MAHINDRA & MAHINDRA CO. LTD.

: A CURTAIN RAISER COMPANY PROFILE :

respected companies in the country. Set up in 1945 to make general-propose utility vehicles for the Indian market, M & M soon branched out into manufacturing agricultural tractors and light

commercial vehicles (LCVs). The company later expended its operators form automobiles and tractors to secure a significant presence in many more important sectors. The company has, over the years, transformed itself into a Group that caters to the Indian and overseas markets with a presence in vehicles, farm equipment, information technology, trade and finance related services, and infrastructure development. An organizational restructuring exercise in 1994 arising from a Business Process Re-engineering programme resulted in the core activities of manufacturing utility and light commercial vehicles and agricultural tractors remaining with the flagship company. All other activities were spun off into separate entities and organized under business groups. Thus groups are in the areas of Hospitality, Trade and Financial Services, Components, Information Technology, Telecom and

Automotive

Infrastructure Development.

CORE VALUES OF THE COMPANY

Our core values are influenced by our past, tempered by our present and are designed to shape our future. They are an amalgam of what we have been, what we are and what we want to be. These values are the compass that will guide our actions, both personal and corporate. They are:

Good corporate citizenship:

As in the past, we will continue to seek long term

success that is in alignment with our country's needs. We will do this without compromising on ethical business standards.

Professionalism : We have always sought the best people and given them the freedom and the opportunity innovation and to grow. We will continue risk-taking, but to do so. We will support will demand performance.

well-reasoned

Customer First: We exist and prosper only because of our customers. We will respond to their changing needs and expectations speedily, courteously and effectively.

Quality focus :Quality is the key to delivering value for money to our customers. We will make quality a driving value in our work, in our products and in our interactions with others. We will do it first time right.

INTRODUCTION

Planning is the basic managerial function. It helps in determining the course of action to be followed for achieving organizational goals. It is the decision in advance what to do, and when to do, and who will do the particular task? Plan is made to achieve best results. Control in the process of checking whether the plans are being adhered to or not, keeping the record of process, comparing it with the plans and then taking corrective measure for future if there is any devotion. Every business enterprise needs the use of control techniques for surviving in the highly competitive and managing economic world. There are various control devices in use .budget are the most important tool of profit planning and control. They also act as an instrument of coordination. A budget is a detailed plan of operations for some specific future period. It is an estimated prepared in advance of the future period to which it applies. It acts as a business parameter. It is a complete programme of activities of the business for the period covered. According to Gordon and shilling law budget may be defined as plan of action developed A and

redetermined detailed plan of action developed

distributed as a guide to current operations and as a partial basis for subsequent evolution of performance Different types of budget are prepared by an industrial concern for different purpose. A sales budget is prepared for the purpose of forecasting sale for the future period. A

manufacturing cost of budget is prepared for forecasting the manufacturing costs. The master budget embodies forecasting the figure of profit or loss. Control means, some sort of systematic effort to compare current performance to the predetermined plan or objective. Presumably in order to take any remedial action required this is a very general definition of term. However as the management

function, it has been defined as The process by which managers assure that resources are obtained and used effectively and efficiently in the accomplishment of Management control process involves two separate but closely related

activities planning and control. Planning means deciding what it is to be done and how it is to be done control is assuring that desired results (which may be different from the planned once on account of change in circumstances) are attained.

simply a plan of action hence the technique of budgetary control is an important tool of managing control. In today s completive world, without proper planning and control over the expenses no company can survive. Profit can be maximized by increasing sales, which depends upon the external factor like market condition,

demand, competitors etc another way to increase profit is to decrease cost (profit=sales-total cost). But for decreasing cost proper control system should be an action .with the help of proper budgetary control system maximization of wheat of shareholder is possible. And for company like m & m which comes under farm equipment sector comparison of actual with budgets and taking remedial major for division is must do job.

OBJECTIVE BEHIND THE STUDY

Budget and Budgetary control system is a very vast subject. But at the same time it is basic need of every company to make the budget. So it requires the overall knowledge and skill for making budget and without planning nobody can achieve organizational goals. This topic is very essential to every company and it's have special importance in the current competitive world. Taking into consideration the vast importance of Budget and Budgetary control. The objective behind this study work is as follows:

To study in detail the budget procedure Ltd.Nagpur.

of Mahindra & Mahindra Co.

To list of various types of budgets generally Mahindra & Mahindra Co. Ltd.Nagpur prepares.

To evaluate variance analysis of Mahindra & Mahindra Co. Ltd. for taking suitable action by comparing actual results with budgets so that the causes are not repeated and remedial action should be taken in future.

MEANING

AND

NATURE

OF

BUDGETORY

CONTROL AND BUDGET

A budget is the monetary or/and quantitative expression of business plans and policies to be pursued in the future period of time. The term budgeting is used for repairing budgets and other procedures for planning, co-ordination and control of business enterprise. According to ICMA, official terminology, A budget is a financial

and/or quantitative statement prepared prior to a defined period of time, of the policy to be pursued during that period for the purpose of attaining a given objective. In other words of Brown and Howard, A budget is a pre-determined

statement of management policy during a given period which provides a standard for comparison with the results actually achieved. Budgetary control is the process of determining various budgeted figures for enterprises for me future period and then comparing the budgeted figures with the actual performance for calculating variances, if any, first of all budgets are prepared and then actual results are recorded. The comparison of budgeted and factual figures will enable the management to find out discrepancies and lake remedial measures at a proper time. The budgetary control is a continuous process, which helps in planning and coordination. It provides a method of control too. A budget is a means and budgetary control is the end result. J. Batty defines it as A system, which uses

budgets as a means of planning and controlling all aspects of producing and /or selling commodities and services.

BUDGET, BUDGETING AND BUDGETARY CONTROL

A budget is the blue print of a plan expressed in quantitative terms. Budgeting is the technique for. Budgetary control, on the other hand, refers to the principles, procedures and practices of achieving given objectives through budgets.

Rowland and William have differentiated the three terms as

Budgets are the

individual objectives of a department, etc where as budgeting may be said to be act of building budgets. Budgetary control embraces all and in addition includes the science of planning the budgets to affect an overall management tool for the business planning and control .

OBJECTIVES OF BUDGETARY CONTROL

Budgetary control is essential for policy planning and control. It also acts as an instrument of co-ordination. The are as follows. To ensure the planning for future by setting up various budgets. The requirement and expected performance of the enterprise are anticipated. main objectives of budgetary control

To co-ordinate the activities of different departments.

To operate the cost centres and department with the efficiency and expected.

Elimination of waste and increasing profitability.

To anticipate capital expenditures for future.

To centralize the cost system

Correction of deviation from establish standard.

Fixation of responsibility of various individuals in the organization.

Requisites for a successful budgetary control system

For making a budgetary control system successful, following request are required.

1. Clarifying objectives:

The budgets are used to realize objectives of the business. The objectives must be clearly spelt out so that budgets are properly prepared. In absence of clear goals, the budget must be unrealistic.

2. Proper delegation of authority and responsibility:

Budget preparation

and control is done at every level of management. Even

though budgets are finalized at top level but involvement of person from lower levels of management is essential for success. This necessitates proper delegation of authority and responsibility.

3. Proper communication system:

An efficient system of communication is required for successful budgetary control. The flow of information regarding is quick so that these are to be

implemented. The upward communication to be help in knowing the difficulties in

implementation of budgets. The performance level will help the top management in budgetary control.

4. Budget education:

The employees should be properly educated about me benefits of budgeting system. They should be educated about there role in the success of this system. Budgetary control may be mil he taken, only as control device by employees but it should be used as a tool for improving efficiency.

5. Participation of all employees:

Budgeting

is done for every segment of business.

It will require the active

participation and involvement of an employee. In practice the budgets are to be executed at lower level management. Those for whom the budget is framed should be actively associated with their participation and execution. The employees on the basis of their past experience may give more practical and useful suggestions. The success of the organization will depend on the participation of employee.

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6. Flexibility:

Flexibility in the budget required to make them suitable under the change in circumstances. Budget is made for future which is always uncertain. Even through budget are prepared by consideration of future possibility but still some occurrences later on may necessitate certain adjustments. It will make the budget more appropriate and realistic.

7. Motivation:

Budgets are to be implemented by human beings. It will depend on the interest shown by the employees. All persons should be motivated to improve their working so that the budget is successful. a proper system of motivation should be

introduced for making this system a success.

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CLASSIFICATION AND TYPES OF BUDGETS:

1. Long term budgets:

The budgets are to be prepared to depict the long term planning of the business. The period of long term planning varies from five to ten years. The top level management does the long term planning; it is not generally to the lower level of management. long time budgets are prepared for some sectors of the concern such as capital expenditure, research and development, long term finance etc. those

budget are useful or those industries where gestation period is long i.e. machinery, electricity, engineering, etc.

2. Short term budgets:

These budgets are generally for one to two years and are in the form of monetary terms. The consumer s goods industries like sugar, cotton, textile, and etc. use for short term budgets.

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3. Current budgets: The period of current budget is generally of months and weeks. These budgets relate to the current activities of the business. According to I.C.W.A London, current budget is the budget which is established for the use over the short period of time and is related to the current condition .

B. CLASSIFICATION ON THE BASIS OF FUNCTIONS 1. Operating budgets: These budgets relate to different activities or operations of the firm. The number of such budget depends upon the size and the nature of the business. 2. Financial budgets: Financial budgets are concerned with cash receipts and disbursements, working capital expenditure, financial position and result of business operations. The

commonly used financial budgets are:

Cash budget. Working capital budget. Capital expenditure budget Income statement budget. Statement of retained earning budget budgeted balance sheet or position statement budget

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3. Master budget:

Various functional budget are integrated into master budget .this budget is prepared by ultimate integration of separate functional budgets. According to I.C.W.A. London, master budget is the summary budget incorporating its functional

budgets . The budget officer prepared master budget and it remains in the top level management. This level is to coordinate the activity of various functional departments and also to help as a control device.

C. CLASSIFICATION ON THE BASIS OF FLEXIBILITY

1. Fixed budget:

The fixed budgets

are prepared

for a given level of activity; the budget is financial year. If the financial period starts in

prepared before the beginning of the

January then the budget will be prepared a month or two earlier, i.e. November or December. The hang in expenditure arising out of anticipated change will not be adjusted in budget. There is a difference of about twelve months in the budgeted and actual figures. According to I.C.W.A London, fixed budget is the budget which is to be designing to remain unchanged irrespective of the level of activity actually attained . Fixed budgets are suitable under static conditions. If sales, expenses and costs can be forecasted with greater accuracy then this budget can be advantageously used.

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2. Flexible budget:

A flexible budget consists of series of budgets for different level of activity. Therefore, varies with the activity attained. A flexible budget is prepared after taking in to

consideration unforeseen change in conditions of the business. A flexible budget is defined as budget which is recognized the difference between fixed, semi-fixed and variable cost is designed to change in relation to the level of activity. The flexible budget will be useful where levels of activity are changes from time to time. Then the forecasting of demand is uncertain and the undertaking operates under condition of shortage of material, labour etc, then this budget will be more suited.

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PROCEDURE IN BUDGET PREPARATION:

When control through budgets is desired the budgetary organization are to busy with the following preliminaries:

A. ESTABLISHMENT OF BUDGET CENTRES:

A Budget centre is the section of organization of an organization undertaking defined for the purpose of budgetary control. Budget centers should be clearly defined and established for each of which a budget will set with the help of the departments concerned e.g. labour budget, production cost budget etc. by the accountant in conjunction with production manager and other executives

B. PREPARATION OF THE ORGANIZATIONAL CHART:

An organization chart when properly drafted will shown the functional responsibilities of each member management and that he knows his position in the organization and this relation to other members .the organization chart may have to be adjusted to ensure that each center is to be controlled by an appropriate member to the staff.

C. PREPARATION OF ADEQUATE ACCOUNTING RECORD:

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It is essential that the accounting system should be able to record and analysis and transactions involved. An account code should be maintained which should be

linked with the budget centers for the establishment of budget and control through the budgets.

D. FORMATION OF BUDGET COMMITTEE:

In

small sized organizations

a budget officer may establish

budget &

coordinate all work involved, but in larger organization the budget committee consist of chief executive , budget officer and heads of departments or budget centers, is established.

E. PREPARATION OF BUDGET MANUAL :

It is the document setting out the responsibilities of the person engaged in, the routine of, and the forms and the records required for, budgetary control. a budget manual helps in standardizing methods and procedures and the risk of overlapping of function is eliminated

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F. FIXATION OF BUDGET PERIOD:

A budget period is the period of time for which the budget is to be prepared and employed. Except in case of capital expenditure budget, the budget prepared is generally the accounting year subdivided into 4 quarter or 12 months. G. DETERMINATION OF GOVERNING FACTORS:

It is the factor to the extend whose influence must first be assessed in order to ensure that functional budgets are reasonably capable of fulfillment. The key factor serves as the starting point for preparing the budget. Generally, sales become the key factor, but other factors of production, such as men, material, capital etc. may also be factors.

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USES/ADVANTAGES OF BUDGETORY CONTROL:

a. It locates the inefficient areas and person in the business.

b. It helps to increase the efficiency, reduce the wastage and control the costs.

c. It helps to coordinate the activities of various employees, department and thus helps to achieve the goal of the management.

d. With the help of budgeting, the responsibility of the manager can be fixed for planning, so that they can think for future, anticipated and be prepared to meet the challenges ahead.

e. Actual result is compared with the budget so that corrective action can be taken in time.

LIMITATIONS OF BUDGETARY CONTROL:

1. Opposition against the every sprit of budgeting. These will always be active and passive resistance to budgetary control as it efficiency of individuals. The opposition is also due to human nature the tendency to resist the change. Moreover, any system of budgetary control cannot be successful unless it has the full support of the top management.

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2. Budgeting and changing economy. The preparation of budget which gives a realistic position of the firm s affair under inflationary pressure and changing government policies is really difficult. Thus the accurate position of business cannot be estimated.

3. Time factor. The accuracy in budgeting came through experience. Management must not expect too much during the development period.

4. Not a substitute/ or management Budget is only a management tool. It cannot substitute management. Besides that budgetary programme can be successful unless adequate arrangements are made for supervision and administration.

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VARIANCE ANALYSIS FOR OPERATING EXPENSE BUDGETS

1.

Nagpur PU Total Budgeted Expenses Actual Expenses Variance Variance in %

Financial Year

F - 2008

879.26

773.58

105.68

12.02

F - 2009

807.96

822.86

-14.9

-1.84

F 2010

974.41

1150.09

-175.68

-18.03

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CAUSES:

FY2008: Variable expenses such as stores consumption decrease by Rs.12.18 lakhs, Power & Fuel consumption decreased by Rs.36.97 lakhs. Fix expenses like repair and maintenance are decreased by Rs.30.59 lakhs, and traveling, postage, printing, telephone etc. are in increased.

FY2009: Variable expenses such as store consumption increased by Rs.10.43 lakes, Tools and power consumption are decreased. Fix expenses like repair and maintenance is increased by Rs.2.25 lakes, rate & taxes, insurance are increased.

FY2010: Variable expenses such as store consumption increased by Rs.63.43 lakes, Tools and power consumption are increased by 26.32 lakes. Fix expenses like repair and maintenance is increased by Rs.57.12 lakes,

foreign travel, repair, professional exp, special sanctions of Rs.97.75 lakes are increased.

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REMEDIES:

FY2008: Company has to prepare a budget as per production requirement. Company has to reduce traveling, postage, printing, telephone etc. exp.

FY2009: Company has to keep max. production target acc. to the market condition of product. Company has to provide training to employee so that they can use machinery properly.

FY2010: Company has to done some R & D activity for controlling stores

consumption, Tools and power consumption exp. Repair and maintenance technique of the company may not be good due to that reason exp. Increases.

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2. Tractor PGL

Financial Year

Budget Expenses

Actual Expenses

Variance

Variance in %

F - 2008

227.76

191.69

36.07

15.84

F - 2009

190.15

199.86

-9.71

-5.11

F 2010

186.77

237.08

-50.31

-26.94

CAUSES:

FY2008: Variable expenses such as power & fuel consumption increased by Rs.24.29 lakhs. Fix expenses like repair and maintenance are decreased by Rs.5.66 lakhs, other expenses is in control.

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FY2009: Variable expenses such as stores consumption increased by Rs.8.36 lakes. Fix expenses like repair and maintenance, traveling, postage, printing,

telephone etc. are increased.

FY2010: Variable expenses such as stores consumption increased by Rs.49.33 lakhs, repair and maintenance are decreased by Rs.6.98 lakhs. Fix expenses like repair and maintenance on spares are increased by Rs.8.33 lakhs, other expenses such as traveling, are decreased. postage, printing, telephone etc.

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REMEDIES:

FY2008: Company has to keep contingency reserve due to change in

government policy. Company has to keep on doing regular maintenance of machinery so that break down will not occur.

FY2009: Company always keep maximum target according to the market condition. Traveling, postage, printing and telephone exp. can be reduce by using internet services.

FY2010: Company has to focus on handling of inventory so that wastage not occurs. Repair and maintenance technique of the company for the machinery may not be good due to that reason exp. Increases.

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3.

Engine PGL

Financial Year Budget Expenses

Actual Expenses

Variance

Variance in %

F - 2008

84.51

81.07

3.44

4.07

F - 2009

119.5

131.82

-12.32

-10.31

F 2010

130.42

223.07

-92.65

-71.04

CAUSES:

FY2008: Variable expenses such as stores consumption decrease by Rs.3.67 lakhs. Fix expenses like repair and maintenance are increased by Rs.5.94 lakhs.

FY2009: Variable expenses such as stores consumption increase by Rs.1.33 lakhs, tools consumption increased by Rs.1.82 lakhs & repair and maintenance of spare are increased by Rs.2.93lakhs. Fix expenses like repair and maintenance are increased by Rs.2.78 lakhs.

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FY2010: Variable expenses such as stores consumption increase by Rs.12.21 lakhs, Tools consumption increased by Rs.31.26 lakes, repair and maintenance are decreased by Rs.6.70 lakhs. Fix expenses like repair and maintenance are increased by Rs.50.94lakhs.

REMEDIES:

FY2008: Company has to prepare a budget as per production requirement. Company has to provide training to employee so that they can use machinery properly.

FY2009: Company has to keep contingency reserve due to change in government policy. Company has to provide proper and regular attention to each machinery.

FY2010: Company has to make strategy according to the product type. Repair and maintenance technique of the company for the machinery may not be good due to that reason expenses increased. 28

4.

Account PGL Budget Expenses Actual Expenses Variance Variance in %

Financial Year

F - 2008

7.16

5.95

1.21

16.90

F - 2009

5.69

5.47

0.22

3.87

F - 2010

5.01

4.79

0.22

4.39

CAUSES:

FY2008: Fix expenses like traveling exp. are increased by Rs.0.86 lakhs. Professional exp. is decrease by Rs. 1.98 lakhs.

FY2009: Fix expenses are decreased.

FY2010: Fix expenses are decreased.

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REMEDIES:
FY2008: Company can use video conferencing system so that travelling exp. is reduce. Company has to take expertise suggestions from outsider also.

FY2009: There is a considerable change in fix expenses.

FY2010: There is a considerable change in fix expenses.

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5.

Quality PG

Financial Year

Budget Expenses

Actual Expenses

Variance

Variance in %

F - 2008

9.78

7.65

2.13

21.78

F - 2009

8.35

7.79

0.56

6.71

F - 2010

7.14

6.12

1.02

14.29

CAUSES:

FY2008: Fix expenses like traveling exp. decreased by Rs.2.21 lakhs.

FY2009: Store consumption is decrease by Rs.1.04 lakhs Fix expenses like repair & maintenances, traveling, postage, telephone and gen. & misc. exp. are increased.

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FY2010: Variable expenses like stores & tools consumption are increased

REMEDIES:

FY2008: Changes in government policy of tax is the reason of decrease in fix exp.

FY2009: Company has to prepare a budget as per production requirement. Traveling, postage, printing and telephone exp. can be reduce by using internet services.

FY2010: There is a considerable change in variable expenses. There is a considerable change in fix expenses.

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6.

Nagpur Others

Financial Year

Budget Expenses

Actual Expenses

Variance

Variance in %

F - 2008

43.07

21.86

21.21

49.25

F - 2009

70.82

48.94

21.88

30.90

F - 2010

225.5

184.84

40.66

18.03

CAUSES:
FY2008: Fix expenses like repair and maintenance are increased by Rs.23.97lakhs.

FY2009: Variable expenses are decreased by Rs.5.73 lakhs. Fix expenses like repair and maintenance are decreased by Rs.6.24lakhs. Insurance exp. is increase by Rs.3.38 lakhs.

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FY2010: Variable expenses are decreased on stores & tools consumption Rs.18.24 lakhs. Fix expenses like repair and maintenance are increased by Rs.21.47lakhs & traveling by Rs.21.47 lakhs.

REMEDIES:

FY2008: Company has to install new machinery for continuous production.

FY2009: Company has to prepare a budget as per production requirement. Company has to done proper and timely maintenance for all machinery. Company has to purchase insurance policy which is necessary as per safety point of view.

FY2010: Company has to work on new marketing strategy and adopt new technology for their survival in market.

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CONCLUSION :

BUDGET AND BUDGETARY CONTROL SYSTEM:

Budget and budgetary control system is basis need of entire finance gamut. Without budget and budgetary control system no company can achieve hi s goals. Budget and budgetary control system is a master key which is determining the profit level for the company. It is a method of forecasting future demand because of that the work of achieving the goal can be done easy. It helps to introduce standard costing technique. It also help to ensure cash flow and hence bank credit can be obtained. It creates cost consciousness in the mind of the employees in the organization. Maximization of profit is possible through budgeting. It ensures the capital of the firm utilized in proper way and that there is no miss-utilization of funds. The control system of Mahindra and Mahindra Co. Ltd. Nagpur is based on responsibility basis means every department get the target and that department must be complete given the target.

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Recommendations

After carefully analyzing and studding the entire procedure of budget and budgetary control system of M & M Co .Ltd. at Nagpur, Some observation are made as well as the following recommendations are being suggested.

1.

Changes in market condition:

M & M Co. Ltd. Should be carefully observe the market. Because if there is any single words that can best describe today s market, it is change if they will observe properly to the changing market condition they will not face the problem of changes in market scenario.

2.

Volume changes:

M & M Co. Ltd should determine the proper volume of production because of changing in volume budget always remain uncertain.

3.

Store consumption:

M & M Co. Ltd. Should provides sufficient material to every department because of that every department can be completed their target within time. Then there is no need special fund to that department.

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4.

Machinery fault:

Company is expensing the more money than budget on machinery and spare parts for repairs and maintenance. So. M & M Co. Ltd should concentrate on machinery. The success lies in the budget and budgetary control system as accurate as possible. And as M & M co. Ltd at Nagpur adopts a scientific budget and budgetary control system it is required to maintain accuracy in the process.

SUGGESTIONS:
As we were calculate the variation of all the functional unit on department of Mahindra & Mahindra Co. Ltd. we suggest them:

Constant review of performance

should be made to evaluate the actual

results as compared to budgets so that corrective action can be taken at the right time.

Company can take help of expertise personality for the review of making accurate budget analysis so that variances is to be minimized..

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LIMITATIONS:

Company have limited amount to spend.

Government policy is not fixed.

Future is uncertain so, it is not easy to predict future.

Budgetary control deals with quantitative data only.

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BIBLIOGRAPHY:

BOOKS

1.

Management Accounting - Dr. Mahesh Kulkarni

2.

Principles of Financial Management - Satish M. Inamdar

3.

Financial Management - M. Y. Khan & P. K. Jain

4.

Financial Management - I. M. Pande

WEBSITES :

1. 2.

www.mahindra.com www.mahindraworld.com

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