Budget

As per ICWA ,England budget is defined as “a financial and/or quantitative statement,

prepared and approved prior to definite period of time, the policy to be presumed during that
period for the purpose of attaining a given objective.

Budgetary Control
According to CIMA Budgetary control is defined as “the establishment of budgets relating the
responsibilities of executives to the requirements of a policy, and the continuous comparison of
actual with budgeted results, either to secure by individual action the objective of that policy,
or to provide a basis for its revision.”

NEED OF THE STUDY

 To use the forecasting techniques.

 Fix the responsibilities of departments.

 Effective utilization of company’s resources.

 Excel yourself.

SCOPE OF THE STUDY

 The study is conducted with the available data from annual reports ,internal reports.

 The data is secondary in nature.

 The budgetary control is done by comparing budgets with actuals.

Necessary revisions are made to the budgets whenever required.

OBJECTIVES OF THE STUDY

 To study the relevance of budgetary control in Dr.Reddy’s Labs.

 To examine budgetary control methods and practices at Dr.Reddy’s Labs.

 To compare the budgeted figures with actual figures for different financial years.

 To make suggestions if any for improving in budgetary control of the company.

LIMITATIONS OF THE STUDY
 The revision of the budgets may be done frequently due to rapid changes in industrial
environment.

 The time limit for completion of the project is a limiting factor.

 Preparation of budgets may lead to inefficient use of financial resources due to fixing of
targets.

RESEARCH & METHODOLOGY

Primary data
Primary data is the method of collection of data for the specific purpose of the study.
The researchers collect data themselves by conducting surveys and interviews directly and
direct observation.

Secondary data
Secondary data is data that is collected from secondary sources like public records,
journals, books, magazines etc. Secondary data is readily available.

1.Different accounting records of the company.

2.Magazines and journals of the company.

COMPANY PROFILE
About Dr.Reddy’s:

Established in 1984 Dr.Reddy’s Laboratories Ltd. (NYSE: RDY) is an integrated global

pharmaceutical company, committed to providing affordable and improving medicines for
healthier lives .Through its three business –Pharmaceutical services and active ingredients
,Global Generics and proprietary products –Dr.Reddy’s offers a portfolio of products and
services including active Pharmaceutical ingredients ,custom Pharmaceutical services (CPS)
generics ,biosimilars , differentiated formulations and news chemicals entities therapeutic focus
on gastro – intestinal , cardiovascular diabetology , oncology pain management anti infective
and pediatrics major markets include India ,usa ,Russia and cis ,Germany , uk ,Venezuela
S.Africa ,Romania and New Zealand

Since Dr.Reddy’s laboratories inception in 1984, it has chosen to walk the path of discovery and
innovation in health science. Dr Reddy’s has been quest to sustain and improve the quality of
life and Dr.Reddy’s had more than three decades of creating safe Pharmaceutical solutions with
the ultimate purpose of making the world a healthier place. Dr.Reddy’s competencies cover the
entire Pharmaceutical value chain API and Intermediates Finished Dosages and NCE research

Dr.Reddy’s research center uses cutting edge technology and has discovered breakthrough
pharmaceutical solutions in select therapeutic areas .in a short span of operations Dr.Reddy’s
have filed for more than 75 patents Dr.Reddy’s is the first Indian company to out licenses an
NCE molecule for clinical trials to strengthen their research arm it has set up a research
subsidiary, Reddy US Therapeutics Inc., in Atlanta, USA

“The company set to spread our wings further and touch more lives across the globe “

Dr.Reddy’s having six manufacturing Facilities (Formulations tech ops Plants) Across India

 Bollaram (Hyderabad)-FTO 1
 Bachupally (Hyderabad)-FTO 2 and FTO 3
 Yanam (Pondicherry)-FTO 4
 Baddi (Himachal Pradesh)-FTO 6
 Vishakhapatnam (Andhra Pradesh)-FTO 7
The Dr.Reddy’s 5 Strategic Business Units (SBU):
For management purpose the group is organized on a worldwide basis into Five strategies
Business units (SBUs), Which are the reportable segments

 Formulation (including critical care and Biotechnology);

 Active pharmaceutical ingredients and intermediates (API);
 Generics;
 Drug Discovery and
 Custom Pharmaceutical Services (CPS).

Their Purpose:
Providing Affordable Medicine:

Their global generics business helps reduce drug costs for individual and government by
bringing generic drugs to market as early as possible and making them available to as many
patients as possible we market both generic small-molecule drugs and generic
biopharmaceuticals.

Developing innovative Medicines:

Despite the great advances of medical Science, There are still many unmet medical needs

Our proprietary products business address some of these unmet medical needs by developing
and bringing to market new drugs

Their Values:

1. Integrity and transparency

2. Safety
3. Quality
4. Productivity
5. Respect for the individual
6. Collaboration and team work
Their culture:

They are proud of their multi cultural multi lingual and multi ethnic mix of people drawn from
reputed institution and organizations from across the world.

1. Customer focused and performance driven

2. Entrepreneurial and innovative
3. Egalitarian and trusting
4. Flexible and Adaptive

Organization structure and management

Board of directors:

Dr Reddy’s board of directors comprises eminent individuals from diverse fields the board acts
with autonomy and independence in exercising strategic supervision discharging its fiduciary
responsibility and in ensuring that the management observes the highest standards of ethics
transparency and disclosure

Whole time directors

1. Dr.K.Anji (Chairman)
2. Reddy G V Prasad (Vice chairman and chief executive officer)
3. Satish reddy (Managing directors & Chief Operating officer)
Committees of the board

We have seven board level committees, namely

 Audit committee
 Management committee
 Nomination, Governance & Compensation committee
 Risk management committee
 Science and technology and operations committee
 Share holders’ grievance committee
 Investment committee
Management Team

The Management council is the top tier of their company’s management structure. The
management of Dr.Reddy’s has developed and implemented policies, procedures and practices
that attempt to translate our company vision, mission and purpose into reality the
management also identifies, measures ,monitors and controls the risks factors in the business
Corporate social responsibility
Corporate social responsibility at Dr.Reddy’s transcends cheque-book charity. It is about
enhancing healthcare, Imparting education, Developing Skills, Providing opportunities, and
unlocking the doors of progress. Dr.Reddy’s focus has primarily been on three Life-altering
areas: Patient care, Education and Livelihood

1. DR.REDDY’S FOUNDATION (drreddysfoundation.org):Its activities span two board areas

of social intervention
 Livelihoods
 Education
2. DR.REDDY’S FOUNDATION FOR HEALTH EDUCATION(drfhe.com)
3. OUR APPROACH TO COMMUNITY CARE
Recognitions

 Award for learning & Talent initiative Excellence

2nd STAR news HR & Leadership Awards at World HRD congress in Mumbai
 Award for Talent Management
6th Employer branding Awards at world HRD Congress in Mumbai
 Dr. K. Anji Reddy, Founder and Chairman of Dr.Reddy’s Laboratories Ltd.,
Has been honored with the life time achievement in health award in the Asian voice
political & public Life Awards for 2012 at London for this Life time commitment to
medical research , And Improving The living of Others
 ICAI Gold shield for excellence in financial reporting in the manufacturing sector (sales
more than 500 crores)
The award was presented by Dr. Veerapamoily (Minister of corporate Affairs) and Mr.
Rahman khan (Deputy Chairman, RajyaSabha) In a ICAI international Conference
 Dr.Anji Reddy Conferred with Padma Bhushan
The third highest civilian award by the government of India
 Americares spirit of Humanity Award
For Best CSR by a Pharmaceutical Company
 Executive of the year award
For Dr.Anji Reddy by Bio Pharma industry Asia Awards
 Best Employer in the Pharmaceutical industry
And 13th Best in the country across all industries, by outlook Business in association
With Aon Hewitt survey
 Employer Branding Awards 2010
Best HR strategy in line With business
  Golden peacock Award
For excellence in corporate goverence
 Scrip Award
For best company in an emerging market
 Americares spirit of humanity awards
Special Award for Haiti earthquake relief sponsored by Americares India foundation
Vision
Their vision is to be a top 20 Global Pharmaceutical company by 2020

We Build achieve this by building:

1. A Work-place that will attract, energize and help retains the finest talent available
2. An organizational culture relentlessly focused on the speedy translation of scientific
discovers into innovative products that make a significant differences in people’s lives.
3. A global marketing organization that understands and responds to the needs of the
customers.
 Industry profile:

History of the Pharmaceutical industry:

The earliest drugstores date back to the middle Ages. The first known drugstore was opened by
Arabian pharmacists in Baghdad in 755 A.D., and many more soon began operating throughout
the medieval Islamic world and eventually medieval Europe and North America had eventually
developed into larger pharmaceutical companies

Most of today’s major pharmaceutical companies were founded in the late 19 th and early 20th
century’s .Key discoveries of the 1920s and 1930s such as insulin and penicillin became mass
manufactured and distributed. Switzerland, Germany and Italy had particularly strong
industries with the UK, US, Belgium and the Netherlands following suit

Cancer drugs were a feature of the 1970s. From 1978, India took over as the primary center of
pharmaceutical production without patent protection

The industry remained relatively small scale until the 1970s when it began to expand at a
greater rate. The pharmaceutical industry entered the 1980s pressured by economics and a
host of new DNA chemistries and new technologies for analysis and computation. Drugs for
heart disease and For AIDS were a feature of the 1980s, involving challenges

Industry revenue
For the first time ever in 2006 Global spending on prescription drugs topped 643 billion even as
growth slowed somewhat in Europe and north America the united states accounts for almost
half of the global pharmaceutical market with $289 billion in annual sales followed by the and
Japan .emerging Markets such as china, Russia, South Korea and Mexico outpaced that market
growing a huge 81 percent.

Us profit growth was maintained even whilst other top industries saw slowed or no growth
despite this, “The pharmaceutical industry is-and has been for years-the most profitable of all
business in the U.S. In the annual fortune 500 survey, the pharmaceutical industry topped the
list of the most profitable industries with return of 17% on revenue”

Indian pharmaceutical industry overview:

The Pharmaceutical industry in India is the world’s third largest in terms of volume and
standards 14th in terms of value. According to department of Pharmaceuticals, ministry of
chemicals and fertilizers, the total turnover of India’s Pharmaceuticals industry between 2008
and September 2009 was US$21.04 billion. While the domestic market was worth US$12.26
billion sale of all types of medicines in the country is expected to reach around growth rate of
21.25% According to price water house coopers (PWS) in 2010, India joined among the league
of top 10 global Pharmaceuticals markets in terms of sales by 2020 With value reaching US$50
billion

Indian pharmacy industry supplies essential drugs to consumers at much lower prices than any
of its counterparts in the world. For example, rises of cardiovascular drugs such as Atenolol and
Enlapril are supplied in low cost than its US price. This is particularly significant in a country
where available of inexpensive medicines is crucial to healthcare of the masses

India’s US$3.1 billion Pharmaceuticals industry is growing at the rate of 14% per year .it is on of
the largest and most advanced among the developing countries. Over 20000 registered
Pharmaceuticals manufactures exist in the country

Today, The Indian pharmacy industry is known globally for its proven high quality, low cost
advantage in delivering safe and effective Pharmaceuticals. This transition, a tough and often
perilous one, was made possible by the pioneering efforts of many companies such as
Dr.Reddy’s Laboratories.

Advantage India:
 Competent Workforce: India has pool of personnel with high managerial and technical
competences as also skilled workforce. It has an educated work force and English is
commonly used. Professional services are easily available.
 Cost-effective chemical synthesis: its track recorded of development, particularly in the
area of improved cost-beneficial chemical synthesis for various drug molecules is
excellent. It provides a wide variety of bulk drugs and exports sophisticated bulk drugs.
 Legal & financial framework: India has a 53 year old democracy and hence has solid
legal framework and strong financial markets. There is already an established
international industry and business community
 Information & Technology: It has a good network of world-class educational institutions
and established strengths in Information technology
 Globalization: The country is committed to a free market economy and globalization.
Above all it has a 70 million middle class market, which is continuously growing
 Consolidation: For the first time in many years, the international Pharmaceuticals
industry is finding great opportunities in India. The process of consolidation which has
become a generalized phenomenon in the world Pharmaceutical industry, has started
taking place in India
New PATENT LAW:
By issuing the patent ordinance India met a WTO commitment to recognize foreign product
patents From January 1.2005, the culmination of a 10-year process. In this new scenario, The
Indian Pharmaceutical Manufacturers would not be able to manufacture patented drugs. To
adapt to this new patent regime, the industry is exploring business models, Different from the
existing traditional ones

India currently represents just U.S$6 billion of the $550 billion global Pharmaceutical industry
but it share is increasing at 10% a year, compared to 7% annual growth for the world market
overall. “the Indian Pharmaceutical industry is a success story providing employment for
millions and ensuring that essential drugs at affordable prices are available to the vast
population of this sub-continent”

The Pharmaceutical industry plays crucial role in building a country’s human capital. In India it is
among the top science based industries with a wide range of capabilities in the complex field of
drug technology and manufacture

The “organized“ sector of India Pharmaceutical industry consists of 250 to 300 companies
which account for 70% of products on the market with the top 10 firms representing 30%
however , the total sector is estimated at nearly 20000 business ,some of which are extremely
small approximately 75% of India’s demand for medicines is met by local manufacturing

The Indian Pharmaceutical sector is highly fragmented with more than 20000 registered units it
has expanded drastically in the last two decades . the leading 250 Pharmaceutical companies
control 70% of the market with market leader holding nearly 7% of market share. It is an
extremely fragmented market with severe price competition and government price control.

Achievements of the industry during the last three decades have been spectacular by any
standards, from a mere processing industry it has grown into a sophisticated sector with
advanced manufacturing technology modern equipment and stringent quality control

India potential to further boost its already –leading role in global generics production, as well as
an offshore location of choice for multinational drug manufacturer seeking to crub the
increasing costs of their manufacturing R&D and other support services, Presents an
opportunities worth an estimated $48 billion in 2007
New business models include:
 Contract research (Drug Discovery and clinical trails )
 Contract manufacturing
 Co-marketing alliances
Opportunities

The main opportunities for the Indian Pharmaceutical industry are in the areas of:

 Generics (including biotechnology generics )

 Biotechnology
 Outsourcing (including contract manufacturing, information technology and R&D
outsourcing).
 THEORETICAL FRAMEWORK
INTRODUCTION

Budget
A budget is a financial plan which consists of estimated expenses and expected
incomes for a future period of time. It is a record of past performance, and a method of current
control and it is a projection for the future accounting period. Usually budgets are prepared for
a period of one year and may be revised based on the industrial requirements and
circumstances.

The basic elements of a budget are:

 For a specified period of time, it’s a future plan of activity,

 Budget can be expressed in monetary or physical units or in both,
 Before the period during which the budget is supposed to operate, it is prepared i.e. it is
prepared in advance.
 Before the preparation of the budget, it is necessary to lay down the objectives which
are required to be attained & the policies which are required to be pursued for the
achievement of those objectives.
Characteristics of a budget

A good budget is characterised by the following:

 Participation: involve as many people as possible in drawing up a budget.

 Comprehensiveness: embrace the whole organisation.
 Standards: base it on established standards of performance.
 Flexibility: allow for changing circumstances.
 Feedback: constantly monitor performance.
 Analysis of costs and revenues: this can be done on the basis of product lines,
departments or cost centres.
Budgeting

It is a financial projection for the future and also a valuable managerial planning aid. The
process of preparing budgets is called budgeting. It is the planning of financial resources for its
maximum utilization. In simple terms, budgeting is simply balancing the expenses and incomes.

Objectives of budgeting:
Planning

 Budgeting process begins with establishing of specific targets and is followed by

executing plans for achieving desired goals and time to time comparison of actual
results with budgeted results.
 The targets include overall business targets and also specific individual targets within
the business.
 Establishing those targets is a part of planning function and executing those actions to
meet targets is directing function.
 Even while planning the individual targets we must consider the overall business
objectives and goals.
 Budget plans are quantifiable and the responsibility is assigned to individual
departments for execution of those plans.
 The budgets if properly planned can help the organization to reduce the expenses in
case of recession.
 Planning helps in motivating the employees to attain the goals and encourage them to
work more effectively.
 The planning of budgets considers all viewpoints, options, and cost reduction strategies.
Coordinating

 The coordinating function of the management helps the managers to know how the
relationship exists between different departments of the organization.
 This function helps in integrating all the departments and attainment of the overall
objectives of the organization.
 The perfect planning is the major step in achieving the coordination among the different
departments of the organization.
 Budgets help to search out weaknesses in the organizational structure. The Formulation
and administration of budgets isolate problems of communication, of fixed
responsibility, and of working relationships.

Communication
 It is necessary in an efficient organization that all people be informed about the
objectives, policies, programmes and performances.
 Budgets inform each manager of what others have agreed to do.
 They also inform managers of the resources available to achieve objectives and targets.

Controlling
 When a budget is being formulated, departments analyse their plans for the future and
submit estimates as per their requirements, justifying each of their demands by
demonstrating a need.
 After budgets of different departments have been reviewed and approved they become
targets that desirable limits on spending.
 At the end of the budget period, a comparison of actual expenditures with budget
expenditure is made as a means of judging performance and fixing responsibility for
deviations.

Advantages of budgeting

 Budgeting compels and motivates management to make an early and timely study of its
problems. It generates a sense of caution and care, and adequate study among mangers
before decisions are made by them.
 Budgeting provides a valuable means of controlling income and expenditure of a
business as it is a “plan for spending.”
 Budgeting provides a tool through which managerial policies and goals are periodically
evaluated, tested and established as guidelines for the entire organization.
 Budgeting helps in directing capital and other resources into the most profitable
channels.
 Budgeting coordinates and correlates all business activities. It enables management to
decentralize responsibility without losing control of the business.
 It provides a norm, basis or yardstick for measuring performance of departments and
individuals working in organizations.
 Budgeting encourages productive competition, provides incentive to perform efficiently
and gives a sense of purpose to each individual in the organization.
 Budgeting, if executed in nearly every enterprise, helps the total national economy by
providing stability of employment, economic use of resources and effective prevention
of waste.
Limitations of budgeting

 Planning, budgeting or forecasting is not an exact science; it uses approximations

and judgement which may not be cent percent accurate. At best a budget is an estimate
no one knows precisely what will happen in future.
 The success and utility of budgeting depends on the cooperation and participation of all
members of management. Many a time budgeting has failed because executive
management has paid only lip service to its execution.
 The establishment of a budgeting process takes time. Also, sometimes too much is
expected from a budget and in case expectations are not fulfilled, the blame is put on
the budget.
 A budget is only a tool and does not eliminate nor take over the place of management.
Executives generally feel circled in by a budget and its related figures. They fail to
understand that budget is meant to provide detailed information, goals and targets
which may help in achieving the company objectives.
 Excessive emphasis on budgeting may result in attempts by lower level management
and employees to buck the system by providing inaccurate estimates of future costs and
revenues.

Budgetary Control

According to CIMA Budgetary control is defined as “the establishment of budgets

relating the responsibilities of executives to the requirements of a policy, and the continuous
comparison of actual with budgeted results, either to secure by individual action the objective
of that policy, or to provide a basis for its revision.”

Budgetary control involves the following

 Estimation of budgets.

 Comparison of budgets and actuals to achieve targets is a continuous process.

 Budgets are revised based on the circumstances.

 Responsibilities are fixed to achieve the budgeted targets.

Objectives of budgetary control

The main objectives of budgetary control are given below:

 Defining the objectives of the enterprise.

 Providing plans for achieving the objectives so defined.

 Coordinating the activities of various departments.

 Operating various departments and cost centres economically and efficiently.

 Increasing the profitability by eliminating waste.

 Centralizing the control system.

 Correcting variances from sit standards.

 Fixing the responsibility of various individuals in the enterprise.

Steps involved in the process of budgetary control

 The objectives which are required to be achieved by the business should be defined &
specified by budgetary control.

 For the purpose of ensuring that the desired objectives are accomplished, business
plans are needed to be prepared by budgetary control.

 Budgetary control translates the plans into budgets & relates to particular sections of
the budget, the responsibilities of individual executives & managers.

 Budgetary control constantly compares the actual results with the budget & the
differences between the actual & budgeted performance are calculated.

 For the purpose of establishing the causes, the major differences are investigated by
budgetary control.

 In a suitable form, budgetary control presents the information to the management,

relating to variances to individual responsibility.

 In order to avoid a repetition of any over-expenditure or wastage, management takes

corrective actions. Alternatively, where due to the change in circumstances, the
budgeted targets cannot be achieved, the budget is revised.
Characteristics of Budgetary Control

 Budgetary Control determines the objectives to be achieved over the budget period. It
also frames policies that are expected to be adopted for the achievement of these ends.

 It addresses variety of activities that should be undertaken for the achievement of the
objectives.

 An effective budgetary control draws up a plan or a scheme of operation in respect of

each class of activity, in physical as well as monetary terms, for the entire budget period
and its parts.

 It lays out a system of comparison of actual performance by each person, section or

department with the relevant budget and determine the causes for the discrepancies, if
any.

 It ensures that corrective action will be taken, where the objective is not achieved and,
that be not possible, for the revision of the plan.

Merits of Budgetary Control

 Budgetary control ensures maximum utilisation of available resources with a view to

achieving maximum profitability.

 It leads to better coordination between different departments and hence better

understanding between different functions.

 It creates a sense of awareness at all levels of management in the process of achieving

the planned targets.

 It is a process of self-examination and self-criticisms which is essential for the success of

any business enterprise.

 Budgeting gets the support and active participation of top management without which
a budgeting programme cannot succeed.

 Budgetary control directs capital expenditure in the most profitable time.

 It helps in increasing productivity of men, materials and machine.

  It acts as a yard-stick for measuring actual performance against targeted performance.

 By comparing the actual with the targeted performance, budgetary control can identify
the variances and helps to take remedial measures for correcting the variances

Demerits of Budgetary Control

 Forecasting, planning or budgeting is not an exact science and a certain amount of

judgement is present in any budgeting plan.

 Lacking of support from the top management may lead to the collapse of plans.

 Budgetary control is expensive.

 It will be ineffective in a situation like strikes, lockout and economic revision.

 Budgetary control loses its importance when policies, programmes, techniques are to be
changed to keep peace with socio-economic and political environment.

 To be effective budgeting should be followed up by effective control system. Many

organisations lack this effective control system which defeats the very purpose of
budgeting.

 Factors that cannot be controlled by the management cannot be incorporated in

implementing the policies of budgetary control system.

Essentials of Budgetary Control

1.Organization for Budgetary Control:

 The proper organization is essential for the successful preparation, maintenance and
administration of budgets.

 A Budgetary Committee is formed, which comprises the departmental heads of various

departments.

 All the functional heads are entrusted with the responsibility of ensuring proper
implementation of their respective departmental budgets.
  The Chief Executive is the overall in-charge of budgetary system. He constitutes a
budget committee for preparing realistic budgets.

 A budget officer is the convener of the budget committee who co-ordinates the
budgets of different departments.

 The managers of different departments are made responsible for their departmental
budgets.

2. Budget Centres:
 A budget centre is that part of the organization for which the budget is prepared.

 A budget centre may be a department, section of a department or any other part of the
department.

 The establishment of budget centres is essential for covering all parts of the
organization.

 The budget centres are also necessary for cost control purposes.

 The appraisal performance of different parts of the organization becomes easy when
different centres are established.

3. Budget Manual:
 A budget manual is a document which spells out the duties and also the responsibilities
of various executives concerned with the budgets.

 It specifies the relations amongst various functionaries.

4. Budget Officer:
 The Chief Executive, who is at the top of the organization, appoints some person as
Budget Officer.

 The budget officer is empowered to scrutinize the budgets prepared by different

functional heads and to make changes in them, if the situations so demand.

 The actual performance of different departments is communicated to the Budget

Officer.
  He determines the deviations in the budgets and the actual performance and takes
necessary steps to rectify the deficiencies, if any.

 He works as a coordinator among different departments and monitors the relevant

information.

 He also informs the top management about the performance of different departments.
The budget officer will be able to carry out his work fully well only if he is conversant
with the working of all the departments.

5. Budget Committee:
 In small-scale concerns the accountant is made responsible for preparation and
implementation of budgets.

 In large-scale concerns a committee known as Budget Committee is formed. The heads

of all the important departments are made members of this committee.

 The Committee is responsible for preparation and execution of budgets. The members
of this committee put up the case of their respective departments and help the
committee to take collective decisions if necessary.

 The Budget Officer acts as convener of this committee.

6. Budget Period:
 A budget period is the length of time for which a budget is prepared and employed. The
budget period depends upon a number of factors.

 It may be different for different industries or even it may be different in the same
industry or business.

The budget period depends upon the following considerations:

 The type of budget i.e., sales budget, production budget, raw materials purchase
budget, capital expenditure budget. A capital expenditure budget may be for a longer
period i.e. 3 to 5 years purchase, sale budgets may be for one year.

 The nature of demand for the products.

 The timings for the availability of the finances.

  The economic situation of the country.

 The length of trade cycles.

7. Determination of Key Factor:

 A factor which influences all other budgets is known as Key Factor or Principal Factor.

 There may be a limitation on the quantity of goods a concern may sell. In this case,
sales will be a key factor and all other budgets will be prepared by keeping in view the
amount of goods the concern will be able to sell.

 The key factor may not necessarily remain the same. The raw materials supply may be
limited at one time but it may be easily available at another time. The sales may be
increased by adding more sales staff, etc.

 Similarly, other factors may also improve at different times. The key factor also
highlights the limitations of the enterprise. This will enable the management to improve
the working of those departments where scope for improvement exists.

Techniques of Budgetary control

1.Variance Analysis

 First of all, budgets of different departments are made with estimated figures. After this,
it is compared with actual accounting figures.

 In this technique, we find variances. These variances may be favourable and

unfavourable.

 For example, we have recorded actual quantity and cost of our raw material, after this,
it is compared with budgeted value of raw material quantity and cost. Result of this will
be material cost variance.

 Like this, we will find the variance of labour cost and overhead cost. This technique of
budgetary control is helpful for reducing the cost of business.

2.Responsibility Accounting
  Responsibility accounting is also a good budgetary control technique. In this technique, we
create cost centre, profit centre and investment centre.

 All these centres are just like department of any organisation. Now, we classify our all
employees work on the basis of their centres.

 Every employee’s responsibility is fixed on the basis of his target or performance. After this, we
record their performance manually.

 Then, we fix their accountability. For example, we have fixed the target of sales department is
of Rs. 5 Lakh per month. For this, we have appointed expert salesman. But sales department’s
total per month sales is Rs. 3 Lakh which is Rs. 2 Lakh less than our sales department target.

 Through this budgetary control, we can take the decision of promotion and demotion of our
employees or find other reasons if we do not obtain our targets.

3.Adjustment of funds

 In this technique of budgetary control, top management take the decision to adjust
fund from one project to other project.

 For example, when Govt. of India makes budget for allocation of its total fund in
different projects, at that time, it has to take decision for adjustment of funds. For
example, railway department needs money for specific new project.

 If Govt. of India sees that project of IT has excess money, then it can be utilized for
railway budget. In adjustment of funds, we also use fund flow analysis. We can also
decrease misuse of funds by forecasting proper amount.

4.Zero Based Budgeting(ZBB)

 These days zero base budgeting is popular technique of budgetary control. In this
technique, every next year budget is made on nil base.

 It can only be possible, if your estimated income will be equal to the estimated
expenses. At that time, difference between estimated income and estimated expenses
will be zero.

 If there is any excess, it will be adjusted. For example, if your estimated revenue is
more than estimated expenses, you need to increase the amount or allocate in new
estimated expenses.
  With this, nothing will go to next year. With zero base budgeting technique, you can
control on every money which you have to spend. Its base will be the current year
income only.

Classification of budgets

Classification According to Flexibility

 Fixed Budget. A fixed budget is drawn for a fixed level of activity and a prescribed set of
conditions. It has been defined as “a budget which is designed to remain unchanged
irrespective of the volume of output or level of activity actually attained”. In the real
sense, it does not consider any change in expenditure arising out of changes in the level
of activity.

 Flexible Budget. Flexible budget is otherwise called as variable budget. The Chartered
Institute of Management Accountants, England, defines a flexible budget “as a budget
which by recognizing the difference in behavior between fixed and variable costs in
relation to fluctuations in output, turnover or other variable factors such as number of
employees is designed to change appropriately with such fluctuations”.
Classification According to Function

 Sales Budget. Sales budget is a forecast of total sales (volume) during the budget period.
It may contain the information regarding the sales, month wise, product wise, and area
wise. This budget is prepared by the sales manager.

 Production Budget. Production budget is prepared by the production manager. Its

preparation depends upon the sales budget. The objective of this budget is to determine
the quantity of production for a budgeted period. In other words, it is a quantity of units
to be produced during a budget period.

 Materials Budget. Material procurement budget is an estimate of quantities of raw

materials to be purchased for production during the budget period. It helps the
organisation to formulate effective purpose policy of raw materials. Materials budget
should be prepared normally taking into account the following factors i.e., availability of
finance, storage facilities, price trends in the markets.

 Labour Budget. Labour budget is a budget which is prepared by the personnel

department of the organisation. It shows the total hours required to complete the
production target. And also it shows the cost incurred for the labour used for the
production.

 Manufacturing Overhead Budget. This budget indicates the estimated costs of indirect
materials, indirect labour and indirect factory expenses incurred during the budget
period. This budget is classified into fixed, variable and semi-variable.

 Selling Overhead Budget. This budget is prepared by the sales manager of each
territory. It indicates an estimate of administrative expenses to be incurred in the
budget period. Preparation of selling and distribution overhead budget depends upon
the sales budget.

 Cash Budget. Cash budget is prepared by the chief accountant of the organisation. It
may be prepared either monthly or weekly. Cash budget is a statement to show the
estimated amount of cash receipts and payment and balance during the budget period.
Simply, it represents the estimated cash receipts and payments over the specific future
period.
  Master Budget. Master budget is a budget which has to incorporate all functional
budgets. The definition of this budget given by the Chartered Institute of Management
Accountant, England is as follows. “The summary budget, incorporating its component
functional budgets and which is finally approved, adopted, and employed.” It is
otherwise called as finalised profit plan. Normally, it has to be approved by the board of
directors before it is put into operational activities.

Classification According to Time

 Long term Budgets. The budgets are prepared to show the long term planning of the
organisation. This budget is prepared normally for a period of 5 to 10 years. Example :
Capital expenditure budget, research and development, long term finances etc.

 Short term Budgets. Short term budgets are those which have to be prepared for a
period of one or two years. Example : Cash Budget, Material Budget etc.

 Medium term budgets. They cover a period of a month or so and as short-term

budgets, they get adjusted to prevailing circumstances. Sometimes, within the
framework of a short-term budget, there are quarterly plans which are prepared by
recasting the budget for a still shorter period on the basis of the performance of the
immediate past. In a way, these quarterly budgets are meant to be an elaboration of the
annual budget.
 DATA ANALYSIS
REVENUE FROM OPERATIONS (SALES) Budget (IN millions)

Year 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Actuals of sales 132 148 154 140

116
Budgets of sales 127.6 145.3 162.8 169.4 154

180

160

140

120

100
Actuals of sales
80
Budgets of sales
60

40

20

0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Interpretation:
in the above graph the budgeted sales is more than actual sales in all the years. The
company does not achieve its budgeted sales.
Production Budget (IN MILLIONS)

Year 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Actuals of 55 56 62 62 62
Production

Budgets of 63.25 64.4 68.2 67.58 69.44

Production

80
70
60
50
40
Actuals of Production
30
Budgets of Production
20
10
0

Interpretation:
In the above graph budgets of production is more than the actual of production in all the
years. The company does not meet with its budgets in all the years.
SELLING AND ADMINISTRATION EXPENSES
(IN MILLION)

Year 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Actuals 46 44.79 42 38.7 34.25

Budgets 50 48 40.36 36.39 45.65

60

50

40

30 Actuals
Budgets
20

10

0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Interpretation:
In the above graph budgets of selling and administration expenses are more than the
actual of selling and administration expenses in the years 2012-2013 to 2013-2014 and 2016-
2017. This implies that the company’s selling and administration are within the budgets in these
three years.
Depreciation:- (in 00,000)

Year 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Actuals of 5.6 5.9 6.36 6.49 7.51

Depreciation

Budgets of 6.2 6.58 6.96 7.3 7.65

Depreciation

9
8
7
6
5
4
Actuals of Depreciation
3
Budgets of Depreciation
2
1
0

Interpretation:
In the above graph the actuals of depreciation is less compared to budgets of
depreciation in the years 2012-2013, 2013-2014 and 2016-2017. In the remaining 2 years i.e
2014-2015 and 2015-2016 actuals of depreciation is less than budgets of depreciation.
Research and Development Expenses:-

Year 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Actuals 7.67 12.40 17.45 17.83 19.55

Budgets 8.5 12 19 19.2 19

25

20

15
Actuals

10 Budgets

0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Interpretation:
In the above graph actuals of research and development expenses are less than
budgets of research and development expenses in the years 2012-2013 and 2014-2015 and
2015-2016 which means that the budgets are met by company in these three years.
Employee benefits expense

Year 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Actuals 11.10 11.38 11.85 12.01 12.40

Budgets 11.5 11.95 12 12.95 13

13.5

13

12.5

12
Actuals
11.5 Budgets

11

10.5

10
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Interpretation:
In the above graph actuals of employee benefit expenses is less compared to budgets
of employee benefit expenses which clearly shoes that the company’s employee benefit
expenses are within the budgeted limits.
Other general Expenses:- (in 00,000)

Year 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Actuals 12.27 16.72 17.72 19.94 18.50

Budgets 13.18 17.04 16.69 20.26 17.52

25

20

15
Actuals

10 Budgets

0
2012-2013 2013 - 2014 2014 - 2015 2015 - 2016 2016 - 2017

Interpretation:
In the above graph the actuals of other general expenses is less than the budgets of
other general expenses in the years 2012-2013 and 2013-2014 and 2015-2016 which implies
that the company is within the budgeted limits.
Power and Fuel :- (in 00,000)

Year 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Actuals 2.826 2.581 2.962 3.25 3.75

Budgets 3.1 2.95 3.5 3.6 3.95

4.5
4
3.5
3
2.5
Actuals
2
Budgets
1.5
1
0.5
0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Interpretation:
In the above graph the actuals of power and fuel is less compared budgets of power and
fuel in all the years which Implies that the power and fuel expenses are within the budgeted
limits.
Interest income :- (in 00,000)

Year 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Actuals of 6.14 7.83 8.5 8.95 9.63

interest
income
Budgets of 7.00 7.50 8.00 8.50 9.00
interest
income

12
10
8
6 Actuals of interest
income
4
2 Budgets of interest
income
0

Interpretation:
In the above graph the actuals of interest income is more than the budgets of interest
income in 4 years i.e. 2013-2014 to 2016-2017. In these years the company earned more
interest income compared to the budgeted income. Only in the 2012-2013 the actual interest
income is less than budgeted interest income.
Consumption of stores and spare parts:-

Year 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Actuals 10.15 9.46 10.91 12.79 12.53

Budgets 11.10 10.00 12.00 13.40 13.00

16

14

12

10

8 Actuals
Budgets
6

0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Interpretation:
In the above graph the actuals of Consumption of stores and spare parts is less than the
budgets of consumption of stores and spare parts in all years which means the Consumption of
stores and spare parts is within the budgeted limits.
Other Income :- (in Millions)
Year 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Actuals of 2.15 2.2 3.12 3.249 5.912

other income

Budgets of 3 4.10 4.20 4.46 6.93

other income

8
7
6
5
4
Actuals of other income
3
Budgets of other income
2
1
0

Interpretation:
In the above graph the actuals of other income is less than budgets of other income in
all the years which implies the company does not meet its budget.
Other Operating Income :- (in 00,000)
Year 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Actuals 5.1 4.9 5.50 5.71 9.17

Budgets 5.6 5.10 5.750 6.46 10.93

12

10

6 Actuals
Budgets
4

0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Interpretation:
In the above graph actuals of other operating income is less than the budgets of other
operating income in all the years which implies the company does not meet its budgets.
Clinical Trial Expenses :-
Year 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Actuals 1.624 1.753 1.675 1.934 2.525

Budgets 1.75 1.863 2.10 2.163 3.12

3.5

2.5

2
Actuals
1.5 Budgets

0.5

0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Interpretation:
In the above graph the actuals of Clinical Trial Expenses are less than the budgets of Clinical
Trial Expenses which implies that the Clinical Trial Expenses are within the budget limits.
Rent, Rates and Taxes :-
Year 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Actuals 3.102 3.253 3.50 3.57 4.95

Budgets 3.95 3.56 3.75 3.90 5.12

3 Actuals
Budgets
2

0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Interpretation:
In the above graph the actuals of Rent, Rates and Taxes are less than the budgets of Rent, Rates
and Taxes which implies that the Rent, Rates and Taxes are within the budget limits.