Fyp Inventory Management Budgetary Control System Mahindra Mahindra
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EXECUTIVE SUMMARY As we know that Mahindra & Mahindra Co. Ltd. is a production unit. When ever production term comes then first thing comes in our mind that is inventory. Because inventory is base for any production unit so, when we control and manage the inventory properly then the company is benefited. (By reducing holding and carrying cost of inventory.) Thus after studying inventory Management the important activity which is done on quarterly basis in the account department is Budgetary Control in which operating Budget expenses is to be control in Mahaindra & Mahindra Co. Ltd. Nagpur Branch.
A Budget is a plan which relates to a definite period of time and which is expressed in quantitative terms.
It is thus a predetermined statement which
incorporates the policy of the management during a given period and serves as a standard for comparing the actual results. Thus a budget is a tool in the actual results. Thus a budget is tool in the hands of the management which serves as a guide to all the employees in achieving their goals objectives and targets.
A budget can help us a planning and coordination with all the employees, and departments, but the most important factor is that it is used for control purposes at all levels of management.
M & M s Farm Equipment Sector is the largest manufacturer of tractors in India with sustained market leadership of over 19 years.
It designs, develops,
manufactures and markets tractors as well as implements which are used in
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conjunction with tractors. The tractor industry in Indian is segmented by horsepower into the lower segment of 25 HP, segment of 35 HP and higher segment of 45 HP and above. The Company s Farm Equipment Sector has a presence in all these segments across all states.
M & M Co. Ltd. Farm equipment sector has four plant locations in Rudrapur, Jaipur, Nagpur & Kandivalli. The project work is done for Nagpur branch. This branch is certified for ISO 9001, QS-9000, ISO-14001, M & M tractor have earned goodwill and trust of more than 8,00,000 customers and the Mahindra tractor has come to be recognized as a powerful symbol of productivity and performance.
The project requires two months time for the completion. The steps involve in collection of data from various sources like SAP, Monthly performance review meetings (MPRM) Reports, Annual Reports, Computerized Inventory Management system (CIMS).
Thus from this study of inventory management it is observed that by using various techniques such as ABC, EOQ, Reorder level etc. management minimize investment in inventory and meet a demand for the product by efficiently organizing the production and sales operations. The firm should minimize investment in inventory which involves costs i.e. ordering cost and carrying cost, so that smaller the inventory, the lower is the cost to the firm. The study of budgetary control system help business to function with planning which is related to production, sales, stocks, requirement of labors, etc. The advantage of planning is that we can anticipate the problems before hand. Planning 2
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through budgetary control is necessary at all levels of management in which there is the process of thinking which enables to provide new idea to the management
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OBJECTIVES BEHIND THIS STUDY
The basic responsibility of the financial manager is to make sure the firm s cash flows are managed efficiently.
The objective of inventory management consists of two counterbalancing parts: (i) to minimize investments in inventory, and (ii) to meet a demand for the product by efficiently organizing the production and sales operations.
These two conflicting objectives of inventory management can also be expressed in terms of cost and benefit associated with inventory.
The firm should minimize investment in inventory implies that maintaining inventory involves costs, such that the smaller the inventory, the lower is the cost to the firm.
It should aim at a level of inventory which will reconcile these conflicting elements. That is to say, an optimum level of inventory should be determined on the basis of the trade off between costs and benefits associated with the levels of inventory.
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SCOPE Inventory management is the base for any production unit so; it is related to overall objective on the firm. This study is basically concerned with inventory management techniques. This aspect covered the determination of the type of control required & Economic Order Quantity which help the financial manager in planning & budgeting inventory. This study helps to minimize cost of holding the inventory i.e. ordering cost & Carrying cost. The maintenance of inventory also helps a firm to enhance its sales efforts. It serves to bridge the gap between current production & actual sales. This study also helps to minimize the setup time & manufacturing time for each unit. This is the time form when a product is ready to start on the production line to when it become a finished good producing to demand often means manufacturing small quantity of product. Producing small batches is economical only if setup time are small. It encourages research and development as budgetary control schedules are usually based on past experience.
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Mission Statement : TO STRIVE FURTHER THAN THE FARTHEST. TO SET NEW STANDARDS IN PERFORMANCE, AND THEN BREAK THEM. TO REACH FOR THE HELIGHTS AND THEN SEEK A NEW SUMMIT,
IT S ABOUT WINNING, AND BEYOND.
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CORE VALUES Our core values are influenced by our past, tempered by our present and are designed to shape our future. They are an amalgam of what we have been, what we are and what we want to be.
These values are the compass that will guide our actions, both personal and corporate. They are:
Good corporate citizenship:
As in the past, we will continue to seek long
term success that is in alignment with our country's needs. We will do this without compromising on ethical business standards.
Professionalism : We have always sought the best people and given them the freedom and the opportunity to grow. We will continue to do so. We will support innovation and well-reasoned risk-taking, but will demand performance.
Customer First: We exist and prosper only because of our customers. We will respond to their changing needs and expectations speedily, courteously and effectively.
Quality focus :Quality is the key to delivering value for money to our customers. We will make quality a driving value in our work, in our products and in our interactions with others. We will do it "first time right .
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Dignity of the individual: We value individual dignity, uphold the right to express disagreement and respect the time and efforts of others. Through our actions, we nurture fairness, trust and transparency.
History 1963:
Incorporation of International Tractor Company of India (ITCI), as a Joint Venture between Mahindra & Mahindra Limited (M&M), International Harvester Inc, and Voltas Limited sharing the responsibility of design, manufacturing & marketing.
1965:
Rolled out first batch of 225 Tractors in 35 H.P. Range
1970:
Set up the Implements Division at Nagpur
1977:
Merger with M&M forming its Tractor Division. Full fledged responsibility for design, manufacturing & marketing.
1981:
100,000th Tractor rolled out.
1983:
Market leader in domestic Tractor market - has maintained this position till date !
1985:
Launched Quality Circle Movement as part of Total Quality Management.
1988:
Introduced fuel-efficient DI Tractor.
1990:
Started the Juran Quality Improvement Movement .
1991:
Launched 265 DI tractor in 25 HP range. Launched Statistical Process Control Cell.
1992:
Launched 225 DI tractor in 25 HP range. Vendor upgradation through self -certification.
1994:
Launched 575 DI tractor in 45 HP range. Implements Division achiev es ISO 9002 certification. Incorporation of Mahindra USA Inc. in U.S, as wholly owned subsidiary of M&M
1995:
A decade of QC movement - 152 Quality Circles.
Model B275 Regular
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Launched 475 DI tractor in 45 HP range.
1996:
Launched 365 DI tractor in 35 HP range. Tractor assembly started at Implements Division, Nagpur Kandivli Plant achieves ISO 9001 certification. Rolled out 5,00,000th tractor.
1997:
Launched 585 DI tractor in 50 HP range Launched constant mesh version of 585 DI tractors and 275 DI TU series tractor in 35 HP range.
1998:
Implemented SAP on 1st April 1998 5005 DI model (51 HP) with constant mesh transmission, power steering, alternator has been developed for US market. Reached a level of 6,00,000 tractors sales Implemented.Business Process Re-engineering.
1999:
4005 DI & 4505 DI (40 HP) introduced in USA. Nagpur Plant awarded QS -9000 certificate. M&M acquired majority stake in Gujarat Tractors Corporation Ltd
2000:
Launched 605 DI - 'Arjun', a new generation tractor - in 60 HP range. Kandivli plant received the QS 9000 certification. Set up its first satellite tractor plant at Rudrapur
2001:
Nagpur Plant awarded the ISO 14001 certificate. Launched 'Arjun' 5500 DI & 6000 DI tractors in the overseas market.
2002:
Kandivli Plant awarded the IS0 14001 certificate. Launched 'Arjun' 555DI tractor in 45 HP range & 445 DI tractor in the 40 HP range. Launched 'Arjun' 6500 DI in overseas market. Launched Compact series, Model C -27 & C-35, in the US market.
2003:
Ventured into manufacturing of Industrial Engines
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MAHINDRA & MAHINDRA CO. LTD. : A CURTAIN RAISER COMPANY PROFILE : Mahindra & Mahindra Limited (M & M) is the flagship company of around Rs. 7000 crore Mahindra Group, which has a significant presence in key sector of the Indian economy. A consistently high performer, M & M is one of the most respected companies in the country.
Set up in 1945 to make general-propose utility vehicles for the Indian market, M & M soon branched out into manufacturing agricultural tractors and light commercial vehicles (LCVs).
The company later expended its operators form
automobiles and tractors to secure a significant presence in many more important sectors. The company has, over the years, transformed itself into a Group that caters to the Indian and overseas markets with a presence in vehicles, farm equipment, information technology, trade and finance related services, and infrastructure development.
An organizational restructuring exercise in 1994 arising from a Business Process Re-engineering programme resulted in the core activities of manufacturing utility and light commercial vehicles and agricultural tractors remaining with the flagship company.
All other activities were spun off into separate entities and organized under business groups. Thus groups are in the areas of Hospitality, Trade and Financial
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Services,
Automotive
Components,
Information
Technology,
Telecom
and
Infrastructure Development.
Today M & M has two main operating divisions:
The Automotive Division manufactures utility vehicles, light commercial vehicles and three wheelers.
The Tractor (Farm Equipment) Division makes agricultural tractors and implements that are used in conjunction with tractors. This division has also ventured into manufacturing of industrial engines. It has won the coveted Deming Application Prize 2003. Incidentally, this is the First Tractor Company in the world to win this Prestigious Prize.
M & M employs around 12,000 people and has six state-of-the art manufacturing facilities spread over 5,00,000 square meters, M & M has also set up two satellite plants for tractors manufacturing.
It has 49 sales offices that are
supported by a network of over 650 dealers across the country. This network is connected to the company s plants by an extensive IT infrastructure.
M&M s outstanding manufacturing and engineering skills allow it to constantly innovate and launch new products for the Indian market. Proof of this expertise is the launch of the Bolero, Scorpio, a new-generation utility vehicle, and the Arjun, a sophisticated agricultural tractor.
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The Company s commitment to technology driven innovation is reelected in the setting up of the Mahindra Research Valley, a facility that will house the Company s engineering research and product development wings, under one roof.
The M & M philosophy of growth is centered on its belief in people. As a result, the company has put in place initiatives that seek to reward and retain the best talent in the industry. M&M is also known for its progressive labour management practices.
It the community development sphere, the company has implemented several programs that have benefited the people and institutions in its areas of operations.
Farm Equipment Sector For the third consecutive year, the Tractor Industry grew substantially registering a growth of 18% for the year under review. This was mainly on account of good monsoon, better availability of credit and focus on retail tractor financing by the Banking Sector.
During the year, Company sold 85, 029 tractors as against 65,390 tractors sold in the previous year recording a significant growth of 30% and produced 87,075 tractors as against 67,115 tractors produced in the previous year recording notable growth of 29.7%. Company maintained its market leadership for the 23rd consecutive year in the domestic tractor market.
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Last year Company launched two new products
235 DI and 245 DI
in the
domestic market in the low HP segment and new Arjun Ultra-1 range in the high HP segment. These products have significantly strengthened your Company s position in these segments.
Company sold 14,692 engines during the year under review as against, 6,672 engines sold during the previous year, registering a massive growth of 120%. The engine business which started from a customer base of a single client in 2002 has currently 22 corporate clients. Company has also made a foray into the retail and non-genset segments. Beginning from this year Company has also sold 1,084 Mahindra branded Diesel Generators (DG Sets).
Company s focus on exports continued with export volumes growing by 29.6%. The major export markets are USA, SAARC countries, Africa, Australia and China. Company established a Joint Venture Company (JVC) in China under the name of Mahindra (China) Tractor Company Limited (MCTCL) in which a wholly owned subsidiary of the Company, Mahindra Overseas Investment Company (Mauritius) Limited, has a 80% shareholding, the balance 20% being held by Jiangling Motors Co., Group, China. This JVC has a capacity of 12,000 tractors in 18-33 HP range. This JVC became fully operational in July, 2005. Company has also started its East European operations by launching tractors in Serbia. Company sold spare parts worth Rs. 127.88 crores (including exports Rs. 11.7 crores) during the year under review as compared to sales of Rs. 108.83 crores (including exports Rs. 7.6 crores) in the previous year, registering a healthy growth of 17.5%.
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Company plans to offer various product solutions by offering value for money and reliable products in domestic market. This will help your Company expand its product range in low HP segment. Apart from new products, it is important to upgrade existing products with contemporary features. F-06 was an encouraging year for agriculture. Going forward, due to a good monsoon and water availability during the year, crop production is expected to be higher by 2.5% over last year. As a result of this, it is estimated that the agricultural GDP of India will grow by 3.2%.
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Financial Highlights Year
PAT
2002 2003 2004 2005 2006
97 146 349 513 857
1000 900 800 700 600 500 400 300 200 100 0
Net Income (Rs. In Lakhs) 3320 3811 5057 6769 8327 9000 8327 857 6769
7000 6000
5057 3320
8000
513
3811 349
5000
PAT
4000
Net Income
3000 2000
146 97
1000 0
2002
2003
Year 2002 2003 2004 2005 2006
2004
2005
2006
Basic Earnings per share 8.62 12.55 30.04 44.19 51.07
Earnings per share 60 50 40 30 20 10 0 2002
2003
2004
2005
2006
YEA R Basic Earnings per shar e
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PERFORMANCE OF M & M WITH ITS COMPETITIORS Performance of a M & M with Its Competitors Comparative Performance in 25 HP Category
Tafe, 6.7 Escorts , 9.2
Eicher , 26.3
Others , 4.2 M & M , 33 PTL, 9.7 Sonalika , 8.9
HMT, 2
Graph 5.1
Particulars
Percentage
Tafe
6.7
Escorts
9.2
M&M
33
HMT
2
Sonalika
8.9
PTL
9.7
Others
4.2
Eicher
26.3 Table 5.1
Above graph shows market share of different companies dealing in tractor production and it is clear that M & M takes 33% of the total market share, followed by Eicher which is 26% that means M & M is market leader in 25 HP.
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Comparative Performance in 35 HP Category :
Escorts , 9.9
Sonalika, 9.2
HMT, 3.1 PTL, 18.1
M & M , 28.1 Others , 6.2 Tafe, 19.6
Eicher , 5.8
Graph 5.2
Particulars
Percentage
Escorts
9.9
HMT
3.1
M&M
28.1
Eicher
5.8
Tafe
19.6
Others
6.2
PTL
18.1
Sonalika
9.2 Table 5.2
Above Graph shows market share of different companies dealing in tractor production and it is clear that M & M takes 25% of total market share followed by Tafe which is 20% that means M & M is market leader in 35 HP.
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Comparative Performance in 45 HP Category :
Escorts , 20.2 NHT, 14.5
JD, 12.8
HMT, 1.5
M & M , 18.8 Sonalika, 13.4 PTL, 9.2
Particulars Escorts
Others , 3.1
Tafe, 6.5
Percentage 20.2
HMT
1.5
M&M
18.8
Tafe
6.5
Others
3.1
PTL
9.2
Sonalika
13.4
JD
12.8
NHT
14.5
Table 5. 3 Above graph shows market share of different companies dealing in tractor production and it is clear that M & M takes 19% total market share and Escort is also showing 19% market share in 45 HP.
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Tractors Below 30 HP
265 DI Sarpanch
265 DI Bhoomiputra
Arjun 445 DI
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INTRODUCTION As we know that Mahindra & Mahindra Co. Ltd. is a production unit. When ever production term comes then first thing comes in our mind that is inventory. Because inventory is base for any production unit so, when we control and manage the inventory properly then the company is benefited. (By reducing holding and carrying cost of inventory).
Inventory, as a current asset, differs from other current assets because only financial managers are not involved. Rather, all the functional areas finance, marketing, production, and purchasing, are involved. The views concerning the appropriate level of inventory would differ among the different functional areas. The Conflicting view points of the various functional areas regarding the appropriate inventory levels in order to fulfill the overall objective of maximizing the owner s wealth. Thus, inventory management, like the management of other current assets, should be related to the overall objective of the firm. It is basically concerned with inventory management techniques. Attention is given here to basic concepts relevant to the management and control of inventory. The aspects covered are: (i) determination of the type of control required, (ii) the basic economic order quantity, (iii) the recorder point, and (iv) safety stocks. As a matter of fact, the inventory management techniques are a part of production management. Thus it will help the financial managers in planning and budgeting inventory
.
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Meaning of Inventory Inventories are stock of the product a company is manufacturing for sale and components that make up the product. The various forms in which inventories exist in a manufacturing company are: raw materials, work-in-process and finished goods.
Raw materials are those basic inputs that are converted into finished product through the manufacturing process. Raw materials inventories are those units which have been purchased and stored for future productions.
Work-in-process inventories are semi-manufactured products. They represent products that need more work before they become finished products for sale.
Finished goods inventories are those completely manufactured products which are ready for sale. Stocks of raw materials and work-in-process facilitate production, while stock of finished goods is required for smooth marketing operations. Thus, inventories serve as a link between the production and consumption of goods.
Costs of Holding Inventory One operating objective of inventory management is to minimize cost. There are two basic categories: (i) Ordering or Acquisition or Set-up costs, and (ii) Carrying costs.
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Ordering Costs This category of costs is associated with the acquisition or ordering of inventory. Firms have to place orders with suppliers to replenish inventory of raw materials. The expenses involved are referred to as ordering costs. Included in the ordering costs are costs involved in (i) preparing purchase order or requisition form and (ii) receiving, inspecting, and recording the goods received to ensure both quantity and quality. The cost of acquiring materials consists of clerical costs and costs of stationery. It is, therefore, called a set-up cost. They are generally fixed per order placed, irrespective of the amount of the order. The larger the orders placed the costs. The acquisition costs are inversely related to the size of inventory: they decline with the level of inventory. Thus, such costs can be minimized by placing fewer orders for a larger amount. But acquisition of a large quantity would increase the cost associated with the maintenance of inventory that is, carrying costs.
CARRYING COSTS 1.
Those that arise due to the storing of inventory. The main components of this category of carrying costs are (i) storage cost, that is, tax, depreciation, insurance of the building, utilities and janitorial services; (ii) insurance of inventory against fire and theft; (iii) deterioration in inventory because of pilferage, fire, technical obsolescence, style obsolescence and price decline ; (iv) serving costs, such as, labour for handling, clerical and accounting costs.
2.
The opportunity cost of funds. This consists of expenses in raising funds (interest on capital) to finance the acquisition of inventory. If funds were not
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locked up in inventory, they would have earned a return. This is the opportunity cost of funds or the financial cost component of the cost. The sum of the order and carrying costs represents the total cost of inventory. This is compared with the benefits arising out of inventory to determine the optimum level of inventory.
Benefits of Holding Inventory The basic function of inventories is to act as buffer to decouple or uncouple the various activities of a firm so that all do not have to be pursued at exactly the same rate 3. The key activities are (1) purchasing, (2) production, and (3) selling. Benefits in Purchasing A firm can purchase larger quantities than is warranted by usage in production or the sales level. This will enable it to avail of discounts that are available on bulk purchases. Moreover, it will lower the ordering cost as fewer acquisitions would be made. There will, thus, be a significant saving in the costs. Second, firms can purchase goods before anticipated or announced price increases. This will lead to a decline in the cost of production. Inventory, thus, serves s a hedge against price increase as well as shortages of raw materials. This is a highly desirable inventory strategy. Benefits in Production Finished goods inventory serves to uncouple production and sale. This enables production at a rate different from that of sales. That is, production can be carried on at a rate higher or lower than the sales rate. This would be of special advantage to firms with seasonal sales pattern. In their case, the sales rate will be higher than the
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production rate during a part of the year (peak season) and lower during the offseason. The choice before the firm is either to produce at a level to meet the actual demand, that is, higher production during peak season and lower (or nil) production during off-season, or, produce continuously throughout the year and build up inventory which will be sold during the period of seasonal demand. Benefits in Work-in-Process The inventory of work-in-process performs two functions. In the first place, it is necessary because production processes are not instantaneous. The amount of such inventory depends upon technology and the efficiency of production. The larger the steps involved in the production process, the larger the work-in-process inventory and vice versa. In a multi-stage production process, the work-in-process inventory serves purpose also. Benefits in Sales The maintenance of inventory also helps a firm to enhance its sales efforts. A firm will not be able to meet demand instantaneously. There will be a lag depending upon the production process. If the firm has inventory, actual sales will not have to depend on lengthy manufacturing processes. Thus, inventory serves to bridge the gap between current production and actual sales. A basic requirement in a firm s competitive position is its ability vis-à-vis its competitors to supply goods rapidly.
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Techniques for inventory management A method of inventory control to indicate a broad framework for managing inventories efficiently in conformity with the goal of wealth-maximization. The major problem-areas that comprise the heart of inventory controls are (i) the classification problem to determine the type of control required, (ii) the order quantity problem, (iii) the order point problem, and (iv) safety stocks.
1.
A B C System The first step in the inventory control process is classification of different
types of inventories to determine the type and degree of control required for each. The A B C system is a widely-used classification technique to identify various items of inventory for purpose of inventory control.
On the basis of the cost involved, the various inventory items are, according to this system, categorized into three classes: (i) A (ii) B and (iii) C.
2.
Economic Order Quantity (EOQ) Model After various inventory items are classified on the basis of the A B C analysis.
A key inventory problem particularly in respect of the Group. An items relates to the determination of the size or quantity in which inventory will be acquired. In other words, while purchasing raw materials or finished goods, the questions to be addressed are 8. How much inventory should be bought in one lot under one order on each replenishment? Should the quantity to be purchased be large or small? Or, should the requirement of materials during a given period of time (say, six months or
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one year) be acquired in one lot or should it be acquired in installments or in several small lots? Such inventory problems are called order quantity problems.
Buying in large quantities implies a higher average inventory level which will assure (i) smooth production/sale operations, and (ii) lower ordering or set-up costs. But it will involve higher carrying costs. On the other hand, small orders would reduce the carrying cost of inventory by reducing the average inventory level but the ordering costs would increase as there is interruption in the operations due to stockouts. The optimum level of inventory is popularly referred to as the economic order quantity (EOQ). It is also known as the economic lot size. The economic order quantity may be defined as that level of inventory order that minimizes the total cost associated with inventory management. EOQ refers to the level of inventory at which the total cost of inventory comprising acquisition/ordering/set-up costs and carrying cost is minimal.
EOQ
2 AO C
A = Annual usage of inventory (unit) O = Ordering cost per order C = Carrying cost per unit Assumptions The firm knows with certainty the annual usage (consumption) of a particular item of inventory. The rate at which the firm uses inventory is steady over time.
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The orders placed to replenish inventory stocks are received at exactly that point in time when inventories reach zero.
3.
Order Point Problem The EOQ technique determines the size of an order to acquire inventory so as
to minimize the carrying as well as the ordering costs. In other words, the EOQ provides an answer to the question: how much inventory should be ordered in one lot?
The reorder point is stated in terms of the level of inventory at which order should be placed for replenishing the current stock of inventory. In other words, reorder point may be defined as the level of inventory when fresh order should be placed with the suppliers for procuring additional inventory equal to the economic order quantity. It is based on the following assumptions: (i) constant daily usage of inventory, and (ii) fixed lead time. In other words, the formula assumes conditions of certainly.
The recorder point = Lead time in days x average daily usage of inventory 4.
Safety Stock The safety stock
as the minimum additional inventory to serve as a safety
margin or buffer or cushion to meet an unanticipated increase in usage resulting from an unusually high demand and or an uncontrollable late receipt of incoming inventory. The effect of increased and/or slower delivery would be a shortage of inventory. The delay may arise from strikes, floods, transportation and other bottle necks. That is, the firm would face a stock-out situation. This, in turn, as explained in
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detail below, would disrupt the production schedule and alienate the customers. The firm would, therefore, be well advised to keep a sufficient safety margin by having additional inventory to guard against stock-out situations. Such stocks are called safety stocks. The safety stock involves two types of costs: (i) stock-out, and (ii) carrying costs.
FINDING:
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Suggestion As we study the inventory management system of Mahindra & Mahindra co.Ltd. We can give few suggestions regarding the management control which increase the production and reduce the lead time to some extend of that company1. Emphasis is placed on minimizing the setup time & manufacturing lead time for each limit. This is the time from when a product is ready to start on the production line to when it become a finished good producing to demand often means manufacturing small quantities on product producing small batches is economical only if setup time are small. 2. The production line is stopped if parts are absent or defective work is discovered. Stoppage creates an emergency about correcting problem that causes defective units. 3. This production limit consists of large amount of scrap which is the root cause of the manufacturing unit. So the firm should emphasis on eliminating these causes. So that wastage should not occur & that will reduce the lead time of product. 4. The reorder point is the quantity level of inventory that triggers a new order. It equals the sales per unit of time multiplied by the purchase-order lead time. Safety stock is the buffer inventory held as a cushion against unexpected unavailability of stock from suppliers. Limitations: 1.
All the programs are going under SAP System so there are the limitations regarding the analysis of the data without user of that company only.
2.
As inventory management is the vast topic it required lot of time to understand the process in the company at each department.
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3.
Some time respondent was busy because of that information regarding project work will not available as soon as possible.
4.
Non availability of data and transit or lead time is not fixed..
INTRODUCTION Planning is the basic managerial function. It helps in determining the course of action to be followed for achieving organizational goals. It is the decision in advance what to do, and when to do, and who will do the particular task? Plan is made to achieve best results. Control in the process of checking whether the plans are being adhered to or not, keeping the record of process, comparing it with the plans and then taking corrective measure for future if there is any devotion. Every business enterprise needs the use of control techniques for surviving in the highly competitive and managing economic world. There are various control devices in use .budget are the most important tool of profit planning and control. They also act as an instrument of coordination.
A budget is a detailed plan of operations for some specific future period. It is an estimated prepared in advance of the future period to which it applies. It acts as a business parameter. It is a complete programme of activities of the business for the period covered.
According to Gordon and shilling law budget may be defined as
A
redetermined detailed plan of action developed plan of action developed and
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distributed as a guide to current operations and as a partial basis for subsequent evolution of performance
The chartered institute of management accountants, London, defines a budget as A financial and/or quantitative statement, prepared prior to a defined period of time, of the police to be pursued during that period for the purpose of attaining a given objective .
Different types of budget are prepared by an industrial concern for different purpose. A sales budget is prepared for the purpose of forecasting sale for the future period. A manufacturing cost of budget is prepared for forecasting the manufacturing costs. The master budget embodies forecasting the figure of profit or loss.
Control means, some sort of systematic effort to compare current performance to the predetermined plan or objective. Presumably in order to take any remedial action required this is a very general definition of term. However as the management function, it has been defined as The process by which managers assure that resources are obtained and used effectively and efficiently in the accomplishment of organizations goals.
Management control process involves two separate but closely related activities planing and control. Planning means deciding what it is to be done and how it is to be done control is assuring that desired results (which may be different from the planned onces on account of change in circumstances) are attained. Budget is
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simply a plan of action hence the technique of budgetary control is an important tool of managing control.
The chartered institute of management accountants, London, defines budgetary control as The establishment of budget relating to the responsibilities of executives to the requirement of the policy, and continuous comparison of actual with budgeted results, either to secure by an individual action the objective of the policy or to provide a basis for its revision. According to the J.A.Scott, it is the system of management control and according in which all operation are forecasted and so for as possible planned ahead and the actual results compared with the forecasted with the forecasted and planned one.
In today s completive world, without proper planning and control over the expenses no company can survive. Profit can be maximized by increasing sales, which depends upon the external factor like market condition, demand, competitors etc another way to increase profit is to decrese cost (profit=sales-total cost). But for decreasing cost proper control system should be an action .with the help of proper budgetary control system maximization of wheat of shareholder is possible. And for company like m & m which comes under farm equipment sector comparison of actual with budgets and taking remedial major for division is must do job. Termined
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OBJECTIVE BEHIND THE STUDY Budget and Budgetary control system is a very vast subject. But at the same time it is basic need of every company to make the budget. So it requires the overall knowledge and skill for making budget and without planning nobody can achieve organizational goals. This topic is very essential to every company and it's have special importance in the current competitive world.
Taking into consideration the vast importance of Budget and Budgetary control. The objective behind this study work is as follows:
To study in detail the budget procedure of Mahindra & Mahindra Co. Ltd. Nagpur. To list of various types of budgets generally Mahindra & Mahindra Co. Ltd. Nagpur prepares. To evaluate variance analysis of Mahindra & Mahindra Co. Ltd. for taking suitable action by comparing actual results with budgets so that the causes are not repeated and remedial action should be taken in future.
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Scope M & M Co. Ltd. Is the large organization where budgetary control is the important aspects. From this study we see that how Company plan there budged according to the requirement is important the i.e. planning, co-ordination and control
a.
Any modern business can t not function without planning which is related to production, sales, stocks, requirement of labour, etc. The advantage of planning is that we can anticipate the problems before hand. Planning through budgetary control is necessary at all levels of management in which there is the process of thinking which enables to provide new idea to the management.
b.
A detailed budgetary control system is one where the plans are written down and these plans are circulated to all the levels management this can be achieve only through proper communication .
c.
It encourages research and development as budgetary control schedules are usually based on past experience. From the study variances analysis is possible so that corrective action taken wherever necessary.
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MEANING AND NATURE OF BUDGETORY CONTROL MEANING OF A BUDGET A budget is the monetary or/and quantitative expression of business plans and policies to be pursued in the future period of time. The term budgeting is used for repairing budgets and other procedures for planning, co-ordination and control of business enterprise. According to ICMA, official terminology,
A budget is a
financial and/or quantitative statement prepared prior to a defined period of time, of the policy to be pursued during that period for the purpose of attaining a given objective. In other words of Brown and Howard, A budget is a pre-determined statement of management policy during a given period which provides a standard for comparison with the results actually achieved.
Budgetary control is the process of determining various budgeted figures for enterprises for me future period and then comparing the budgeted figures with the actual performance for calculating variances, if any, first of all budgets are prepared and then actual results are recorded. The comparison of budgeted and factual figures will enable the management to find out discrepancies and lake remedial measures at a proper time. The budgetary control is a continuous process, which helps in planning and coordination. It provides a method of control too. A budget is a means and budgetary control is the end result.
J. Batty defines it as A system, which uses budgets as a means of planning and controlling all aspects of producing and /or selling commodities and services.
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This relates budgetary control with day to day control process. According to him, Budgetary control involves the use of budget and budgetaryreports,
Thought the period to co ordinate, evaluate and control day-to-day operations in according with the goals specified by the budget . From the above given definitions it is clear that budgetary control involves the following:
The objects are set by preparing budgets. The business is dividend in to various responsibilities, centers for preparing various budgets. The actual figures are recorded. The budgeted and actual figures are compared for studying the performance of different cost centers. If actual performance is less than the budgeted norms, remedial action is taken immediately. Thus, the three cardinal features of budgetary control are: Planning, co-ordination, control.
BUDGET, BUDGETING AND BUDGETARY CONTROL A budget is the blue print of a plan expressed in quantitative terms. Budgeting is the technique for. Budgetary control, on the other hand, refers to the principles, procedures and practices of achieving given objectives through budgets.
Rowland and William have differentiated the three terms as Budgets are the individual objectives of a department, etc where as budgeting may be said to be act of building budgets. Budgetary control embraces all and in addition includes the science
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of planning the budgets to affect an overall management tool for the business planning and control .
The budgetary involves use of budgeting techniques to help the management for carrying various functions and carrying the activities of the business. The budgetary technique includes:
Establishment of budgets for each department. Variance analysis is taking suitable action. To see that the mistake of past are not repeated in future. Comparing the budget with the actual this is know as variance.
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OBJECTIVES OF BUDGETARY CONTROL Budgetary control is essential for policy planning and control. It also acts as an instrument of co-ordination. The
main objectives of budgetary
control are as follows. To ensure the planning for future by setting up various budgets. The requirement and expected performance of the enterprise are anticipated. To co-ordinate the activities of different departments. To operated the cost centers and department with the efficiency and expected. Elimination of waste and increasing profitability. To anticipate capital expenditures for future. To centralize the cost system Correction of deviation from establish standard. Fixation of responsibility of various individuals in the organization.
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Requisites for a successful budgetary control system For making a budgetary control system successful, following request are required.
1. 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 absence of clear goals, the budget must be unrealistic.
2. 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 person from lower levels of management is essential for success. This necessitates proper delegation of authority and responsibility.
3. Proper communication system: An efficient system of communication is required for successful budgetary control. The flow of information regarding is quick so that these are to be implemented. The upward communication to be help in knowing the difficulties in implementation of budgets. The performance level will help the top management in budgetary control.
4. Budget education:
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The employees should be properly educated about me benefits of budgeting system. They should be educated about there role in the success of this system. Budgetary control may be mil he taken, only as control device by employees but it should be used as a tool for improving efficiency.
5. Participation of all employees: Budgeting is done for every segment of business. It will require the active participation and involvement of an employee. In practice the budgets are to be executed at lower level management. Those for whom the budget is framed should be actively associated with their participation and execution. The employees on the basis of their past experience may give more practical and useful suggestions. The success of the organization will depend on the participation of employee.
6. Flexibility: Flexibility in the budget required to make them suitable under the change in circumstances. Budget is made for future which is always uncertain. Even through budget are prepared by consideration of future possibility but still some occurrences later on may necessitate certain adjustments. It will make the budget more appropriate and realistic.
7. Motivation:
Budgets are to be implemented by human beings. It will depend on the interest shown by the employees. All persons should be motivated to improve their
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working so that the budget is successful. a proper system of motivation should be introduced for making this system a success.
TYPES OF BUDGETS
Time
Functions
Flexibility
1. Long-term budgets
1. Operating Budgets
1. Fixed budged
2. Short term budgets
2. Financial budgets
2- Flexible budged
3. Current budgets
3. Master budget
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CLASSIFICATION AND TYPES OF BUDGETS: The budgets are classified according to their nature. The following are the budgets, which are commonly used.
A.
1.
CLASSIFICATION ACCORDING TO TIME.
Long term budgets: The budgets are to be prepared to depict the long term planning of the business. The period of long term planning varies from five to ten years. The top level management does the long term planning; it is not generally to the lower level of management. long time budgets are prepared for some sectors of the concern such as capital expenditure, research and development, long term finance etc. those budget are useful or those industries where gestation period is long i.e. machinery, electricity, engineering, etc.
2.
Short term budgets: These budgets are generally for one to two years and are in the form of monetary terms. The consumer s goods industries like sugar, cotton, textile, and etc. use for short term budgets.
3.
Current budgets: The period of current budget is generally of months and weeks. These budgets relate to the current activities of the business. According to I.C.W.A London, current budget is the budget which is established for the use over the short period of time and is related to the current condition .
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B.
CLASSIFICATION ON THE BASIS OF FUNCTIONS
1.
Operating budgets: These budgets relate to different activities or operations of the firm. The
number of such budget depends upon the size and the nature of the business. The commonly operating budgets are:
Sales budget Production budget Purchase budget Production cost budget Row material budget Labours budget Plant utilization budget Manufacturing expenses or work overhead budget Administrative and selling expenses budget, etc. The operating budget for the firm may be constructed in terms of programs or responsibility areas, and these may consist of:
A. Program budget B. Responsibility budget. Chart
..
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A.
Program budget: It consists of expected revenues and costs of various product or projects that
are termed as die major programme of the firm. Such a budget is prepared for each product line or project showing revenues, costs and the relative profitability of the various programs. Program budget are useful in locating areas where efforts may be required to reduce cost and increase revenues. They are us useful in determining imbalances and inadequacies in programs so much corrective action may be taken in future.
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B.
Responsibility budget: When the operating budget of the firm is constructed in terms of responsibly
areas is called the responsibility budget. Such a budget had shown the plan in terms of person responsible for achieving them. The management uses it as a control device to evaluate the performance of executives who are in charge of various cost centers. Their performance is compared to targets (budgets), set for them and proper action is taken for adverse results, if any. The kind of responsibility area depends upon the size and nature of business activities and the organizational structure. However responsibility area may be classified under three broad categories:
Cost/expenses center. Profit center. Investment center. 2.
Financial budgets: Financial budgets are concerned with cash receipts and disbursements, working
capital expenditure, financial position and result of business operations. The commonly used financial budgets are: Cash budget. Working capital budget. Capital expenditure budget. Income statement budget. Statement of retained earning budget. budgeted balance sheet or position statement budget
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3.
Master budget: Various functional budget are integrated into master budget .this budget is
prepared by ultimate integration of separate functional budgets. According to I.C.W.A. London, master budget is the summary budget incorporating its functional budgets . The budget officer prepared master budget and it remains in the top level management. This level is to coordinate the activity of various functional departments and also to help as a control device.
C.
CLASSIFICATION ON THE BASIS OF FLEXIBILITY
1.
Fixed budget: The fixed budgets are prepared for a given level of activity; the budget is
prepared before the beginning of the
financial year. If the financial period starts in
January then the budget will be prepared a month or two earlier, i.e. November or December. The hang in expenditure arising out of anticipated change will not be adjusted in budget. There is a difference of about twelve months in the budgeted and actual figures. According to I.C.W.A London, fixed budget is the budget which is to be designing to remain unchanged irrespective of the level of activity actually attained . Fixed budgets are suitable under static conditions. If sales, expenses and costs can be forecasted with greater accuracy then this budget can be advantageously used.
2.
Flexible budget: A flexible budget consists of series of budgets for different level of activity.
Therefore, varies with the activity attained. A flexible budget is prepared after taking
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in to consideration unforeseen change in conditions of the business. A flexible budget is defined as budget which is recognized the difference between fixed, semi-fixed and variable cost is designed to change in relation to the level of activity. The flexible budget will be useful where levels of activity are changes from time to time. Then the forecasting of demand is uncertain and the undertaking operates under condition of shortage of material, labour etc, then this budget will be more suited.
PROCEDURE IN BUDGET PREPARATION: When control through budgets is desired the budgetary organization are to busy with the following preliminaries:
A.
ESTABLISHMENT OF BUDGET CENTRES: A Budget centre is the section of organization of an organization undertaking
defined for the purpose of budgetary control. Budget centers should be clearly defined and established for each of which a budget will set with the help of the departments concerned e.g. labour budget, production cost budget etc. by the accountant in conjunction with production manager and other executives
B.
PREPARATION OF THE ORGANIZATIONAL CHART: An organization chart when properly drafted will shown the functional
responsibilities of each member management and that he knows his position in the organization and this relation to other members .the organization chart may have to be adjusted to ensure that each center is to be controlled by an appropriate member to the staff.
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SPECIMEN OF ORGANISATION CHARTS :
.
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C.
PREPARATION OF ADEQUATE ACCOUNTING RECORD: It is essential that the accounting system should be able to record and analysis and
transactions involved. An account code should be maintained which should be linked with the budget centers for the establishment of budget and control through the budgets.
D.
FORMATION OF BUDGET COMMITTEE: In small sized organizations a budget officer may establish budget &
coordinate all work involved, but in larger organization the budget committee consist of chief executive , budget officer and heads of departments or budget centers, is established. The main functions of budget committee are as follows:
To accept the scrutinize all budgets. To decide overall policies to be followed. To approved finally revised budgets To recommended action should be taken under different situations. C.
PREPARATION OF BUDGET MANUAL : It is the document setting out the responsibilities of the person engaged in,
the routine of, and the forms and the records required for, budgetary control. a budget manual helps in standardizing methods and procedures and the risk of overlapping of function is eliminated.
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C.
FIXATION OF BUDGET PERIOD: A budget period is the period of time for which the budget is to be prepared
and employed. Except in case of capital expenditure budget, the budget prepared is generally the accounting year subdivided into 4 quarter or 12 months.
D.
DETERMINATION OF GOVERNING FACTORS: It is the factor to the extend whose influence must first be assessed in order to
ensure that functional budgets are reasonably capable of fulfillment. The key factor serves as the starting point for preparing the budget. Generally, sales become the key factor, but other factors of production, such as men, material, capital etc. may also be factors.
USES/ADVANTAGES OF BUDGETORY CONTROL: a.
It locates the inefficient areas and person in the business.
b.
It help to increase the efficiency, reduce the wastage and control the costs.
c.
It helps to coordinate the activities of various employees, department and thus helps to achieve the goal of the management.
d.
With the help of budgeting, the responsibility of the manager can be fixed for planning, so that they can think for future, anticipated and be prepared to meet the challenges ahead.
e.
Actual result is compared with the budget so that corrective action can be taken in time.
f.
It is like a barometer which enables to study the changes in business condition.
LIMITATIONS OF BUDGETARY CONTROL:
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The budgetary control system is not perfect tool. It has its own limitations which are as follows:
1.
Opposition against the every sprit of budgeting. These will always be active and passive resistance to budgetary control as it efficiency of individuals. The opposition is also due to human nature the tendency to resist the change. Moreover, any system
of budgetary control
cannot be successful unless it has the full support of the top management
Chir Argyris has, in his study of Human Problems with budget has pointed out the following reasons for a high degree of negative reaction against budgeting on the part of the front line managers
a)
Budgets are evaluation instruments. They tend to set the goals against which the people are measured hence they nautically are complained about
b)
Some of the supervisors tend to use budgets as whipping possible in order to realize their feelings about many (often totally unrelated) problems.
c)
Budgets are thought of as pressure devices as such they produce the same kind of unfavorable reaction as do other kinds of pressure, regardless of origin
2.
Budgeting and changing economy. The preparation of budget which gives a realistic position of the firm s affair under inflationary pressure and changing government policies is really difficult. Thus the accurate position of business cannot be estimated.
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3.
Time factor. The accuracy in budgeting came through experience. Management must not expect too much during the development period
4.
Not a substitute/ or management Budget is only a management tool. It cannot substitute management. Besides that budgetary programme can be successful unless adequate arrangements are made for supervision and administration.
5.
Cooperation required. The success of the budgetary control depends upon willing co-operation and teamwork. Budget officer must get cooperation from all department managers. These managers must feel the responsibility for achieving or bettering department goals laid down in the budget.
In spite of these limitations, it can be safely said the technique of budgetary control is a must for each enterprise. It leaves sufficient time for the top management for formulation of overall policy and planning. Much success can be achieved if the top management devotes attention chiefly to unusual or exceptional items that appears in daily, weekly, monthly statements and reports. In the word of George R. Terry The success of budgetary must depend upon adequacy and reliability records, the past and present performances, on the interest of all the executives and ordinate in the purpose of such control, proper, departmentalization and sub-division factory activities, a close classification and proper division and analysis of the
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expenditure, and the most suitable system of cost and financial accounts .
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VARIANCE ANALYSIS FOR OPERATING EXPENSE BUDGETS 1.
Nagpur PU Total
Financial Year Budgeted Expenses Actual Expenses Variance Variance in % F - 2004
879.26
773.58
105.68
12.02
F - 2005
807.96
822.86
-14.9
-1.84
F - 2006
974.41
1150.09
-175.68
-18.03
Budget figure with variance 1400 1200
Rs. in lakhs
1000 800 Budget
600
Actual
400
Variance
200 0 -200
F - 2004
F - 2005
F - 2006
-400 Year
Causes:F-2004
Variable expenses such as stores consumption decrease by Rs.12.18 lakhs, Power & Fuel consumption decreased by Rs.36.97 lakhs. Fix expenses like repair and maintenance are decreased by Rs.30.59 lakhs, and traveling, postage, printing, telephone etc. are in increased.
F-2005
Variable expenses such as store consumption increased by Rs.10.43 lakes, Tools and power consumption are decreased. Fix expenses like repair and maintenance is increased by Rs.2.25 lakes, rate & taxes, insurance are increased.
F-2006
Variable expenses such as store consumption increased by Rs.63.43 lakes, Tools and power consumption are increased by 26.32 lakes. Fix expenses like repair and maintenance is increased by Rs.57.12 lakes, foreign travel, repair, professional exp, special sanctions of Rs.97.75 lakes are increased.
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Remedies:F-2004
Company has to prepare a budget as per production requirement. Company has to reduce traveling, postage, printing, telephone etc. exp.
F-2005
Company has to keep max. production target acc. to the market condition of product. Company has to provide training to employee so that they can use machinery properly.
F-2006
Company has to done some R & D activity for controlling stores consumption, Tools and power consumption exp. Repair and maintenance technique of the company may not be good due to that reason exp. Increases.
2. Tractor PGL Financial Year
Budget Expenses
Actual Expenses
Variance
Variance in %
F - 2004
227.76
191.69
36.07
15.84
F - 2005
190.15
199.86
-9.71
-5.11
F - 2006
186.77
237.08
-50.31
-26.94
Budget figure with variance 300 250
Rs. in lakhs
200 150
Budget
100
Actual Variance
50 0 -50
F - 2004
F - 2005
F - 2006
-100 Year
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Causes:F-2004
Variable expenses such as power & fuel consumption increased by Rs.24.29 lakhs. Fix expenses like repair and maintenance are decreased by Rs.5.66 lakhs, other expenses is in control.
F-2005
Variable expenses such as stores consumption increased by Rs.8.36 lakes. Fix expenses like repair and maintenance, traveling, postage, printing, telephone etc. are increased.
F-2006
Variable expenses such as stores consumption increased by Rs.49.33 lakhs, repair and maintenance are decreased by Rs.6.98 lakhs. Fix expenses like repair and maintenance on spares are increased by Rs.8.33 lakhs, other expenses such as traveling, postage, printing, telephone etc. are decreased.
Remedies:F-
Company has to keep contingency reserve due to change in
2004
government policy. Company has to keep on doing regular maintenance of machinery so that break down will not occur.
F-
Company always keep maximum target according to the market
2005
condition. Traveling, postage, printing and telephone exp. can be reduce by using internet services.
F-
Company has to focus on handling of inventory so that wastage not
2006
occurs. Repair and maintenance technique of the company for the machinery may not be good due to that reason exp. Increases.
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3.
Engine PGL
Financial Year Budget Expenses Actual Expenses Variance Variance in % F - 2004
84.51
81.07
3.44
4.07
F - 2005
119.5
131.82
-12.32
-10.31
F - 2006
130.42
223.07
-92.65
-71.04
Budget figure with variance 250 200
Rs. in lakhs
150 100
Budget
50
Actual Variance
0 -50
F - 2004
F - 2005
F - 2006
-100 -150 Year
Causes:F-2004
Variable expenses such as stores consumption decrease by Rs.3.67 lakhs. Fix expenses like repair and maintenance are increased by Rs.5.94 lakhs.
F-2005
Variable expenses such as stores consumption increase by Rs.1.33 lakhs, tools consumption increased by Rs.1.82 lakhs & repair and maintenance of spare are increased by Rs.2.93lakhs. Fix expenses like repair and maintenance are increased by Rs.2.78 lakhs.
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F-2006
Variable expenses such as stores consumption increase by Rs.12.21 lakhs, Tools consumption increased by Rs.31.26 lakes, repair and maintenance are decreased by Rs.6.70 lakhs. Fix expenses like repair and maintenance are increased by Rs.50.94 lakhs.
Remedies:F-2004
Company has to prepare a budget as per production requirement. Company has to provide training to employee so that they can use machinery properly.
F-2005
Company has to keep contingency reserve due to change in government policy. Company has to provide proper and regular attention to each machinery.
F-2006
Company has to make strategy according to the product type. Repair and maintenance technique of the company for the machinery may not be good due to that reason expenses increased.
4.
Transmission PGL
Financial Year
Budget Expenses
Actual Expenses
Variance
Variance in %
F - 2004
47.28
41.36
5.92
12.52
F - 2005
95.85
95.03
0.82
0.86
F - 2006
80.62
91.34
-10.72
-13.30
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Budget figure with variance 120 100 Rs. in lakhs
80 Budget
60
Actual 40
Variance
20 0 -20
F - 2004
F - 2005
F - 2006
Year
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Causes:F-2004
Variable expenses like store consumption & repair and maintenance of spare are increased. Fix expenses like printing and stationary, postage and general & mis. Exp. are decreased.
F-2005
Variable expenses such as stores consumption decreased by Rs.9.10 lakhs. Fix expenses like repair and maintenance are increase by Rs.5.98 lakhs.
F-2006
Variable expenses like store consumption is increased by Rs.1.6 lakhs. Fix expenses like repair and maintenance are increased by Rs.11.46 lakhs
Remedies:F-2004
There is considerable increase in variable expenses occurs.
F-2005
Company has to work on new marketing strategy for their survival in market. Company has to provide training to employee so that they can use machinery properly.
F-2006
5.
Over utilization of machinery should not be done.
Hydraulics PGL Financial Year
Budget Expenses
Actual Expenses
Variance
Variance in %
F - 2004
100.83
75.31
25.52
25.31
F - 2005
81.53
82.52
-0.99
-1.21
F - 2006
88.13
93.63
-5.5
-6.24
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Budget figure with variance 120 100
Rs. in lakhs
80 Budget
60
Actual 40
Variance
20 0 -20
F - 2004
F - 2005
F - 2006
Year
Causes:F-2004
Variable expenses like store consumption is decrease by Rs.10.89 lakhs. Power and fuel are decrease by Rs.8.62 lakhs..
F-2005
Variable expenses like store consumption is increase by Rs.3.11 lakhs. Fix expenses like printing and stationary, postage and general & mis. Exp. are increased.
F-2006
Variable expenses like store consumption and tool consumption are increased. Fix expenses like Gen & Misc expense are increase by Rs.1.32 lakhs.
Remedies:F-2004
Company has to prepare a budget as per production requirement. Company can think on another project by saving amount.
F-2005
Company always keep maximum target according to the market condition. There is considerable increase in fix expenses occurs.
F-2006
Company has to keep max. production target acc. to the market condition of product. Company has to keep some extra amount for Gen & Misc expense.
6.
Engineering services PGL
Financial Year
Budget Expenses
Actual Expenses
Variance
Variance in %
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F - 2004
108.29
100.13
8.16
7.54
F - 2005
89.52
92.02
-2.5
-2.79
F - 2006
85.39
97.43
-12.04
-14.10
Budget figure with variance 120 100
Rs. in lakhs
80 Budget
60
Actual 40
Variance
20 0 -20
F - 2004
F - 2005
F - 2006
Year
Causes:F-2004
Variable expenses such as stores consumption increase by Rs. 4.36 lakhs. Fix expenses like repair and maintenance are increased by Rs.19.37lakhs
F-2005
Variable expenses are decreased by Rs.1.36 lakhs. Fix expenses like repair and maintenance are increased by Rs.5.47 lakhs
F-2006
Variable expenses such as Tools consumption increased by Rs.6.49 lakhs. Fix expenses like repair and maintenance on building are increased by Rs.2.33 lakhs, and on machinery Rs.3.28 lakhs.
Remedies:F-2004
Company has to provide training to employee so that they can use inventory properly.
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Machinery is not working properly so we have to change that particular machine. F-2005
There is considerable increase in variable expenses. Make new strategies for continuous breakdowns.
F-2006
Company has to use tool in proper way so that over utilization or improper consumption is not done.
ER & D PGL Financial Year
Budget Expenses
Actual Expenses
Variance
Variance in %
F - 2004
136.58
119.52
17.06
12.49
F - 2005
126.83
126.75
0.08
0.06
F - 2006
123.87
162.7
-38.83
-31.35
Budget figure with variance 200 150 Rs. in lakhs
7.
Budget
100
Actual 50
Variance
0 F - 2004
F - 2005
F - 2006
-50 Year
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Causes:F-2004
Fix expenses like Hire & Service charges are decreased by Rs.3.96 lakhs, Gen & Misc expense are decrease by Rs.5.83 lakhs.
F-2005
Fix expenses like General repair and maintenance are increased by Rs2.38 lakhs Legal exp. is decrease by Rs.3.84 lakhs.
F-2006
Variable expenses such as store consumption increase by Rs. 5.81 lakhs. Fix expenses like General repair and maintenance are increased by Rs.7.28 lakhs & legal expenses due to wage settlement, increased by Rs.15.53 lakhs.
Remedies:F-2004
Company has to do their necessary material transportation activity, which is pending. Company has to maintain labours as per their requirement and need, for cleaning and lab testing activity.
F-2005
Upkeepment of assets is good for machinery but it should not be repeated in nature. Company has to spend money on legal exp. because legal cases should be solve as fast as possible.
F-2006
Company has to try to maintain the relationship with their labours by listening problem of them and by solving it. Improve preventive maintenance and conditioning monitoring.
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8.
Account PGL
Financial Year
Budget Expenses
Actual Expenses
Variance
Variance in %
F - 2004
7.16
5.95
1.21
16.90
F - 2005
5.69
5.47
0.22
3.87
F - 2006
5.01
4.79
0.22
4.39
Budget figure with variance 8 7 Rs. in lakhs
6 5
Budget
4
Actual
3
Variance
2 1 0 F - 2004
F - 2005
F - 2006
Year
Causes:F-2004
Fix expenses like traveling exp. are increased by Rs.0.86 lakhs. Professional exp. is decrease by Rs. 1.98 lakhs.
F-2005
Fix expenses are decreased.
F-2006
Fix expenses are decreased.
Remedies:F-2004
Company can use video conferencing system so that traveling exp. is reduce. Company has to take expertise suggestions from outsider also.
F-2005
There is a considerable change in fix expenses.
F-2006
There is a considerable change in fix expenses.
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Sourcing PGL Financial Year
Budget Expenses
Actual Expenses
Variance
Variance in %
F - 2004
7.58
7.38
0.2
2.64
F - 2005
7.54
4.14
3.4
45.09
F - 2006
3.77
2.52
1.25
33.16
Budget figure with variance 8 7 Rs. in lakhs
6 5
Budget
4
Actual
3
Variance
2 1 0 F - 2004
F - 2005
F - 2006
Year
Causes:F-2004
Fix expenses like traveling exp. are increased by Rs.0.96 lakhs.
F-2005
Fix expenses like traveling exp. are increased by Rs.2.35 lakhs
F-2006
Variable expenses like tool consumption are increased by Rs.0.05 Lakhs. Fix expenses are decreased by Rs.1.30 lakhs.
Remedies:F-2004
Company has to change their mode of traveling.
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F-2005
Traveling means required for employee should be economical.
F-2006
There is considerable increase in tools consumption. Company has to make proper communication with their vendor or other person / company.
10.
Quality PG
Financial Year
Budget Expenses
Actual Expenses
Variance Variance in %
F - 2004
9.78
7.65
2.13
21.78
F - 2005
8.35
7.79
0.56
6.71
F - 2006
7.14
6.12
1.02
14.29
Budget figure with variance 12
R s. in lakh s
10 8
Budget
6
Actual Variance
4 2 0 F - 2004
F - 2005
F - 2006
Year
Causes:F-2004
Fix expenses like traveling exp. decreased by Rs.2.21 lakhs.
F-2005
Store consumption is decrease by Rs.1.04 lakhs Fix expenses like repair & maintenances, traveling, postage, telephone and gen. & misc. exp. are increased.
F-2006
Variable expenses like stores & tools consumption are increased .
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Fix expenses are increased by 1.68 lakhs.
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Remedies:F-2004
Changes in government policy of tax is the reason of decrease in fix exp.
F-2005
Company has to prepare a budget as per production requirement. Traveling, postage, printing and telephone exp. can be reduce by using internet services.
F-2006
There is a considerable change in variable expenses. There is a considerable change in fix expenses.
11.
SC PC
Financial Year
Budget Expenses
Actual Expenses
Variance
Variance in %
F - 2004
3.1
1.86
1.24
40.00
F - 2005
2.17
1.76
0.41
18.89
F - 2006
22.98
21.19
1.79
7.79
Budget figure with variance 25
R s . in la k h s
20 Budget
15
Actual 10
Variance
5 0 F - 2004
F - 2005
F - 2006
Year
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Causes:F-2004
Fix expenses are decrease by Rs.1.86 lakhs.
F-2005
Fix expenses are increased.
F-2006
Variable expenses like store consumption are decreased by Rs.1.91 lakhs. Fix expenses decreased by Rs.2.62 lakhs.
Remedies:F-2004
Company has to make proper communication with their vendor or other person / company.
F-2005
Company has to change their mode of traveling and also traveling means required for employee should be economical.
F-2006
Company has to provide training to employee about logistic & quality management so that they can use inventory properly.
12.
Nagpur Others
Financial Year
Budget Expenses
Actual Expenses
Variance
Variance in %
F - 2004
43.07
21.86
21.21
49.25
F - 2005
70.82
48.94
21.88
30.90
F - 2006
225.5
184.84
40.66
18.03
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Budget figure with variance 250
R s. in lakh s
200 Budget
150
Actual 100
Variance
50 0 F - 2004
F - 2005
F - 2006
Year
Causes:F-2004
Fix expenses like repair and maintenance are increased by Rs.23.97lakhs.
F-2005
Variable expenses are decreased by Rs.5.73 lakhs Fix expenses like repair and maintenance are decreased by Rs.6.24lakhs. Insurance exp. is increase by Rs.3.38 lakhs.
F-2006
Variable expenses are decreased on stores & tools consumption Rs.18.24 lakhs Fix expenses like repair and maintenance are increased by Rs.21.47lakhs & traveling by Rs.21.47 lakhs
Remedies:F-2004
Company has to install new machinery for continuous production.
F-2005
Company has to prepare a budget as per production requirement. Company has to done proper and timely maintenance for all machinery. Company has to purchase insurance policy which is necessary as per safety point of view.
F-2006
Company has to work on new marketing strategy and adopt new technology for their survival in market.
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Company has to focus on proper handling of inventory so that wastage not occurs.
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CONCLUSION Inventory management:
The study of Inventory management control the activities focus on the flow of inventory from the organization. Many decisions fall under the inventory management umbrella which is to be seen in M & M Co. Ltd..
1. There are four main department in M & M which control, plan, &organize the flow of inventory. They are Hydraulics, Engine, Transmission, & Tractor departments. In this department large number of inventory are manage according the requirement the number of component differs according to the production requirement i.e. for Engine-1200, Tansmission-400 to 600, Hydraulics-500, Tractor-1400 to 1600 .
2. The EOQ decision model calculates the optimal quantity of inventory to order. The larger the order quantity, the higher the annual carrying costs and lowers the annual ordering costs. The smaller the order quantity, the lower annual carrying costs and higher the annual ordering costs. The EOQ model includes those transactions routinely recorded in the accounting system and opportunity cost not routinely recorded.
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3. The reorder point is the quantity level of that inventory that trigger a new order. Safety stock is the buffer inventory held as a cushion against unexpected unavailability of stock from suppliers.
4. EOQ analysis helps to minimize the cost of holding the inventory. This is to be done only for hydraulics department in M & M Co. Ltd. In this department the profit which is obtained is Rs. 4695599.7 lakhs.
5. The result is based on map which is used in calculating the ordering cost and carryings cost which is one of the critical factor in the project.
BUDGET AND BUDGETARY CONTROL SYSTEM:
Budget and budgetary control system is basis need of entire finance gamut. Without budget and budgetary control system no company can achieve his goals. Budget and budgetary control system is a master key which is determining the profit level for the company
.
It is a method of forecasting future demand because of that the work of achieving the goal can be done easy. It helps to introduce standard costing technique.
It also help to ensure cash flow and hence bank credit can be obtained. It creates cost consciousness in the mind of the employees in the organization. Maximization of profit is possible through budgeting. It ensures the capital of the firm utilized in proper way and that there is no mis-utilization of funds.
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The control system of Mahindra and Mahindra Co. Ltd. Nagpur is based on responsibility basis means every department get the target and that department must be complete given the target.
After carefully analyzing and studding the entire procedure of budget and budgetary control system of M & M Co .Ltd. at Nagpur, Some observation are made as well as the following recommendations are being suggested.
1.
Changes in market condition: M & M Co. Ltd. Should be carefully observe the market. Because if there is any single words that can best describe today s market, it is change if they will observe properly to the changing market condition they will not face the problem of changes in market scenario.
2.
Volume changes: M & M Co. Ltd should determine the proper volume of production because of changing in volume budget always remain uncertain.
3.
Store consumption: M & M Co. Ltd. Should provides sufficient material to every department because of that every department can be completed their target within time. Then there is no need special fund to that department.
4.
Machinery fault:
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Company is expensing the more money than budget on machinery and spare parts for repairs and maintenance. So. M & M Co. Ltd should concentrate on machinery.
The success lies in the budget and budgetary control system as accurate as possible. And as M & M co. Ltd at Nagpur adopts a scientific budget and budgetary control system it is required to maintain accuracy in the process.
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SUGGESTIONS As we were calculate the variation of all the functional unit on department of Mahindra & Mahindra Co. Ltd. we suggest them
1.
Constant review of performance should be made to evaluate the actual results as compared to budgets so that corrective action can be taken at the right time.
2.
Company can take help of expertise personality for the review of making accurate budget analysis so that variances is to be minimized..
LIMITATIONS 1.
Company have limited amount to spend.
2.
Govt. policy is not fixed.
3.
Future is uncertain so, it is not easy to predict future.
4.
Budgetary control deals with quantitative data only.
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BIBLIOGRAPHY 1.
Management Accounting - Dr. Mahesh Kulkarni
2.
Principles of Financial Management - Satish M. Inamdar
3.
Financial Management - M. Y. Khan & P. K. Jain
4.
Financial Management - I. M. Pande Annual Report 2002 - 2006
WEBSITE : 1.
www.mahindra.com
2.
www.mahindraworld.com
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