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CHAPTER 1 INTRODUCTION OF THE COMPANY

INTRODUCTION
The NVS GARMENT is one of the leading Indian Companies in the field of cotton gauze fabrics with an initial total turnover of USD 20,000/- when the firm stepped into the export market during the year 1998 and has increased up to 10 million US Dollars in the year 2007-08. The group was originally established in 1990 with four employees catering to domestic market and to the government institutions. The continuing confidence and support shown by reputable overseas buyers gives further credibility to the corporate image. Now the group has more than 1000 employees.

Special features...
Quality is remembered always. It is recognized as a Golden Trading House by the Government of India and the first ISO 9001: 2000 certified firm in India in the gauze cloth line for export of carded cotton yarn, cotton grey gauze cloth, cotton bleached gauze cloth, gauze swabs and cotton sheeting fabrics etc. Now the firm's products are well exported to Italy, Germany, France, United Kingdom, Belgium, The Netherlands, Greece, Hungary, Czech and Slovakia Republic, Spain, Portugal, Mexico, U.S.A, Brazil, Argentina, Tunisia, Norway, Sweden, South Africa, Lebanon, South Korea and Japan.

NAME OF PRODUCTS

Carded Cotton Yarn, Cotton Grey Gauze Cloth 80 cm Width to 160 cm width in different constructions, Cotton Bleached Cloth in various Constructions Grey / Dyed Sheeting from sulzer Projectile,

QUALITY POLICY OF THE NVS GARNENTS:

NVS GARMENT QUALITY POLICY

We, at NVS GARMENTS to meet both internal and external customer expectations through, Consistent quality Customer satisfaction Continual improvement

GARMENTS PRODUCTS EXPORTED

LENO GAUZE

CUT GAUZE

FOUR FOLD GAUZE

GAUZE SWAB WITH X RAY

LAP SPONGES

GAUZE ROLLS

EXPORT PERFORMANCE OF THE TEXTILES SECTOR

2006-07 COUNTRIES TEXTILE EXPORTS Value USA U.A.E AFGHANISTAN U.K GERMANY ITALY CHINA NETHERLANDS INDIA BANGLADESH SOUTH AFRICA CANADA OTHER COUNTRIES TOTAL 4,192,725 1,312,757 1,063,463 894,321 687,368 585,285 463,919 399,034 293,310 268,481 260,610 208,999 3,054,486 16,451,177 % of Total 25 8 6 5 4 19 15 13 10 9 9 7 19 217 2007-08 TEXTILE EXPORTS Value 3,446,593 1,095,485 747,722 893,480 688,588 588,332 354,092 345,049 288,134 205,821 196,755 194,046 2,824,229 14,391,081 % of Total 24 8 5 6 5 21 13 12 10 7 7 7 20 214

ACCOUNTS DEPARTMENT
There are three basic functions of Accounts Department viz. Accounting, Finance and Payment a) Keeping the books of accounts in accordance with the rules, b) Internal check of transactions affecting the receipts and expenditure, c) Prompt settlement of proper claims against the railway.

Finance: -

a) Tendering advice to the administration in all matters involving railway finance, b) Compilation and control of budget (including exchequer) in consultation with the other departments, c) Ensuring no financial irregularity in the transactions

WHAT WE DO BUSINESS Business is simple yet greatly visible with: Difference in approach Distinction in Quality Delineation in essence & content Dispelling certain imbalances & disparities. Demarcation in area Centric focus Dissemination of sphere of Ideas, thoughts with no boundaries

GENERAL INTRODUCTION TEXTILE INDUSTRY

Textiles are important for everyone. It is used for covering body, for warmth or coolness, personality enhancement and sometimes to display one's status in the society. From the wholesale textile manufacturer and merchant to the retailer and the end- user, the customer, everyone consumes textile. Not only those who are in this direct trade are related to this product but there are certain industries which are indirectly associated with textile. Automobile industry is a good example of this type of industry which uses textile in various forms. Others who use textile in one or the other form may include designers, interior decorators, craftsperson, advertisers using hoardings and banners, painters etc.

WEAVING
Yarns made from natural Weaving is a major process of making fabric or cloth . In it, two distinct sets of yarns called the warp and the filling or weft are interlaced with each other to form a fabric. Yarn is a long continuous length of interlocked fibres. The lengthwise yarns which run from the back to the front of the loom are called the warp. The crosswise yarns are the filling or weft. A loom is a device for holding the warp threads fibres like cotton, silk, and wool and synthetic fibbers such as nylon and Orlon are commonly used for weaving textile. But other fibres can also be used for weaving. Yarn intended for the warp goes through operations such as spooling, warping and slashing to prepare them to withstand the strain of the weaving process.

Fig-1 weaving Weaving operations Four major operations are involved in weaving- Shedding, Picking, Beating up (Battening) and Taking up and letting off. As the warp is raised, the filling yarn is inserted through the shed by a carrier device. Different types of looms are used for carrying the filling yarn through the shed- Shuttle loom, shuttle less looms, circular looms etc.

Beating up (Battening) With each picking operation, the reed pushes or beats each filling yarn against the portion of the fabric that has already been formed. Reed is a comb like structure attached to the looms. It gives the fabric a firm, compact construction.

Taking

up

and

letting

off

With each shedding, Picking, Battening operation, the new fabric must be wound on the cloth beam which is called 'taking up'. At the same time, the warp yarns must be released from the warp beam which is called l 'letting off'.

As the shuttle moves back and forth across the width of the shed, a self edge is woven which is called selvage or selvedge. The selvage prevents the fabric from muddling. It is usually more compact and strong than the rest of the fabric. There are different kinds of selvages depending upon the expected use of the fabric- Plain Selvages, Tape Selvages, Split Selvages, Fused Selvages, Leno Selvages and Tucked Selvages.

KNITTING
After weaving, the most prevalent method of fabric construction is knitting. Its popularity has grown tremendously over the recent years. Today, knitting is a very big industry which has two main divisions. One division manufactures knitted goods for apparel production, sewing centres, consumers and others. The other division manufactures finished apparel such as hosiery, sweaters and underwear.

Fig-2 knitting
The knitted fabric has the advantage of stretchability which provides fit and comfort. It also gives warmth. At the same time, they are porous and provide breathing comfort. It is light in weight and wrinkle- resistant. However, certain specialized techniques like Pak- nit or Perm sized have to be used so that it may not shrink too much. Also, care should be taken so that not a single loop breaks. If even one loop breaks, a hole is made and it starts running. This disadvantage can be eliminated by variation in the stitch that protects the fabric from ravelling. The kind and quality of the needle also affect the quality of the knitted fabric. Different kinds of needles are used in knitting latch needle, spring- beard needle, compounded. There are two major varieties of knitting: weft knitting and warp knitting. In weft knitting, one continuous yarn forms courses across the fabric. In warp knitting, a series of yarns form wales in the lengthwise direction of the fabric. The knitting machine also called knitting frame, knitting loom, or hand knitting machine, is used to manufacture knit fabrics. These fabrics are produced on a fixed bed of hooked needles. The Knitting machines can be hand driven or motor powered. The machines come in domestic and industrial models, with either flat or circular beds that produce rectangular or tubular fabrics. The fabric produced by a knitting machine has a more fine texture than hand-knitted fabric.

YARN
Yarn is a long continuous length of interlocked fibres, suitable for use in the production of textiles, sewing, crocheting, knitting, weaving, embroidery and rope making. Thread is a type of yarn intended for sewing by hand or machine. Modern manufactured sewing threads may be finished with wax or other lubricants to withstand the stresses involved in sewing. Embroidery threads are yarns specifically designed for hand or machine embroidery.

Fig-3 S- and Z-twist yarn

Spun yarn is made by twisting or otherwise bonding staple fibres together to make a cohesive thread. Yarns are made up of a number of plies, each ply being a single spun yarn. These single plies of yarn are twisted in the opposite direction (plied) together to make a thicker yarn. Depending on the direction of this final twist, the yarn will be known as s-twist or z-twist. For a single ply, the direction of the final twist is the same as its original twist. Filament yarn consists of filament fibres twisted together. Thicker monofilaments are typically used for industrial purposes rather than fabric production or decoration. Silk is a natural filament, and synthetic filament yarns are used to produce silk-like effects. Texturized yarns are made by a process of air texturizing (sometimes referred to as taslanizing), which combines multiple filament yarns into a yarn with some of the characteristics of spun yarns.

DYEING
Dyeing is the process of imparting colors to a textile material in loose fiber, yarn, cloth or garment form by treatment with a dye

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Fig-4 conventional dyeing

Cotton being dyed manually in contemporary India .

Dye types
For most of the thousands of years in which dyeing has been used by humans to decorate clothing, or fabrics for other uses, the primary source of dye has been nature, with the dyes being extracted from animals or plants. In the last 150 years, man has produced artificial dyes to achieve a broader range of colors, and to render the dyes more stable to resist washing and general use. Different classes of dye are used for different types of fibre and at different stages of the textile production process from loose fibres through yarn and cloth to completed garments. Acrylic fibres are dyed with basic dyes, nylon and protein fibres such as wool and silk are dyed with acid dyes, polyester yarn is dyed with disperse dyes. Cotton is dyed with a range of dye types including vat dyes which are similar to the ancient natural dyes and modern synthetic reactive and direct dyes.

Methods

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Fig-5 dyeing methods

Dyes are applied to textile goods by dyeing from dye solutions and by printing from dye pastes.

Direct application
The term "direct dye application" stems from some dyestuff having to be either fermented as in the case of some natural dye or chemically reduced as in the case of synthetic vat and sulfur dyes before being applied. This renders the dye soluble so that it can be absorbed by the fibre since the insoluble dye has very little substantivity to the fibre. Direct dyes, a class of dyes largely for dyeing cotton, are water soluble and can be applied directly to the fibre from an aqueous solution. Most other classes of synthetic dye, other than vat and sulfur dyes, are also applied in this way. The term may also be applied to dyeing without the use of mordents to fix the dye once it is applied. Mordents were often required to alter the hue and intensity of natural dyes and improve their color fastness. Chromium salts were until recently extensively used in dying wool with synthetic mordant dyes. These were used for economical high color fastness dark shades such as black and navy. Environmental concern has now restricted their use and they have been replaced with reactive and metal complex dyes which need no mordant. There are many forms of yarn dyeing. Common forms are: at package form and at hanks form. Cotton yarns are mostly dyed at package form, and acrylic or wool yarn are dyed at hank form.

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The common dyeing process of cotton yarn with reactive dyes at package form is given below in short: firstly the raw yarn is wound on a spring tube to achieve package suitable for dye penetration. Then, these softened packages are loaded on a dyeing carrier's spindle one on another. The packages are next pressed up to a desired height to achieve suitable density of packing. The carrier is then loaded on the dyeing machine and the yarn is dyed. After dyeing, the packages are unloaded from the carrier into a trolley. Next, all the packages are hydro extracted to remove the maximum amount of water. All the packages are then dried to achieve the final dyed package. At last the dyed yarn packages are packed and delivered.

Removal of dyes
In order to remove natural or unwanted color from material, the opposite process of bleaching is carried out. If things go wrong in the dyeing process the dyer may be forced to remove the dye already applied by a process that normally known as stripping. This normally means destroying the dye with powerful reducing agents (sodium hydrosulphite) or oxidizing agents (Hydrogen peroxide or sodium hypochlorite). The process often risks damaging the substrate (fiber), where possible it is often less risky to dye the material a darker shade, black is often the easiest or last option.

TEXTILE BLEACHING
Textile bleaching is one of the stages in the manufacture of textiles. All raw textile materials, when they are in natural form, are known as 'greige' material. This greige material will be with its natural color, odour and impurities that are not suitable for clothing materials. Not only the natural impurities will remain on the greige material but also the addons that were made during its cultivation, growth and manufacture in the form of pesticides, fungicides, worm killers, sizes, lubricants, etc. The removal of these natural coloring matters and add-ons during the previous state of manufacturing is called bleaching

ACCOUNTS DEPARTMENT

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A businessman likes know the progress the makes in the business. A systematic record of the daily event of the business leading to the presentation of a complete financial picture will help him to have knowledge of the business position. Further, it will help him to know the level of the investment in fixed assets, working capital, fixed expenses etc. Accounts department also plays a vital role in the business by monitoring the income & expenditure by regulating receipt & payment in the financial strength as otherwise of the unit at any time. NVS Garments industries maintain proper accounts by appointing separate skilled accounts. Forever cash and credit transaction they account maintaining separate books of accounts. All the departments like purchase, sales, store etc., the accounts are kept safety in the departments purchasing the material they will receive bills from the industrials and these bills are maintained separately in the books of accounts. They are having proper ledgest, receipts & payments books for personnel expenses. By using all these books, accounts are prepared by the auditor. Under this department bank accounts are maintained directly by the General Manager. This firm having various accounts at the State bank branches. Every business carries on its work based on the accounting procedure. The books maintain by the accounts department.
1. CASH BOOK 2. INVOICE 3. STOCK 4. SALES BOOK 5. PURCHASE BOOK

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CASH BOOK
Cash book is an important book, which is to be maintained by every organization. The cash dealings are entered in this book. Cash book deals the daily cash transaction, where as cash book is dealing cash transaction for the whole year.

INVOICE
Vouchers and invoice are very important for every transaction that acts as the evidential proof can be check only by the invoice recording.

PURCHASE BOOK
The purchase transactions are recorded in this book. Purchase of every material are first recorded in the purchase day book, after the authority signed i.e., of the purchase manager, and then it is entered in the purchase manager, and then it is entered in the purchase book.

SALES BOOK
The sales book is entering the sales transaction at every month, that is taking place, the sales are important for every purchase, so it is entered in sales journal and as well as sales book

FUNCTIONS OF ACCOUNTS DEPARTMENT

Maintaining the records in an orderly manner. Submitting records to the management.

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Checking and passing of bills for payment. Submission of records to the auditors. Making payment of wage of employees. Enter the sales invoice and check the same with the sales department. Making advice to the bankers and customers.

IMPORTANCE AND OBJECTIVES OF ACCOUNTS DEPARTMENT

A. Making decisions concerning the use of limited resources.Including identification of crucial decision are as and determination of objectives and goals. B. Effective directing and controlling the organization of human and material resources. C. Maintaining systematic record and reporting on the custodianship of resources. D. Facilitating special function and control. E. To ascertain whether the business operation have been profitable or not F. To ascertain the financial position of the business.

ORGANISATION CHART OF ACCOUNTS DEPARTMENT

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Accounts Department

Accounts manager

Accounts Officer Clerk

Accounts Manager Accounts Officer Clerk

: : :

Mr.Kalaiyarasan Miss.R.sugunaprabha Miss.Priya

ORGANIZATION CHART OF PURCHASE DEPARTMENT

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PURCHASE DEPARTMENT

PURCHASE MANAGER

PURCHASE OFFICER

STAFF

Purchase manager Assistance Purchase officer Staff

: : : :

Mr. Suresh Miss. Nandhini Mr. Prabhu Mr.Aravind

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ORGANISATION CHART OF PRODUCTION DEPARTMENT

PRODUCTION DEPARTMENT

PRODUCTION MANAGER

PRODUCTION INCHARGE

ASSISTANTS

Production manager Production incharge Assistant

Mr. Suresh

: Mr. Nandhakumar : Mr.Prakash

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ORGANISATION CHART OF PERSONNEL DEPARTMENT Personnel Department

Personnel Manager

Assistant Manager

Staff

Personnel Manager Assistant Manager Staff

: : :

Mr. Silambarasan Miss. Revathi Mr. Ragu

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CHAPTER 2 INTRODUCTION OF THE STUDY BUDGET - A THEORRETICAL VIEW

CONCEPT OF BUDGETING:

Planning has become the primary function of management these days. Most of the planning relates to individual situations and individual proposals. However, this has to be reinforced by overall periodic planning followed by continuous comparison of the actual performance with the planned performance.

A plan expressed in money. It is prepared and approved prior to the budget period and may show income, expenditure and the capital to be employed. May be drawn up showing

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incremental effects on former budgeted or actual figures, or be compiled by Zero-based budgeting. In the business organization, a budget represents an estimate of future cost and revenues. There are two basic classes of budget:

1. Capital Budget ( Projects)

Directed towards proposed expenditure for new projects and often require special financing.

2. Operating Budget
Directed towards achieving short term operational goals of the organization, for instance production or profit goals, in a business firm. They are subdivided into various departmental functional budgets.

Thus, a budget is plan of operations for a definite period in future. It is a quantitative expression, in advance, of policies, plan, objectives and goals of top management for concern as a whole and for its subdivisions. Budget is business barometer because it is a complete programme of activities of the business for the period covered. Budgets are thus the expressions, largely in financial terms, of management's plans. Different types of budgets are prepared by an industrial concern for different purposes.

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Definition of Budget.

"A budget is a financial and/or quantitative statement, prepared and approved prior to a defined period of time, of the policy to be pursued during that period for the purpose of attaining the given objective. It may include income, expenditure and employment of capital." - Institute of Cost and Management Accountant, London.

"Comprehensive and coordinated plan, expressed in financial terms, for the operations and resources of an enterprise for some specified period in the future". - J M Fremgen, - Accounting for Managerial Analysis.

A Budget is a plan that outlines an organization's financial and operational goals. So a budget may be thought of as an action plan; planning a budget helps a business allocate resources, evaluate performance, and formulate plans.

While planning a budget can occur at any time, for many businesses, planning a budget is an annual task, where the past year's budget is reviewed and budget projections are made for the next three or even five years. "A predetermined detailed plan of action developed and described as a guide to current operations and as a partial basis for the subsequent evaluation of performance." - Gorden and Shillinglaw.

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"A financial and/or quantitative statement prepared and approved prior to definite period of time, of the policy to be pursued during that period for the purpose of attaining a given objective." Chartered Institute of Management Accounting - England.

Thus following are the essentials of budget:

a)

It is prepared in advance and is based on a future plan of actions.

b) It relates to a future period and is based on objectives to be obtained.

c) It is a statement expressed in monetary and/or physical units prepared for the

implementation of policy formulated by the Management.

NEED FOR BUDGETING:

Budgeting is essential to conduct and coordinate the operations of the various departments in the organization. The main objectives of budgeting are:

Profit Maximization Explicit statement of expectation

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Communication Co-ordination Judging performance.

Benefits of budgeting:
Improved management control of the Organization.
Improved Financial Control. Budget process monitors expenditure and revenues. Budget

Vs Actuals a regular exercise done and deviations are analysed and explained. Promotes coordination and communication. Clearly defines area of responsibility.
Provides a basis for performance appraisal.

A budget is basically a yardstick against

which actual performance is measure and assessed. Enables remedial action to be taken as variances emerge. Motivates executives by participating in the seeting of budgets. Improves the allocation of scarce resources.
Economises management time by using the management by exception principle.

Managers will be better aware of their responsibilities and be clear about their role in achieving the organizations goal. Analyze anticipated versus actual results.

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Predict future performance and anticipate changes. Assist in monitoring control of current performance. Provide early warning of deviations from plans.

Budget theory:
Budget theory is the academic study of political and social motivations behind government and civil society budgeting. Classic theorists in Public Budgeting include Henry Adams, William F. Willoughby, V. O. Key, Jr., and, more recently, Aaron Wildavsky. Notable recent theorists include Baumgartner and Jones--Frank R. Baumgartner and Bryan D. Jones, Richard Fenno, Allen Schick, Dennis Ippolito, Naomi Caiden, Irene Rubin, James D. Savage, Thomas Greitens and Gary Wamsley. Budget theory was a central topic during the Progressive Era and was much discussed in municipal bureaus and other academic and quasi-academic facilities of that time such as the nascent Brookings Institution.

The executive budget was a financial innovation designed to empower city mayors and city managers with the capacity to implement needed policy reforms in the Progressive Era. Since that time, the executive budget has become a tool by which the president of the United States has been able to substantively shape policy and draw power to the president from Congress, which was originally charged with "holding the purse"(and still is constitutionally, as there is no federal-legislative authority to change the constitution outside the amendment process or for congress to legislate away their authority). This has resulted in an ever increasing role and power base for what is now called the Office of Management and Budget.

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BUDGETARY CONTROL -ATHEORITICAL VIEW

CONCEPT OF BUDGETARY CONTROL

"The establishment of budgets relating to the responsibilities of executives to the requirements of policy and the continuous comparison of actual with budgeted result either to secure by individual action, the objective of the policy or to provide for a revision". - Institute of Cost and Management Accountant, London.

"It is the system of Management Control and Accounting in which all operations are forecasted and so far as possible planned ahead and the actual results compared with the forecasted and planned." - J A Scott.

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According to Rowland & William, Budgetary Control embraces all this and in addition includes the "science of planning the budgets themselves and the utilization of such budgets to effect an overall management tool for the business planning and control".

Thus Budgetary Control involves the following:-

a) Establishment of budget.

b) Continuous comparison of actuals with budgets for achievement of targets and placing the

responsibility for future to achieve the budget figures.

c)

Revision of budgets in the light of changed circumstances.

Budgetary control involves the use of budgetary reports throughout the period to coordinate, evaluate and control day today operations in accordance with the target specified by the budget. This will bring maximum advantage to the concern.

FUNDAMENTAL PRINCIPLES OF BUDGETARY CONTROL.

Establishing a plan and target performance, to co-ordinate all activities of the business.

Recording of actual performance. Comparison of actual with that planned. Ascertaining variations.

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Taking remedial action.

OBJECTIVES OF BUDGETARY CONTROL SYSTEMS:

To assess the responsibilities for deviations from plan and to take necessary action.

To coordinate the activities of the business to get maximum benefit.

To measure the performance.

To provide overview To help allocate resources To determine leverage points In financial control
To give a summarized picture of the result to be achieved from the Plan of Operation.

To make continuous comparison of actual performance with that of the budgeted ones.

To make complete formulation of the policy of the undertaking to be pursued for the purpose of

attaining a given objective.

OBJECTIVES OF THE STUDY

To study the budgetary control process in NVS GARMENTS, Tirupur.

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To assess and analysis the variance of actual figures from budgeted figures for 4 years i.e. from 2004-2005, 2005-2006, 2006-2007, 2007-2008.

REQUIREMENTS OF A GOOD BUDGETARY CONTROL SYSTEM:

Budgets should be prepared based on a well defined plan of operations and on an efficient

system of financial and cost accounting.

The expenses both in the budget and in actual figures should be carefully analysed for making

correct and true comparisons.

There should be complete coordination among all levels of management.

There should be scope for modifications to the system.

There should be constant comparison of the actuals with the budgets.

The effective participation of non-financial executives should be solicited by the budget controller

in the formulation of the budgets.

The consultation should be real and not be way of a mere ritual or formality.

It should be total corporate exercise.

There should be true delegation of authority and responsibility.

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Motivationals approach towards budgeting should be adopted.

The points revealed by past experience should be taken note of while formulating plans for the

future.
Budgets should be taken as only minimum and not the maximum level of performance.

Sufficient operational freedom should be given to the concerned executives within the overall

framework.

The budget has to be very definite and determinenable and verifiable.

A good budget has to ensure proper feedback system.

Management has to determine the proper remedial measures at appropriate level and at

appropriate time.

Budget Period:

The period covered by budget is called 'Budget Period'. Budget period depends on various factors and also the nature and volume of the business. There are two main budgets:

The short term budget The long term budget.

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CLASSIFICATION OF BUDGET

Though budgets can be classified according to various purposes, the following basis of classification are generally in vogue:

Classification according to time factor.

Functional classification. Classification according to flexibility factor Budgets as a planning process

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Budgets as a priority setting process Budgets as a resource allocation process Budgets as a responsibility allocating Budgets as an evaluation process

CLASSIFICATION OF BUDGETS

ACCORDING TO TIME

ACCORDING TO FUNCTION

ACCORDING TO FLEXIBILITY

1. Long term budget 2. Short term budget 3. Current budget 4. Rolling budget

1. Sales budget 2. Production budget 3. Cost of Production budget 4. Purchase budget

1. Fixed budget 2. Flexible budget

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5. Personnel budget 6. R & D budget 7. Capital Expenditure budget 8. Cash budget 9. Master budget

1. SALES BUDGET:
Sales budget is the most important budget based on which all the other budgets are built up. This budget is a forecast of quantities and values of sales to be achieved in a budget period.

2. PRODUCTION BUDGET:
Production budget involves planning the level of production which in turn involves the answer to the following questions: a. What is to be produced? b. c. When is it to be produced? How is it to be produced?

d. Where is it to be produced?

3. COST OF PRODUCTION BUDGET:

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This budget is an estimate of cost of output planned for a budget period and may be classified into
4. PURCHASE BUDGET:

Material Cost Budget Labour Cost Budget Overhead Cost Budget

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

5. PERSONNEL BUDGET:

This budget gives an estimate of the requirements of direct labour essential to meet the production target. This budget may be classified into a. Labour requirement budget b. Labour recruitment budget

6. RESEARCH AND DEVELOPMENT BUDGET:

This budget provides an estimate of expenditure to be incurred on R & D during the budget period. A R&D budget is prepared taking into consideration the research projects in hand and new R & D projects to be taken up.

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7. CAPITAL EXPENDITURE BUDGET:

This is an important budget providing for acquisition of assets necessitated by the following factors: a. Replacement of existing assets. b. Purchase of additional assets to meet increased production c. Installation of improved type of machinery to reduce costs.

8. CASH BUDGET: This budget gives an estimate of the anticipated receipts and the budget period. Cash budget makes the provision for minimum cash balance to be maintained at all times. payments of cash during

9. MASTER BUDGET: CIMA defines this budget as The summary budget incorporating its component functional budget and which is finally approved, adopted and employed. Thus master budget is a summary of all functional budgets in capsule form available in one report.

10. FIXED BUDGET:

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This is defined as a budget which is designed to remain unchanged irrespective of the volume of output or turnover attained. This budget will, therefore, be useful only when the actual level of activity corresponds to the budgeted level of activity. 11. FLEXIBLE BUDGET: CIMA defines this budget as one which, by recognising the difference in behaviour between fixed and variable costs in relation to fluctuations in output, turnover or other variable factors such as number of employees, is designed to change appropriately with such fluctuations. 12. PERFORMANCE BUDGETING: These days budgets are established in such a way so that each item of expenditure is related to specific responsibility centre and is closely linked with the performance of that standard.

13. ZERO BASE BUDGETING: The zero base budgeting is not based on the incremental approach and previous

figures are not adopted as the base. Zero is taken as the base and a budget is developed on the basis of likely

activities for the future period. A unique feature of ZBB is that it tries to help management answer the question,

Suppose we are to start our business from scratch, on what activities would we spent out money and to what activities would we give the highest priority?

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14. RESPONSIBILITY ACCOUNTING: Responsibility accounting fixes responsibility for cost control purposes by establishing responsibility centres namely a. Cost centre b. Profit centre c. Investment centre

CAPITAL BUDGETING

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

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

BASIC FEATURES OF CAPITAL BUDGETING

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

CLASSIFICATION AS PER TIME FACTOR

In this, budgets are broadly of the following three types:

Long Term Budgets - They are for planning the operations of a firm over a prospective of five to ten years. They will be usually in the form of physical quantities.

Short Term Budgets - They are usually for a period of a year or two and are in the form of production plan in monetary terms.

Current Budgets - They cover a period of a month or so and are short term budgets adjusted to current conditions or circumstances.

FUNCTIONAL CLASSIFICATION

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Budget of a particular function, integrated with the master budget of the business, is called 'Functional Budget'. The number of such budget depends of the size and nature of the business.

The usual functional budgets of a business are:

Sales Budget - This is a forecast of total sales classified into groups of products, salesman and geographical location. It is a forecast of quantities and values of sales to be achieved in a budgeted period. It forms the fundamental basis on which the budgets are built up. Sales Manager should be made directly responsbile for the preparation and execution of this budget.

Selling and Distribution Budget - This is an estimate of the cost of selling and distribution. It includes all expenses relating to selling, advertising, delivery of goods to customers, etc. These costs are analysed according to products, types of customers, territories by the sales departments in the organization. There must be a coordination of selling expenses with the volume of sales expected and an effort should be made to control the costs of distribution.

Production Budget - This is a forecast based on sales, productive capacity and requirement of inventories, etc. It is expressed in quantitative (weight) or financial (Rupees) or both. General Manager is responsible for the total production budget and the departmental managers are responsible for the departmental production budget.

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Purchase Budget - It is based on the sales forecast and production planning and deals with the purchases that are required for planned production. Purchase would include both direct and indirect materials and goods.

Human Resources Budget - This is about utilization of men and includes labour employed in productive activity separately for direct labour and indirect labour. This budget is prepared with a view to enable the Human Resources Department to carry out programmes of training and transfer and also to find out sources of labour needed to remove difficulties arising in production through lack of suitable personnel.

Research & Development Budget - It relates to improvement in the quality and function of the existing products or research for new products.

Cash Budget - It is a sum total of the requirements of cash in respect of various functional budgets and anticipated cash receipts.

Plant Utilization Budget - This is intended to cover the plant and machinery requirement to meet the budgeted production during the period. Schedule will be produced showing the available load in each department expressed in standard hours or units.

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Office and Administrative Budget - This budget represents cost of all administrative expenses such as managing director's salary, staff salaries and expenses of office management like lighting and cleaning.

Capital Budget - It is a forecast of outlay on fixed assets as also of the sources of capital required. The budget period in the case of capital budget may differ from that of other budgets. As such expenditure is frequently planned a number of years in advance.

Master Budget - The ultimate integration of separate budgets by the accountant provides the master budget which includes estimated profit and loss account for the future period and an estimated balance sheet at the end of that period.

CLASSIFICATION ACCORDING TO FLEXIBILITY.

Fixed Budget It is a budget in which targets are rigidly fixed. Such budgets are usually prepared from one to three months in advance of the fiscal year to which they are applicable.

Flexible Budget

42

The figures used in this budget are made adaptable to any given set of operating conditions within any month of the fiscal year. The figures range from the lowest to the highest probable percentages of operating activity in relation to the standard operating performance.

RESEARCH METHODOLOGY

Nature of study design: The study is descriptive in nature as it focuses on budgeting and budgetary control in NVS GARMENTS TIRUPUR.

Period of study: The "study period is five years i.e. from 2004-05 to 2008-09 for the analysis of deviations of actual from budgeted figures.

Nature of data: The data used for the study were mostly secondary in nature and were collected from annual reports, company balance sheet and specific budgets of NVS GARMENTS TIRUPUR. The data has been collected through informal discussions with the officers of the company.

Technique used:

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Variance analysis has been used for the present study. Tables have been used to support the results. Establishing a planned level of expenditures, usually at a fairly detailed level. A company may plan and maintain a budget on either an accrual or a cash basis.

Business budgeting is one of the most powerful financial tools available to any smallbusiness owner. Put simply, maintaining a good short- and long-range financial plan enables you to control your cash flow instead of having it control you.

The most effective financial budget includes both a short-range, month-to-month plan for at least one calendar year and a long-range, quarter-to-quarter plan you use for financial statement reporting. It should be prepared during the two months preceding the fiscal year-end to allow ample time for sufficient information-gathering.

The long-range plan should cover a period of at least three years (some go up to five years) on a quarterly basis, or even an annual basis. The long-term budget should be updated when the short-range plan is prepared.

While some owners prefer to leave the one-year budget unchanged for the year for which it provides projections, others adjust the budget during the year based on certain financial occurrences, such as an unplanned equipment purchase or a larger-than-expected upward sales trend. Using the budget as an ongoing planning tool during a given year certainly

44

is recommended. However, here is a word to the wise: Financial budgeting is vital, but it's important to avoid getting so caught up in the budget process that you forget to keep doing business.

Many financial budgets provide a plan only for the income statement; however, it's important to budget both the income statement and balance sheet. This enables you to consider potential cash-flow needs for your entire operation, not just as they pertain to income and expenses. For instance, if you'd already been in business for a few years and were adding a new product line, you'd need to consider the impact of inventory purchases on cash flow.

Budgeting only the income statement also doesn't allow a full analysis of the effect of potential capital expenditures on your financial picture. For instance, if you're planning to purchase real estate for your operation, you need to budget the effect the debt service will have on cash flow.

In the startup phase, you'll have to make reasonable assumptions about your business in establishing your budget

LIMITATIONS OF THE STUDY

45

o The duration of the study was limited only to a period of five years 2005) to (2008-2009).

(2004

o The study is mainly based on published annual report and manual of the company.

o Figures taken for the study was most approximate.

CHAPTER-3 VARIANCE ANALYSIS

Standard costing is a specialized technique of costing under which standards cost are predetermined, actual costs are compared with the predetermined cost, the variation between the two costs are noted and analyzed so that corrective measures may be taken to control the factors leading to unfavorable variation. It serves as an effective tool in the hands of Management for planning, coordination and control of various activities of business. It is a

46

technique which uses standard for cost and revenues for the purpose of control through variance analysis. Thus standard costing is a method of ascertaining costs whereby statistics are prepared to show the standard cost, the actual cost, the actual cost and difference between these costs which is termed as variance.

The key items taken for the study are: Physical turnover Financial turnover Administration expenses Personal payments Financial expenses Miscellaneous expenses

The present chapter aims at controlling cost by comparing the actual cost and budgeting cost through variance analysis.

TABLE NO 1 VARIANCE ANALYSIS FOR THE YEAR 2003 2004 (Rs in Lakhs)
Budgeted amount Actual amount Rs. Variance %

Expenditure Administration Expenses

47 6390 Personal payments Financial expenses Miscellaneous expenses 1918 Total 12535 1375 12030 +543 +505 +28.31 +4.02 2157 2070 6055 2272 2328 +335 -115 -258 +5.24 -5.33 -12.46

INTERPRETATION The above Table. No. 1 indicates the percentage of variance. i.e. actual cost from budgeted cost as 4.02% which indicates a favourable variance of Rs. 505 Lakhs. The favorable variance ranges from Rs. 335 to 543. Miscellaneous expenses sow a highly favorable variance. Administration expenses show a low favorable variance. INFERENCE The actual cost is less than the budgeted amount. It indicates the managements efficiency is at a satisfactory level and is able to control the cost.

CHART I COMPARSION OF ADMINISTRATION EXPENSES BUDGET VS ACTUALS

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18000 16000 14000 12000 10000 8000 6000 4000 2000 0 2 0 0 3 -2 0 2 0 0 4 - 2 0 2 0 0 5 -2 0 2 0 0 6 -2 0 2 0 0 7 -2 0 0 8 04 05 06 07

B udge t a c tu a l

TABLE NO 2 VARIANCE ANALYSIS FOR THE YEAR 2004 2005 (Rs in Lakhs)
Budgeted amount Actual amount Rs. Variance %

Expenditure

49 Administration Expenses 6642 Personal payments Financial expenses Miscellaneous expenses 2035 Total 13082 1227 12455 +808 +627 +39.70 +4.79 2225 2180 6668 1983 2577 -26 +242 -397 -0.39 +10.87 -18.21

INTERPRETATION The above Table No. 2 indicates the percentage of variance, i.e. actual cost from budgeted cost, as 4.79% which indicates a favorable variance of Rs.627 lakhs. The favourable variance ranges from Rs. 242 lakhs to Rs808 lakhs. Miscellaneous expenses show a highly favourable variance and personal payments show the low favourable variances. INFERENCE The actual cost is less than the budgeted amount. It indicates that the Managements efficiency is at a satisfactory level and is able to control the cost.

CHART II COMPARSION OF PHYSICAL TURNOVER BUDGET VS ACTUALS

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30000 25000 20000 15000 10000 5000 0 2 0 0 3 - 02 0 0 4 - 0 5 0 0 5 - 0 6 0 0 6 - 0 7 0 0 7 - 0 8 4 2 2 2 B ud g e t A c tua l

TABLE NO 3 VARIANCE ANALYSIS FOR THE YEAR 2005 2006 (Rs in Lakhs)
Budgeted amount Actual amount Rs. variance %

Expenditure Administration Expenses

51 7814 Personal payments Financial expenses Miscellaneous expenses 2180 Total 13195 1950 17560 +230 -4365 +10.55 -33.08 1664 1537 11030 1797 2783 -32.16 -133 -1246 -41.15 -7.99 -81.06

INTERPRETATION THE ABOVE TABLE No. 3 indicates that the percentage of variance, i.e actual from budget cost is 33.08% which indicates an adverse variance of Rs. 4365 Lakhs. The adverse ranges from 1246 to 3216. Administration Expenses shows highly adverse variance and financial expenses show the low adverse variance INFERENCE : Due to increase in raw material cost in open market. Administration expenses show highly adverse variance.

CHART III COMPARSION OF FINANCIAL EXPENSES BUDGET VS ACTUAL

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3500 3000 2500 2000 1500 1000 500 0 2 0 0 3 -0 4 2 0 0 4 -0 5 2 0 0 5 -0 6 2 0 0 6 -0 7 2 0 0 7 -0 8 B ud g e t A c tua l

TABLE NO 4 VARIANCE ANALYSIS FOR THE YEAR 2006 2007 (Rs in Lakhs)

Budgeted amount

Actual amount

variance

53 Rs. %

Expenditure Administration Expenses 17040 Personal payments Financial expenses Miscellaneous expenses 1428 Total 21889 1334 17628 1801 1620 12399 1983 1912

+4641 -182 -292

+27.23 -10.10 -18.02

+94 +4261

+0.06 +19.47

INTERPRETATION The above Table indicates the percentage of variance i.e., actual cost from budget cost as 19.47 which indicates a favourable variance of Rs. 4261 Lakhs. Personal payment show an adverse variance and Financial Expenses show a very adverse variance. INFERENCE Personal payment shows an adverse variance due to increase in Dearness Allowance and increase in wages. Financial expense indicates adverse variance because of increase in prices of fuel namely. Miscellaneous Expenses. Show a favorable variance, as expenditure for reconditioning given in the budget were not fully spent.

CHART IV COMPARSION OF MISCELLANEOUS EXPENESE

54

BUDGET VS ACTUALS

2500 2000 1500 1000 500 0 2003 -04 2004-05 2005-06 2006-07 2007-08 Budget Actual

TABLE NO 5 VARIANCE ANALYSIS FOR THE YEAR 2007 2008 (Rs in Lakhs)

Expenditure Administration Expenses

Budgeted amount

Actual amount Rs.

variance %

55 14023 Personal payments Financial expenses Miscellaneous expenses 1555 Total 19747 541 20091 1014 -344 65.21 -2.89 2095 2074 14097 2319 3134 -74 -224 -1060 -0.53 -10.69 -51.10

INTERPRETATION The above Table No.2 indicates the percentage variance, i.e actual cost from budgeted cost 2.89 which indicates an adverse variance of Rs. 344 lakhs. Administration expenses show a little adverse variance whereas the financial expenses show highly adverse variance. Miscellaneous expenses so a highly favourable variance.

INFERENCE Personal payment shows adverse variance because of increase in wages and dearness allowance, etc. the very high adverse variance in financial expense is due to increase in price of namely. Miscellaneous expenses show a highly favourable variance as the budgeted expenses for reconditioning work not fully expended.

TURNOVER BUDGET

Sales forecast is the commencement of budgeting and hence sales budget assumes primary importance. To chalk out realistic budget, there must be an accurate sales forecast. The

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sale budget represents the total sales in physical quantities and values for a period. Sales Managers are constantly faced with problems like, anticipation of customer requirements, new product needs, competitor strategies and various changes in distribution methods of promotional techniques.

The Order Book position is the key factor based on which the physical turnover is budgeted in NVS GARMENTS. The details regarding the orders are given in the following format.

FORMAT OF ORDER DETAILS

Opening balance of orders in hand

Estimated current year booking Firm orders

Anticipated orders

Orders to be executed during the year

Closing order book position

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The physical turnover budget by the commercial Department by considering the order book position, customer delivery requirements and capacity of the plant. The physical turnover is then converted to financial term by the Finance Department

For internal analysis of the company the turnover is budgeted product wise and project wise. Budgeting the turnover, based on projects undertaken by the company is termed as project wise budget to turnover.

TABLE NO .6 ANALYSIS OF TURNOVER BUDGET FOR THE YEAR 2003 2004

Particulars Budgeted amount Physical turnover 10500 11087 +587 +5.5 Actual Amount Variance Variance in %

58 Financial Turnover 13713 13371 -347 -2.4

INTERPRETATION The above table no. 6 shows the physical turnover, percentage of variance as 5.5%, it indicates favourable variance of Rs. 587 lakhs and the financial turn over, percentage of variance as 2.4% it indicates an adverse variance of Rs. 347 lakhs.

INFERENCE The actual cost is higher than the budget amount. It indicates that high value items were manufactured by the Unit and improved order book position show the production efficiency of Crazy InfoTech Pvt. Ltd.

TABLE NO .7 ANALYSIS OF TURNOVER BUDGET FOR THE YEAR 2004 2005

Particulars

Budgeted amount

Actual Amount

Variance

Variance in %

Physical turnover

59 11000 Financial Turnover 14135 14159 +24 +0.169 12006 +1006 +9.14

INTERPRETATION The above table no. 7 shows the physical turnover, percentage of variance as 9.14%, it indicates favourable variance of Rs. 1006 lakhs and the financial turn over, percentage of variance as 0.169% it indicates an adverse variance of Rs. 24 lakhs. INFERENCE The actual turnover both physical and financial is higher than the budgeted turnover. This shows the production efficiency of Crazy InfoTech Pvt. Ltd. In meeting customer requirements.

TABLE NO .8 ANALYSIS OF TURNOVER BUDGET FOR THE YEAR 2005 2006

Particulars

Budgeted amount

Actual Amount

Variance

Variance in %

Physical turnover

60 12250 Financial Turnover 5759 10782 +5023 +87.22 14022 +1772 +14.4

INTERPRETATION The above table no. 8 shows the physical turnover, percentage of variance as 14.4%, it indicates favourable variance of Rs. 1772 lakhs and the financial turn over, percentage of variance as 87.22% it indicates an adverse variance of Rs. 5023 lakhs.

INFERENCE The actual cost is higher than the budget amount. It indicates that high value items were manufactured by the Unit and improved order book position show the production efficiency of Crazy InfoTech Pvt. Ltd.

TABLE NO .9 ANALYSIS OF TURNOVER BUDGET FOR THE YEAR 2006 2007

Particulars Budgeted amount Physical turnover 20000 Financial 15101 -4899 -24.49 Actual Amount Variance Variance in %

61 Turnover 17256 11925 -5331 -30.89

INTERPRETATION The above table no. 9 shows the physical turnover, percentage of variance as -24.49%, it indicates favourable variance of Rs. 4899 lakhs and the financial turn over, percentage of variance as -30.89% it indicates an adverse variance of Rs. 5331 lakhs.

INFERENCE The physical turn over has decreased. The financial turnover has also come down. This is because of change in product mix necessitated by customers priority on delivery.

TABLE NO .10 ANALYSIS OF TURNOVER BUDGET FOR THE YEAR 2007 2008
Particulars Budgeted amount Physical turnover 16000 Financial 15111 -889 -5.5 Actual Amount Variance Variance in %

62 Turnover 13532 14162 +630 +4.65

INTERPRETATION The above table no. 10 shows the physical turnover, percentage of variance as -5.5%, it indicates favourable variance of Rs. 889 lakhs and the financial turn over, percentage of variance as 4.65% it indicates an adverse variance of Rs. 630 lakhs.

INFERENCE The physical turnover has reduced. The financial turnover has increased. This again amount to change in product mix.

CHART-5

COMPARSION OF PHYSICAL TURNOVER BUDGET VS ACTUAL

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35000 30000 25000 20000 15000 10000 5000 0 2003-04 2004-05 2005-06 2006-07 2007-08 Budget Actual

CHART-6

COMPARSION OF FINANCIAL TURNOVER BUDGET Vs ACTUALS

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30000 25000 20000 15000 10000 5000 0 2003-04 2004-05 2005-06 2006-07 2007-08 Budget Actual

CHAPTER 4 FINDINGS OF THE STUDY

The objective of the present project is to study the budgetary and decontrol of NVS GARMENTS. For the purpose, variance analysis was carried out. The data used for the present study

65

was secondary in nature. Tables have been used to highlight the analysis. From the analysis, the following are the summary of findings.

For the year 2003-2004

The overall analysis shows that the percentage of variance i.e. actual cost from budgeted cost is 4.02% which means a favourable variance of Rs.505 lakhs. The favourable variance ranges from Rs.335 lakhs to Rs.543 lakhs. Other expenses show a highly favourable variance and direct expenses show a low favourable variance.

The actual cost is less than the budgeted amount; it indicates that the management's efficiency is at a satisfactory level and able to control the cost.

For the year 2004-2005

The overall analysis shows that the percentage of variance i.e. actual cost from budgeted cost is 4.79% which indicates favourable variance of Rs.627 laths.

The favourable variance ranges from Rs.242 to 808 laths. miscellaneous expenses show a highly favourable variance and personal payments show he low favourable variance.

The actual cost is less than the budgeted amount, it indicates that the management's efficiency is at a satisfactory level and is able to control the cost.

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For the year 2005 2006

The overall analysis shows that the percentage of variance i.e. actual from budgeted cost if 33.08% which indicates an adverse variance of Rs. 4365 lakhs.

The adverse variance ranges from Rs. 1246 Lakhs to Rs. 3216 Lakhs. Administration expenses shows highly adverse variance and Financial expenses shows the low adverse variance.

For the year 2006-2007

The overall analysis shows that the personal payments show an adverse variance which is due to increase in Dearness Allownace and increase in wages. Financial expenses indicates adverse variance because of increase in prices of namely. Miscellaneous expenses show a favourable variance, as expenditure for reconditing given in the budget were not fully spent.

For the year 2007 -2008

The analysis shows that personal payment show adverse variance because of increase in wages and dearness allowance, etc. the very high adverse variance in Financial expenses to increase in price of namely. Miscellaneous expenses show a high favourable variance as the budget expense for reconditioning work was not fully expended.

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TURNOVER BUDGET
For the year 2003- 2004
The overall analysis shows hat ten physical turnover percentage of variance as 5.5%It indicates a favorable variance of Rs.587 lakhs and the financial turnover percentage of variance as 2.4% It indicates a favourable variance of Rs.347 lakhs.

The actual cost is higher than the budgeted amount. It indicates that high value items were manufactured by the unit and improved order book

position shows the production efficiency of NVSGARMENTS.

For the year 2004-2005

The overall analysis shows that the physical turnover percentage of Variance 9.14% It indicates a favourable variance of Rs.1006 lakhs and the financial turnover percentage of variance. It indicates a favourable variance of Rs.24 lakhs. The actual cost is higher than the budgeted amount. It indicates the high value items were manufactured by the unit and improved order book position shows the production efficiency.

For the year 2005 2006

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The overall analysis shows that physical turnover percentage of variance as 14.4% which indicate a favorable variance of rs. 1772 lakhs and the financial turn percentage of variance 87.22% which indicates a favourable variance of Rs. 5023Lakhs

For the year 2006 2007

The overall analysis shows that the decrease in physical and financial turnover is due to change in product mix necessitated by customers priority on delivery.

For the year 2007 2008

The overall analysis shows that the personel payments show adverse variance because of increase in wages and dearness allowance etc.

CHAPTER-5 SUGGESTIONS

From the analysis and findings, the following recommendations can be made:

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The budgeting committee and other concerned authorities take a closer look and the financial expenses take corrective action periodically as these expenses are always facing upward revision by the Government.

The committee should also more and more closely watch the personal payments which is yet another area where there is often upward revision (like wages, deamess allowance) automatically.

CHAPTER 6 CONCLUSION

In this study an attempt has been made, by taking all the expenses into account, to see how the actual compare with the budget so that cost can be controlled effectively. The financial

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turnover of NVS GARMENTS is forecast which helps the managers to plan and schedule the activities on a rational basis.

To conclude, NVS GARMENTS is able to control the cost by reducing the expenses by closely monitoring the difference between the actuals and the budget.

For the year 2006-2007 The overall analysis shows that the decrease in physical and financial turnover is due to change in product mix necessitated by customer's priority on delivery.

For the year 2007-2008 The overall analysis shows that personal payments show adverse variance because of increase in wages and dearness allowance, etc. The very high adverse variance in financial expenses is due to increase in price of fee namely. Other expenses show a high favorable variance as the budgeted expense for reconditioning work was not fully expended.

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Pandey I M, 1997, Financial Management, Vikas Publication House Private Ltd, New Delhi.

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Jain S P, Narang K L, 2000 - Cost Accounting Principles and Practices, Kalyani Publishers, New Delhi.

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Khan M Y, Jain P K, 1996 Financia! Management, Tata Mcgraw Hill Publishing Co Ltd, New Delhi.

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John R. Bartle. Evolving Theories of Public Budgeting (2001), JAI Press. Aman Khan, W. Bartley Hildreth. Budget Theory in the Public Sector (2002), Quorum BooksAman Khan, W. Bartley Hildreth.

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Frank R. Baumgartner, Bryan D. Jones, A Model of Choice for Public Policy (2005) Bartle, John R. and Shields, Patricia M., "Applying Pragmatism to Public Budgeting and Financial Management" (2008). Faculty Publications-Political Science. Texas State University. Paper 48