budgets is to forecast the sales and expenses to be incurred in the near future and compare with actuals.

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METHODOLOGY OF THE STUDY

Every project work is based on certain methodology, which is a way to systematically solve the problem or attain its objectives. It is a very important guideline and lead to completion of any project work through observation, data collection and data analysis. DATA COLLECTION To determine the appropriate data for research mainly two kinds of data was collected namely primary & secondary data as explained below: PRIMARY DATA Primary data are those, which were collected a fresh & for the first time and thus happen to be original in character. However, there are many methods of collecting the primary data; all have not been used for the purpose of this project. SECONDARY DATA Secondary data is collected from previous researches and literature to fill in the respective project. The secondary data was collected through the available data from the annual reports, internal reports, and other available data from several interactions with the staff of Tecumseh Products India Pvt. Ltd., and analysis was made accordingly. The data is secondary in nature as the records and statements, which shows their own limitations, and up to a certain extent it is even said to be primary while the collection of data regarding actual facts are collected from the concerned staff.

STATISTICAL TOOLS USED Graphs, variance, and tables.

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CHAPTER 2 REVIEW OF LITERATURE

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CONCEPTUAL FRAME WORK OF THE STUDY CONCEPT OF BUDGETING AND BUDGETARY CONTROL
BUDGET: A budget is a financial and quantitative statement, prepared and approved prior to defined period of time, of the policy to be pursued during that period for the purpose of attaining a given objective. It may include income, expenditure and the employment of capital. In other words, a budget is a systematic plan for the utilization of manpower and material resources. In a business organization a budget represents an estimate of the future costs and revenues. ESSENTIAL FEATURES OF A BUDGET: 1. 2. 3. 4. 5. 6. Its a written plan of activities for the future period of time. It is expressed in quantitative form, physical of monetary units or both. It relates to the income and expenditure for individual functions of the business. It is prepared for a definite period of time, usually for one year. It relates to the future period for which the objectives or goals have already been laid down. It is prepared in advance and is derived from the long-term strategy of the organization.

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OBJECTIVES OF A BUDGET:
Budgets serve as a Blue Print of the desired plan of action. Budgets help in reduction of wastage and losses by revealing them in time for corrective action. Budgets serve as means of communication. The organization communicates the policies and targets to the managers in the organization who are responsible to carry out the plan. Budgets serve as the benchmark for controlling ongoing operations. Budgets help to coordinate, integrate and balance various operations to achieve set objectives of the organization. Budgets are a way of communicating to the departmental, sectional, and divisional heads their responsibilities and making them accountable to the same if any deviations from the actuals arise. Budgets facilitate centralized control with delegated authority and responsibility. A system of control can be exercised by having a plan against which the actual results can be progressively compared and corrective actions are taken when ever necessary. Budget brings out the efficiency and improvement in the working of the organization as all the details are clearly spelled out. Budgets compel advance planning. By having a formal budgeting procedure, management is forced to look to the future instead of living hand to mouth without any clear idea or purpose.

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BUDGETARY CONTROL:
Budgetary control is a system of controlling costs that includes the preparation of budgets, coordinating with the departments and establishing responsibilities, comparing actual performance with that of the budget and acting upon results to achieve maximum profitability. Its a very important activity to ensure that the actuals confirm to the plans set through the budgets. The meaning and purpose of setting of budgets will not be achieved without effective budgetary control system.

No system of planning can be successful without having an effective and efficient system of control. Budgeting is closely connected with control. The exercise of control in the organization with the help of budgets is known as budgetary control. The process of budgetary control includes: Preparation of various budgets. Continuous comparison of actual performance with the standard or the budgetary performance. Revision of budgets in the light of changed circumstances.

A system of budgetary system should not become rigid; there should be enough scope for flexibility to provide individual initiative and drive, budgetary control is an important device for making the organization more efficient on all fronts. It is an important tool for controlling and achieving the organizational objectives.

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STEPS INVOLVED IN BUDGETARY CONTROL SYSTEM:

Establish a plan or target of performance, which coordinates all the activities of the business. Record the actual performance. Compare the actual performance with the standards set. Calculate the variances and analyze the reasons for the difference. Take the necessary corrective action to set the actual performance right.

OBJECTIVES OF BUDGETARY CONTROL:

To act as a guide for the management decision making when unforeseen conditions affect the business. To coordinate all the activities of the business To plan and control income and expenditure so that maximum profitability is achieved. To combine all the levels of management in preparation of the budget so that there is individual initiative. To direct capital expenditure in the most profitable direction. To provide a benchmark against which actual results can be compared. To guide the management to remedy a given situation. To ensure that sufficient funds and working capital is available for the efficient functioning of the organization. To clearly lay down responsibility and authority of each employee so that valuable time is not wasted.

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ADVANTAGES OF BUDGETARY CONTROL:

1. Budgeting helps to coordinate, integrate, and balance the efforts of various departments in the light of the overall objectives of the enterprise. 2. Budgets compel management to plan for the future and become more effective and efficient in administrating the business operations, it also instills into the manager the habit of evaluating carefully their problems before making a decision. 3. Budgeting increases the participation of the employees in the policy formulation and implementation, thus increasing their morale and motivating them to work in harmony with the organizational goals. 4. Budgeting helps in proper utilization of existing resources, both human and capital and also helps in minimizing wastage. 5. Budgeting improves the quality of communication as all the procedures and rules are written and communicated to all the employees in the organization, which results in better understanding and harmonious relations among managers and subordinates. 6. Budgeting helps the management to focus on significant issues affecting the business, thus facilitating management by exception and also helps in saving the precious time of the top management by not involving in day-to-day affairs. 7. Budgeting measures efficiency and thereby enables self-evaluation by the management. It also indicates the progress made in attaining the enterprise objectives. 8. Budgeting facilitates control as all the relevant details are clearly laid down. It also helps in making the management more cost conscious.

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CHARACTERISTICS OF A GOOD BUDGETING:

A good budgeting system should involve persons at

different levels while preparing the budgets. The subordinates should not feel any imposition on them. There should be a proper fixation of authority and

responsibility. The delegation of authority should be done in a proper way. The targets of the budgets should be realistic, if the

targets are difficult to be achieved then they will not enthuse the persons concerned. A good system of accounting is also essential to make the The budgeting system should have a whole-hearted

budgeting successful. support of the top management The employees should be imparted budgeting education.

There should be meetings and discussions and the targets should be explained to the employees concerned. A proper reporting system should be introduced; their actual results should be promptly reported so that their performance appraisal is undertaken.

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BUDGETING FACTORS AT TECUMSEH PRIVATE LIMITED: PROCUREMENT:

Modes of procurement: There are two main modes of procurement of raw material. 1) DIRECT PROCUREMENT: Direct procurement means that the raw materials are directly identifiable as part of the final product and are directly used on machine. 2) CONVERSION: In this process the base material is being converted into final products through various processes applied on to shape them and give them the need satisfaction power. Conversion process not only converts the material into final products but also gives an ultimate solution.

SOURCE OF PROCUREMENT: It has mainly two sources of procurement of raw material. 1) DOMESTIC: In this system mainly the procurement of raw materials can be made from with in the country. 2) IMPORTED: In this system the procurement of raw materials can be made from outside the country.

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STRATEGIES OF MATERIALS MANAGEMENT:

The following are the strategies followed by materials management in Tecumseh Product India Ltd. Two sources for all materials: Even though there is shortage of supply from one supplier, it could be accommodated by the other source. Price: The price can be fixed based on the competitors price. Quality: Quality of materials differs from one supplier to the other. Decision-making: The activity of making a decision to buy the material directly from supplier or to import the same.

PLANNING:
Budget planning determined how much of which material, components, goods, labour, and other requirements are needed and when. This activity is the responsibility of the planner or controller. Planning process initiates coordination and classification of sub goals to achieve major corporate goals.

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TYPES OF BUDGETS:
The budgets are usually classified according to their nature. The following are the types of budgets, which are commonly used:

(A) Classification according to time:

1. Long term budgets. 2. Short term budgets. 3. Current budgets.

(B) Classification according to functions:

1. Operating budgets. 2. Financial budgets. 3. Master budgets.

(C) Classification according to flexibility:

1. Fixed budgets. 2. Flexible budgets.

(A) ACCORDING TO TIME:

1) Long term Budgets: The budgets are prepared to depict long term planning of the business. The period of long-term budgets varies between five to ten years. The long term planning is done by the top management; it is not generally known to lower levels of management. Long time budgets are prepared for some sectors of the concern such as capital expenditure, research and development, long term finances, etc. These budgets are useful for those industries where gestation period is long i.e., machinery electricity, engineering etc. 2) Short Term Budgets: These budgets are generally for one of two years and are in the form of monetary terms. The consumers foods industries like sugar, cotton, textile, etc. use shorter, budgets.

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3) Current Budgets: The period of current budgets is generally of months and weeks. These budgets relate to the current activities of the business, according to ICWA London. A current budget is a budget, which is established for use over a short period of time and is related to current conditions.

(B) CLASSIFICATION ON THE BASIS OF FUNCTION:

1. Operating budgets: These budgets relate to the different activities or operation of a firm. The number of such budgets depends upon the size and nature of business. The commonly used operating budgets are: a) Sales budget b) Production budget c) Production Cost budget d) Purchases budget e) Raw Materials budget f) Labour budget g) Plant Utilization budget h) Administrative expenses of Works Overheads budget i) Administrative and selling expenses budget, etc. The operating budget for a firm may be constructed in terms of programmers or responsibility areas, and hence may consist of: (i) Programmed Budget: It consists of expected revenues and costs of various products or projects that are termed as the major programmers of the firm. Such a budget can be prepared for each product line or project showing revenues, costs and the relative profitability of the various programmers. Programmed budgets are thus, useful in locating areas where efforts may be required to reduce costs and increase revenues. They are also useful in determining Imbalances and inadequacies in programs so that corrective action may be taken in future. (ii) Responsibility Budgets: When the operating budget of a firm is constructed in term of responsibility areas it is called the responsibility budgets. However responsibility areas may be classified under three broad categories. (a) Cost/expense centre 23

(b) Profit centre (c) Investment centre 2. Financial Budgets: Financial budgets are concerned with cash receipts, disbursements, working capital, capital expenditure, financial position and results of business operations. The commonly used financial budgets are: (a) Cash budget (b) Working capital budget (c) Capital expenditure budget (d) Income statement budget (e) Statement of retained earnings budget (f) Budget balance sheet or position statement budget 3. Master budget: Various functional budgets are integrated into master budget. This budget is prepared by the ultimate integration of separate functional budgets. According to ICWA London The master budget is the summary budget in corporations functional budget. Master budget is prepared by the budget officer and it remains with the top-level management. This budget is used to coordinate the activities of various functional departments and also to help as a control device.

(C) CLASSIFICATION ON THE BASIS OF FLEXIBILITY:

1) Fixed budget: According to ICWA London, fixed budget is a budget which is designed to remind unchanged irrespective of the level of activity actual attained. Fixed budgets are suitable under static conditions. If sales, expenses and costs can be forecasted with greater accuracy than this budget can be advantageously used. 2) Flexible budget: A flexible budget consists of a series of budgets for different levels of activity. It therefore, varies with the level of activity attained. A flexible budget is prepared after taking into consideration unforeseen changes in the condition of the business. A flexible budget is defined as a budget, which is by recognizing the difference between fixed, semi-fixed and variable cost is designed to change in relation to the level of activity.

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REQUISITES FOR A SUCCESSFUL BUDGETARY CONTROL SYSTEM:

For making a budgetary control system successful, following requisites are required: Clarifying objectives: The budgets are used to realize objectives of the business. The objectives must be clearly spelt out so that budgets are properly prepared. In the absence of clear goals, the budgets will also be unrealistic. Proper delegation of Authority and Responsibility: Budget preparation and control is done at every level of management. Even though budgets are finalized at top level but involvement of persons from lower levels of management is essential for their success. This necessitates proper delegation of authority and responsibility. Proper communication system: An effective system of communication is required for a successful budgetary control. The flow of information regarding budgets should be quick so that these are implemented. Budget Education: The employees should be properly educated about the benefits of budgeting system. They should be educated about their role in the success of this system. Participation of all Employees: The success of budgetary control system depends upon the participation of all employees of the organization. Flexibility: Flexibility in budgets is required to make them suitable under changed circumstances. Motivation: Budgets are to be implemented by human beings. Their successful implementation will depend upon the interest shown by the employees.

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ADVANTAGES

LIMITATIONS

Maximization of profit Proper coordination Provides specific aims Tools for measuring performance

Uncert

ain future Revisio

n required Discou

Economy Corrective action Creates budget consciousness Reduced cost Determines weaknesses

rages efficient persons m of coordination Conflic Proble

t among different departments Depend

s upon support of top management

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ARTICLES: Coping with ambiguity through the budget: the positive effects of budgetary targets on managers' budgeting behaviours
David Marginson and Stuart Ogden Manchester School of Management, UMIST, P.O. Box 88, Manchester M60 1QD, UK Available online 2 July 2004. Much consideration has been given over the years to what may be described as the negative' aspect of budgeting; that budgets may constrain innovation and learning, and that budgetary pressure may lead to unintended behavioral side effects. In contrast to this, the present study examines the extent to which budgets have a more positive, comforting' role to play in the individual's work experiences. We argue that managers confronted with uncertainties associated with role ambiguity may respond by becoming positively committed to achieving budgetary targets as budgets offer a source of structure and certainty. We find that the use of budgets as an antidote to role ambiguity is a powerful influence on the manager's budgeting behavior. We test the strength of this effect and we find that budgetary commitment brought on by the experience of role ambiguity may over-ride the potential for recognized explanatory variables such as leadership style, the expectations of the superior and occupational socialization, to inform managers' budgeting behaviors in these circumstances. Budgets, it seems, may be as useful to the individual as they are problematic.

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Budgetary control and the labour force: Findings from a survey of large British companies
Peter Armstrong, Paul Marginson, Paul Edwards and John Purcell Sheffield University Management School, Management Building, Sheffield University Industrial Relations Unit, University of Warwick, Warwick, U.K. Templeton College, University of Oxford, Oxford, U.K. Available online 24 April 2002. This paper presents data obtained from a representative sample survey on hte budgetary controls used in large U.K. companies. The results show a lower overall incidence of such controls than might be expected from textbook descriptions. Only a minority of companies uses a wide range of profit and cost ratios whilst an equally large minority appears not to rely on budgetary control at all. The paper also uses crosssectional variations in the incidence of budgetary targets with features of the organization and its workforce in order to illuminate the uses to which these budgets are put. The findings are tested against the conventional picture of budgetary controls as a response to size diversity and problems of internal co-ordination, and against a radical view that they are a response to trade union organization and flexibilities within the workforce. Both the theories receive some prima facie support from the raw crosssectional variations within the sample. Since internal trading of this type is also associated with the presence of trade unions, the findings point to the existence of a counter-trade union strategy in which ROI targets are used to define the profitability of business units whilst competition from external markets is used to prevent this from being achieved by the export of excess costs into the rest of the organization. Ratios involving labor costs appear to be a response to weakness on the part of the workforce, rather than strength. They are more frequently used in companies which employ large proportions of part-time or female workers. Generally speaking, these employees have higher wastage rates than full-timers and they are easier to lay off and to put on short-time working. In this respect, the use of budgetary reports is related to managerial freedom to act on the information. Overall, the data indicate that the usage of budgetary controls in large U.K. companies is intimately linked with considerations of labor control

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Advanced budgeting: a journey to advanced management systems

Peter Bunce, Robin Fraser and Lionel Woodcock CAM-I Inc., 20 Market Street, Poole, Dorset BH15 1NF, U.K.; Coopers & Lybrand, 1 Embankment Place, London WC2N 6NN, U.K. and Proxima AMS, Albert House, Beech Road, Spetisbury, Dorset DT11 9HQ, U.K. Available online 2 May 2002. This paper summarizes a journey that has taken the CAM-I advanced management systems (AMS) program's Advanced Budgeting study group from an initial interest in better budgeting towards a recognition that a wider framework is needed to meet wider objectives (Woodcock, 1994). The work in advanced budgeting started from two different approaches. The first evolved from CAM-I's research into the application of activity-based costing (ABC) to product costing, during which the group became convinced that it could be applied with benefit to activity planning and budgeting. The second approach came from a recognition that the ultimate purpose of a management system is to link strategies and operations in the most effective way. As strategies are changing in response to many competitive and structural pressures, it seems evident that new management systems are needed to reflect these new realities. An initial conceptual framework for advanced budgeting was developed and tested with field visits. As a result, it was concluded that traditional budgeting is dysfunctional, but the solution is not better budgeting nor stand-alone advanced budgeting systems. Rather, the advanced budgeting key goals can only be achieved through an advanced management system which has a business process orientation and integrates a number of different management functions and initiatives within an on-going system. This will require significant changes in systems and culture. The work can be seen in retrospect as an accumulation of knowledge about the advanced management systems that will be needed to meet the challenges and opportunities of a new and volatile market place. With that broader objective now in focus, it can be seen that an important staging has been reached, but that the journey continue.

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CHAPTER 3 INDUSTRY PROFILE

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INDUSTRY PROFILE
Indian electronics and IT plays a major role in both the production and exports. During the year (1992-97), the electronics industry has achieved an annual growth of 20% in production and over 40% in exports. The production in the year (1997-2002) is targeted at about Rs.380 billion with a growth rate of 37% and exports at about Rs.490 billion with a growth rate of 52%. Overall production is based on Indian Electronics industry that is widely distributed and there are more than 3500 units engaged in the electronic production. Which include in 13 central public sector units with 29 manufacturing establishments, 65 units in state public sectors, 600 units in organized private sector and more than 2800 units in small scale sectors. Electronics has made life simple. All of us in some form or other, directly or indirectly are using electronics goods. Demand for electronics goods has led to the establishment of many manufactures and development is on day-to-day basis. The thermal, hydro, nuclear plants and power transmission industries play a vital role for the establishment of heavy electronics industry. The industry having a wide scope because of rapid improving technologies because of such wide applications of electronics, there are several producers in different fields of electronics, with the announcement of new industrial policy (NIP) in 1991 all the Indian firms were exposed to global competition and foreign currency transactions in a big way.

AIR COMPRESSORS INDUSTRY:

Air compressors provide air at pressures higher than atmospheric. Refrigeration compressors and air conditioning compressors are designed specifically for air conditioning, heat pumping, and refrigeration enclosure air conditioners remove the heat generated by electronic devices from the inside of cabinets or enclosures. Industrial air filters reduce the number of particles in the air that passes through them. Breathing and ventilation air systems provide reliable and safe air supply sources to workers in hazardous industrial environments. Compressed air-purgers and vortex coolers are used for spot heating or cooling applications.

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Industrial air filters reduce the number of particles in the air that passes through them. Air filtration supplies the means to reduce the level of particulates in the air to a cleanliness standard required by any definition of air conditioning. It extends from the simple task of preventing lint and other debris from plugging heating/cooling coils to removing particles as small as 0.1 micron which could cause a short circuit on microchips.

Refrigerant compressors are designed specifically for air conditioning, heat pumping, and refrigeration. Small, stand-alone compressors are not included within this grouping. Refrigerant compressors are large-scale units specifically designed to be the heart of an industrial cooling or air-conditioning system (HVAC). They are integral components of the refrigeration cycle, in which refrigerant gases are cyclically evaporated and condensed, absorbing heat from the load to be cooled, and moving to an open environment where it is dissipated. The compressor serves two main functions: to compress low pressure, low volume gases into high pressure and temperature gases, and to remove vapor from the evaporator to maintain a low boiling point. There are three main types of refrigerant compressors: scroll, screw, and piston. Other compressor styles are available, but they are less common.

Industrial air filter

Haier Electrical Appliance is a China based $9.2 billion consumer durables and electronics major, Haier Group, has recently taken control of 100% stake in Haier appliances (India) Pvt. Ltd by buying out the initial Indian promoters. Haier appliances (India) forayed into the Indian market when the Koreans, LG and Samsung, had swamped the countrys consumer durable and electronics market. The company had sought the Governments permission to carry out manufacturing directly through original equipment manufactures (OEMs) as well as through contract manufacturers in India. At present, the company is outsourcing its products from domestic appliances 32

manufacturers such as BPL and Voltas. The company plans to make India as a production base for exports to neighboring countries in the near future. ELGI has hived off unfavorable businesses in which it did not have a competitive advantage and decided to concentrate more on core compressor business. Its Pneumatic break business has already been hived off and it has tapered down the production of multi-utility vehicles and plans to gradually close the multi-utility vehicle business in which he does not have enough competitive advantage. It has rearranged its entire operations by creating separate business units to concentrate on core products. Apart from these initiatives, ELGI also undertakes turnkey projects for setting up exclusive service stations for all major manufacturers and offers annual maintenance contracts for all service station equipment. It has consistently been increasing its presence in the compressor market to command 11.08% share as of 2004.

Atlas Copco (India). The Company's principal activity is to manufacture and sell air and gas processors, rock drills, pusher legs, merchandised drilling equipment and rock drilling tools. The Company's products serve industrial, construction and mining industry. It operates through two segments: Industrial segment and Construction and Mining segment. Industrial segment develops, manufactures and markets a wide range of air compressors. The Company also manufactures and markets a wide range of tools like grinders, drills, impact wrenches and screw drivers. The construction and mining segment manufactures and markets rock drilling tools, rock drilling rigs, construction tools, breakers, and pumps and loading equipment. The main brands are Atlas, Copco, and Chicago Pneumatic. Kirloskar, we are a 600 Million US Dollars engineering conglomerate driving critical industries. We are century old pioneers in our areas of specialization like power, construction and mining, agriculture, industry and transport, oil and gas and environment protection with a range of world-class industrial products and turnkey services. We are made up of 8 major group companies, each led by the best engineering and managerial talent in India. In addition to engineering, we have interests in civic utility systems and in Information Technology and communication. 33

Our multi-unit, multi-product, multi-location conglomerate is built on the plinths of Experience, Expertise, Quality, Innovation and Values in the business. Our best play is successful work and creation of a new industrial order where we can provide tailor made solutions to the customers.

BPL Engineering Ltd., a well-known Indian conglomerate in the field of Consumer Electronics & Home Appliances, Telecommunication Medical Electronics, Power and Electronic components. BPL has Technical collaboration with SANYO Japan in Co lour Televisions, Washing Machines, Refrigerators and components such as Compressors. The Compressor Division of BPL Engineering Ltd, is engaged in manufacturing of Hermetically Sealed Compressors for refrigeration industry. The products are widely used in refrigerators, deep freezers, bottle coolers, water coolers and dehumidifiers. The company commenced manufacturing compressors in 1994 in technical collaboration with SANYO Japan.

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COMPANY PROFILE

35

COMPANY PROFILE
TECUMSEH PRODUCTS INDIA LTD. was originally established and registered in 1963 under the name of USHA REFRIGERATION INDUSTRIES LIMITED (URIL). Usha Refrigeration Industries Limited (URIL) started in 1963. URIL manufactured compressors for water cooler, air-conditioners and air-coolers. Lala Charath Ramji who was from a renowned industrial family of DCM and Coromendal Group of Companies started URIL. In 1970 the URIL was changed to Shriram Refrigeration Limited and the business was also diversified towards manufacturing of diesel engines and water coolers. Shriram Industries played a great role in the field and captured more than 50% of the market share in India. Shriram Industries also kept its hands in international trade and were successful in exporting their products to the neighbouring countries, Nepal and Bangladesh. In 1980 Lala Charath Ramjis son, Siddharth C. Shriram, became the chairman cum Managing Director of the company. The period saw sea change in industrial policy, which resulted in a great change in the industrial sector. In the process for survival, Shriram went into Tech collaboration with Westing House, US and was named as Siel Compressors. Siel Compressors were the first Indian Company to manufacture compressors. Later Westing House stopped manufacturing compressors and Siel went into Technological Collaboration with Tecumseh Products Company (TPC), USA in 1988. Tecumseh means Crouching Panther derived from chief of the Shawnee Tribe (1768-1813), it started its operations to offer new state of art AW Series to Indian customers. Subsequently TPC took over Siel Group in1997 and Siel Group became 100% subsidiary of TPC. As soon as Tecumseh took over the company it stopped

36

manufacturing water coolers and restricted its production to CFC/hermetically sealed compressors. TECUMSEH PRODUCTS INDIA LIMITED (TPIL) was incorporated in New Delhi, India with limited liability on January 30, 1997. TPIL is principally promoted on behalf of Tecumseh Products Company (TPC), USA and its nominees hold its shares. Tecumseh India is a 100% subsidiary to Tecumseh Products Company (TPC) USA, Which is the worlds only full line, independent manufacturer of compressors. TPC has 29 manufacturing locations in 4 continents. In India the company has 20 sales offices and extensive networks of over 200 dealers and more than 600 registered small-scale manufacturers. TPC invested $80 million in Indian operation known as Tecumseh Products India Pvt. Ltd (TPIPL). TPIPL has two states of art manufacturing facilities at Hyderabad (Andhra Pradesh) and Ballabgarh (Haryana) with CADEM Center at Hyderabad plant to meet Global Engineering needs. TPIPL has gained core expertise in Research & Development, AW Assembly and AW Machine Shops such that it acquired a Lions share of the Indian Compressor market by gaining 50% share. TPIPL is an ISO 14001 and 9001 certified; American based MultiNational Company, Which has core expertise in manufacturing compressors (mostly hermetic) in the air conditioning and refrigeration industry in India. Tecumseh Products Companys (TPC) entered India through a dual acquisition of Siel Compressors Limited Hyderabad and the compressor division of Whirlpool India Limited at Ballabgarh in July 1997. Tecumseh Products India Pvt. Ltd (TPIPL) is the largest independent manufacturer of both air-conditioning and refrigerator compressors in India. It has two state-of-the-art manufacturing facilities at Hyderabad (Andhra Pradesh) and Ballabgarh (Haryana). Tecumseh India is the preferred supplier to those who deal in the AC&R Industry in India and in the Middle East, SAARC countries.

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HYDERABAD PLANT:
The plant at Hyderabad manufactures compressors only for the Air-conditioners and compressors for deep freezers, bottle coolers, and water coolers which are considered to be the Worlds No. 1 in the 150 million compressor market a year. At Hyderabad both reciprocating (AW series) and Rotary (RN series) compressors are manufactured, with an installed capacity of 0.75 and 0.60 million units per annum respectively. It is spread across 55-acres of land at Balanagar Industrial belt, 15 km away from the Hyderabad City on the highway line going towards HMT Ltd, Narsapur Road, and has been accredited with ISO 9001 and ISO 14001 certification for best operational and environmental practices. The in house application engineering testing facility is well equipped to constantly improve the performance of compressors. The CADEM centre started in 2001 as a centre for Tecumsehs global design needs. Today CADEM centre undertakes not only the in sourced work from its different manufacturing plants but also outsourced CAD/CAE work from the companies in automobile, aeronautical and other verticals. Even this engineering facility is ISO 9001 certified. The Hyderabad plant has six regional offices among which four offices are at the metro cities: Delhi, Mumbai, Kolkata, and Chennai and the remaining two are at Ahmedabad and Secunderabad. Besides these there are branch offices and depots located in prime cities across the country. The Hyderabad plant also has a network of about 177 dealers across the nation and are preferred supplies to key original equipment manufactures (OEMs) like LG, Voltas, Blue Star, Godrej, Videocon, Fedders, Amtrex, Hitachi, etc., TPIPL Hyderabad plant was successfully in getting the ISO 9001 certification for maintaining quality of the compressors in 1994 and for the eco friendly environment maintenance the company has got ISO 14001 certification.

38

The management has started development activities in the following areas: Effluent treatment plant Tree Plantation. Rainwater harvesting is to increase the ground water level and TPIPL Vermiculture is the process of utilizing canteen food wastage for

has the distinction of being the first organization in this regard. converting into natural meaner.

DEPARTMENTS OF TPIPL (HYDERABAD):

Human Resource Department. Accounts Department Attendance and Pay Office (A&PO) Export Oriented Unit (EOU) Research and Development (R&D) Maintenance and Engineering Department Quality Development of AW assembly AW Press Shop AW Machine Shop Service Center Dispensary Chemical and Technological Laboratories

TPIPL Hyderabad has a total of 766 permanent employees as on which includes: 172 officers 232 Staff 362 Workers

39

OPERATIONS:
Tecumsehs operations can be organized into three business clusters. Each of these commands into own well-defined infrastructure for market coverage and service to original equipment manufacturers (OEMs).

Compressors for air-conditioning: Residential Air-conditioners. Commercial Air-conditioning systems (both room and central) and

contract manufacturing. Compressors for refrigeration: Household refrigerators and freezers. Commercial refrigeration applications including the freezers,

dehumidifiers and vending machines. CADEM centre for global design needs and services: CAD (computer aided-design) for product design, design automation, re-

engineering and cost reduction. CAE (computer aided engineering) for structural and CFD analysis. CAM (computer aided manufacturing) for designing tools and mould. Software and web development.

TPIPLS Vision:
To provide comprehensive solutions to customers in the field of cooling while providing autonomous working environment for employees, to tap their creative potential, bring out the best in them and optimize stake holders returns.

40

Vision Statement It is our goal to be the global leader in all of the Markets in which we choose to participate. We will pursue disruptive technologies to redefine our products.

TPILS Mission:
To be recognized as the world leader in the supply of

refrigerator and air conditioning compressors. To provide our customers superior products and services. To create an environment in which our employees can

grow to their full potential and make difference. To provide superior value to our stake holders. To be driven to reach the highest possible standards of

excellence in all our endeavors. Nothing will be done to compromise our integrity.

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TPIPLs Quality Policy:

Committed to total customer satisfaction by meeting their expectations and aspirations stated,

evolving needs, implied or latent.

Striving to provide products and service of global quality

standards and to reach a position of leadership in the field of operations, setting new values. Continuous improvement across the organization and

upgradation of product, technology and process supportive environment, at least const to society shall be the means to achieve the goals. The approach will be through proper systems and

procedures and total involvement of employees, vendors and other business associates.

TPIPLs Environmental Policy:

The vision of Tecumseh India is to be a serene green and eco-friendly cooperation carrying our all its operations contributing to preservation of environment and natural resources for the benefit at large. Among others this can be achieved through: Allocation of company wide priority for sustainable Evaluation and up gradation of current technologies, development with total involvement and commitment. products and raw materials for minimization, handling and disposal of solid, liquid and gaseous wastes. Realization of tangible objectives and targets set for continual improvement to control and prevent pollution and conserve resources.

42

Legal compliance and going beyond setting new Meeting international expectations such as Montreal our CFCs as refrigerants in our

standards. protocol, 1987 in phasing compressors. Training and propagation of Knowledge on environment.

TPIPLs Key Business Objective:

Set the world industry standard of excellence for customer

satisfaction. Achieve total quality. To attain and surpass global quality and reliability

standards for our products. Maintain clear technology leadership. Market share leadership with focus on customer needs.

TPIPLs Seven Deadly Sins:

1. 2. 3. 4. 5. 6. 7. Inconsistent product quality. Slow response to market place. Lack of innovative and competitive product. Uncompetitive cost structure. Inadequate employee involvement. Unresponsive customer service. Ineffective resource allocation.

STRATEGIES AND PROCESSES AT TPIPL:

Workplace improvements. Creativity club.

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KRAs (improvements/suggestions) Variable earnings sharing of value addition Agreement process organization needs Non conformance reporting /audits Open house/communication meetings Team assessment and feedback Changing life styles.

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IMPORTANT EVENTS:
In the year 1998: TECUMSEH fully acquired Sri Ram, Hyderabad Whirlpool compressor, facility at Faridabad/Ballabgarh.

In the year 1999: Development of Plant in Ballabgarh

In the year 2000: Amalgamation with TIPL

In the year 2001: Voluntary Retirement Scheme Industrial Unrest and lockout in the first half of the year. Export obligations not met during the year. High foreign outgo. Obligations met towards customers by importing finished goods and

selling at a loss.

In the year 2002: Setting up of the CADEM Center

In the year 2003: Setting up of a 100% EOU for export of compressors and its parts. 45

Expansion in installed capacity at the Hyderabad plant. Total foreign outgo reduced drastically. Improvement in the market for compressors as a result of an

improvement in the market for air-conditioners and refrigerators.

In the year 2004: This year export showed a growth of 3 times over previous years

involvement. AW capacity expansion program Company has launched two new commercial models of MLA series

compressors. Has won the Green Tech Environment Excellence Silver Award in the

countrywide competition among the engineering industries.

In the year 2005: Tecumseh compressors for china. Tecumseh posts 84% rise in export earnings. Tecumseh India to set-up rotary compressors unit.

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BOARD OF DIRECTORS

Mr. Todd W Herrick : Mr. RKP Shankerdass: Mr. MG Ramachandran Mr. Vipin Sondhi Mr. John H Ferguson : Mr. James F Curley Mr. Kent B Herrick Mr. James S Nicholson Mr. Eric L. Stolzenberg Mr. R.K. Sachdeva

Chairman & CEO Director : : : : : : : Director Managing Director (till Jan 7th, 2007) Director (till Nov 7th, 2005) Director Director Director (from Jan 19th. 2007) Director & CFO (from Nov 7th, 2005) Company Secretary T. Venkat Registered Office Balanagar Township, Hyderabad-500 037 Andhra Pradesh Auditors

Director

M/s Price Waterhouse, Chartered Accountants Bankers Allahabad Bank State Bank of Hyderabad Standard Chartered Bank ICICI Bank HDFC Bank

47

CHAPTER-4 DATA ANALYSIS & INTERPRETATION

48

ANNUAL BUDGETS

PRODUCTION BUDGET
Table 1. PRODUCTION BUDGET AW all Models Particulars Sale of units Add: Closing Stock (as on 31st December) Less: Opening Stock (As on 1st January) Total Production in Units 2007 750000 110500 860500 110500 750000 Year 2008 625000 30000 655000 110500 544500 In Units 2009 600000 50000 650000 30000 620000

Graph 1.
Production Budget 850000 750000 650000 550000 Units 450000 350000 250000 150000 50000 -50000 2007 2008 Years 2009
1

750000 544500 620000

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INTERPRETATION:
Here production budgets for three years i.e., from the year 2007 to 2009 are compared. The production, by observation, to the chart above is self explanatory that the estimations or the budgeted figures of production in units has constantly decreased and increased in the year 2009. The slight change in the production of units is acceptable as it shows a favourable change. The product cost figures are available in the following chart for the reference purpose only. While calculating percentage changes year 2007 is taken as base year. The percentage change in the year 2008 decreased to 72.6%. The percentage change in the year 2009 decreased to 82.67%, but slightly increased from the year 2008. Table 2. PRODUCTION COST PER UNIT AW (Domestic and Exports) all models Particulars Year 2007 AW 1500 Q Actual Material Cost Add: Consumables Rejection Cost Power Cost Wage Cost (Labour) New Lines (Stomat, Talent, and Lamination) Freight Inwards (1.14%) Warranty PRODUCTION COST PER UNIT Table 3. ACTUAL PRODUCTION AW all Models Particulars Total Production in Units Total Production in Units 2007 411013 411013 In Units Year 2008 591323 591323 2009 213476 213476 2387 181 27 100 290 30 29 40 3084 2008 2417 186 25 85 250 29 44 3036 2009 2782 175 20 65 278 22 38 3380

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Table 4. CALCULATION OF PRODUCTION VARIANCE (BUDGETED VS ACTUALS) In Units Year Budgeted Actuals Variance Result 2007 750000 411013 -338987 Adverse 2008 544500 591323 46823 Favourable 2009 155000 213476 58476 Favourable 1449500 1215812 -233688 Graph 2.
Production variance
1000000 800000 600000 budgeted 400000 200000 0 2007 -200000 -400000 2008 2009 actuals variance

INTERPRETATION:
The variance in the year 2007 comparing to budget vs. actuals is very unsatisfactory and the result is expressed as adverse. The reason behind is, the overestimation of the budgeted figures over actuals. In the year 2008 & 2009, the variance is positive and it is expressed to be favourable performance. The overall variance of the three years i.e., from 2007 to 2009 is negative. Hence, there is a curious requirement to review the budgets. Concentration of performance appraisal in production is at most desired. Note: In the year 2009, the actual production units are available only till March '08 i.e., for three months. Hence budgeted figures for variance purpose are adjusted for three months.

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DIRECT LABOUR BUDGET

Table 5. DIRECT LABOUR BUDGET Particulars Production in Units Labour hours per unit (in hrs) Total Hours (in Hrs) Rate per hour (in Rs.) Total Direct Labour Amount 2007 750000 3.93 190600 78.17 119193770 Year 2008 544500 1.93 280825 56.32 126531000 2009 600000 2.24 267300 43.56 93169261

Graph 3.
Direct Labour Budget

140000000 120000000 100000000 80000000 60000000 40000000 20000000 0

Direct Labour Cost

119193770

126531000 93169261

2007

2008
Years

2009

52

INTERPRETATION:
From the above data direct labour budget for three years right from 2007 to 2009 are compared. The direct labour cost has increased in tune with decreased production. This shows there is a lot of expenditure incurred in the year 2008. A gradual decrease has been found in the year 2009 comparing to the base year 2007. The level of expenditure is controlled up to a maximum level by thorough revisions. While calculating percentage changes, 2007 is taken as base year. The percentage change in the year 2008 increased to 106.16%, which is beyond the limit. This shows over expenditure. The percentage change in the year 2009 decreased to 78.17%, showing that the strict management control on this issue in this year. Table 6. ACTUAL LABOUR COST Particulars Production in Units Labour hours per unit (in hrs) Total Hours (in Hrs) Rate per hour (in Rs.) Total Direct Labour Amount 2007 411013 2.45 167480 68.35 91581564 Year 2008 591323 2.72 217087 55.99 97243000 2009 213476 3.74 56967.5 59.18 26974347

Table 7. CALCULATION OF DIRECT LABOUR VARIANCE (BUDGETED VS ACTUALS) Year 2007 2008 2009 Budgeted 119193770 126531000 23292315 269017085 Actuals 91581564 97243000 26974347 215798911 Variance Result 27612206 Favourable 29288000 Favourable -3682031.8 Adverse 53218174

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Graph 4. Direct labour variance 140000000 120000000 100000000 80000000 60000000 40000000 20000000 0 -20000000

budgeted actuals variance

2007

2008

2009

INTERPRETATION:
In The year 2007 and 2008, all the budgeted actual and variance figures are showing positive expenditures hence the variance is favourable, but whereas in theyear2009 The variance is showing adverse as the actual expenditure is exceeding the budgeted figure. It is suggested that strict supervision may yield favourable results.

Note: In the year 2009, the actual direct labour costs are available only till March 08 i.e., for three months. Hence budgeted figures for variance purpose are adjusted for three months.

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SALES BUDGET
Table 8. SALES BUDGET Particulars Domestic Sales: Rate Quantity Value (Rs. In Lakhs) Exports: Rate Quantity Value (Rs. In Lakhs) Combined Sales Value (Domestic and Exports): Value (Rs. In Lakhs) 27289 25062 24930 Year (Rs. In Lakhs) 2007 2008 2009 3765 175000 6589 3600 575000 20700 4492 100000 4492 3918 525000 20570 4205 100000 4205 4145 500000 20725

Graph 5.
Sales Budget
27500

Sales (Rs. in Lakhs)

27000 26500 26000 25500 25000 24500 24000 23500 2007 2008 25062 24930 2009 27289

Years

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INTERPRETATION:

The year 2007 is clearly indicating high sales while comparing to the successive years. It is the combination of total sales including domestic and exports. The increase in sales in the year 2007 is due to excess production. In the year 2008, the total sales value has drastically decreased due to less production. Quite improvements are required for further recovery. In the year 2009, though the production has increased, sales did not improve. Variation is very huge. Hence, quick redressal to the problem of sales is desired. The percentage decreased to 92 and 91 for the years 2008 and 2009 respectively compared to base year 2007. Table 9. ACTUAL SALES Particulars 2007 Combined Sales Value (Domestic and Exports): Value (Rs. In Lakhs) Table 10. CALCULATION OF SALES VARIANCE Year Budgeted Actuals Variance Result 2007 2008 2009 27289 25062 6233 21155 23132 7275 -6134 Adverse -1930 Adverse 1042 Favourable 2115514759 2115514759 Year 2008 2313188784 2313188784 2009 727495314 727495314

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Graph 6. Sales variance 30000 25000 20000 15000 10000 5000 0 -5000 -10000 2007` 2008 2009 budgeted actuals variance

INTERPRETATION:
The budgeted sales value is overestimated to the actual sales through which the result of sales budget in the year 2007 and 2008 is showing adverse. In the year 2009, excellent improvement is evident from the above graph and as such it indicates favorable result. The performance in sales budget in the year 2009 is expressed to be excellent. Keeping the same spirit may yield fruitful results and leads to further growth opportunities. Domestic sales are to be increased as a remedy.

Note: In the year 2009, the actual sales value is available only till March '08 i.e., for three months. Hence budgeted figures for variance purpose are adjusted for three months.

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BUDGETED INCOME STATEMENT Table 11.

BUDGETED INCOME STATEMENT (RECIP, ROTARY AND CADEM) Particulars Year (Rs. In Lakhs) 2007 2008 2009 Net Sales 41159 37632 30707 Less: Cost of Sales (total) or COGS 36218 32503 26522 Gross Profit 4941 5129 4185 Less: Total Overheads 4698 4639 5106 Profit Before Tax 243 490 -921 Add: Other Income/DEPB 1829 1298 1245 CADEM Profitability 270 Profit (including other income) Before Tax 2072 1788 594 Less: Tax Provisions 30 Net Profit/Net Income/(Loss) 2042 1788 594 Graph 7.
Budgeted Income Statement 2500 2000 1500 1000 500 0 2007 2008 Years 2009 594 2042 1788

Profit/Income (in Lakhs)

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INTERPRETATION:
From the year 2007-2009 there is a gradual decrease in the budgeted figures of profit or income statement, which is evident from the above chart. This is due to unexpected increase in the value of raw materials (copper per kilogram increased thrice to the normal value). The variation between 2007 and 2008 is negligible as we see only a normal difference, but there is a drastic decline in the year 2009 almost predicting losses. The percentage change has been showing a drastic decrease to 87.56% in the year 2008 and to 29% in the year 2009 comparing to the base year 2007. Table 12. ACTUAL INCOME STATEMENT Particulars Year 2007 2008 Net Profit/Net Income/(Loss) 6192051 -76331610 Table 13. CALCULATION OF INCOME VARIANCE Year 2007 2008 2009 (BUDGETED VS ACTUALS) Budgeted Actuals Variance 2042 1788 149 62 -763 933 Result

2009 93310955

-1980 Adverse -2551 Adverse 785 Favourable

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Graph 8.

Income variance 3000 2000 1000 0 -1000 -2000 -3000 2007 2008 2009 budgeted actuals variance

INTERPRETATION:
There is an over estimation with regards to profits in the year 2007 by looking into the chart, as the actual income is very less comparing to the budgeted income/profit which has resulted in adverse result. Lack of proper planning is visualized. Though the budgeted income/profit statement in the year 2008 is declined, even then the actual profit went into losses. i.e., the actual loss is above 7 crores. Hence, the result is adverse. In the year 2009, due to proper revisions and effective budgetary controlling techniques they recouped their profit back. This is evident by seeing only three months statement, which is above 9 crores. This is indicated to be excellent progress.

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MATERIAL PURCHASE BUDGET Table 14.

MATERIAL PURCHASE BUDGET Particulars Annual Production Add: Closing Inventory Quantity Less: Opening Inventory Materials to be Purchased Graph 9. Year 2007 750000 131400 881400 36000 845400 (In Units) 2008 2009 544500 620000 23140 32806 567640 652806 107438 32903 460202 619903

Material Purchase Budget

1000000 800000
Units

845400 619903 460202

600000 400000 200000 0 2007

2008
Years

2009

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INTERPRETATION:
A zigzag curve is framed if a graph is plotted, by observing the above chart. In the year 2007, material purchase is very high. This may be due to high production volume. In the year 2008, a sudden steep decline is visualized showing very less material volume. The reason behind is the decrease in production volume. The performance in this year is very poor, which can be affidavit by seeing income statements for the year 2008. In the year 2009, a good estimation, a proper revise, strict supervisory control enabled the management to have an effective control over materials purchased.

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QUARTERLY BUDGETS SALES VOLUME BUDGET

Table 15. MODEL SALES VOLUME BUDGET UNITS JAN FEB MAR 67541 1000 750 20833 8333 98457 70805 2500 750 20833 8333 103221 57060 2500 1800 20833 8333 90526

APR 81169 7500 1800 20833 8333 119635

AW RN AK AK- Kits AWJ - Kits Total Graph 10.

Sales Volume Budget 120000 100000 Sales (in Units) 80000 60000 40000 20000 0 JAN FEB Months MAR 103221

119635

98457

90526

APR

INTERPRETATION:
The above mentioned configured figures are the extracts from sales volume budget prepared in the year 2010, which is the latest data. The models included in the sales volume budget are AW, RN, AK, AK Kits, and AWJ Kits. Keen concentration required on sales volume in the month of March in the successive years. Seasonal fluctuations should be considered as very severe factors for sales variances. As the booms and depressions (business cycles) changes at a fast phase during odd months or off seasons.

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TOTAL MATERIAL COST BUDGET

Table 16. TOTAL MATERIAL COST BUDGET MODEL AMOUNT (Rs. In Lakhs) JAN FEB MAR APR AW RN AK AK- Kits AWJ - Kits Total Graph 11.
Total M aterial Cost Budget 2215 2110 2006

1761 54 18 124 49 2007

1696 92 18 124 49 1979

1838 160 44 124 49 2215

1772 121 44 124 49 2110

2250 2200 Value (in Lakhs) 2150 2100 2050 2000 1950 1900 1850

1979

JAN

FEB M onths

M AR

APR

INTERPRETATION:
The quarterly total material cost budget witnessed above is the clear indication for the months of January to April, 2010. The values are expressed in Rupees in Lakhs for the models combined, naming AW, RN, AK, AK Kits, and AWJ Kits. The material cost is moderately high in the month of January, March, and April. The costs incurred for AK, AK Kits, and AWJ Kits are expressed to be absolutely normal. The costs incurred on AW and RN models had drastic changes. The total material cost control is absolutely satisfied. The performance in handling material cost is very high in the current year.

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TOTAL LABOUR ABSORPTION BUDGET

Table 17. TOTAL LABOUR ABSORPTION BUDGET MODEL AMOUNT (Rs. In Lakhs) JAN FEB MAR APR AW RN AK AK- Kits AWJ - Kits Total Graph 12.
Labour Absorbtion Budget 220 Labour Cost (in Lakhs) 215 210 205 200 195 190 185 180 JAN FEB Months MAR APR 198 195 218

174 5 2 12 5 198

167 9 2 12 5 195

181 16 4 12 5 218

174 12 4 12 5 207

207

INTERPRETATION:
Total labor absorption budget in the above chart is the imitation for the months of Jan to Apr 2010. The allocation of budget on permanent workers is constant, whereas on temporary and contract basis workers are fluctuating. Expenditure on blue collars and technicians is always desired, whereas opting for badlis who are called to be surplus workers is to be reduced. For fruitful results and getting excellent profitability labour budget controlling is always suggested. Utilization of skilled labour progressively gives desired results and it is also possible to curtail down unnecessary expenditure on untrained workers.

65

CHAPTER 5 FINDINGS/RESULTS

66

FINDINGS

The study at Tecumseh Products India Pvt. Ltd. at

Hyderabad Plant is defined to be the most technical and analytical study. The professionalism that encapsulates the various degrees of performances at every step of financial study is like a new game. The actual subject matter, naming the project work on and BUDGETARY CONTROL in a

BUDGETING

manufacturing concern is the practical exposure drawn out from the efforts of management of Tecumseh, Hyderabad. The various budgets called financial budgets, operating

budgets, and their performances are studied and interpreted according to the actual performance evidenced from past three years. Preparation of master budgets, fixed budgets, flexible

budgets are desired to be prepared to have easy and fast access to the data required by the staff and line management. As the company incurred huge unexpected losses in the

previous two years there is a lot of requirement to review its standards, estimations and follow accordingly. The overall performance of the company is found to be

improving, well, and satisfactory.

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CONCLUSIONS

From the study conducted on Budgeting and Budgetary control at Tecumseh Products India Pvt. Ltd., the following conclusions are drawn: From this study it is observed that Annual Budgets and Quarterly Budgets it is well understood that the estimates and their revisions are factualised according to the past performances, which are over estimated in initial stages and got adjusted in their successive stages. As the business of the company depends on exports up to a larger extent, increasing global standards is a vital element and that has to be practiced. The overall performance of the company found to be improving and satisfactory.

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SUGGESTIONS

Financial interpretations for each and every budget are required to be clearly analyzed and frequent revisions for setting dynamic goals according to the changing market conditions may lead to the chasing of the actual target i.e., becoming the global leader in the markets which ever they choose to participate. Good review of mission, not from the point of theory, but required exact practical implementations. Preparation of complicated data always leads to many conflicts, requires lot of time and labour and this may delay decision making as well as the information costs. Collection of latest market information regarding the cost of raw materials, quality of raw materials, competitor prices, alternative suppliers, growth opportunities, the diversifying marketing expansion, upgradation of technology, observation of business cycles, SMART production methods, SWOT analysis, concentration of skilled labour are some of the important pre-requisites. As the business of Tecumseh depends basically on exports up to a larger extent, increasing global standards is a vital element that has to be practiced. Taking timely appropriate steps may reduce the strain of incurring further losses is assured. The effective six-sigma and participatory budgeting will be beneficial for the organization.

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LIMITATIONS OF THE STUDY

This study is conducted in a short period, during this

limited time the study may not be detailed in all aspects. The study is conducted with the available data gathered

from annual reports, internal reports, and from several interactions with the staff of TPIPL and analysis was made accordingly. The budgeting is done only for three years and it clearly

explains the limitations regarding the duration of the study. With regards to the material purchase budget, the actual

figures are not provided by TPIPL. The data is highly confidential and was not supposed to reveal the data for any purpose.

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BIBLIOGRAPHY

71

BIBLIOGRAPHY
TECUMSEH REPORTS: Business Plan Statements of the years 2007 to 2009. Annual Reports of Tecumseh India Pvt. Ltd. Articles published by Tecumseh.

BOOKS AND PERIODICALS: Financial Management (Oxford University Press - 2003) M.Y. KHAN & JAIN Financial Management PRASANNA CHANDRA Financial Management BRIGHAM & VAN HORNE

WEBSITES: www.tecumsehindia.com www.netmba/finance/capitalbudgeting.com

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