Budget Control Systems

CHAPTER-I
INTRODUCTION
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INTRODUCTION
It is well recognized that budget are among the essential tools of management of any
organization unlike other management aids, budgets are made use of practically by all
functionaries in the organization. Budgets not only reflect the plan of action for different
levels of management but are also useful to monitor various activates and initiate mid
course corrective actions. Budgets just do not reduce the managerial function to a mere
formula but aids as a managerial tool.
Hence ”effective use” of this art as well science. Thus it needs continuous budget
education and creation of evaluation and performance through budgets. Budgets provide
management summarized picture of the results to be expected, also forms the proposed
plan of operations. They enable the management to determine whether the plan is
satisfactory. Budgets serve as a guide to executives and departmental heads. They
measure performance since”Budget Deviations” reflect either the organization failure to
achieve the planned standards of performance or its ability to better them.\
Thus budgeting is a means of obtaining the most productive4 and profitable use of the
companies’ resources through planning and control. Budgets are helpful in coordination
the various activities (Such as production, sales, purchase etc) of the organization with the
result that the activities precede according to the objective.
Budgets are means of communication. Ideas of the top management are given the
shape of the budget and are passed on the subordinates who are to give them the practical
shape. As the activities of various departmental heads are coordinated at the preparation
of budget, it is helpful in developing a team work which is very much needed for the very
success of an organization. Thus, a budget is necessary to plan for the future, to motivate
the staff associated, to coordi9nate the activities of different levels. A budget is an overall
blue print of a comprehensive plan of action expressed in physical and financial terms; it
includes plan for each of the activity/responsibility centers of the business and provides a
link between the physical and financial plans of various departments of a company. It is
also a document to serve as control for monitoring and review. The budget system should
be such that it makes it imperative for management to establish goals and objectives,
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define policies, develop programmes, both long term and short term, measure
performance against the targets and in the process, revises the part of management. In a
way of budgetary control system has been increasing an enterprise’s profits, and a goals-
achieving machine for facilitating organizational coordination and planning while
achieving the budgeted targets.
NEED FOR BUDGETS
The rationales for budgets have five aspects:
1. Authorization: The budget is used to authorize the expenditure and activities

contained in it.
2. Evaluation of performance: The planned activities and expenditures contained
in the budget provide a standard against which the actual achievement of the firm
can be measured and evaluated.
3. Coordination of activities: The piecemeal budgets of the subunits of the firm are
so framed that each sun-unit is made to contribute to the achievement of the
overall budget.
4. Control: The setting up of organizational machinery to direct efforts towards the
planned aims. The budgets sets out the planned activity, subsequent deviations
between achievement and plan will indicate the need for investigation and
corrective action.
5. Motivation: The budget is so constructed as to move employees form one target
goal to another; indeed it is bound up with the reward / punishment type of
organization environment and bureaucratic decision processes, where employees
are given incentives to work towards the achievement of the firm’s targets.
WHY COMPARE ACTUAL AND BUDGET?
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One of the objectives of budgeting is to provide a base against which actual
pe3rformance can be measured. This is only worth doing if action will be taken as a
result.
In too many organizations the production of results compared to budget is seen as the end
of the process. If no action is taken on the basis of management accounts then there is
little point in producing them and even less point is wasting management time discussing
them.
By identifying progress we are better informed regarding the effects of our actions and
have a clear understanding of the effect of any future action we take. Knowing how much
is being spent each month enables a manager to consider whether action needs to be taken
to spend more or less in the future.
THIS PROCESS IS ONLY WOTHEWHILE IF THE BUGET IS REALISTIC.

ANALYSING VARIANCES AGAINST AN UNREALISTIC BUDGET IS
POINTLESS.
However in a well runs organization the comparison between actual and budget is used as
the basis for deciding the appropriate action. This paper sets out how the analysis is used
to maximum effect. The process is really part of the normal control process.
WHAT CAUSES BUDGET VARIANCES?
There are four key reasons and it is important that good managers recognize the
differences, because the action required is may be completely different in each case.
The four reasons are:
1. Faulty Arithmetic in the Budget figures.
2. Errors in the Arithmetic of the Actual Results
3. Reality is wrong
4. Differences between Budget Assumptions and Actual Outcome
Each of these will be examined in turn.
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1) Faulty Arithmetic in the Budget Figures
It is perfectly to have an error in the budget. This includes errors of commission or

duplication as well as pure arithmetic. One action is to make a note to ensure it does not
happen again when the next budget is being done. Other action depends on the error.
Assume the budget stated no overdraft would necessary and it now appears one is
required because the sales forecast was used to predict cash inflows rather than the debtor
payments. There are two options: Go to the bank and ask for an overdraft, or take some
other action to improve cash flow to stay within the budget cash figure. The original
budget numbers will need to be changed to reflect the new circumstances and future
reporting should be against the revised budget (often called a reforecast or latest
estimate.) Action is required but it may not be within the area where the error was made.
AVOID: “The Accounts figures are always different from ours so we ignore them and
keep our records”.
2) Errors in the arithmetic or the actual results
It is perfectly possible for the actual results to be reported wrongly. This includes the use
of the wrong category omission of costs; double counting of income etc. one well known
way of staying within budget is to throwaway any invoices received from Suppliers, or
charge them someone else’s account code. This sort of deliberate action makes nonsense
of budgetary control and must be avoids. The corrective action once this is discovered is
to prevent it happening again. Improvements in management education and / or control
procedures are recommended.
One extra consideration is that in order to correct the error the cumulative results will
need to be corrected. This means either putting through a correction in the next period,
which will then also be wrong, or adjusting the past results to correct the error.
Failing to note that the correction can cause misleading results can lead to wrong
decisions being made.
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AVOID: “The accounts figures are always different from ours so we ignore them and
keep our own records.”
3) Reality is wrong.
Sometimes the actual results are useless as an indicator. A strike or natural disaster will
have an impact on results. This does not mean that the budget process in future should
include an allowance for this happening again. (However in large organizations it is
normal to allow for the impact of a disaster centrally as a contingency even if it is not
budgeted at operating unit level.) If necessary, insurance should be taken out. If business
is disrupted for two weeks, then it is pointless to compare the remaining two weeks of the
month against a full month’s budget. Produce a realistic budget for only two weeks and
compare against that to establish true performance under normal circumstances.
AVOID: “The variances are distorted because of …..So it’s not my fault”.
4) Differences between budget assumptions and actual outcome
This is the key issue and the one which involves the use of variance analysis techniques.
Remember that all budgets contain errors in the assumption No one knows the future
outcome for certain. The important thing is not to apportion blame by looking
backwards, but to look forwards and take action to improve the future in the light of
experience. The action to be take action to be taken depend s on circumstances.
However, punishing deviation from the budget is the best way of destroying the budget
process.
Manages will spend up to budget, conceal data, make the actual fit the budget in order to
avoid blame. This is particularly true in large multi-national organizations. The emphasis
must be on what can we do about it, rather than why the results are different.
AVOID: “We are under budget, who can we blame?”
HOW ARE VARIANCES CALCULATED

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There are two important rules:
1) The level of variance analysis should be decided by the needs of the decision
maker, not the convenience of the reporter.
2) The budget must always be flexed for volume changes to produce realistic
Variances.
EXAMPLE:
PARTCULARS BUDGET TOTAL
SALES VOLUME 100 90
SALES VALUE 1000 990
VARIABLE COSTS 500 495
FIXED COSTS 200 210
PROFIT 300 285
The budget committee wishes to blame someone for the fact that profit is down by 15.
“It is obvious who is to blame sales are below target and fixed costs have not been
controlled”.
PROPER VARIANCE ANALYSIS
The require some through and some simple calculations. It has 4 Stages:
1) Flexing the budget.
2) Analyzing the variances.
3) Identifying the causes.
4) Taking appropriate action.
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Since only the last of these is a value adding activity, the first three are only worth doing
if step 4 is taken in time to help future results. This may mean the first three steps have to
be done fast even if that reduces their accureacy6.
FLEXING THE BUDGET
In the example it is futile to compare the actual variable costs with the budget. To do so
suggests that the manager is doing better than budget, but actual volume is below budget
so costs should be lower. It is vital to produce a revised budget to use for comparison.
This does not mean that the original budget is useless. It merely means that in order to
analyze the 15 difference it is important to start by removing the impact of volume
changes on the various headings which are by it.
ORIGINAL REVISED
PARTICULARS ACTUAL
BUDGET BUDGET
SALES VOLUME 100 90 90
SALES VALUE 1000 900 990
VARIABLE COSTS 500 450 495
FIXED COSTS
200 200 210
(LESS)
PROFIT 300 250 285
This recalculates the budget using actual volume but budget prices and shows that the
expected profit for 90 units is 2502. Thus the impact on profit is a reduction of 50 and
this can be identified as SALES VOLUME VARIANCE Rs. (50). A common convention
is to put unfavorable variances in brackets.
Now the other variance can be calculated.
ANALYSING THE VARIANCES

PARTICULARS ORIGINAL REVISED ACTUAL VARIANCES
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BUDGET BUDGET
SALES
100 90 90 -
VOLUME
SALES VALUE 1000 900 990 90
VARIABLE
500 450 495 (45)
COSTS
FIXED COSTS
200 200 210 (10)
(LESS)
PROFIT 300 250 285 35
The valid set of budget data is to compare against actual. The variance on sales can be
due to price. This is the SALES PRICE VARIANCE of Rs. 90.
The variable costs require further investigation.
Assume that the original budget was to use 2.50 meters of material for each sales unit and
that each meter was expected to cost Rs. 2.00. This gave a budget figure 100 X 2.50 X
Rs.2.00=Rs.500.
The Actual result included a price of Rs. 2.75 per meter but only 2.00 meters were used
per sales unit. This gave an actual figure of 90 x 2.50 x Rs.2.00 = Rs. 450.
To identify the cause of the variance of Rs. 45, we need to separate the price impact
from the usage impact.
Price
We expected to pay Rs. 2.00 per meter; we did pay Rs. 2.75 per meter.
Each of the 180 meters we bought cost 0.75 extra ….180 x (2.00-2.75) = Rs. (135) this is
the MATERIALS USAGE VARIANCE Rs. (135).
Usage
We expected to use 225 meters in total to make 90 units; we did use 180.
At the budget price of Rs. 2.00 we saved …..Rs.2.00 x (180-225) = Rs.90
This is the MATERIAL USAGE VARIANCE Rs.90.
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On fixed costs we expected to spend Rs. 200 but we did spend Rs. 210. The FIXED
COST VARIANCE IS Rs. (10).
SUMMARISING THE VARIANCES
SALES VOLUME (50)

SALES PRICE 90
MATERIALS PRICE (135)
MATERIALS USAGE 90
FIXED COSTS (10)
-----------
(15)
=======
IDENTIFING THE CAUSES
This is where politics and blame apportionment must be avoided. Consider these possible
Comments on the above figures.
“The price of the raw materials went up so we asked the factory to be careful about waste
and told the manufacturing force to put prices up”.
OBJECTIVES OF STUDY:
THE STUDY HAS THE FOLLOWING:
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 To provide a theoretical framework of budget, and budgetary control.
 To describe the profile of the organization as a backdrop for undertaking a study
of budgetary control system.
 To analyze the budgetary system in practice in Kesoram Cement Industries
Limited with particular reference to their objectives and phases of organizational
and re-appropriation.
 In addition to the analysis of the conventional budgetary system in practice in
Kesoram Cement Industries limited. The study aims at evaluation and
modification to the budgetary system with reference to the various types of
budgets. The scope in the formulation of performance budget is also studied.
SOURCES OF DATA:
The data of Basant Nagar, Kesoram Cement Industries Limited, have been collected
mainly from secondary sources viz…
 From the concerned officers of the Kesoram Cement Industries Limited

 Kesoram Cement Industries Limited – Journals.
 Accounting books, records
 Key books of concerned title.
 Statistical records
 Kesoram Cement Industries Limited library.
METHODOLOGY OF THE STUDY:
 The study is based on the both primary and secondary data
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 The primary data has been collected through structured questionnaire reflecting
budget management practice of kesoram cements
 The collected data is tabulated and suitable interpretation has been made by
considering the data collection through secondary data like annual reports.
LIMITATIONS:
 Estimates are used as basis for budget plan and estimates are based on available
facts and best managerial judgment
 Budgetary control cannot reduce the managerial function to a formula. It is only
a managerial
 Tool which increase effectiveness of managerial control
 The use of budget may lead to restricted use of resources.
 Efforts may therefore not be made to exceed the performance beyond the
budgeted targets.
 Frequent changes may be called for in budgets due to fast changing industrial
climate.
 In order that a system may be successful, adequate budget education should be
imparted at least through the formative period. Sufficient training programs
should be arranged to make employees gibe positive response to budgetary
activities.
 The study is the limited up to the date and information provided by Kesoram
Cement Industries Limited and its annual reports
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CHAPTER-II
REVIEW OF LITERATUTRE
INTRODUCTION TO BUDGET AND BUDGETARY

CONTROL:
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The management is efficient if it is able to accomplish the objectives of the enterprise It
is effective when it accomplish the objectives with minimum effort and most in
attain long-range efficiency and systematic approach in facilitate effective
management performance is profit planning and control or budgeting .Budgeting is
therefore an integral part historical combination of a” goal setting machine for
increasing an enterprises profits and a goal achieving machine for facilitating
generational coordination and planning while achieving the budgeted gets”
MEANING OF BUDGET:
It is a financial and quantitative statement prepared and approved or to a defined

period of time of policy to be pursued during that period purpose of attaining a given
objective it may include income expenditure and employment capital
In other words it is a pre-defined detailed plan of action development distributed as a

guide operations and as a partial basis for subsequent evolution of performance
PLANING OF BUDGETING:
The process of planing all flows of financial resources into within from an entity
during some specified future period it includes providing detailed allocation of
available future resources to projects ,responsibilities and time periods
From above definition I it clear that budgeting Is the actual act of caring the budget
it is the process of evolving the final statement yet is the end product of budgeting
ESSENTIALS OF GOOD BUDGET:
1. it is prepared prior to a defined period of time

2. it is prepared for the definite future period
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3. the policy to followed to attain the given objectivities must be laid before the
budget is
4. it is monetary and/or quantitative statements of the policy
MEANING OF BUDGETARY CONTROL:
It is the process of establishing of departmental budget relating the responsibilities

of executives to the requirements of a policy and the continuous comparison of
actual with budgeted results either to secure by individual action the objectives
of that policy or to provide a firm basis for revision First of all budgets are prepared
and then actual results are the comparison of budgeted and actual figures will
enable the management to out discrepancies and take 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 means and
budgetary control is the end result.
In the words of J.A.scolt “budgetary control is the system of management control and
accounting in which all operations are forecast so as possible planned ahead and
actual results compared with the forecast and the planned ones
ESSENTIALS OF BUDGETARY CONTROL:
1. Budgetary of the process of preparing the budget is the starting point for
budgetary point for budgetary control.
2. Distribution of budgets pertaining. To each function to all the relevant section with
in organization.
3. Collection of actual data pertaining to all budgeted activities.
4. Continuous comparison of actual performance with budgeted performance.
5. Analysis of variances in actual performance and budgeted performance
6. Initiation of corrective action to ensure that actual performance is inline with
budgeted performance
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7. Revision of budgeted if it is felt that the budgets prepared are no longer relevant
on account of unforeseen developments
OBJECTIVITIES OF BUDGETARY CONTROL:
The primary objective of budgetary controls to help the management in

systematic planning and controlling the operations of the enterprises the primary
objective can be met only if there is proper communication and coordination amongst
different organization thus the objectivities can be stated as:
1. COORDINATION:
Coordination is a managerial function under which all factors of production and
all departmental activities are departmental are balanced and integrated to achieve the
objectivities of the organization budgeting provides the basis for organization
objectivities can be realized executives are forced to think of the relationship
between their department and the company as a whole this removes unconscious
biases against other departments it also helps to identify weakness in the
organization structure.
2. COMMUNICATION:
All people in the organization must know the objectivities polices and
performances of the organizations they must have a clear understanding of their part in
the organization goals this is made possible by ensuring their participation in the
budgeting process
3. CONTROLS AND PERFORMANCE EVALUTION:
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Control ensures control by continuous comparison of actual performance with
the budgeted performance variances are highlighted and corrective action can be
initiated budgets also from the basis if performance evolution in an organization as they
reflect realistic estimates of acceptable and expected performance.
BUDGETING AND BUDGETARY CONTROL:
A budget is a blue print of a plan expressed in a quantitative terms

budgeting Is a technique budgetary control terms to the principles procedures and
practice of achieving given objectivities through budgets.
From the above definitions we can differentiated the three terms as budgets are
the individual objectivities of a department etc where as budgeting may be said to act
of building budgets budgetary control embraces all and in addition includes the
science of
Planning the budgets to effect on overall management tool the business planning
and control
ESSENTIALS OF BUDGETARY CONTROL
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1. ORGANISATION FOR BUDGETARY CONTROL:
The proper organization is essential for the successful preparation

maintenance and administration of budgets A budgetary committee is formed which
comprises the departmental heads of various departments All the functional heads are
entrusted with the responsibility if ensuring proper implementation of their respective
departmental budgets
The chief executive is the overall in the charge of budgetary system he

constitutes a budget committee for preparing realistic budgets A budget officer is the
convener of the budget committee who co-ordinates the budgets of different
departments responsible fro their departmental budgets
2. BUDGET OFFICER:
The chief executives appoints the budget officer such budget officer also
called as Budget controller or budget Director “ thus rank should be equal to other
functional managers”
The Budget officer does not have the direct responsibility of preparing
the budgets the various functional managers prepare the budgets his role is that of a
supervisor the budget officer has the specific duty of the budgeting activity by
various departments and for co-ordination between them so that there is a proper link
between them He is empowered to scrutinize the budgets prepared by different
functional heads and to make changes in them if the situation so demands
The budget officer works as a coordinator among different departments he

continuously monitors the actual performance different departments steps to rectify the
defiance if any he also informs the top management about the performance of different
departments
The budget officer will be able to carry out his work only if he is versant with the
working of all the departments he must have technical knowledge of the business and
should also process accounting knowledge
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BUDGET COMMITTEE:
A budget committee is formed to assist the budget officer. The heads all the
important departments are made members of this committee. The committee is
responsible for preparation and execution of budgets. The chambers of this committee put
up the case of their respective departments to help the committee to take collective
decisions if necessary. The budget committees responsible for reviewing the budgets
prepared by various functional heads coordinate all the budgets and approve the final
budgets. The budget officer acts as a coordinate of this committee all the functional heads
are entrusted with the responsibility of ensuring proper implementation of their respective
final departmental budgets.
BUDGET CENTERS:
A budget center is the part of the organization for which the budget is prepared.
A budget creator may be a department section of department or any other part of
department ideally, the head of every center should be a member of the budget committee.
However it must be ensured that each budget center at least has an indirect representation
in the budget committee.
The establishment of budget centers is essential for covering all parts of the
organization becomes easy when different centers are established the budget centers
are also necessary for cost control purpose.
BUDGET MANUAL:
1. A budget manual is a document that spells out duties and responsible the
various executives conquered with it specifies among various functional areas A
budget manual covers the following matters.
2. A budget manual clarity defines the objectivities of budgetary control systems it
also gives the benefits and principles of this system.
3. the duties and responsibilities of various persons dealing with preparation and
execution of budgets are also given in the budget manual it enables the
management to know the persons dealing with various aspects to budgets and
provides clarity on their duties and responsibilities it gives the information about
the sanctioning authorities of various budgets the financial powers of
sanctioning authorities of various budgets the financial powers of different
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manages are given in the manual for enabling the spending amount on various
expenses
4. a dropper table for budgets including the sending of performance reports is
drawn so that every work starts in the and a systematic control is exercised
5. the specimen forms and number of copies to be lased fro ore oaring budget
reports is also stated budget centers involved should be clearly stated.
6. the length of various budget periods and control points is clearly given
7. The problem follow all in the centre system clearly stted.
8. A method of accounting to be used for various expenditures is also stated in the
manual.. A budget manual helps the documentation the role of every employee
his duties responsibilities the ways fo undertaking various tasks etc thus it also
helps n reducing ambiguity at any point of time
BUDGET PERIOD:
A budget period is the length of time for which a budget is prepared upon a number of
factors the choice of a budget period depends upon the following considerations the
type of budget (long\short).
 The nature of demand for the products

 The timing for the availability of the finance
 The construction situation of the cycles
All the above mentioned factors are taken into account while fixing the period of budgets
The financial manager usually responsible for organizing this budget he must
perform the following functions.
 To decide the general polices and guidelines

 To offer technical advice.
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 To suggest changes.
 To receive and review individual budget estimates.
 To reconcile divergent with or without revisions.
 To coordinate budgeting activities.
 To approve budgets with or without revisions.
 To scrutinize control reports later on
 To scrutinize to budget reports later on.
 To disseminate these guidelines.
After finalizing the budget proposal the budget committee subjects the final budget to the
Board of Directories or Budget Director for approval.
CONTINUOUS BUDGETING SYSTEM:
A continuous budgeting system is a method of having two different budget periods

within the sane budget the purpose of having this system is to have greater control
in terms of operational activities without losing sight is have greater control in terms
of it results in incorporating the effect of changes in the short term on the long-term
targets of the organization
DETERMINATION OF KEY FACTOR:
The budgets are prepared for all functional areas these budgets are dependent and
inter-related A proper co-ordination among different budgets is necessary for
budgetary control to be successful The constraints some budgets too A factor which
influences all other budgets is known as “key factor or principal factor”.
The key factor may not necessarily remain the same the raw materials
may be limited at one time but it may be easily available at another similarly other
factors may also improve at different times. The key factor highlights the limitations of
the enterprise. This will enable the management to improve the working of those
departments we here scope for improvement exists.
REQUISITES FOR A SUCCESSFUL BUDGETARY CONTROL SYSTEM.
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Making budgetary control system successful requisites 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 the sense of clear goals, the budgets
will also be unrealistic.
2. PROPER DELEGATION OF AUTHORITY AND RESPONSIBILITIES.
Budget preparation and control is done at every level of management. Even though
budgets are finalized at top level but involvement of persons. In lower levels of
management is essential for their success. This Hesitates proper delegation and
responsibility.
3. PROPER COMMUNICATIONS 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. The
upward communication will help in knowing the difficulties in implementation of
budgets. The performance reports of various levels will help top management in
budgetary control.
4. BUDGET EDUCATION.
The employees should be educated about the benefits of budgeting system they
should be educate about their roles in the success of this system. Budgetary control may
not be taken only as a control device by the employees but it should be used as a tool to
improve their efficiency.
5. FLEXIBILITY.
Flexibility in budgets is required to make them suitable under changed

circumstances. Budgets are prepared for the future, which is always uncertain, even
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though budgets are prepared by considering the future possibilities but still some
adjustments. Flexible makes the budgets more appropriate and realistic.
6. MOTIVATION
Budgets are too implemented by human beings. Their successful implementation

will depend upon the interest shown by the employees. All persons should be motivated
to improve their working so that budgeting is successful. A proper system of motivation
be introduced for making is system a success.
TYPES OF BUDGETS.
LONG TERM BUDGETS:
The long-term budgets are the budgets prepared for a long period of five to years. They
are concerned with planning the operations of a firm over a considerably long period of
time. The financial “Controller” exclusively for top management usually prepares long-
term budgets. These budgets are useful in terms of physical units (i.e.….. quantities) or
percentages, the accurate values may be difficult to forecast over such long period. Initial
expenditure, research and development budgets, etc, are examples long-term budgets.
SHORT TERM BUDGETS.
Short –term budgets are budgets prepared for a short period of one to two is. They are
prepared for those activities the trend in which cannot be seen easily over long periods.
These budgets are very useful are very useful in case of consumer goods industries such
as sugar, cotton, textiles, etc. they are generally, prepared in terms of physical units (i.e.,
Quantities) as well as monetary units (i.e., values..) Materials budget, cash budget. Etc are
examples of short-term budgets. They are useful to lower level of management for control
purpose.
CURRENT BUDGETS.
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Current budgets are a budget, which is established for use over a short period of
time and is related to current conditions. Thus current budgets are essentially short term
budgets adjusted to current (i.e., present or prevailing) conditions or circumstances. They
are prepared, for a very short period. Say, a quarter or a month. They relate to current
activities of the budgets.
INTERIM BUDGETS:
Interim budgets are budgets, which are prepared in between two budgets periods. These
budgets may get integrated with the budgets of the following period.
CLASSIFICATION OF BUDGETS ACCORDING TO CONTENT:
Budget may be classified into budgets in physical terms and into budgets in monetary
terms.
A) BUDGETS IN PHYSICAL TERMS:
Budgets in physical terms are budgeted that budget in terms of quantities only.
They do not include corresponding rupee value. Long –term budgets are usually in
prepared in physical terms. Examples of such budgets are production budget, materials
budget, etc.
B) BUDGETS IN MONETARY TERMS:
Budgets in monetary terms are budgets that budget in terms of quantities as well as their
corresponding rupee value. Sales budget, purchase budget, etc are examples of such
budgets. Budgets such as cash budget capital expenditure budget, etc that may not have
physical quantities also from part of budgets in Monetary terms.
CLASSIFCATION OF BUDGETS ACCORDING TO FUNCTION:
Budgets can be classified into:
1. Operating Budgets
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2. Financial Budgets
3. Master Budget
1. Operating Budgets.
These budgets relate to different activities or operations of a firm. The number of

such budgets depends upon the size and nature of the business, The commonly used
operation budgets are:
i) Sales Budgets
ii) Purchase Budget
iii) Raw Materials Budget
iv) Lab our Budget
v) Factory Utilization Budget
vi) Manufacturing Expenses or Works overhead budget
vii) Administrative and Selling Expenses Budget etc.
The operating budget for a film may be constructed in terms of programmers or

responsibility areas, and hence may consist of:
A) Programmed Budget
B) Responsibility Budget
A) 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, Cost and the relative profitability of the various in
locating areas where efforts may be required to reduce COST5 ad increase revenues.
They are so useful in determining imbalances and inadequacies in programmers so at
corrective action may be taken in future.
B) Responsibility Budget:
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Here the operating of a firm is constructed in terms of responsibility areas. Such a budget
shows the plan in terms of person’s for achieving them. It is used by the management as a
control thus used by the management as a control device to evaluate the ___ of executives
who are in charge of various cost centers. Their _____ is compared to the targets
(Budgets), set for them and proper taken for adverse results.
Responsibility areas may be classified under three brand categories:
I. Cost / expense center

II. Profit center
III. Investment center
FINANCIAL BUDGETS
Financial budgets are concerned with cash receipts and payments, working capital,
financial position and results of business. The commonly used financial budgets include
Cash budget, Capital budget, and Income statement budget, Statement of earnings budget,
Budgeted balance sheet or position statement.
3) MASTER BUDGET
The Master budget is the summary budget incorporating its functional budgets. All
the operational and financial budgets are integrated into the Master budget. The budget
officer for the benefits of the top-level management prepares this budget. This budget is
used to coordinate the activities of various functional departments. It is also used an
effective control devices.
CLASSIFICATION ON THE BASIS OF FLEXIBILITY.
A) FIXED BUDGET
26
According to ICMA London “a fixed budget is a budget which is designed to
remain unchanged irrespective of the level of activity actually attained”. It is based on a
fixed volume of activity and shows one volume of output and related cost. It is not
adjusted according to the actual level of activity attained.
A fixed budget is useful only when the actual level of activity corresponds with the
budgeted level of activity. But this, generally, does not happen; as such a fixed budget is
not useful for managerial purposes.
B) FLEXIBLE VARIABLE SLIDING SCALE OR CONTROL TYPE BUDGET:
According to ICMA, London “a flexible budget is a budget which is designed to

change in accordance with the level of activity) actually attained”. Thus, a flexible budget
changes according to the change in the level of activity. In other words it provides the
budgeted costs at any level of activity.
Business activity cannot be accurately predicted on account of uncertainties of

business environment. A flexible budget contains several estimates for different assume
circumstances instead of just one estimate, it provides for automatic adjustments with
changes in the volume of activity. Hence a situations operating in an unpredictable
environment.
27
BUDGETING AND BUDGETARY
SYSTEM IN
KESORAM CEMENT INDUSTRIES
LTD
ZERO BASED BUDGETING:
28
Zero budgeting is the latest technique of budgeting and it has increased use as a
material tool. This technique was first used in America in 1962, by the former president
America, Jimmy Carter.
As the name suggests, it is starting from a "scratch”, the normal technique of

Budgeting is to use previous levels as a base for preparing this year's budget. This method
carries previous years inefficiencies to the present year because we taken last year as a
guide, and decide "what is to be done this year when this much was the performance of
the last year.
In the zero based budgeting every year is taken as new year and previous year is not
as a base, the budget for this year will have to be justified according to present situation,
zero is taken as base and likely future activities are decided according to present
situations. In zero based budgeting a manager is to justify why he wants to spend. The
performance of spending on various activities will depend upon their justification and
priority for spending will have to be that an activity is essential and the amounts asked for
are really reasonable taking into account the volume of activity.
BUDGET AND BUDGETARY SYSTEM IN KESORAM CEMENT

INDUSTRIES LIMITED, BASANTH NAGAR, KARIMNAGAR
The budgeting process is used in the performance budgeting for the construction
of phase which includes pre commissioning activities. Besides meeting the essential
requirements of managerial control the budgeting exercise also covers the long term
capital budgeting, which is presented in the form of annual plan.
OBJECTIVES OF THE BUDGETARY SYSTEM:
29
To prepare annual budgets in such a manner those managers at various levels in
organization carry out periodical exercise in respect of each contact or responsible centre
for physical planning and matching resources broke up into monthly targets or cash flows.
To introduce and operate responsible for achievement of specified targets with the
recourses allocated for the purpose.
To bring about effective co-ordinate of all activities of the organization and

To gear up service divisions to meet effectively the requirements of project.
BUDGET PERIOD AND PHASING:
The budget period or annual begets should with the financial year.In october every year
the budget should drawn up for the ensuring the financial year in the form of Budget
estimates financial year in the form of Revised Estimates[R.E]..In addition the budgets
are to be reviewed on monthly basis by project review teams,in the light of actual
expenditure and projections in the budget period.Budegt should indicate monthly phasing
of expenditure and targets for the first and quarterly phasing for the second half of the
year. At the time of review of the budget estimates to frame revised estimates the
quarterly phasing should be broken up into monthly phasing.
While drawing up the actual budget in October every year, the long term capital budget
for ongoing and new schemes should be formulated as apart of exercise as preparation of
annual plan. The long term capital budget should indicate for a period of six years
following the budget period of six years following the budget period of six years
following the budget period wise annual phasing of the capital expenditure and physical
schedules recourse based network.
BUDGET HEADS:
30
For uniform accounting, it is essential that costs are collected for each of the
factory though this may involve spillting up of payments against contracts which embrace
more than one system.Allocation of the cost as system wise affords a sound basis for cost
accounting,inter-firm comparisions and provides valuble inputs to the data bank.Budget
provisions are related to project estimates and monitoring of actual expenditure where as
control variables for part control and instrumentation system. Factory piping which
includes pipelines,for ash water mains,compressed air system and civil works piping.
Auxilary pumps for water treatment plant and civil works system.If there are,any
contracts not covered in the budget heads provisison for such contracts should be shown
against the appropriate system by head by adding code number.
5. TYPES OF BUDGETS IN KESORAM CEMENT INDUSTRIES

LIMITED:
According to the nature expenditure budget are classified under:

 Direct capital outlay on works
 Technical consultancy
 incidental construction during construction
 Employee cost
Other establishment expenses:
 Training and recruitment

 Preliminary expenses
 misc.brought-out assets
 cash budget
 Township budget
BRIEF EXPLANATION TO THE NATURE OF EXPENDITURE INCLUDED IN

EACH BUDGET IS INDICATED BELOW:
31
INCIDENTAL EXPENDITURE DURING CONSTRUCTION PERSONEL
PAYMENT:
These comprises of salary,wages,allowance,contribution of PF and other funds and

other expenses such as LIC,medical reimbursement,canteen subsidy etc.any provision of
areas of salary/D.A.
OFFICE AND OTHER EXPENSES:
Expencec incidental to construction and capital works not traceable directly to

incidental expenditure,durind contribution eqipments,vehicle running expense,office
rent.LC and cost of drawings,travelling expenses, printing and stationary, communication
expenses, advertisement for tenders tc.,are major items in the category.
TRAINING RECRUITMENT & OTHER DEFFERED REVENUE

EXPENDITURE:
The first part of the budget consists of expenses for training executives, and non
executive trainees, rent for training halls and expenses for management development
courses. The second part consists of expenses for recruitment such as advertisement for
recruitment, interview expenses,T.A. candidate etc. the third part combines preliminary
expenses including registration fees and research ad development expenses.
MISCELLANEOUS BOUGHT OUTPASSES:
Vehicles, furniture and fixtures equipments, hospital and medical equipment.

Miscellaneous assesses township figure in the budget.
REVIEW OF PROJECT BUDGET:
MONTHLY REVIEW:
32
At monthly intervals the budget should be reviewed by project review committee
[PRC]. project budget should report actual expenditure against budget heads.Work heads
and corporate budget by the 7th of month following the repoprt month.The monthly
review should be examined by project review team[PRt],who should record variations for
any variations and proposed for expending works in the minutes of the meetings reasons
for any variations in the case of budget heads exceding 10% of the budget estimates
revised estimates or which ever is Rs.5 lakhs should be analyzed and report upon.
QUARTERLY REVIEW:
PRT should conduct a quaterly budhet review with a view to projecting anticipated
expenditure during the year against approved budget estimates/revised estimates.As time
is essence of such review,only a quick review of anticipated expenditure for individual
budget heads involving provisions exceeding Rs.50 lakhs in each case should be made
and reported in minutes to PRT.For this purpose, project budget should furnish all the
relevant data to project manager[project] and planning and system by the 10th,of the
month following the quarter project budget committee should review the actual
expenditure and assess anticipated expenditure contract co-ordination/engineers in
charge. The assessments of anticipated expenditure should be furnished by the project
budget committee to General Manager [project] by the 30th of the month following the
quarter under review.
BUDGET OF SERVICE DIVISION/CORPORATE BUDGETS:
A review of budgets of service and corporate divisions should be conducted at

quaterly intervals by corporate budget committee[CS'C].For this purpose corporate
accounts should report actual expenditure up to the ned of the quater by the 10th of the
month following quater to corporate budget and budegt-coordination of the remaining
period of the year should be sent to the corporate budget should put up a consoliadted
report division wise and project wise to corporate budget committee[CBC] by the 15th of
the may, August, November and February every year.
33
OBJECTIVES OF THE CURRENT BUDGETARY CONTROL SYSTEM IN
KESORAM CEMENT INDUSTRIES LIMITED, BASANTH NAGAR:
The current budgerary control system-operating phase has been compiled to achieve
the following objectives.
 To control actual performance with reference to standards/norms adapted

in the budget ascertain the deviations analyse and establish the reasons.
 To identify constraints in generationa amd timely action for estimation

constraints.
 To monitor the generation of internal resourses so as to ensure the

availability of adequate funds.
 To prepare the revenue budget so as to forecasting the periodical

profitability of the organization.
 To develop standards/norms of performance in the various areas of

operation and maintenance based on the experience.
 To ensure effective coordinate planning of all activities so that all the

inputs and services necessary for achieving the physical targets are
available at appropriate time.
 To create cost consciousness among the managers responsible for decision

making
 To provide data regarding operational norms and cost for the purpose of
formulating tariff.
To provide data basis for assessment of working capital requirements
34
 To control the working capital particularly book debts spares and other
items inventory.
 To improve profitability and internal resourses genaration.
SCOPE OF THE PERFORMANCE BUDGET:
The budget for operation and maintainance activities will be called performance
budget operation. This in effect means that all financial targets in the budget will be based
on performance targets in physical terms.
The current budgetory control system operation pays envisages generation and
transmission line projects as independents investiment centres.It becomes applicable to a
project in the year in which it plans to commercialize its first generation unit.How ever,
the budegt infer expenses from the date of synchronization to the date of commercial
generation is to be taken case of in the capital budget of the respective project similarly in
the case of transmission line projects the system becomes applicable from the year in
which it plans to commissions its first line along with substation or the date commercial
generation of the first unit of generative project with which this line is associated,which
ever is later.for subsequent lines,the O&M will be prepared from the cate generation of
energisation.
The system investigates the preparation of operation and maintainance budget for
each of the cost centres as per the requirements of coastings systems.
The performance budget operation will consists of following budgets along with
the supporting schedules:
1. Budget balance sheet.

2. Budget profit and loss account.
3. Revenue budget.
35
In addition, seperate budgets for revenue activities other than operation for
research and development consultancy contracts etc.
The expenses respect of developmental expenditure for improvements additions

replacement, renuals, balancing facilities etc. arc of capital nature and will be budgeted
for in the construction budget of budgetary control system-construction pairs.
To facilitate management control the system also investigates, phasing of these

budgets into monthly targets.the actual performance then will be reasons for variation s
will be analyzed and established for taking corrective remidial actions.
STAGES IN THE FORMULATION OF PERFORMANCE BUDGET:
The system provides for a two stages formulation for performance budget operation
the stages are given below:
INITIAL PROPOSAL:
In the initial proposal the project is required to indicate yearly targets. In the
addition to furnishing basic information like synchronyzatio and commercial generation
dates.
Contraints and coal opeartion at less than the designed specification calorific value
of raw material and limestone,material consumptions.In physical terms for items whose
consumption value in Rs.5 lakhs or more planned shutdown for a maintainance and
overhauling and norms for serious operating parameters provided for designs
speciications and in the tariff agreements to the corporate budget committee.
In the initial proposals is planned to be submitted after considering else factors and
keeping in view the perspective plan of the organization,as well as norms for various
operating parameters.These targets and terms are then communicated to all stations and
transmissions line offices of the last week of july to be used for formulating detalied
budget in the final proposal.
36
FINAL PROPOSAL:
Budgeted balance sheet.budgeted profit and loss account and budgets in the form
of cash budget along with the final proposal will consist of detailed suppoeting schedules
for each of the investment centre/cost centre.This final proposal needs to be submitted to
corporate centre with in three weeks of receving approval for initial proposal.
The final proposal, after approval by board, will become the basis of monitoring
performance for cost centers and investment centers.
The frequency and extent review and monitoring will be done is under:
1.The monitoring of actual performance against budgeted target for investment

center/profit center on monthly basis and for cost centers on quarterly for
remedial/corrective action.
2. The review of performance budget on quarterly basis to assess the anticipated

profitability.
The first step in the preparation of performance budget, O&M is formulation of

maintainance and overhauling schedules for boiler and TO with generation, then
considering the grid demand, the availability or inputs and factory problems, if any the
utilization of capacity will be worked out on month-month basis for the budget period the
gross generation targets can be worked and accordingly.
NET GENERATION:
The sales value will be determined from quantum of net generation [i.e., grass
generation aux. consumption].
AUXILLARY CONSUMPTION / CONSUMPTION BY UTILITIES:
37
The cement consumption by each of the cost centres for individual unit
auxiliaries,station auxiliares as well as transformer losess are to be estimated seperately
based on designed specification and added in order to work out total auxiliary
consumption rather than fixing overall percentage similarly consumption by utilities will
also need to be indicated by concerned cost centres like township and construction
department this will be valued at cost net generation to arrive at the sales values for owns
consumption.
CHEMICAL CONSUMPTION:
The chemicals are used by many cost centres by many cost centres for treatment of
water.The consumption of chemicals will be co-related with volume of water certain
norms will have to be developed for different type of chemicals and different type of
treatment.
Based on these norms each of the cost centers will indicate consumptions of
chemicals in quantitative as well as financial terms the most centre wise requirement will
be consolidated to arrive at total chemicals consumption to be charged to profit and loss
account.
EMPLOYEE COST:
The basis of employee cost will be the approved manpower budget effective of
respective years of budget period. The estimation of employee cost is to be done for each
grade considering mid-point as the scale as basis pay and after reading various allowances
like "D.A., H.R.A., C.C.A" project allowance etc. admissible in respective grades. This is
to be worked 49 out or each of the budget period based on existing strength (at the time of
estimation) in each grade and additions during each quarter (taking 70% satisfaction for
additions).
38
The provisions of LTC medical reimbursement, PF and other welfare expenses in
previous years are taken into account policies changes, if any the details of welfare
expenses like liveries and uniforms, safety expenses, accident compensation, games &
sports, canteen subsidy etc. are to list out as per chart of account the provisions for
incentive, bonus and payments of one time nature are to be shown separately based on
total employee cost for executives, supervisors and non-supervisors and total man power
in these categories ,separates of cost per employee will be worked out for each of theses
categories as under.
1. Salaries and allowance
2. Contribution of PF and other funds
3. Welfare expenses
The cost centre of employee cost will be worked out based on these rates
separately for theses executives, supervisors and non-supervisors. This will again be
consolidated separately for operations, maintenance and common [service] function. The
employee cost of common functions will be appropriated between construction and O&M
budgets in ratio of capital expenditure and sales during respective years.
REPAIRS & MAINTAINENCE:
In line, with costing system following three activities can represent major
classification of repairs and maintenance.
1. Major overhaul
2. Preventive maintenance
3. Breakdown maintenance
39
Normally, budgeting will be done for the former two; under each activity separate
estimates will be prepared for consumption of materials and maintenance jobs. This
estimation will be done at ach of sub cost centre wise details are required to be
mentioned.
The consumption material for repairs and maintenance will be classified into
spares, lubricant loose tools and plants, consumables and others. The cost centre totals
separately for three activities will be added to arrive at summary of material consumption
and maintenance jobs, which will be reflected in the profile & loss account.
The material consumption, especially of spares, can be estimated based on the

expected life of various components/spares in the installed equipment the frequency of
breakdowns in the past and the requirement for preventive maintenance and major
overhauls. The actual life of components may be different from that indicated in the
manufacturer's specification. Therefore, it is very difficult to estimate requirements of
spares. But this estimation will become gradually accurate as more experience is gained.
For new stations it will be advisable to collect such information from old stations that
have gained experience in this field.
Normally, maintenance of equipment through contractors should be avoided. But

in certain areas, if the expertise and in house capability or sufficient man power is not
available, maintenance jobs can be got done through contractors. Such contracts will
need to be listed out separately .If owner supply items are covered in such contracts the
cost of theses items will be included in the material cost.
FACTORY & GENERAL OVERHEADS:
All the items of an expenditures under this head will be estimated based on past
trend with due adjustment for policy changes. The estimates will be given by cost centre
needs for items identified with respective cost centers. The total administrative cost of
service cost centers will be allocated between construction and O&M in the ratio of
capital expenditure and sales during respective years.
40
DEPRECIATION:
This is to be charged as per ES act from the year following the year in which
assets have been capitalized value and, rates of depreciation furnished by the site finance
and account for different categories of assets. Cost centre-wise depreciation will be added
to arrive at total deprecation for the investment centre.
INTEREST ON FIXED CAPITAL:
As per existing accounting policy, the interest is to be charged to profit & loss
account based on the loan content in the capitalized assets restricted to total accrued
interests on actual loans.
For budgeting purposes, interest will be worked on equated loan content or

equated loan which ever is less.
41
CHAPTER-III
PROFILE OF THE ORGANIZATION
42
PROFILE OF THE INDUSTRY:
The 85-year –old Indian cement industry is one of the cardinal and basic
infrastructure industries which enjoys core sector status and played crucial role in the
economic development and growth of a country. Being a core sector this industry was
subject to price and distribution controls almost uninterruptedly from world war-II.
When government of India announced the partial decontrol manufacturing cement
became increasingly attractive and the industry experienced substantial expansion. As the
supply in response to the 1982 partial decontrol was significant in March 1989, price
and distribution control were finally dispensed with .It was one of the first Major
industries in the country to be so deregulated.
OVERVIEW OF THE INDUSTRY:
The word cement means any substance applied for sticking things. But cement is
most vital and important material for modem construction as a binding agent .In the
ancient times ,clay ,bricks and stones have been used for construction work.
The Romans were using a binding or a cementing material that would harden
under water. The first systematic effort was made by SMEATION who under took the
erection of a new lighthouse in 1756.he observed that the production Obtained by burning
limestone was the best cementing material for work under water.
After eighty years branch chemist produced hydraulic cement by

burning finely ground delay used in the form of paste .cement invented by
JOSEPH ASPDIN in 1824. Since hardened Cement paste resembled Portland
stone found in England be named it a s Portland cement A name that has ensured
even Portland cement was list manufactured in USA in 1975 In Portland cement was
produced for the rust time in 1940. By south India industries limited Madras.
This unit had capacity of 30 tonnes per day.
43
By 1913 however three units started their operations with a combined
installed capacity Of 75000 tonnes per annum. In 1914 indigenous production
fees for short of domestic demand necessitating an import of 1,65,723
tones .Shipment difficulties and foreign Trade during the first world war
acted as a catalyst for the development of indigenous Industry and by
1924 the total installed capacity grew to 5,59,800 tones per annum.
In 1963 all the cement companies with the exception of SONE VALLEY PORTLAND
CEMENT COMPANY LIMITED merged to form the ASSOCIATED CEMENT
COMPANIES LIMITED. This has more facilitated a cost reduction as well
as uniformly in quality. By 1947 the installed capacity of the industry
raised to 2.2million tones per annum. After partition 5 of the cement
producing units in the country went to Pakistan And total installed
capacity of 18 units that remained in India was 1.5 million tonnes per Annum .
This is increased to 3.8million tones by 1950-51. In the three decades
between 1950-1980 the capacity expansion was between 7-8 million tonnes
per decade the target set in respect of additional capacity generation was
released with impetus given by the partial decontrol announced in 1982.
Several units locked up project for expansion of capacity and modernization
which contributed towards increased production.
DEFINITION OF CEMENT:
Cement may is defined as a mixture of calcium sulfate and aluminates which

have the property of setting and hardening under water .The amount of silica
which is present on each crust are sufficient to combine with calcium oxide to
form the corresponding calcium silicate and aluminates
CLASSIFICATION OF CEMENT:
Cement is of 3 types
1. Puzzolantic cement
2. Nature cement and
3. Portland cement
44
PUZZOLANTIC CEMENT:
It consists of mixture of silicate of calcium and aluminum .it shows the hydraulic
properties when it is in the form of powder and being mixed with suitable proportions
of suitable Proportion of lime
The rate of hardening is much slower and the comprehensive strength developed is
about half of Portland cement .it is found more resistant to the chemical action than
others.
NATURAL CEMENT:
This is nature occurring material it is obtained from cement rocks these cement
rocks are claying lime stones containing silicates and aluminates of calcium
the Selling property of this cement is more than the Portland cement but the
comprehensive is half of it.
PORTLAND CEMENT:
This is of various kinds

1. ordinary Portland cement
2. rapid hardening Portland cement
3. low heat cement
4. white colored cement
5. water proof Portland cement
6. Portland slang cement
7. port land puzzling cement
8. sulfate resisting
45
INDIAN CEMENT INDUSTRY PRESENT STATUS
After the dealing of the industry in July 1991 it reacted positively to the
policy changes new capacities created and the volume of production increased
from a situation of importing cement the country started exploring
due to high quality and cost effectiveness after liberalization the black
market in cement also disappeared currently India stands second largest
in the cement production worldwide after china on the other hand per capita
consumption in India is only books as compared To the world average of
260kgs the industry has S9 companies owning 11S plants in the matters
of exports the government considers cement as a extreme Focus area
.however Indian cement in the global market is not very competitive
Due to high power and full costs .in order to improve its position in
the international market technological up gradation is essential in terms
of process Product diversification cost reduction quality control and energy
saying.
ABOUT THE INDUSTRY

This chapter examines a profile of cement industries ltd. i.e. .its history location
organization structures etc.
LOCATION
Kesoram cement industry is one of the leading manufacturer of
cement in India it is a day process cement plant the plant capacity is
8.25 lakh tones per annum .it is located at basantnagar in karimnagar
district of Andhra Pradesh Basantnagar is 8km away from the
Ramagundam railway station linking madras to new Delhi. The chairman
of the company is syt.B.K.Birla.
46
HISTORY
The first unit at Basantnagar with a capacity or 2.1 lakh tons per annum incorresponding
suspension-preheated system was commissioned during the year of 1969 the second unit
Was setup in year 1971 with a capacity of 2.1 tons per annum and the third unit with a
capacity of 2.5lakh tons per annum went on stream in the year 1978 the coal
for this company is being supplied iron singareni collories and the power is
obtained from
APSEB the power demand for the factory is about 21MW kesoram has got 2DG sets
of 4MW each installed in the year 1987.
Kesoram Cement as set up a 15kw capacity power plant to facilitate for

unintellpted power supply for manufacturing of cement starts at 24 august 2008 per hour
12 mw, actual power is 15mw.
Birla supreme in popular brand of kesoram cement from its prestigious plant
of Basantnagar in A.P which has outstanding track record in performance and
productivity serving the nation for the last two and had decades It distinction
by Bagging several national awards .It also has the distinction optimum capacity
utilization.
Kesoram offers a choice of top quality portioned cement for light heavy
constructions and allied applications quality is built every fact of the operations.
The plant layout is rational to begin with the limestone is rich in calcium carbonate a
key factor that influence the quality of final product the day process technology
used in the latest computerized monitoring overseas the manufacturing process
samples are sent regularly to the bureau of Indian standards national council of
constructions and Building material for certification of derived quality norms
The company has vigorously undertaking different promotional measures

their product through different media which includes the use of newspapers
,magazines ,hoardings etc
47
Kesoram cement industry distinguished itself among all the cement factories in India
by bagging the national productivity award consecutively for two years and the
year 1985 -1987.the federation of Andhra Pradesh chamber of commerce and
industries also conferred kesoram cement an award for the best Industrial
promotion expansion efforts in the year 1981.kesoram also bagged FAPCCI
Awarded for “best family planning effort in the state “ for the year 1987-1988.
One among the industrial giants in the country today serving the nation on
the industrial front kesoram industrials Ltd has a cheque red and eventful history
dating Back to the twenties when only a textile mill under its banner 1924 it
grew from Strength to spread and activities 10 newer fields like Rayan pulp
Transport paper spun pipes refractivites tyres and other products
Looking to the wide gap between the demand and supply of a vital commonly cement
Which plays UI important role in national building activity the government of
India had de-licensed the cement industry in the year 1966 with a view to attract
private entrepreneurs to augment the cement industry production kesoram rose to the
occasion And divided to setup a few cement plants in the country
Kesoram cement undertaking marketing activities extensively in the states of Andhra

Pradesh, Karnataka, Tamilnadu, kerala, Maharastraha, and Gujrat. In AP sales
depots are located in different areas like karimnagar Warangal Nizambad
Vijayawada and Nellore In other states it has opened around 10 depots.
THE AWARDS WON ARE
Kesoram cement bagged prestigious awards like national awards for productivity
and technology and conservation and several state awards for year 1984 kesoram
cement is best family planning effort in the federation of Andhra Pradesh chamber of
commerce And industry and also national award for two successive years 1985-
86&1986-87.It has also bagged the national award for energy efficiency for the year
1989-90 for the performance among all cement plants in India .thus award stall-by
national council
48
For cement and building material in association with the government of India.
Kesoram bagged the prestigious Andhra Pradesh state productivity award in 1987-1989
also Annexed state award for industrial management in 1988-1989.and also “Best
Industrial promotion expansion efforts “ in the state and yajamanya ratna and best
efforts an industrial unit in the state to develop rural economy was bagged for its
contribution towards the year 1991.
it also bagged the “may day award” of the government of India For the best
management and the Pandit Jawaharlal Nehru silver rolling trophy for the industrial
productivity effort in the state of Andhra Pradesh by FAPCCI and also the Indira
Gandhi memorial national award of the government of Andhra Pradesh for the year
1993.
During the last 3 years the government of Andhra Pradesh has given the following
awards Best awards for the year 1994.
Best industrial relation award for 1994.
To keep the ecological balance they have also undertaken massive tree plantation in the
economy and government of India has nominated township areas and them for
VRIKSHMITHRA award Best effort of an industrial unit in March 1996.
In the year March 2008 “Best management award 2008” for the best management
practices in kesoram cement presented by chief minister.
49
CEMENT PRODUCTION WORLDWIDE
Country 1981 1983 1986 1989 1990 World ranking
CHINA 83 108 106 210 210 1
JAPAN 88 85 73 82 87 2
USA 65 61 71 70 72 3
INDIA 21 25 36 45 48 4
ITALY 43 40 36 4 41 5
GERMANY 30 28 24 27 40 6
Today in the cement industry is producing 58.3 million tonnes per annum indication
surplus conditions while its demand is 56.7 million tones lies per annum Now The
cement market has become ‘buyer market’ which was
A ‘selling market’ till 1970’s and so the quality &brand taken an upper edge for cement
marketing.
Today installed at the India cement industry is 771lakh tones But in India
106 Major plants are producing 583lakh tones leaving the balance for exports.
50
INDIA’S LARGEST CEMENT COMPANIES POST ACQUISITION
Company Cement capacity Cement % of

In TPA Sales
Larsen& turbo 12.0 20
ACC 11.3 93
GRASIM 9.7 28
INDIAN CEMENT 6.6 92
GUJRATHI AMBHUJA 6.5 100
WEAKNESSES:
 The per capita consumption of the cement in India is very low
 The transport costs in India are very high
 The cement industry is facing with acute power shortage and raw material
problem
 The industry is also facing major packaging problems
OPPORTUNITIES:
 The industry has tremendous potential for growth in India
 In near future cement is going to replace tar for the construction of roads
 There are good prospects for export with cement export promotion
council
 The government polices of reduction in excise duty and exempting

cement from the just packaging may act as boon to the industry
51
THREATS:
 The surplus levels are increasing as the production of the cement is much greater
than the consumption.
 In the present scenario of stiff competition there is a declining trend of price
 The performance of the smaller unit is badly hit by major takeovers
 The crisis situation in south east Asian countries may create problem to the
exports of the industry.
52
CHAPTER-IV
DATA ANALYSIS AND

INTERPRETATION
53
Kesoram Industries Limited
Revenue Budget (2011-12)
Table-I
No Particulars Budget Estimated Actual Amount variance
Amount(Rs. Crores) (Rs. Crores)
Sales
1 Fixed and 689 599 90
recovery
2 Variable cost 745 652 93
recovery
3 Fuel price 784 823 -39
adjustment
recovery
4 Own 116 128 -12
consumption
5 Total of (1…4) 2334 2202 132
6 Average 98 91 7
intensives
7 Other income 51 43 8
Grand 2483 2336 147
total(5+6+7)
INTERPRETATION:
The data pertaining to the generation and consumption of cement at kesoram
Industries Limited have been obtained from the year 2011-12 and presented in Table-
1.The aspect included are total generation of cement in (cores Rs) and utilization for
auxiliary consumption, raw material consumption and line store respectively.
During the year 2011-12 the sales, fixed cost, variable cost, fuel price,
consumption was decreased. Sales decreased by 132 crores to the estimated budget.
During the year 2011-12 the average intensives are decreased by 7 crores,there
income also decreased by 8 crores respectively.
Finally, with regard to the result in revenue budget of kesoram cement industries
limited, totally decreased by 147 crores in the year 2011-12 respectively.
54
Kesoram Industries Limited Operational expenditure budget
For the year 2011-12
Table-II
Sino Particulars Budget Actual Amount Variance
Estimated Amount (Rs. Crores)
(Rs. Crores)
Variable cost
1 Raw material 400 423 23
2 Lime stone 430 450 20
3 Total of (1,2) 830 873 43
Operative
maintained
cost
4 Chemicals and 120 140 20
water
5 Repairs & 240 275 35
maintenance
6 Employee cost 290 335 45
7 Stationary & 55 70 15
general
expenses
8 Rebate 10 12 2
9 Share of 8 10 2
operating
expenses
10 Total of(4..9) 723 842 119
Finance
charges
11 Deprecation 38 11 -27
12 Interest on 18 20 2
fixed capital
13 Totalof-3 56 31 -25
Gland total 1609 1746 137
(3+10+13)
55
INTERPRETATION:
Observed from the above table that the "Operational Expenditure Budget" of
kesoram cement industries Limited in the year 2011-12.
In the year 2011-12 variable cost components, Raw material consumption 23

crores increased and the lime stone consumption 20 crores also increased.
In operating & maintain aces cost components, chemicals & water, repair &
maintenance, employee cost, stationary & general expenses rebate and share of other
expenses in all are fluctuating expenses of the year 2011-12.how ever the total
operating maintenance costs are 119 crores increasing respectively.
In finance charges depreciation and interest on fixed capital, has been

included, the total finance charges recording decreasing 25 crores in the year 2011-12
respectively.
56
Table-I
No Particulars Budget Actual Amount variance
Estimated (Rs. Crores)
Amount
(Rs. Crores)
Sales
1 Fixed and 689 617 72
recovery
recovery
3 Fuel price 815 856 -41
adjustment
recovery
4 Own 110 132 -22
consumption
5 Total of 2443 2340 103
(1…4)
6 Average 93 86 7
intensives
8 Grand 2585 2464 121
total(5+6+7)
INTERPRETATION:
1.The aspect included are total generation of cement in(cores Rs) and utilization for
consumption was decreased. sales consumption is deceased by 103 crores respectively.
During the year 2012-13 the average intensives are decreased by 7 crores and their
income also decreased 11 crores respectively.
57
Table-II
Sl.no Particulars Budget Actual variance
Estimated Amount
Amount (Rs. Crores)
(Rs. Crores)
Variable cost
2 Lime stone 420 465 45
3 Total of(1,2) 839 914 75
Operative maintained
cost
4 Chemicals and water 121 148 27
5 Repairs & maintenance 232 289 57
7 Stationary & general 59 77 18

expenses
8 Rebate 11 13 2
9 Share of operating 8 10 2
expenses
10 Total of(4..9) 745 885 140

Finance charges
12 Interest on fixed capital 18 20 2
13 Totalof(11,12) 56 34 -22
Gland total (3+10+13) 1640 1833 193
INTERPRETATION:
58
Observed from the above table that the "Operational Expenditure Budget" of

maintainance,employee cost, stationary & general expenses rebate and share of other
operating maintenance costs are 140crores increasing respectively.

included, the total finance charges decreasing by 22 crores in the year 2012-13
respectively.

59
Table-I
No Particulars Budget Actual Amount Variance
Estimated (Rs. Crores)
Amount
(Rs. Crores)
Sales
1 Fixed and 721 611 110
recovery
recovery
3 Fuel price 810 823 -13
adjustment
recovery
4 Own 121 131 -10
consumption
5 Total of (1…4) 2467 2294 173
6 Average 97 92 5
intensive
8 Grand 2617 2434 183
total(5+6+7)
INTERPRETATION:
consumption was decreased. sales consumption is decreased by 173 crores respectively.
During the year 2013-14 the average intensives are decreased by 5 crores and there

Table-II
60
Sl.no Particulars Budget Actual Amount Variance
Estimated Amount (Rs. Crores)
(Rs. Crores)
Variable cost

2 Lime stone 442 465 23
3 Total o(1,2) 860 910 50
Operative
maintained cost

water
5 Repairs & 265 296 31
maintenance
general expenses
8 Rebate 11 13 2
9 Share of 7 10 3
operating
expenses
10 Total of(4…9) 790 897 107
Finance charges
12 Interest on fixed 17 19 2
capital
13 Total of (11,12) 58 34 -24
(3+10+13)
INTERPRETATION:
61
observed from the above table that the "Operational Expenditure Budget" of

maintenance, employee cost, stationary & general expenses rebate and share of other
operating maintenance costs are increasing by 107 crores respectively.

included, the total finance charges recording decreasing by 24 crores in the year 2013-
14 respectively.
Finally with regard to the operational expenditure budget of kesoram cement

industries limited the total profit has increased by 133 crores during the year 2013-
14.
The overall budgets results of kesoram cement is industries limited is earning

more profits.
` `
62
Table-I
No Particulars Budget Actual Variance
Estimated Amount(Rs.
Amount(Rs. Crores)
Crores)
Sales
1 Fixed and recovery 724 618 106
recovery
3 Fuel price 820 863 -43
adjustment
recovery
4 Own consumption 132 148 -16
5 Total of (1…4) 2516 2369 147
6 Average 102 98 4
intensives
8 Grand 2674 2516 158
total(5+6+7)
INTERPRETATION:
consumption was decreased. Sales consumption is decreased by 147 crores respectively.
During the year 2014-15 the average intensives are decreased by 4 crores and ,their
Finally, with regard to the result in revenue budget of kesoram cement** industries

Table-II
63
Sino Particulars Budget Actual Amount(Rs. variance
Estimated Crores)
Amount(Rs.
Crores)
Variable cost

2 Lime stone 450 470 20
3 Total of (1,2) 870 920 50
Operative
maintained cost
water
5 Repairs & 280 300 20
maintenance
general expenses
8 Rebate 11 13 2
9 Share of operating 8 10 2
expenses
10 Total of(4...9) 814 903 89
Finance charges
12 Interest on fixed 18 20 2
capital
13 Total of (11,12) 60 35 -25
(3+10+13)
INTERPRETATION:
64
observed from the above table that the "Operational Expenditure Budget" of

maintainance,employee cost, stationary & general expenses rebate and share of other
operating maintenance costs are 89 crores increasing respectively.

included, the total finance charges recording decreasing by 25 crores in the year 2014-
15 respectively.
Finally with regard to the operational expenditure budget of kesoram cement

industries limited the total profit has increased by 114 crores during the year 2014-15.
The overall budget results of kesoram cement is industries limited is earning

more profits.
65
CHARTS
SALES
66
2011-12 2012-13 2013-14 2014-15
BE 2334 2443 2467 2516
ACT 2202 2340 2294 2369
AVERAGE INTENSIVES
67
2011-12 2012-13 2013-14 2014-15
BE 98 93 97 102
ACT 91 86 92 98
OTHER INCOME
68
2011-12 2012-13 2013-14 2014-15
BE 51 49 53 56
ACT 43 38 48 49
VARIABLE COST
69
2011-12 2012-13 2013-14 2014-15
BE 830 839 860 870
ACT 873 914 910 920
OPERATIVE MAINTAINED COST
70
2011-12 2012-13 2013-14 2014-15
BE 723 745 790 814
ACT 842 885 897 903
FINANCE CHARGES
71
2011-12 2012-13 2013-14 2014-15
BE 56 56 58 60
ACT 31 34 34 35
72
CHAPTER-V
FINDINGS & SUGGESTIONS
FINDINGS
73
a. Every organization has predetermined set of objectives and goals, but reaching
their objectives and goals by proper planning and executing of these plans
economically.
b. The kesoram cement industries Limited objectives of planning and organizing

promoting an integrated development of Cement Company.
c. The corporation machine of kesoram cement industries is to make available and

quickly cement in increasingly small quantities, the company will spear head the
process of accelerated development of cement sector by expeditiously.
d. The organization needs the capable personalities as management makes the plans
and implement of these plans are expressed in terms of budget and budgetary
control.
e. The kesoram Cement Industries Limited has budget process in two stages. one is
the capital expenditure budget and another is operating maintenance budget, the
capital expenditure budget shows the list of capital projects selected for
investment along with their estimated costs, operating maintenance budgets, the
medical budgets are rarely used in the organization like long term budgets, search
& development budget for consultancy.
f. The Kesoram cement industries is to make efficient utilization of its resources and
implementation of sophisticated technology to produce available and quality
cement and also creating ambience of collective working of its employees.
SUGGESTIONS & CONCLUSION
74
Planning has become the primary function of management most of the planning
Relates to individual situations and individual proposals. Budgets are nothing but
Expressions largely in financial terms, budgetary control has, therefore become and
essential Tool of management for controlling and maximizing profits.
a. The company should have clear objectives and how they can be achieved
through budgetary control.
b. Follow Time-tables for all stages of budgeting follows.
c. Reports, statements, forms and other record to be maintained.
d. Continuous comparison of actual performance with budgeted performance.
75
BIBLIOGRAPHY
BIBLIOGRAPHY
 FINANCIAL ACCOUNTING
76
- RP TRIVEDI
 FINANCIAL MANAGEMENT
- I.M.PANDEY
 8TH ANNUAL REPORT OF KESORAM CEMENT INDUSTRIES

LIMITED
 FUNDAMENTALS OF FINANCIAL MANAGEMENT
- PRASANNA CHANDRA
 DETAILED PROJECT REPORT OF KESORAM CEMENT

INDUSTRIES LIMITED
WEBSITES:
o www.google.com
o www.kesoramcements.com
77

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CHAPTER-I

NEED FOR BUDGETS

The rationales for budgets have five aspects:

1. Authorization: The budget is used to authorize the expenditure and activities

WHY COMPARE ACTUAL AND BUDGET?

THIS PROCESS IS ONLY WOTHEWHILE IF THE BUGET IS REALISTIC.

WHAT CAUSES BUDGET VARIANCES?

Each of these will be examined in turn.

It is perfectly to have an error in the budget. This includes errors of commission or

4) Differences between budget assumptions and actual outcome

AVOID: “We are under budget, who can we blame?”

HOW ARE VARIANCES CALCULATED

PARTCULARS BUDGET TOTAL

SALES VOLUME 100 90

SALES VALUE 1000 990

VARIABLE COSTS 500 495

FIXED COSTS 200 210

PROFIT 300 285

PROPER VARIANCE ANALYSIS

FLEXING THE BUDGET

Now the other variance can be calculated.

ANALYSING THE VARIANCES

The variable costs require further investigation.

SUMMARISING THE VARIANCES

SALES VOLUME (50)

IDENTIFING THE CAUSES

THE STUDY HAS THE FOLLOWING:

 From the concerned officers of the Kesoram Cement Industries Limited

METHODOLOGY OF THE STUDY:

 The study is based on the both primary and secondary data

INTRODUCTION TO BUDGET AND BUDGETARY

It is a financial and quantitative statement prepared and approved or to a defined

In other words it is a pre-defined detailed plan of action development distributed as a

ESSENTIALS OF GOOD BUDGET:

1. it is prepared prior to a defined period of time

MEANING OF BUDGETARY CONTROL:

It is the process of establishing of departmental budget relating the responsibilities

ESSENTIALS OF BUDGETARY CONTROL:

OBJECTIVITIES OF BUDGETARY CONTROL:

The primary objective of budgetary controls to help the management in

3. CONTROLS AND PERFORMANCE EVALUTION:

BUDGETING AND BUDGETARY CONTROL:

A budget is a blue print of a plan expressed in a quantitative terms

ESSENTIALS OF BUDGETARY CONTROL

The proper organization is essential for the successful preparation

The chief executive is the overall in the charge of budgetary system he

The budget officer works as a coordinator among different departments he

 The nature of demand for the products

 To decide the general polices and guidelines

CONTINUOUS BUDGETING SYSTEM:

A continuous budgeting system is a method of having two different budget periods

DETERMINATION OF KEY FACTOR:

REQUISITES FOR A SUCCESSFUL BUDGETARY CONTROL SYSTEM.

2. PROPER DELEGATION OF AUTHORITY AND RESPONSIBILITIES.

3. PROPER COMMUNICATIONS SYSTEM.

An effective system of communication is required for a successful budgetary control. The

Flexibility in budgets is required to make them suitable under changed

Budgets are too implemented by human beings. Their successful implementation

LONG TERM BUDGETS:

SHORT TERM BUDGETS.

CLASSIFICATION OF BUDGETS ACCORDING TO CONTENT:

A) BUDGETS IN PHYSICAL TERMS: