a study on budgetory control system conducted at hassan co operative milk producers societies ltd

A study on budgetory control system conducted at hassan co operative milk producers societies ltd. — Document Transcript

A Study On Budgetary Control System

1.1 Problem Statement Hassan Milk Union is the producer of milk and various milk products and prepares a budget estimating the various expenses and income for each financial year. The budget is prepared by the accounts department in consultation with the various other departments. However, the estimated figure does not match with the actual figures always. Milk procurement is based on population of milch animal, availability of green fodder. It is almost impossible to predict the exact figures and so deviations are bound to occur. Thus, it becomes necessary to identify the deviations and analyse the reasons for the same. Thus, this study focuses on the calculation of the deviation and ascertaining the reasons for the same.

1.2 Objectives An effective budgeting system is very vital to the success of any organization. Thus a detailed study on the budget and the budgetary system is being carried out with the following objectives:

1. The main objective is to study about the budgetary system which is being followed at Hassan Milk Union and evaluate the same to know the limitations in the existing system.

2. Computation and analysis of variances for the purpose of control and performance evaluation.

3. Basis on which the yearly budgets are prepared and measures taken to control in variances. Thus, the detail study on the budgetary control system would give a knowledge on how controlling is carried out in an organization. H.R.I.H.E, Hassan


1.3 Scope of the Study The study is extended to the accounts department of Hassan Milk Union. The data has been collected for the financial year 2008-09 and has been analysed using pictorial diagrams like graphs, bar and column charts etc. Most of the data has been collected from secondary sources

1.4 Research Methodology The study is conducted at Hassan co-operative Milk Producers Societies union Limited, which is situated at B M Road, Hassan over a period of 10 weeks.

1.5 Data Collection Method In order to fulfil the objectives of the study the data has been collected from both- • Primary Data • Secondary Data Primary Data To generate primary data for the analysis, discussion was made with company assistant manager of finance, accountants and other officials from the accounts department. The data collected from such discussions are coordinated, analyzed and integrated in this study. Secondary Data For gathering secondary data various other sources were used, which are- • Different accounting records of the company. • Magazines and journals • Internets and other publication. H.R.I.H.E, Hassan Page 2

A Study On Budgetary Control System 1.6 Limitations of the Study There are bound to be certain limitations while carrying out a study in an organisation. • Due to busy schedule of the employees, it was not possible to get access to “each and every”, information. • Due to certain constraints, current data could not be disclosed. H.R.I.H.E, Hassan Page 3


2.1 Introduction

One the primary functions of the management is planning. Most of the planning relates to individual situations and individual proposals. However, this has to be supplemented and reinforced by overall periodic planning followed by continuous comparison of the actual performance with the planned performance. Budgetary control has, therefore, become as essential tool of management for controlling costs and maximizing “Budget” and “Budgeting” are concepts traceable to the bible days, precisely the days of Joseph in Egypt. It was reported that “nothing was given out of the treasure without a written order”. History has it that Joseph budgeted and stored grains which lasted the Egyptians throughout the seven years of famine. Budgets were first introduced in the 1920s as a tool to manage costs and cash flows in large industrial organizations. Johnson states that it was during the 1960s that companies began to use budgets to dictate what people needed to do. In the 1970s performance improvement was based on meeting financial targets rather than effectiveness. Companies then faced problems in the 1980s and 1990s when they were not willing to spend money on innovations in order to stay with the rigid budgets; they were no longer concerned about how customers were being treated; only meeting sales targets became essential. Budgeting in business organizations is formally associated with the advent of industrial capitalism for the industrial revolution of the eighteenth century, which presented a challenge for industrial management. Glautier and Under (1987) state that “the emergence of scientific management philosophy with its emphasis on detailed info’ as a basis for taking decision provided a tremendous impetus for the development of management accounting and indeed budgeting techniques”.

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However, budgeting at the early stage of its development was concerned with preparing and presenting credible information to legitimize accountability and to permit correct performance evaluation and consequently, rewards. Over the years, the function and focus of budgeting has shifted considerably and business organization became more complex and their environment became dynamic coupled with the emergence trend, the term budget and budgeting have been differently defined and examined by various scholars in several ways. The Institute Of Cost and Management Accountants (UK) defines a budget as “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 a given objective. It may include income, expenditure and the employment of capital.” Omolehinwa (1989) defined a budget as a plan of dominant individuals in an organization expressed in monetary terms and subject to the constraints imposed by the participants and the environments, indicating how the available resources

may be utilized, to achieve whatever the dominant individuals agreed to be the organisation’s priorities. The impressive thing about this definition is that, it recognizes the constraint imposed on budget by other participants who are to ensure that the objectives and targets enunciated in the budget are achieved. Pandey (2003) defines budget as a short term financial plan. It is an action plan to guide managers in achieving the objectives of the firm. The Tennessee board of Regents (2006) defines budgeting as the process whereby the plans of an institutions are translated into an itemized, authorized and systematic plan of operation, expressed in dollars for a given period. Budgeting, at both management level and operation level looks at the future and lays down what has to be achieved. Control checks whether the plans are being realized and put into effect corrective measures, where deviation or short-fall is occurring. Egan emphasized that without effective controls, an enterprise will be at the mercy of internal and external forces that can disrupt its efficiency, and be unaware; such enterprise will H.R.I.H.E, Hassan Page 5


not be able to combat such forces. When a budgeting and control system is in use, budgets are established which set out in financial terms, the responsibility of managers in relation to the requirement of the overall policy of the company. Continuous comparison is made between the actual and budgeted results, which are intended to either secure, thorough action of managers, the objectives of policy or to even provide a basis for policy revision. Budgets have now grown beyond a financial tool. It is above all managerial tool; in essence, it is the best tool for making sure that key resources, especially performance resource are assigned to priorities and to results. It is a tool that enables the manager to know when to review and revise plans, either because results are different from expectation or due to environmental, economic conditions, market conditions or technologies change, which no longer correspond to the assumptions of the budget. According to Hudson and Andrew (1996), control involves the making of decisions based on relevant information which leads to plans and actions that improve the utilization of the productive assets and services available to organizations management. Effective control is said to be based on standards with which actual performance can be compared. If there are no standards, then there can be no effective measure of attainment. Effective control is a key management task which ensures that efforts produced at all levels are commensurate with those required to ensure the long-term future effectiveness and success of the organization.

2.2 Elements of a Successful Budget Plan The success of the budgeting process in an organization depends on the following essential elements:

• Accurate forecasting of business activities.

• Coordinating business activities. • Communicating the budgets.

• Acceptance and cooperation.

• Reasonable flexibility.



• Providing a framework for evaluation.

2.3 Budgeting Process The budgeting process varies widely from one organization to another. Differences in management styles, organization objectives, structure of competition and such other factors affect the procedures companies adopt in budget preparations. However, the common steps are as follows: Obtaining estimates of sales, production levels, expected costs and availability of resources from each sub-unit/division/department. Coordinating estimates. Communicating the budget to responsible managers and the concerned departments. Implementing the budget plan. Reporting the interim progress towards budgeted objectives.

2.4 Fixed and Flexible Budgeting Fixed Budgeting The Institute of Cost and Management Accountants, London, defines a fixed budget as the budget which is designed to remain unchanged irrespective of the level of activity actually attained. It is based on a single level of activity. Fixed budgets do not change when production level changes. This budget is rarely used as the actual output is often significantly different from the budgeted output. Flexible Budgeting A flexible budget is a budget that is prepared for a range, i.e., for more than one level of activity. It is a set of alternative budgets to different expected levels of activity. This budget is also known as variable budget, dynamic budget, step budget, sliding scale budget, expense formula budget and expense control budget. The underlying principle of a flexible budget is that every business is dynamic, ever-changing and never static. A flexible budget has the following features:



1. It covers a range of activity. 2. It is flexible and facilitates performance measurement and evaluation. 2.5 Types of Budget Budgets are the end process of the budgeting process. The number and types of budgets in a business enterprise depends on the size and nature of business. However, in a manufacturing concern, the following budgets are generally prepared: (A) Operating and Functional Budgets: 1. Sales budget. 2. Production budget. 3. Production cost budget. (i) Direct material budget. (ii) Direct labour budget. (iii) Factory overhead budget. 4. Ending inventories budget. 5. Cost of goods sold budget. 6. Selling expense budget. 7. Administrative expense budget. 8. Budgeted income statement. (B) Financial budgets: 1. Capital expenditure budget. 2. Research and development budget. 3. Cash budget. 4. Budgeted balance sheet. 5. Budgeted statement of changes in financial position. H.R.I.H.E, Hassan Page 8


Sales Budget The most important budget, which all other budgets are contingent upon, is the sales budget. Sales budget forecasts the future sales. The information about past performance is the starting point for sales forecasting. After collecting all relevant information sales budget is prepared. Production Budget After preparing sales budget, the production budget is prepared. A production budget is stated

in physical units. It specifies the number of units of each product that must be produced to satisfy the sales forecasts and to achieve the desired level of closing finished goods inventory. Units to produce= budgeted sales + desired closing inventory of finished goods – beginning inventory of finished goods. Production Cost Budget A production cost budget summarizes material budget, labour budget, the factory overhead budget and may be expressed and analysed by departments and or products. Ending Inventories Budget An inventory budget can be prepared to find out the values of direct materials and finished goods inventory. Cost of Goods Sold Budget A cost of goods sold budget summarizes direct material, direct labour, factory overhead and ending inventory. Selling Expense Budget This budget shows the budgeted cost of promoting sales for the budget period. It is also known as marketing expense budget. Administrative Expense Budget



This budget covers the administrative costs for non-manufacturing business activities. It contains expenses like directors’ remuneration, legal charges, audit fees, salaries, rent, office expenses, postage, telephone etc. Budgeted Income Statement A budgeted income statement summarizes all the individual budgets, i.e., sales budget, cost of goods sold budget, selling budget and administrative expense budget. Capital Expenditure Budget The budgeting of capital expenditure is one of the important areas of managerial decisions. Capital expenditure budgets are prepared for both short and long- range projects depending on the requirements of the business firm. Short- range projects are implemented during the accounting period. Long-range projects are not executed in the current period; they are expressed only in general terms. They become budget commitments only when the time for their implementation approach Cash Budget A cash budget contains detailed estimates of cash receipts (cash inflows) and disbursements (cash outflows) for the budget period or some other specific period. Such a budget helps to ascertain the cash requirements needed for a plant or equipment expansion programme. It shows the availability of funds for a given period of time and thus helps to make financial decisions. Projected Balance Sheet A projected balance sheet represents the expected financial position at a particular date. The projected balance sheet automatically determines the arithmetical accuracy of other budgets since they are used in preparing the forecasted balance sheet. Budgeted Statement of Changes in Financial Position



The projected statement of changes in financial position is usually prepared from data in the budgeted income statement and changes between the projected balance sheet at the beginning of the budget period and projected balance sheet at the end of the budget period. This projected statement is very useful to management in the financial planning process. 2.6 BUDGETARY CONTROL Budgetary control is a means of control in which the actual state affairs is compared with the budget so that appropriate action may be taken with regard to any deviations before it is too late. The use of a budget to control a firm’s activities is known as budgetary control. Budgetary control has the following main objectives: 1.

To provide an organized procedure for planning. It provides a detailed plan of action for a business over a definite period of time. 2. To coordinate all the activities of various departments of a business firm in such a manner that the maximum profit will be achieved for the minimum use of resources. 3. To provide a means of determining the responsibility for all deviations from the plan (budget) and to supply information on the basis of which necessary corrective action may be taken. Thus, budgetary control has the objective of controlling cost. 2.6.1 Budgetary Control as a Management Tool Budgetary control has become an essential tool of management for controlling costs and maximizing profits. It may be conceived as one of the supreme examples of the rationality in management. It is a useful management tool in comparing the current performance with the pre-planned performance with a view to attain equilibrium between ends and means, output and effort. It corrects the deviations from pre-planned path through the media of observation, research planning, control and decision-making and thus helps in the performance of the future activities in an orderly way. It uncovers uneconomies in operations, weaknesses in the organization structure and minimizes H.R.I.H.E, Hassan Page 11

A Study On Budgetary Control System wasteful spending. It acts as a friend, philosopher and guide to the management. Its advantages to the management can be summarized as follows: i. Brings Economy in Working – It brings efficiency and economy in the working of the business enterprise. Budget helps to achieve a goal and attain the target. The budget helps to bring about efficiency in the results. ii. Establishes Coordination – It coordinates the various divisions of a business, namely, the production, marketing, financial and administrative divisions. It “forces the executives to think and think as a group”. This results in smoother operation of the entire unit. iii. Guards Against Undue Optimism – It guards against undue optimism leading to over-expansion because the targets are fixed by executives after a careful thought. iv. Acts as a Safety Signal – It acts as a safety signal for the management. It shows when to proceed cautiously and when manufacturing can be safely undertaken. It serves as an automatic check on the judgment of the executives as losses are revealed in time which is a caution to the management to stop wastages. v. Optimum Mix – It helps management in obtaining the most profitable combination of different factors of production. This results in a more economical use of capital. vi. Management by Exception – Budgetary control reveals variations of actual performance from budgeted performance. The variations point to the root inefficiencies and thus enabling the management to consider only the items that do not go according to plan and leave the others, i.e., to concentrate on exceptions. H.R.I.H.E, Hassan Page 12

A Study On Budgetary Control System 2.6.2 Effective Budgetary Control In order to make the budgetary system really effective, the management should pay attention to the following aspects: Consultation with Non-financial Executives- The effective participation of non- financial executives should be solicited in the formulation of the budget in order to make each manager emotionally committed to the budget. Total Corporate Exercise- Budgeting should be a total corporate exercise. Piecemeal budgeting cannot be effective. True Delegation of Authority and Responsibility- There should be a true delegation of authority and responsibility beginning with top management itself. Each executive should have maximum opportunity to take decisions within the scope of his/her authority. Past Experience- Past experience is a useful guide for the future. It is, therefore, necessary that points revealed by past experience should be taken note of while formulating plans for the future. Minimum Limits only-

budget should be taken as only minimum and not the maximum level of performance. However, budget should not be suffocating. Sufficient freedom should be given to the concerned executives within the overall framework. Good Reporting System- Budgeting cannot be successful unless there is a proper feed-back system. The reporting system should be so devised that it not only tells about major variations but also the persons who are responsible for these variations. The causes for the variances should be analyzed and the management should be kept informed about the major and proper remedial measures should be taken by the management at appropriate level and appropriate time. H.R.I.H.E, Hassan Page 13

A Study On Budgetary Control System 2.6.3 Calculation of the Variances in Budgetary Control Variances = Actual yearly total – Budgeted yearly total % of variances = variance amount X 100 Budgeted yearly total 2.6.4 Limitations of Budgetary Control The budgetary control system is not a perfect tool. It has its own limitations which are as follows: Budgeting and Changing Economy- The preparation of a budget which gives a realistic position of the firm’s affairs under inflationary pressure and changing government policies is really difficult. Thus, the accurate position of the business cannot be estimated. Time Factor- Accuracy in budgeting comes through experience. Management must not expect too much during the development period. Not a Substitute for Management- Budget is only a management tool. It cannot substitute management. Besides that no budgetary program can be successful unless adequate arrangements are made for supervision and administration. Cooperation Required- The success of the budgetary control depends upon the willing cooperation and teamwork. Budget officer must get co-operation from all departmental managers. These managers must feel the responsibility for achieving or bettering departmental goals laid down in the budget. H.R.I.H.E, Hassan Page 14

A Study On Budgetary Control System 3.1 Industry Scenario India is called the “country of villages” where it covers nearly 70% of its total area. In this relation we can say that Indian economy is base on rural activities and their development. Therefore we have to give prime importance to the rural activities. A dairy is a place for handling milk and milk products. Technology refers to the application of scientific knowledge for practical purposes. Dairy technology has been defined as that branch of dairy science which deals with the processing of milk and the milk products on an industrial scale. In developed dairying countries such as the USA the year 1850 is seen as the dividing line between farm and factory scale production. Various factors distribute to this change in these countries such as the concentration of the population in cities where the jobs are plentiful, rapid industrialization, improvement of transportation facilities, development of machines etc., The rural areas are identified for the production, urban areas are for the processing of the milk. H.R.I.H.E, Hassan Page 15


3.2 Origin of Dairying in India Around 1500 BC to 2000 BC the Aryans were first to domesticate cattle. Use them for tilling their land obtain milk to be consumed as food. Again it were Aryans who priced the milk of a cow more than its meat, forbade its slaughter, created legends about it and even worshipped it. Hindus even to this day consider cow as sacred. Besides it were only the East (India/China) which domesticated buffalo as milch animal and succeeded so well that today, more than half the total production of milk in India is obtained from buffalo. Most of the farmers have one milk animal; they sell

the milk through local milk contractors or middlemen. These traders have always exploited the poor and uneducated milk producers. It was in the late forties, when integrated approach for dairy development based on farmers owned milk co-operative was first adopted at Anand. The system includes milk procurement productions and marketing through farmer co-operatives. In India, the market milk technology may be considered to have commenced in1950 with the functioning of the Central Dairy of Aarey Milk Colony and milk product technology in 1956 with the establishment of AMUL dairy, Anand. The system of collective ownership, operation and control of milk trade by farmers came to be known as ANAND PATTERN. Anand pattern has given them an opportunity to have access to the modern technology. The Brand ' ' is the household name for Pure and Fresh milk and milk products. The premises institution is NDDB and IDC for application of the Anand pattern throughout the country. The whole project under which replication was envisioned, is named as “operation flood”. The success of Anand pattern depends as establishing a strong co operative infrastructure at the grass root level, making economically viable to strengthen. Dairy industry offers employment opportunity to the people so as to help the farmers to get fair price of milk. The farmers are provided with medical facilities to their cattle. Milk is becoming an alternative life line in our rural economy. With the advent of white revolution that is “SKHEERA KRANTI” in the same pattern of Denmark and Holland.



Export of dairy products plays an important role in our foreign trade. It increases the foreign exchange and national income of our country and also economic development of our country.

3.3 History of Indian milk market industry:

• Organized milk handling was made in India with the establishment of Military Dairy Farms

• Handling of milk in co operative milk unions established all over the country on a small scale in early stages.

• Long distance refrigerated rail-transport of milk from Anand to Bombay since 1945.

• Pasteurization and bottling of milk on a large scale for organized distributed was started at: Aarey - 1950 Calcutta - 1958 Delhi - 1959 Mumbai - 1961 Madras - 1963

• Establishment of milk plants under the 3 year plans for dairy development all over India. They were taken up the dual object of increasing the national level of milk consumption and ensuring better returns to the primary milk producer. Now India is one of the richest milk producing country in the world. In 1999 it produced milk up to 770 lakhs tons and the milk valued up to 75000 crores and 13% of total production in the world is produced by India itself.

3.4 Dairy Industry in Karnataka



3.4.1 Background In June 1974, an integrated project was launched in Karnataka to restructure and reorganize the dairy industry on the co-operative principle and to lay foundation for a new direction in dairy development. Work on the first ever, World Bank aided dairy development project was initiated in 1975. Initially the project covered 8 southern districts of Karnataka and Karnataka Dairy Development Corporation was set up to implement the project. Dairy developmental activities was set up with dairy co operative societies at grass root level, milk unions at the middle level and dairy development corporation at state level as an apex body with the responsibility of implementing Rs.51 crores project. After the closure of operation flood II the dairy development activities which continued under operation flood III ended on 1996. The post operation flood works are financed by NDDB under different terms and conditions. KMF has 13 Milk Unions throughout the State which procure milk from Primary Dairy Cooperative Societies (DCS) and distribute milk to the consumers in various Towns/Cities/Rural markets in Karnataka. Bangalore Belgaum Dakshina Kannada Gulbarga Shimoga Bijapur Mysore Bellary Mandya Dharwad Tumkur Kolar Hassan The Corporate Office of the Karnataka Milk Federation is located on Dr.M.H.Marigowda Road in Bangalore. The Federation has a Board consisting representatives of Milk Producers and the Government nominees. The day to day functions of the Federation is managed by a group of professional managers headed by the Managing Director



Karnataka Cooperative Milk Producers' Federation Limited (KMF) is the Apex Body in Karnataka representing Dairy Farmers' Co-operatives. It is the second largest dairy co-operative amongst the dairy cooperatives in the country. In South India it stands first in terms of procurement as well as sales. One of the core functions of the Federation is marketing of Milk and Milk Products. Mother Dairy, Bangalore, a Unit of KMF, is set up by NDDB on 7.12.1984. The Dairy which has expanded from 4LLPD to capacity of 7.00 LLPD has a unique nature of homogenising the milk and selling to its consumers through 50 Automatic Bulk Vending Booths, 83 Shoppees and 70 FRP tanks. The Dairy also caters Milk in sachets and Milk Products through its 289 retailers. The average sale of milk per day is 2.60 Lakh litres during the year 2008-09. The entire requirement of milk is procured from Kolar Milk Union. The Dairy produces Butter, Ghee, Curds, and Ice Cream & Skim Milk Powder. The activities of all the Departments at Mother Dairy are being carried out through an on- line computer system. H.R.I.H.E, Hassan Page 19


3.5 PROFILE OF HASSAN CO-OPERATIVE MILK PRODUCER’S SOCIETIES UNION LTD

3.5.1 Introduction The Union was registered on 30th March 1977 with the operational jurisdiction extended to 3 Districts namely Hassan, Kodagu &Chikkamagalur. The Dairy was setup under the Operation Flood II & III and has a processing capacity of 1.2 Lakh Litres of milk per day. The Union also has a Dairy at Kudige with a capacity of 50,000 litres per day which is the first Dairy in Karnataka State started during January 1955. The Union has three Chilling Centres at Birur, Holenarasipur and channarayapatna with chilling capacity of 20000 liters per day at Birur and Holenarasipura and 100000 liters per day at Channarayapatna. The Union also produces Ghee, Peda, Curds, Khova and Butter Milk. The Union procures on an average 4.07 Lakh H.R.I.H.E, Hassan Page 20

A Study On Budgetary Control System litres of milk and sells 1.04 Lakh litres per day. There are 5 Bulk Milk Coolers & 46 Automatic Milk Collection Units in the Union. Hassan Dairy was established under the World Bank aid with an initial handling capacity of 60,000 KGPD and was being managed by Karnataka dairy development corporation. In the year 1987 with an idea of bringing all milk allied activities such as milk procurement, milk processing and milk marketing the Hassan dairy and the Kudige dairy (the first commission dairy plant) were handed over to Hassan Co operative Milk Producers Societies Union. The integrated system of monitoring the milk procurement, processing and marketing activities by milk producers themselves was established. 3.5.2 Mission Statement Hassan milk union aims to render the best services at normal cost to its members to increase milk production and produce good quality milk by paying remunerative price throughout the year, thereby improving their economic and social condition while ensuring high quality milk and milk products to the delighted level of the consumers at competitive price. 3.5.3 Vision Statement The union thrives hard to adopt the modern and eco friendly technologies to produce milk and milk products of international standards to make our presence prominent in the global market. 3.5.4 Aims and Objectives Hassan Co-Operative Milk Producers’ Societies Union is completely an autonomous body consisting of representatives from milk producers as policy makers • To produce continuous and remunerative market for the surplus milk in the rural areas. • To supply quality milk to customers in the urban areas at a competitive price. H.R.I.H.E, Hassan Page 21

A Study On Budgetary Control System • To provide the technical inputs necessary to produce good quality milk and to facilitate increase in milk yield. • To provide self employment to rural folk and to make them economically self sustainable by which the migration of rural folk to urban areas is minimized. • To prevent the role of the middle men in the milk business and to increase their returns. • To establish a bridge between rural and urban folk and to play a vital role in changing he social and economic status of the rural folk. 3.5.5 Role of Diary Co-Operative Society The dairy co operatives are organized in rural areas for the milk producers keeping in view the domestic principles and values. These societies educate, guide, and support the milk producers in dairy development activities. 3.5.6 Functioning of Diary Co-Operatives The dairy co operative function all through the year in two shifts, this will provide continuous market for the surplus milk produced and the payment for the milk supplied will be distributed to the producers on the predetermined day. Input activities include: • Veterinary services like regular vaccination • Artificial insemination services • Supply of balanced cattle feed and fodder slips • Training facilities H.R.I.H.E, Hassan Page 22

A Study On Budgetary Control System 3.5.7 Growth of the Union The milk union which was established in the year 1977 with 100 functional dairy co operatives collecting 10,300 Kgs of milk per day is procuring on an average 386462 Kgs per day from 1122 co operatives as on date with the increase in milk production the Hassan dairy with the initial capacity of 60,000 KGPD was expanded to 120000 KGPD during 1996.The union has also established three chilling centers with a chilling capacity of 20,000 KPD and 100000 KPD. 3.5.8 Activities of Hassan Milk Union 1. Organization of dairy co operative societies: As at the end of March 2010, 1197 societies have been registered. Out of functional societies, 330 women societies are functioning. 2. Membership Enrolment: As on 31st March 2010 173396 members have been enrolled of which 71046 are small farmer48866 are marginal farmers, 22199 are agriculture labourers and 31285 are other big farmers. 3. Milk procurement activities: The present average milk procurement from 1122 milk societies is 386462 Kgs/day. 3.5.9 Product Profile Milk is marketed under Nandini brand name in different types. The pricing adopted is mainly on four categories namely: • Double Toned Milk – Rs 14 /1000ml • Toned Milk – Rs 16 /1000ml • Standardized (homogenized) Milk – Rs 18 /1000ml • Full Cream Milk – Rs 20 /1000ml Apart from this, milk is marketed in 3 variants- • Nandini Goodlife with 3.5% fat and 8.5% SNF • Nandini Smart with 1.5% fat and 9% SNF • Nandini Goodlife Slim with 0.5% fat and 9% SNF H.R.I.H.E, Hassan Page 23

A Study On Budgetary Control System Types of milk and milk products marketing by HAMUL Nandini Toned Milk Karnataka’s most favorite milk, Nandini Toned Milk is a Fresh and pure milk containing 3.0% fat and 8.5% SNF. Available in 500ml and 1 liter packs. Better to use within a day from the date of pack. Maximum Retail Price is Rs. 13/- per liter. Nandini Homogenized Toned Milk Nandini Homogenized Milk is pure milk containing 3% Fat and 8.5% SNF. This is homogenized and pasteurized. Consistent right through, it gives you more cups of tea or coffee and is easily digestible. Available in 500 ml packets H.R.I.H.E, Hassan Page 24

A Study On Budgetary Control System Nandini Full Cream Milk Nandini Full Cream Milk, Contains 6% Fat and 9% SNF. A rich, creamier and tastier milk, ideal for preparing home-made sweets and savouries- available in 500ml and 1 litre packs. MRP Rs. 15/- per litre Good life Cow's pure milk, UHT processed, bacteria free in a tamper-proof tetra-fino pack which keeps this milk fresh for 60 days without refrigeration until opened. Available in 500 ml Fino and in 200ml bricks at premium stores across the state. Smart Cow's pure milk, homogenized, double toned UHT processed milk bacteria free in a tamper proof tetra fino pack which keep the milk fresh for 60days without refrigeration H.R.I.H.E, Hassan Page 25

A Study On Budgetary Control System until opened. At present the milk is being directly home delivered on request. Available in 500ml pack. Slim Cow's pure milk, homogenized, Skimmed. UHT processed milk bacteria free in a tamper proof tetra-fino pack which keep the milk fresh for 60 days without refrigeration until opened. Nandini Goodlife slim skimmed milk is 99.5% fat free. Available in 500ml Fino and in200ml bricks at premium stores across the state. Shubham Buffalo's milk, 100% pure pasteurized processed and packed hygienically. This milk has 5% fat and 9% SNF. Available in 500ml and ltr, packs Mysore pak H.R.I.H.E, Hassan Page 26

A Study On Budgetary Control System Fresh and tasty, Nandini Mysore Pak is made from quality Bengal Gram, Nandini Ghee and Sugar. It's a delicious way to relish a sweet moment. Available in 250gms.PP container shrink packed to preserve freshness. Can be kept for 7 days.advised to consume fresh to enjoy its excellent taste Nandini Curd Nandini Curd made from pure milk. It’s thick and delicious giving you all the goodness of homemade curds. Available in 200 grams and 500 grams packs. Nandini butter is rich smooth and delicious. Nandini Butter is made out of fresh pasteurized cream. Rich taste, smooth texture and the rich purity of cow’s milk, makes any preparation a delicious treat. Available in 100 grams, 200grams and 500grams cartons both salted and unsalted. Nandini Ghee A taste of purity, Nandini Ghee made from pure butter. It is fresh and pure with a delicious flavor. Hygienically manufactured and packed in a special pack to retain the goodness of pure ghee, having Shelf life of 6 months at ambient temperatures. Available in 200ml, 500ml, 1000ml, sachets and also in 5lts tins and 15.0 kg tins. Nandini Butter H.R.I.H.E, Hassan Page 27

A Study On Budgetary Control System Nandini spiced buttermilk is a refreshing health drink. It is made from quality curds and is blended with fresh green chillies, green coriander leaves, asafetida and fresh ginger. Nandini spiced butter promotes health and easy digestion. It is available in 200ml packs and is priced at most competitive rates, so that it is affordable to all sections of people. Nandini Butter Milk Nandini butter milk is Rich, smooth and delicious. Available in 100 grams (salted), 200 grams and 500 grams cartons both salted and unsalted. Cheese H.R.I.H.E, Hassan Page 28

A Study On Budgetary Control System Delicious Cheese, processed with utmost care to ensure the smooth and rich taste of pure cheese. It's highly nutritious an excellent source of milk proteins and a rich source of calcium. Need to be kept under refrigeration. Available in 100gms carton Paneer Pure and tasty dishes with Nandini Paneer! A fresh, nutritive product made by coagulating pure milk, it is an excellent source of milk protein. Nandini paneer is ideal for vegetarian dishes such as mutter paneer, sag paneer and various other dishes.Refrigerated storage in preferable. Available in 200gms pack, specially packed in a five layer film and vacuum packed to preserve its quality. Bulk packings are also available. Flavored milk H.R.I.H.E, Hassan Page 29

A Study On Budgetary Control System Sterilized flavored milk, a nutritious and healthy drink and an all-season wholesome drink available in five different flavors - pineapple, rose, badam, pista and natural orange. Apart from refreshing energy. Available in 200ml Nandini Peda No matter what you are celebrating! Made from pure milk, Nandini ‘Peda’ is a delicious treat for the family. It is maintained at room temperature, for approximately 7 days. Available in 250grams pack containing 10 pieces each. Gulab jamon mix H.R.I.H.E, Hassan Page 30

A Study On Budgetary Control System Great way to those soft and juicy jamoon treats at home! Nandini Gulab Jamoon Mix is made from Nandini skimmed milk powder, maida, soji and Nandini Special Grade Ghee.Available in 100gms and 200 gms standy pouch with a five layer foil lamination shelf life of 6 months Khova Khova is prepared out of fresh milk. It is an ideal base to prepare delicious sweets at home like peda, Gulab Jamoon, Kalakand, Burfi, Gajar Halwa and the like. Nandini Khova gives you a high nutritive value with large quantities of muscle building proteins, bone forming minerals and energy giving fat and lactose. To be kept under refrigeration available in 200gms vaccum packed in a special five

layer pocu film Khova is also available in bulk pack for marriages and other functions Milk powder H.R.I.H.E, Hassan Page 31

A Study On Budgetary Control System Enjoy the taste of pure milk! Skimmed milk powder made from pure milk, processed and packed hygienically. Available in 50gms, 200gms, 500gms, 1kg and 25kg pack Cashew Burfi Prepared using quality Cashew nuts, Khova and Ghee. It leaves a lingering Cashew flavor in your mouth. Available in 250 gm in a P.P.Box, shrink wrapped to preserve its freshness .shelf life 12 days Nandini Basan Ladoo It is a delicious indigenous product prepared from pure Ghee, Gramflour and sugar added with cashews. Available in 250 Gms pack containing 6 Pieces. Shelf life 1 month Nandini bite H.R.I.H.E, Hassan Page 32

A Study On Budgetary Control System A unique sweet. Cocoa based. Nandini Bite is a three-in-one sweet prepared by using Mysorepak, Khova and dremed with Almond. Available in 25 gm Aluminium foil packing. Shelf life 12 days Nandini Set Curd NANDINI SET CURD, thick and highly nutritive curd is made from 3% Toned Milk with added imported bacterial cultures, filled into 200gm and 400gm cups and allowed to set into curds. Imported bacterial cultures constitute curd forming bacteria of high genetic abilities and release antimicrobial substances into curd imparting disease resistance to consumers( probiotic characteristic). The curd apart from therapeutic in nature has very high shelf-life and can be kept for 15 days in refrigerator without curds becoming sour. NANDINI SET CURD is competitively priced at Rs.7 per 200gm cup and at Rs.13 per 400gm cup. Shelf life 15 days in refrigerator without curds becoming sour 3.5.10 ORGANIZATION STRUCTURE H.R.I.H.E, Hassan Page 33

A Study On Budgetary Control System BOARD OF DIRECTORS - CHAIRMAN MANAGING DIRECTOR (C.E.O.) ADMINISTRATION PERSONEL ASSISTANCE DEPARTMENT FINANCE PRODUC TION MANAG E MENT PROCUREMENT & PURCHASE INFOR MATION A -Staff Sr. 1 B- C-23 D-69 INPUT (Dairy Plant) E-275 MARKE TING F-25 G-3 SYSTEM 15 H-3 3.5.11 Personnel Department Administration H.R.I.H.E, Hassan Page 34

A Study On Budgetary Control System Deputy Manager Training/ Legal Cell Domestic Establishment (Personnel) Enquiry Assistant Officer in charge Administrative officer Manager Office superintendent Support staff It plays a crucial role in an organization which is always referred as the strength of the organization. Recruitment: Recruitment is made as per the cader strength approved by Registrar of co operatives. And the said cader strength is within the preview of co operative act and rules. Reservation policies of the government are being followed for recruitments. H.R.I.H.E, Hassan Page 35

A Study On Budgetary Control System Whenever Union goes for recruitment the necessary steps are being taken as per the guidelines stated in its Bye law and proper advertisement will be given in the State News papers for the posts required and all the processes are made as per Govt. norms and Suitable candidates will be called either for written test or interview or both. Training: Hassan Milk Union is having training facilities for its employees at various reputed training centers and for new employees, they will be facilitated with one month on the job training at their respective areas. CTI (Central training institute), a unit of KMF, Bangalore, is one of the best training centers having its own facilities with residential facilities providing training to skilled and unskilled employees as well.

Management development program to middle level management officers of the milk union on various subjects related to dairy, marketing, administration and procurement and input. In addition to this, Hassan Milk Union deputes its officers and personnel for different technical and non technical training in the following training centers: • SRDTC(Southern regional demonstration and training center) for both technical and non technical training. • Mansinh institute of training, Mahsana, Gujrat, only for technical training. • Vaikunt Mehta institute, Pune. For management development programmes. • Institute of rural management, Anand. • Regional institute of co operative management, BANG • CII- Confederation of Indian industries, institute for quality- for food industrial platforms are created. Orientation programme: The new employees are given 3 to 4 days orientation training program at CTI, Bangalore, and a unit of KMF. This particular training is given to the newly recruited employees irrespective of their cader. H.R.I.H.E, Hassan Page 36

A Study On Budgetary Control System Employee promotion: It is clearly stated in the cadre and strength document which is approved by registrar of co-operative societies. The employee promotion is dependent on the merit and seniority basis. It is the mandatory method followed. To decide on this, the employee education, obedience, carrying of the job and attendance are taken into consideration. Record maintenance: Hassan Milk Union is having well establishment section under the administration department which maintains and updates records and other details of each employee with individual record book and file. Leave: Casual leave of 15 days per year and for new entrants 1 day per month for one year is followed. Employees of the Hassan Milk Union are eligible for 30 days earned leave in each year during their service and also once in 2 year block period they will be given the option facility for surrender of leave of one month and to avail the encashment facility. The accumulation of leave days at present is restricted to 240 days. HPL (Half pay leave) facilities are available. If any accident takes place during the working hours the special leave is given: • Special leave: the rabies leave is given for the infected dog bite. And also the blood donation leave for 1 day is given. • Maternity leave: on condition, with payment. • Extra-ordinary leave: depending on the service or any major health issues. Conveyance Allowance: H.R.I.H.E, Hassan Page 37

A Study On Budgetary Control System The Hassan Milk Union is providing conveyance allowance to its employees who are having two wheeler vehicles and commuter charges for those who are dependent on public transport per month is fixed. Uniform: Uniform will be provided to the employees who are working in the factory and this facility is extended to only up to the cader of Technical Officers. Transfer: The transfer facilities are given. It is in the hands of Managing Director. If the transfer is on the request, employee is not entitled for cash benefits but if it is not on request, he is entitled for cash benefits. Retirement: The retirement age is 60 years. But on health grounds there is a consideration. And the 3 months prior notice is a must before leaving the job anytime before the retirement. Retirement benefits: A salary of 15 days per year of completed years of service is given. 3.5 lakhs ceiling is applicable and all the gratuity announcements are according to government notifications. Provident fund is as per the government norms. 12.5% toward provident fund contribution per the entire employee. 3.5.12 Production Department: Every morning by 9.30am, the scheduled is drawn depending on the consolidation of all the information from different units. Entire milk has to dispatched before the next raw milk comes in. All the availability options should be weighed and instant decisions have to be taken.

Presently the day to procurement on an average comes up to 2,50,000 litres per day. All the indents are moved there by 11am and this has to be intimated to the packing division. H.R.I.H.E, Hassan Page 38

A Study On Budgetary Control System Packing material purchase is based on the integrated business plan. The rolls have to be weighed and bought out because by the end of the month the statement has to be prepared if the loss is 2% over and above the loss is recovered from the suppliers. If the loss is >1% and <2% that loss is recovered from the packing contractor. For each and every product the organization has fixed some standard. For 500ml it is 45-55 micron. For 1000ml it is 55-65 micron. This comes in pre-printed rolls but the date of packing, batch number and machine number is printed on the time of packing. After the packing being done, it is handed over to the finished goods section then dispatch starts. The longest route is Hassan to Kudremukh (180km) through an insulated vehicle. The document from the last point has to be bought back. No credit services. Day to day payments is being made. Only for milk pourers it is 7 days and sometime it even goes up to 15 days. The statement is being made deducting the commission and the next day’s indent also has to be collected. In case of any eventualities other than natural calamities, it is accepted. Suppose any negligence, accidents penalty is fixed. 3.5.13 Marketing Department: Marketing should be considered as the core business function in this competitive world as it establishes, develops, and commercializes long term customer relationships and helps in meeting organizational goals. Pricing is a federal policy and KMF decides the marketing price of the milk end the milk products. KMF has adopted pricing mainly on four categories namely: H.R.I.H.E, Hassan Page 39

A Study On Budgetary Control System • Double Toned Milk – Rs 14/100ml • Toned Milk – Rs 16/1000ml • Standardized (homogenized) Milk – Rs 18/1000ml • Full Cream Milk – Rs 20/1000ml As Hassan Milk Union is procuring 4 lakhs milk per day and its local market requirement is 1.2 lakhs Kgs/day. As such the excess milk is being sent to sister unions and Interstate federations and balance if any will be sent for conversion into butter and SNP. H.R.I.H.E, Hassan Page 40

A Study On Budgetary Control System 3.5.14 Procurement Department: The milk co operative societies will be organized in villages where there is excess milk production. The extension staff of the union will visit the villages and conducts the survey about the village population, animal population and the availability of the surplus milk and report to the office for consideration. The office will issue necessary instructions to organize the societies. Then the first Gramasabha meeting will be conducted and select the promoters to promote the Dairy cooperative in the village and with the permission of Registrar of Cooperative with the recommendation of Milk union the Village Chief promoter will permitted to collect the share capital and with all fulfilment of required norms then proposal will be sent to registrar of co operative department for registration. On registration, milk co operative society will be commissioned and starts procuring milk from the producers. The milk procured will be transported through trucks to nearby chilling centers and dairy where milk is processed further. The society will be provided with veterinary services, AH services, feed and fader services, training and extension services. The village dairy Cooperatives will receives payments for the milk supplied to Union once in a week and the same will be distributed among its produce members every week and day is fixed which is convenient to the concerned village. H.R.I.H.E, Hassan Page 41

A Study On Budgetary Control System 3.5.15 Stores/ Purchase Department: Purchase Purchase/stores Officer Sub staff Hassan Milk Union is having a separate purchase department and purchases are made based on the requirements of various department and purchases are made as per the relation laid out. Hassan Milk Union is having full pledged stores which supplies materials to various based on the indents or requirements and the people who are working in the stores are very well worked in inventory management. Both purchase and store departments are working under the supervision of manager dairy. Stores: The storage place for almost all necessary goods which come into the factory premises: But here the store is the place where all these are there: 1. Packing materials 2. Stationery 3. Spares 4. Oil and lubricants 5. sugar 6. Testing chemicals H.R.I.H.E, Hassan Page 42

A Study On Budgetary Control System 7. Cleaning acids 8. Uniforms and Shoes 9. Cans for societies 10. Ledgers The activity takes place in stores: Requisition letter: First the manager of concerned department depending upon the need for the goods sends a requisition letter to the manager dairy and then once approved the same reaches the stores in charge, the purchase section places an order. Purchase order: But for the goods regular nature depending upon the stock level, the stores in charge takes up the responsibility to place order and have the materials ready when ever required. Here in the co operative sector as per the transparency act if the goods and where the capital expenditure is involved, the enquire letters are sent the suppliers and who ever quotes the least and also with quality gets the order. And the same purchase order copy goes to 1. the supplier 2. the store in charge 3. Accounts section 4. concerned user section Purchase order also includes 1. Mode of payment after and before supply 2. Terms and conditions(taxes) 3. Delivery period 4. Mode of dispatch Invoice: H.R.I.H.E, Hassan Page 43

A Study On Budgetary Control System Against the purchase order the concerned supplier gives the invoice. Once the invoice is received the cross checking of materials as per the specifications purchase order is done. The concerned department communicated about the goods and the concerned person gives a user section remark on the quality of the product. Hence the goods received note is sent to concerned user section 3.5.16 MIS Management Information System Assistant Manager System Officer Support Staff The main activity of the MIS department in the organization is to act as the information source for all the levels of management for the decision making in different H.R.I.H.E, Hassan Page 44

A Study On Budgetary Control System situation. Hence to say the integration of information from all the departments for the decision making for all the three levels which exist in the organization: 1. Top level 2. Middle level 3. Lower level The information collected from the dairy and various chilling units on on-line and information collected from Marketing on every day will be processed and send to KMF every day and also monthly procurement and input wing and the data related to artificial insemination and progress achieved in Fodder and Feeds division are collected and necessary information will be prepared and sent to various department as well will be submitted to CEO and other section heads to enable them to take necessary action and also with the help of these data MIS department will prepare the annual Targets to the Dept of Procurement and Input and Marketing. Also, all these data is given to the MIS department and the integration on monthly basis is taken up and the report as sent to the managing director and same place before the monthly meetings held of all the milk unions. 3.5.17 Finance Department Source of finance to start KMF and its units is from World Bank channels through agreement between NDDB under Tripartite agreement between NDDB, KMF and Government of

Karnataka. Now, source of funds are share capital and realization from sale proceeds of milk and milk products. As on 31.03.2010 the paid up capital was 765.32 lakhs and 218.03 lakhs loan was taken for operating. H.R.I.H.E, Hassan Page 45

A Study On Budgetary Control System H.R.I.H.E, Hassan Page 46

A Study On Budgetary Control System 3.5.18 Production Department: The dairy works in 3 shifts to receive milk in the morning and evening shifts. The milk received from DCS in cans will be tested for quality and weight is recorded. The payment will be made based on the quality and the quantity. The milk received in tankers will be weighed and tested and pumped into chiller and stored in insulator storage tank. The local market needed quantity will be pasteurized and stored in insulated HMST for packing toned milk, double toned milk and standardized homogenized milk. Apart from this, union also produces ghee, peda, flavored milk, curds and butter milk. The excess fat in the milk will be separated in the form of cream and issued for butter making. The cream breaks into butter and butter milk where butter is issued for ghee making and butter milk is tested for fat/COB (clout on boiling) and it will be reprocessed or will be drained out. Based on the market demand, butter is drawn for ghee production and same will be packed as per requirement. H.R.I.H.E, Hassan Page 47

A Study On Budgetary Control System 3.5.19 Channels of Distribution The network of distribution of milk was founded to be very systematic and has made distinct role in the successful marketing of milk. The processed and pasteurized milk is first packed and stored and then distributed to the target customers. Processing and manufacturing Storage Dealers or Retailers Consumer Power The KPTCL supplies the power up to 325 kilo watts per month. In case of shortage in supply diesel generator is used. Vehicle The union owns 5 milk tankers. In addition to this, it has one car, and two jeeps. 3.5.20 ACHIEVEMENTS H.R.I.H.E, Hassan Page 48

A Study On Budgetary Control System • Hassan milk union is procuring milk from all the 13 taluks of three districts and selling quality milk in all the taluks and small towns. • The union and all the dairy co operatives are being managed by the democratically elected boards from among the milk producers. • The technical input to dairy co operatives and the dairy plants are managed by well trained, committed professionals and technical team. • 91% of the milk co operative societies are operating under profit • The union has successfully implemented the animal induction program for SC ST and OBC since 1996 with the financial assistance from central and state governments and rendered direct loans to the beneficiaries at lower interest rates. • 254 women dairy co operatives (as on May 2009) have been organized since 1997 under support training and education program(STEP) • The union has also implemented mini dairy scheme and bring entrepreneurial environment in the rural area. • The union has set up Artificial insemination facilities for dairy co operatives. • The union has rendered emergency veterinary services round the clock. • The union has implemented foot and mouth disease control program(FMDCP) • Fertility camps are being conducted once in three months by inviting experts in the field. H.R.I.H.E, Hassan Page 49

A Study On Budgetary Control System • The union supplies quality fodder slips and seeds through the year and facilitates the availability of green fodder. • The union is insuring the life of milk producers and

dairy co operative staff with the co ordination from Life Insurance Corporation and National insurance company since 1997-1998 under “samajika suraksha yojana”. • The union has launched the “YESHASHVINI” program to the milk producers wherein the milk producers are provided with the best available medical facility at free of cost. • Smokeless chula have been provided to the milk producers with an intention of improving the health of rural women folk. • The union has successfully implemented the Total energy management program and Total quality management program (quality excellence from cow to consumer) since 2001 respectively. • Quality awareness programs are being conducted regularly for school children, house wives and consumers. • The union has got ISO 9001:2000 certification from TUV India, Mumbai. • The union has got Energy Conservation Award 3.5.21 SWOT Analysis Strengths • Procurement and Input( P&I) network H.R.I.H.E, Hassan Page 50

A Study On Budgetary Control System • Goodwill • ISO 9001:2000 certified • Second largest producer • Vast market Weaknesses • WTO standards • Advertisement execution in its early • Early stages of automation and computerization Opportunities • Enter rural market • Neutraceuticals • Exports Threats • Entry of big players • WTO standards • Government policies 4.1 Budget 2008-09 of the Union The first objective of this study is to analyze the budget of the organization. The budget of the organization is prepared by a budget committee with consultation with the various departments. The budget is prepared on the basis of the estimations given by each H.R.I.H.E, Hassan Page 51

A Study On Budgetary Control System department and the same is consolidated into a yearly budget by taking into consideration the various sources of income and expenditure. For the purpose of analysis, the budget of 2008-09 of Hassan Milk Union is considered wherein the current year figures are compared with the actual of the year to obtain the variations thereof. The budget of the union is shown in the following page: H.R.I.H.E, Hassan Page 52

A Study On Budgetary Control System The previous table shows the budget which was prepared by the committee for the year 2008-09. It shows the monthly estimation of the various sources of income like sales, interest on deposits with banks, grants received, advances, other income etc. Similarly, it also shows the monthly expenditure incurred on various items like purchases, staff expenses, interest on loans borrowed, administrative expenses, selling and distribution expenses etc. With these items, the estimated net loss or profit is ascertained. H.R.I.H.E, Hassan Page 53

A Study On Budgetary Control System 4.2 Budget Process at Hassan Milk Union The budget prepared by any organization is an estimate of the various sources through which revenue would be generated and the various expenditures which would be incurred during the year. Excess of income over expenditure would result in net profit and excess of expenditure over income results in net loss during the year. At Hassan Milk Union, the budget is prepared by the accounts department with consultation from various other departments. Estimation Of Procurement Of Milk From Various Societies The budget of Hassan Milk Union mainly depends on the procurement of milk from its various societies. Thus the estimation of the same plays a vital role in the budget process. The accounts department obtains estimation on the quantity of procurement from the MIS department based on the past experience and the trend. Procurement of milk depends on the seasonal fluctuations. In the milk industry, a period from October to January is considered as a flesh period during which there is abnormal procurement i.e. over and

above the normal procurement. A period of 3 months from March to June is considered as lean period during which the quantity of milk obtained is less. The remaining months in the year generate normal procurement. Also in the milk industry, once in 3 years is considered as lean period wherein the procurement of milk reduces in all the diaries throughout the country. However, there has been a change in the trend recently wherein in November the procurement is normal and May to August is a period when the procurement is abnormal and January to April has turned out to be lean period. Based on these trends, the MIS department estimates the procurement and that is the basis on which the yearly budget is based. Marketing Plan is Set Out The Marketing department of Hassan Milk Union lays down its marketing plan which gives an estimate of the local sales of milk and various milk products. H.R.I.H.E, Hassan Page 54

A Study On Budgetary Control System Based on this plan, an estimate is made on the milk which is to be sent to other diaries and what quantity of milk is to be sent for conversion. Based on this, the transportation costs and conversion costs are estimated. Target is Laid Down by Different Departments Each department of the Union lays down its own targets for which has finance to be provided for by the accounts department in its budget. All this has to be incorporated for in the yearly budget. Costs are Estimated Based the plans of various departments, the total expenditure and revenue are penned down in a prescribed manner which would estimate the net profit/ loss for the year. H.R.I.H.E, Hassan Page 55

A Study On Budgetary Control System 4.3 Analysis of Budget Here each item of the budget is calculated as a % of sales and analyzed. The yearly figures are considered for these calculations. PARTICULARS YEARLY BUDGETED AS % OF SALES AMOUNT( in lakhs) OPENING STOCK 50.45 0.31 PURCHASE & MATERIAL 14167.26 86.35 CONSUMPTION PROCUREMENT TRANSPORT 372.97 2.27 EXPS PROCESSING & MANFG EXPS 438.54 2.67 TOTAL 15029.22 91.61 SALES 16405.08 100.00 CLOSING STOCK 70.56 0.43 TOTAL 16475.63 100.43 STAFF EXPENSES 986.77 6.02 ADMINSTRATIVE EXPENSES 134.06 0.82 SELLING & DISTN EXPS 289.32 1.76 INTEREST & BANK CHARGES 18.25 0.11 TECHNICAL INPUT SERVICES 12.36 0.07 DEPRECIATION 60.00 0.37 TOTAL 1500.76 9.15 H.R.I.H.E, Hassan Page 56

A Study On Budgetary Control System OTHER INCOME 61.48 INTEREST ON DEPOSITS & 24.18 ADVANCES GRANTS RECEIPTS 0.00 TOTAL 85.66 N E T PROFIT / LOSS 31.32 H.R.I.H.E, Hassan Page 57

A Study On Budgetary Control System The table above shows the projected annual figures of the on various items for year 2008-09. It also shows the various incomes and expenditure as a % to sales. As per the budget, the Hassan Milk Union is expecting a net profit of Rs 31, 32,000 for the year with a net profit ratio of 0.19%. The major source of revenue is from sales of milk and milk products in local markets and inter-diaries. There are certain other sources of income as well like interest on deposits and other income. However, they contribute to only 0.15% and 0.37% respectively which indicates it is a minor source of revenue to them. The major expense projected is purchase of milk and milk products which is about 86.35% of sales. Hassan Milk Union procures milk from various societies at different rates. It is the basic raw material required for processing into Skimmed Milk Pouches and for conversion to various milk products like ghee, butter, peda, buttermilk etc, The graph depicts the budget in a diagrammatic manner. The graph shows that the main items in the budget are sales and purchases. All the remaining items are very minor and are thus hardly pointed on the graph. 4.4 Comparing the Actual with the

Budgeted Figures and Computing the Variances. The table on the next page shows the annual budgeted figures and the actual figures which is obtained from the audited reports of the union. The following 2 formulas have been used to calculate the variances and the % of variances. H.R.I.H.E, Hassan Page 58

A Study On Budgetary Control System Calculation of Variance and % of Variance Variances = Actual yearly total – Budgeted yearly total % of variances = variance amount X 100 Budgeted yearly total H.R.I.H.E, Hassan Page 59

A Study On Budgetary Control System PARTICULARS Budgeted Actual Variance % of Amt Amt (in lakhs) variance (in lakhs) (in lakhs) Opening Stock 50.45 155.14 89.68 177.76 Purchases & Material Consumption 18810.83 1904.56 13.44 14167.26 Procurement Transportation Expenses 637.48 52.13 13.97 372.97 Processing & Manufacturing Expenses 931.05 237.65 54.19 438.54 TOTAL 15029.22 20534.5 2284.34 15.19 Sales 16405.07 21852.33 3040.82 18.53 Closing Stock 70.56 318.65 232.2 329.08 TOTAL 16475.63 22170.98 3273.02 19.86 Staff Expenses 986.77 997.8 11.03 1.12 Administrative Expenses 134.06 99.75 (35.00) (26.10) Selling & Distribution Expenses 358.74 69.41 23.99 289.33 Interest & bank Charges 18.25 15.58 (2.67) (14.63) Technical Input Services 12.35 (33.48) (45.83) (371.09) Depreciation 60.00 133.30 73.3 122.17 TOTAL 1500.76 1571.00 70.24 4.68 Other Income 61.48 67.72 6.24 10.15 Interest on Deposits & Advances 20.35 (3.83) (15.83) 24.18 TOTAL 85.66 88.07 2.41 2.81 Net Profit/ Loss 31.32 117.00 85.68 273.53 H.R.I.H.E, Hassan Page 60

A Study On Budgetary Control System The graph shows that the estimate of sales and purchase is very less compared to the budgeted amount. The same can be shown using a pie-chart which shows the variances in the various particulars. 4.5 ANALYSIS OF VARIOUS ITEMS ESTIMATED IN THE BUDGET • OPENING STOCK BUDGETED YR. ACTUAL YR. VARIANCE TOTAL TOTAL % OF VARIANCE PARTICULARS (Rs in lakhs) (Rs in lakhs) (Rs in lakhs) TOTAL OPENING STOCK 50.45 155.14 104.69 207.51 H.R.I.H.E, Hassan Page 61

A Study On Budgetary Control System INTERPRETATION The chart above shows the budgeted and actual results with regard to stock of milk and various milk products at the beginning of the year. The budgeted figures were Rs 50.45 lakhs and the actual expenditure incurred was Rs 155.14 lakhs. Thus, there is a variance of Rs 104.69 lakhs. The stock at the beginning of the year depends on the closing stock at the end of previous year. The closing stock at the end of 2007-08 was Rs 155.14 lakhs which, therfore, became the opening stock of the year 2008-09. • PURCHASE AND MATERIAL CONSUMPTION BUDGETED ACTUAL VARIANCE % OF YR.TOTAL YR.TOTAL VARIANCE PARTICULARS (Rs in lakhs) (Rs in lakhs) (Rs in lakhs) Purchases & Material 14167.26 18810.83 4643.57 32.78 Consumption H.R.I.H.E, Hassan Page 62

A Study On Budgetary Control System INTERPRETATION The chart above shows the budgeted and actual results with regard to the purchases and material consumption. The budgeted figures were Rs 14167.26 lakhs and the actual expenditure incurred was Rs 18810.83 lakhs. Thus, the variance is Rs 4643.57 lakhs which is highly inconsistent. This variance is mainly due to high purchase of milk and milk products made during the year. The Union accepts the entire quantity of milk which it procurs from the various societies at different rates depending on the profitabality of the Union, and the purachses varies substantially from the budgeted amount every year. • PROCUREMENT TRANSPORT EXPENSES BUDGETED ACTUAL

VARIANCE % OF YR.TOTAL YR.TOTAL VARIANCE PARTICULARS (Rs in lakhs) (Rs in lakhs) (Rs in lakhs) Procurement 372.97 637.48 264.51 70.92 Transportation Expenses H.R.I.H.E, Hassan Page 63

A Study On Budgetary Control System INTERPRETATION The chart above shows the budgeted and actual results with regard to the procurement transportation cost . The budgeted figures were Rs 372.97 lakhs and the actual expenditure incurred was Rs 637.48 lakhs. Thus, the variance of Rs 264.51 lakhs is an adverse variance . This variance is due to the addition of various routes from which the diary procurs milk. The number of societies from which milk is obtained as increased and an increase in number of sources would obviously increase the tranportation cost of procuring the raw milk. • PROCESSING & MANUFACTURING EXPENSES BUDGETED ACTUAL VARIANCE % OF YR.TOTAL YR.TOTAL VARIANCE PARTICULARS (Rs in lakhs) (Rs in lakhs) (Rs in lakhs) Processing & 438.54 931.05 492.51 112.31 Manufacturing Expenses H.R.I.H.E, Hassan Page 64

A Study On Budgetary Control System INTERPRETATION The chart above shows the budgeted and actual results with regard to the process manufacturing expenses . The budgeted figures were Rs 438.54 lakhs and the actual expenditure incurred was Rs 931.05 lakhs. Thus, the variance is Rs 492.51 lakhs which is quite high. The devation in the process manufacturing expenses is mainly due to the variation in the conversion cost which shows a difference of Rs 174.68 lakhs. The conversion cost mainly depends on the milk procured by Hassan Milk Producers’ Union Society. Whenever the milk procured is in excess, there would be no market for milk. In such case, excess milk is sent to inter-diary and then after it’s sent for conversion to butter, SMP. As we have seen that the procurement of milk was very high during the year, the conversion cost has also varied considerably which in turn is the main cause for the process manufacturing process to deviate. • SALES BUDGETED ACTUAL VARIANCE % OF YR.TOTAL YR.TOTAL VARIANCE PARTICULARS (Rs in lakhs) (Rs in lakhs) (Rs in lakhs) Sales 16405.07 21852.33 5447.26 33.20 H.R.I.H.E, Hassan Page 65

A Study On Budgetary Control System INTERPRETATION The chart above shows the budgeted and actual results with regard to the sales generated during the year. The budgeted figures were Rs 16405.07 lakhs and the actual expenditure incurred was Rs 21852.33 lakhs. Thus, the variance of Rs 5447.26 lakhs is highly a favourable variance. Sales is the main source of revenue for any organisation. Thus, the higher sales it is the better for the organisation. The higher variance in it has a positive impact. However it becomes necessary to analyse the causes for it. The deviation in sales is mainly on account of sales to inter dairies and other states which has varied considerably. This is again due to high procurement during the year. The excess of milk has been sold to various other diaries which have been a major source of income. Also ghee has a very good demand in the local market near Hassan due to which the sales of loose and sachet ghee is much more than anticipated. • CLOSING STOCK BUDGETED ACTUAL VARIANCE % OF YR.TOTAL YR.TOTAL VARIANCE PARTICULARS (Rs in lakhs) (Rs in lakhs) (Rs in lakhs) Closing Stock 70.56 318.65 248.09 351.60 H.R.I.H.E, Hassan Page 66

A Study On Budgetary Control System INTERPRETATION The chart above shows the budgeted and actual results with regard to the closing stock at the end of the year. The budgeted figures were Rs 70.56 lakhs and the actual amount has increased by Rs 248.09 akhs. Thus, the actual closing stock at the end of the financial year 2008-09 was Rs 318.65 lakhs. Closing stock depends on the sales generarted, production

during the year and also the opening stock. Opening Stock + Production = Sales + Closing Stock Closing Stock = Opening Stock + Production - Sales As there is a variance in the opening stock, purchase and production and also in the sales made during the year, the closing stock is bound to show variations from the anticipated figures. The closing stock of this year becomes the actual opening stock for next year. • STAFF EXPENSES BUDGETED ACTUAL VARIANCE % OF YR.TOTAL YR.TOTAL VARIANCE PARTICULARS (Rs in lakhs) (Rs in lakhs) (Rs in lakhs) Staff Expenses 986.77 997.8 11.03 1.12 H.R.I.H.E, Hassan Page 67

A Study On Budgetary Control System INTERPRETATION The chart above shows the budgeted and actual results with regard to the staff expenses incurred during the year. The budgeted figures were Rs 986.77 lakhs and the actual expenses was Rs 997.8 lakhs. Thereby, there is an adverse variance of Rs 11.03 lakhs. The various expenses under this head show minor deviations from the budgeted figures. The major variance was in Leave Encashment Insurance Premium paid during the year. The deviation was due to the additional premium paid by the union during the year. The amount received at the time of maturity is used to pay the employees at the time of their retirement for the leave not availed by them during their service in the union. • ADMINISTRATIVE EXPENSES BUDGETED ACTUAL VARIANCE % OF VARIANCE PARTICULARS YR.TOTAL YR.TOTAL (Rs in lakhs) (Rs in lakhs) (Rs in lakhs) H.R.I.H.E, Hassan Page 68

A Study On Budgetary Control System Administrative Expenses 134.06 99.75 (35.00) (26.10) INTERPRETATION The chart above shows the budgeted and actual results with regard to the office and administrative expenses incurred during the year. The budgeted figures were Rs 134.06 lakhs and the actual expenditure incurred was Rs 99.06 lakhs. Thus, the actual expenditure is less than the budgeted amount by Rs 35 lakhs thereby making it a favourable variance in total. • SELLING AND DISTRIBUTION EXPENSES BUDGETED YR. ACTUAL YR. VARIANCE TOTAL TOTAL % OF VARIANCE PARTICULARS (Rs in lakhs) (Rs in lakhs) (Rs in lakhs) Selling & Distribution 289.33 358.74 69.41 23.99 Expenses H.R.I.H.E, Hassan Page 69

A Study On Budgetary Control System INTERPRETATION The chart above shows the budgeted and actual results with regard to the selling and distribution expenses. The budgeted figures were Rs 289.33 lakhs and the actual amount is Rs 358.74 lakhs. Thus, there is an adverse variance of Rs 69.41 lakhs. The major deviation was in the tanker charges incurred in the selling and distribution expenses for the year. The tanker charges had been much more than budgted because the sale of milk and milk products to the various inter diaries have increased. With the increase in the sales, the cost to transport the products also increased. H.R.I.H.E, Hassan Page 70

A Study On Budgetary Control System • INTEREST AND BANK CHARGES BUDGETED YR. ACTUAL YR. VARIANCE % OF TOTAL TOTAL VARIANCE PARTICULARS (Rs in lakhs) (Rs in lakhs) (Rs n lakhs) Interest & bank Charges 18.25 15.58 (2.67) (14.63) INTERPRETATION The column chart above shows the budgeted and actual results with regard to the expenses on interest and bank charges. The budgeted figures were Rs 18.25 lakhs whereas the actual amount incurred during the year is Rs 15.58 lakhs. Thus, there is a favouable variance of Rs 2.67 lakhs due to the reduction in expense and thereby increasing profit in total. The Union proposed to borrow loan from the bank at the beginning of the financial year and thus

interest calculations were done for the entire 12 months of the year. However, the loan was borrowed mid-year and thus, the amount of interest paid was less than the budgeted figure. This caused a favourable variance in this head. H.R.I.H.E, Hassan Page 71

A Study On Budgetary Control System • TECHNICAL INPUT SERVICES BUDGETED YR. ACTUAL YR. VARIANCE % OF TOTAL TOTAL VARIANCE PARTICULARS (Rs in lakhs) (Rs in lakhs) (Rs in lakhs) Technical Input Services 12.35 (33.48) (45.83) (371.09) INTERPRETATION The chart above shows the budgeted and actual results with regard to the technical input services. The budgeted amount was Rs 12.35 lakhs whereas the actual amount incurred during the year was negative Rs 33.48 lakhs. Thus, there is a favourable variance of Rs 43.83 lakhs due to the reduction in expense and thereby increasing profits. This was due to the increase in the margin of profit on sale of cattle feed and other items and also saving in expenses under AI activities are the main reasons for the negative variance. • DEPRECIATION H.R.I.H.E, Hassan Page 72

A Study On Budgetary Control System ACTUAL YR. VARIANCE BUDGETED YR. TOTAL % OF TOTAL(Rs in lakhs) VARIANCE PARTICULARS (Rs in lakhs) (Rs in lakhs) Depreciation 60.00 133.30 73.3 122.17 INTERPRETATION The chart above shows the budgeted and actual results with regard to the depreciation charged on the fixed assets during the year. The budgeted figures were Rs 60 lakhs and the actual expenditure incurred was Rs 133.30 lakhs. Thus, the variance is Rs 73.30 lakhs which is quite high. At the time of preparing the budget, Hassan Milk Union followed the Straight Line Method of depreciation and thus expected the monthly depreciation to be Rs 5 lakhs which amounts to Rs 60 lakhs per annum. However, during 2008-09, the union changed its method of depreciation to Written Down Value Method due to which the this non-cash expense has been much more than expected. The additions in the fixed assets has also lead to an increase in the amount of depreciation. • OTHER INCOME H.R.I.H.E, Hassan Page 73

A Study On Budgetary Control System BUDGETED YR. ACTUAL YR. VARIANCE % OF TOTAL TOTAL VARIANCE PARTICULARS (Rs in lakhs) (Rs in lakhs) (Rs in lakhs) Other Income 61.48 67.72 6.24 10.15 INTERPRETATION The chart above shows the budgeted and actual results with regard to the income generated from other sources. The budgeted figures were Rs 61.48 lakhs and the actual amount has increased by Rs 6.24 lakhs. Thus, the total income from other sources was Rs 67.72 lakhs in total. H.R.I.H.E, Hassan Page 74

A Study On Budgetary Control System • INTEREST ON DEPOSIT AND ADVANCES BUDGETED YR. ACTUAL YR. VARIANCE TOTAL TOTAL % OF VARIANCE PARTICULARS (Rs in lakhs) (Rs in lakhs) (Rs in lakhs) Interest on Deposits & 24.18 20.35 (3.83) (15.83) Advances INTERPRETATION The chart above shows the budgeted and actual results with regard to the income generated from interest on deposits and advances during the year. The budgeted figures were Rs 24.18 lakhs and the actual amount was less by Rs 3.83 lakhs which was due to early withdrawal of deposits from the bank. H.R.I.H.E, Hassan Page 75

A Study On Budgetary Control System • NET PROFIT/LOSS ACTUALYR. VARIANCE BUDGETED YR. TOTAL % OF TOTAL(Rs in lakhs) VARIANCE PARTICULARS (Rs in lakhs) (Rs in lakhs) NET PROFIT/LOSS 31.32 117.00 85.68 273.53 INTERPRETATION The chart above shows the budgeted and actual results with

regard to the net profit earned during the year. The budgeted figures were Rs 31.32 lakhs and the actual profit incurred was Rs 117 lakhs. Thus, the variance is Rs 85.68 lakhs which is a highly positive impact. An organisation should try to maximise its vaarious sources of revenue and at the same time it should minimise its expenses and various costs. Excess of income over expenditure indicates profit. And excess of expenditure over income results in loss. At Hassan Co-Operative Milk Producers’ Societies Union, they have enhanced their sales by Rs 3040.82 lakhs as against the budgeted figure. This has been the main reason for the net profit to be much more than the amount anticipated. However, an deviation in tha various expenses has reduced the net profit as against the additional sales generated. 5.1 FINDINGS H.R.I.H.E, Hassan Page 76

A Study On Budgetary Control System After carrying out a detailed study on the budgetary control at Hassan Co- Operative Milk Producers’ Societies Union, Hassan, the following observations were made: Hassan Co-Operative Milk Producers’ Societies Union prepares a financial budget every year. However, a study on the budget of year 2008-09 shows high inconsistancy. Certain expenditures and incomes show major variations. The union follows a budgetary control system. However, it is not followed strictly. Budgetary control system is strictly followed in case of items which are capital in nature. In case of revenue expenses, the organisation tries to stick to its budgetary limits. However, only in rare cases, the budgeted figures matches with the actual figures for the year. Every year, after the audit of the annual reports, the accounts department prepares a report on the major variances and excess expenditure incurred during the year. The same is presented in the Annual General Body meeting for ratification for the excess of expenditure. There are certain items of revenue and expenditure which were not taken included in the budget, but however, they were incurred in actual. Due to this, the profit as per the budget format does not match with the actual profits shown in the Profit and Loss Account. The variation is due to ommission in the inclusion of these items in the budget. This includes provision for tax, provision for bad and doubtful debts, dividend and bonus from KMF. 5.2 SUGGESTIONS H.R.I.H.E, Hassan Page 77

A Study On Budgetary Control System After conducting a detailed study on the budgetary control system of the Union, it is evident that the budgeted amount and actual amount for the year vary substantially. However, in my view, the following points would ensure a better budgetary control system at Hassan Milk Union. The union should prepare the financial budget considering all items of probabale expenses. Non-estimation of any expense in the budget may put financial constriants in the working of union as a budget helps to work out the financial plan for the year. The budget should be prepared in such a way that the deviations in the expenses are reduced to minimal. The higher the inconsistency in the budget, the higher the fluctuations in the financial position of the Union. The Union has changed the method of depreciation during the financial year. There should be a consistency in the method of depreciation as adopted at the time of preparation of budget and in real practice. Any change in it can put financial burden on the Union. The Hassan Milk Union should follow a strict procedure on the budgetary control technique which would ensure a proper control on the funds of the Union. The Union should involve all the other depatrments in the preparation of budget. It would bridge the gap between the budgeted figures and the actual figures for the year. CONCLUSION H.R.I.H.E, Hassan Page 78

A Study On Budgetary Control System Budgetary control is an important tool for the management to have an effective check on its working as well as the staff. However, it is seen as a time consuming technique by various organisations and thus do not pay much attention to it. This study examined the relationship between budget and performance of the financial year 2008-09 of Hassan Milk Union. The previous literature and contributions to this study and the problems associated with budgetary control have been reviewed. Through this study it was found that the budget shows high inconsistency and the actual performance varies considerably from the budgeted figures. Following the findings, it is hereby advised that all the managers and business operators to pay more attention to their budgetary control systems, while those without any should endeavour to ensure the set-up of a result-oriented system as it goes a long way in repositioning businesses and organizations from their creeping performance level to an improved and high capacity utilization point. BIBLIOGRAPHY H.R.I.H.E, Hassan Page 79

A Study On Budgetary Control System 1. S.N.Maheshwari and S.K. Maheshwari, “Accounting for Management”, First Edition, Vikas Publication House Pvt Ltd, Pg no – 4.3- 4.7 2. Jawahar Lal, “Cost Accounting”, Third Edition, Tata McGraw-Hill Publishing Company Limited, Pg no- 775-784 and 798-807 3. I.M.Pandey, “ Financial Management”, Ninth Edition, Vikas Publication House Pvt Ltd, Pg no – 754-758 4. Websites google.com wikipedia.com kmf.org khoj.com H.R.I.H.E, Hassan Page 80

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