Study of Budgeting Process and

Budgetary Control
at

SBU
RENAULT INDIA PVT. LIMITED

Report submitted in part fulfillment of the requirements for

the award of
‘Post Graduate Diploma in Management’
for the year 2012-2014

Submitted by:
Jeswin Tom
12DM061

Under the guidance of:

Industry Mentor: Faculty Mentor:

Mr. Ajesh George Dr. Girish Jain
TVS & Sons Ltd. BIMTECH…
 Table of Contents

Sl.No. Title Page No.

I Industry Mentors Certificate i

II Faculty Mentor’s Certificate ii

III Acknowledgement iii

IV Letter of Transmittal iv

V Letter of Authorization v

VI Executive Summary vi

1 Introduction 1-7

1.1 TVS & Sons Ltd. Overview 1

1.2 Renault India Private Limited 2

1.3 Indian Car Market 3

1.4 Finance Department of Renault 7

2 Budgeting 8-12

2.1 Introduction 8

2.2 Features of Budgeting 9

2.3 Budgeting Process 12

3 Budget Analysis 13-28

3.1 Sales Budgets 13

2
 3.2 Service Budgets 23

4 Budgetary Control 29-34

4.1 Essentials of Budgetary Control 29

4.2 Variance Analysis 30

5 Conclusions and Suggestions 35

6 References 38

3
i
 Summer Project Certificate

This is to certify that Mr. JESWIN TOM Roll No. 12DM061 a student of

PGDM has worked on a summer project titled “Study of Budgeting Process and

Budgetary Control” at TVS and Sons Ltd ,after Trimester-III in partial

fulfilment of the requirement for the Post Graduate Diploma in Management

programme. This is his original work to the best of my knowledge.

Date: 24.06.2013

(Dr. Girish Jain)

ii
 Acknowledgement

I would like to gratefully acknowledge the contribution of all the people who took active
part and provided valuable support to me during the course of this project.

First of all I would like to thanks TVS & Sons Ltd for giving me the opportunity to do an
internship with them. I would like to offer my sincere thanks to Ajesh George, Senior
Accounts Officer at TVS & Sons, for his guidance, support, and valuable suggestions during
the course of this project, without which it could not have been completed.

My gratitude also goes out to the entire Finance department at TVS & Sons Ltd for their co-
operation and willingness to answer my queries, and provide valuable assistance.

I would also like to sincerely thank Dr. Girish Jain, my faculty mentor at BIMTECH, who
provided valuable suggestions, and helped guide me through this project.

Last, but not the least, I would like to thank all the employees for sharing their experience
and giving their valuable time to me during the course of my project.

iii
 Letter of Transmittal

Birla Institute of Management Technology

Plot no.5, Knowledge Park-II, Institutional Area,

Greater Noida (NCR), U.P.-201306, INDIA

Date: 15-06-2013

Mr. Ajesh George

TVS & Sons Ltd SBU RIPL, Kochi

Dear Sir,

Sub: Summer Internship Report

Attached herewith is a copy of my summer project report “Study of Budgeting Process and
Budgetary Control” which I am submitting in order to mark the completion of an 8-week summer
project starting April 15 at your organization. This report was prepared by me using the best of
practices and is being submitted in partial fulfilment of the requirements for the award of diploma.

I would like to mention that the overall experience with the organization was very good. I feel
honoured that I got an opportunity to work with TVS & Sons Ltd, a company of great repute. I hope I
did justice to the project and added some value to the organization.

Yours sincerely,

Jeswin Tom

iv
 Letter of Authorization

I, Jeswin Tom, a student of Birla Institute of Management Technology (BIMTECH), hereby

declare that I have worked on a project titled “Study of Business Process and Budgetary
Control” during my summer internship project, in partial fulfilment of the requirement for
the Post Graduate Diploma in Management program.

I guarantee my research work to be authentic and original to the best of my knowledge

in all respects of the process carried out during the project tenure.

My learning experience at TVS & Sons, under the guidance of Mr. Ajesh George, Senior
Accounts Officer has been truly enriching.

Jeswin Tom Date: 15-06-2013

v
 Executive Summary

The project involves the study of the budgeting process and budgetary control at TVS & Sons
Renault dealership. TVS & Sons Ltd is one of the leading automobile distribution companies
in India and has Renault Dealerships in Kerala, Mangalore and Madhya Pradesh

The aim of the project is to understand the business model of TVS & Sons including the
various departments and their functions. TVS Sons operates four Renault dealerships
currently in Kerala with plans to start three more dealerships within a short period. This
project will attempt to understand the budgeting process and analyse the budgets and
compare the different dealerships.

The method adopted is conducting exploratory research and personal interviews.

Exploratory research design is the informal research undertaken to gain background
information about the organization. Under exploratory research, the method adopted here
was conducting experience survey in order to gather information from the knowledgeable
person on the issues relevant to the research project.

Through this project I was able to understand the budgeting process at TVS & Sons Ltd,
analyse the budgets from different years for trends and compare the different dealerships.

The project also involved understanding the budgetary control process and finding variances
in the budgets.

The major recommendations are:

-Corrective actions to reduce budget variances

-Integrating the different departments and dealerships by implementing an ERP software.

vi
 1. INTRODUCTION

TVS & Sons Limited Overview:

T V Sundram Iyengar & Sons Ltd. (TVS & Sons Ltd) operates as an automobile distribution
company in India. The company’s business activities include dealership for automobile
vehicles, the distribution of spares for after-market, sales and service support for garage
equipment, and sales and service products for off highway applications, such as
construction and material handling. It distributes heavy duty commercial vehicles, utility and
sports multi-utility vehicles, passenger cars, and construction equipment; and markets
spares for trucks and cars, tractors, earthmoving equipment, and IC engines through a
network of dealers. The company’s businesses also include two-wheeler and auto
components manufacturing and distribution, and logistics. In addition, it provides supply
chain management services, including integrated, outbound, and inbound logistics; and
export warehousing and warehousing services.

Established in 1911, TVS & Sons Ltd. is the parent company of the TVS Group and is one of
the leading automobile distribution companies in India. During the year 2011-12 the
company attained a turnover of 6,475 Crores and has direct employee strength of 10,000. It
operates through its three divisions namely - TVS, Sundaram Motors and Madras Auto
Service.

Being the trading and distribution arm of the group, the business activities of TVS & Sons
include dealerships for automobile vehicles, Distribution of spares for after –market, sales
and service support for off highway application like construction & Material handling.

The global business operation of the company includes establishing & managing Joint
ventures/ Alliances for automobile distribution / dealership business, sourcing and supply
chain related activities. Currently it has presence in Sri Lanka and Bangladesh.

1
The company was founded in 1911 and is based in Madurai, India. TVS & Sons operates
dealerships representing various leading automobile vehicle manufacturers, such as Ashok
Leyland, Mahindra & Mahindra, Mahindra Navistar, Renault and Escorts. The company also
represents Bharat Petroleum Corporation Ltd.

The company has more than 150 outlets and sells over 50,000 vehicles. It provides services
for more than 600,000 vehicles per annum. TVS & Sons Ltd., a dominant dealer in South
India until the 90s, has now become a PAN India organisation in the automobile after-
market vertical over the years. All the outlets are constantly upgraded in order to provide
the right service to the customers; the company is also known for its contribution to the
customers by reducing the down time of the vehicles and improve its productivity using
tools like Kaizen & LEAN.

TVS & Sons were awarded with Renault dealerships in Kerala, Mangalore and Madhya
Pradesh. TVS & Sons currently is the exclusive distributor for Renault vehicles in each of the
state/city.

Renault India Private Limited

Renault India Private Ltd is a fully owned subsidiary of Renault s.a.s, France. Renault India
Pvt. Ltd was established in 2005 and in May, 2011 introduced the Renault brand and its first
product – the premium sedan Fluence to customers in India.

Renault currently has five models in the Indian market – the premium sedan Fluence, the
luxury SUV Koleos, the premium compact - the Pulse, the SUV Duster and the premium
sedan Scala. Renault cars are manufactured in the plant located on the outskirts of Chennai
in Oragadam with a capacity of 400,000 units per annum.

Currently, Renault India is close to creating a 100 strong dealership network across the
country with benchmark sales and service quality.

Established in 1898, Renault is a group with a long and successful history of vehicle
production. Today, it produces cars and light commercial vehicles in 18 countries in five

2
continents across the world with many firsts to its credit like the first hatchback and the first
mass produced turbocharged car.

The €40 billion (US$55 billion) Renault Group designs, develops, manufactures and sells
innovative, safe and environmentally-friendly vehicles worldwide. It has a commercial
presence in 118 countries, selling vehicles under three brands – Renault, Dacia and Renault
Samsung.

Renault also pursues an Alliance with Nissan, created in 1999. The Renault-Nissan Alliance
is the fourth largest automotive group in the world, and aims to rank among the world’s top
three automotive groups for quality, technology and profitability.

Renault recently unveiled a range of full-Electric, Zero Emission cars, and will initially be
available in Israel and Denmark, before being introduced in several other European
countries.

Renault’s international growth will result from its presence in high-growth markets such as
India, Brazil, Russia and China. Thanks to strategic partnerships in many of these countries,
Renault’s products are designed to meet the differing requirements of customers all over
the world.

Renault is Europe's leading brand in terms of safety, and the only vehicle manufacturer to
have nine cars with the maximum five-star Euro NCAAP rating, and the winner of the
Formula 1 World Championship for Constructors and Drivers in 2005, 2006 and 2011. The
Renault Group employs about 122,000 people worldwide.

Indian Car Market

With an annual growth rate of around 20% in recent years, the Indian car market is one of
the most buoyant in the world and is expected to become the fourth biggest within three
years. To win its share of the market, Renault has acquired manufacturing facilities with the
Renault-Nissan plant in Chennai, its own sales network, a logistics centre, an engineering
centre shared with the Alliance and a design centre based in Mumbai

3
A strongly expanding economy, India is the world’s 12th biggest economic power. Between
2005 and 2007 it posted steady economic growth of over 9%, and GDP per capita has
doubled in the space of ten years.

The car market is growing by around 10% a year, attracting the attention of many vehicle
manufacturers. India’s middle classes total more than 350 million people, all of whom are
potential buyers and their numbers are continuing to grow.

Suzuki/Maruti is currently No. 1 on the small car market. Honda, GM Chevrolet and
Fiat/Tata are building their presence. Renault is moving into position.

Market Share of Car Manufacturers

2.07% April
0.19%
0.26% Chevrolet
2.28%
4.25% Fiat
3.06% 0.96% 4.5% 4%
5.79% Ford
0.62%
16.22% Mitsubishi
Honda
Hyundai
10.38% Mahindra

45.32% Maruti
Nissan
Renault
Skoda
Tata
Toyota

The Indian automotive industry has emerged as a 'sunrise sector' in the Indian economy.
India is emerging as one of the world's fastest growing passenger car markets and second
largest two wheeler manufacturer. It is also home for the largest motor cycle manufacturer
and fifth largest commercial vehicle manufacturer.

India is emerging as an export hub for sports utility vehicles (SUVs). The global automobile
majors are looking to leverage India's cost-competitive manufacturing practices and are

4
assessing opportunities to export SUVs to Europe, South Africa and Southeast Asia. India can
emerge as a supply hub to feed the world demand for SUVs.

India also has the largest base to export compact cars to Europe. Moreover, hybrid and
electronic vehicles are new developments on the automobile canvas and India is one of the
key markets for them. Global and Indian manufacturers are focussing their efforts to
develop innovative products, technologies and supply chains.

The automotive plants of global automakers in India rank among the top across the world in
terms of their productivity and quality. Top auto multinational companies (MNCs) like
Hyundai, Toyota and Suzuki rank their Indian production facilities right on top of their global
pecking order.

Key Statistics

The amount of cumulative foreign direct investment (FDI) inflow into the automobile
industry during April 2000 to January 2013 was worth US$ 7,653 million, amounting to 4 per
cent of the total FDI inflows (in terms of US$), as per data published by Department of
Industrial Policy and Promotion (DIPP), Ministry of Commerce.

The Indian small and light commercial vehicle segment is expected to more than double by
2015-16 and grow at 18.5 per cent compound annual growth rate (CAGR) for the next five
years, according to a report titled, 'Strategic Assessment of Small and Light Commercial
Vehicles Market in India' by Frost & Sullivan.

The light commercial vehicles (LCV) market - both passenger and goods carrier is estimated
to register a sales growth of around 20 per cent during FY 2012-FY 2015, as per a RNCOS
report titled, "India LCV Market Outlook".

Domestic Sales:

The growth rate for overall domestic sales for 2011-12 was 12.24 percent amounting to
17,376,624 vehicles. In the month of only March 2012, domestic sales grew at a rate of
10.11 percent as compared to March 2011.

5
Passenger Vehicles segment grew at 4.66 percent during April-March 2012 over same
period last year. Passenger Cars grew by 2.19 percent, Utility Vehicles grew by 16.47 percent
and Vans by 10.01 percent during this period. In March 2012, domestic sales of Passenger
Cars grew by 19.66 percent over the same month last year. Also, sales growth of total
passenger vehicle in the month of March 2012 was at 20.59 percent (as compared to March
2011). For the first time in history car sales crossed two million in a financial year.

The overall Commercial Vehicles segment registered growth of 18.20 percent during April-
March 2012 as compared to the same period last year. While Medium & Heavy Commercial
Vehicles (M&HCVs) registered a growth of 7.94 percent, Light Commercial Vehicles grew at
27.36 percent. In only March 2012, commercial vehicle sales registered a growth of 14.82
percent over March 2011.

(Number
Automobile Domestic Sales Trends of Vehicles)
Category 2005-06 2006-07 2007-08
Passenger
11,43,076 13,79,979 15,49,882
Vehicles
Commercial
3,51,041 4,67,765 4,90,494
Vehicles

Three Wheelers 3,59,920 4,03,910 3,64,781

Two Wheelers 70,52,391 78,72,334 72,49,278

Grand Total 89,06,428 101,23,988 96,54,435

Category 2008-09 2009-10 2010-11 2011-12

Passenger Vehicles 15,52,703 19,51,333 25,01,542 26,18,072

Commercial Vehicles 3,84,194 5,32,721 6,84,905 8,09,532

Three Wheelers 3,49,727 4,40,392 5,26,024 5,13,251

Two Wheelers 74,37,619 93,70,951 117,68,910 134,35,769

Grand Total 97,24,243 12,295,397 15,481,381 17,376,624

6
Finance Department At TVS & Sons

Finance Department of TVS & Sons is controlled by Head Of the Department i.e. CM (F & A).
His main function is to co-ordinate all activities related to Finance & Accounts and report to
Head Office’s Finance & Accounts Department / Finance Director as well Unit Head. Finance
& Accounts Department function various type of activities as per the Guidelines issued by
Head Office, Purchase Procedure, Service Rules, Powers of officer etc.

At present to carry out all the related activities, following Four sectional heads are reporting
to him for work connected to their Sections. All the four sectional heads independently
report to Departmental Head. However, in case, Departmental Head happens on tour or on
leave, the next senior sectional head takes the charge of the department and remaining
here sectional head will report to him for all the work connected to their Sections.

7
 2. BUDGETING

Introduction

A budget is simply a list of planned expenses and a forecast of the revenues of the business.
It provides a basic model of how a business will perform financially in a specific period of
time. It is a financial and / or quantitative statement, prepared and approved prior to
defined period of time, of the policy to be pursued during the period for the purpose of
attaining a given objective. It may include income, expenditure and employment of capital.
Budgeting is the whole process of designing, implementing and operating a budget.

In brief, Budgeting can be defined as the statement of plan of activities of an organization

expressed in financial and quantitative term for a definite future period approved in
advance by Top Management.

Objectives of budgeting:

1. To prevent wastes

2. To control economic expenditures

3. To ensure availability of adequate working capital for efficient operation of plants.

4. To ensure adequate return on capital employed.

5. To identify and bring to the light areas where prompt action/ remedial actions are
required to be taken up by the management

Complexities are increasing in running the modern business and management has to face a
number of problems, which are to be solved with utmost care. Number of new tools and
techniques are being evolved and used by management in modern times to solve such
complex problems of business. Budgeting is one of such effective tools in the hands of
management. Now planning has become an inevitable part of business management. They
have come to realize that success in business depends to a large extent on the planning of
its activities with great care and foresight. The management gets ready to face the

8
challenges of future contingencies by peeping into the future. They are thus able to keep off
the heavy financial losses and fatal errors. It is through budgeting that the management is
able to guide the business in proper direction. “Budgeting is both planning and controlling,
two most important functions of management”. It is perhaps a very important tool for
achieving business objectives.

A budget is blue print of desired plan of actions or operations. Plans covering the entire
organization and all its functions like purchase, production, sales, financial management,
research & development are expressed through budget.

The budget serves as a declaration of policies and also defines the objective for executives
at all levels of management. Budgets provide a means of co-ordination of the business as a
whole. In the process of establishing budgets, the various factors like production capacity,
sales possibilities, and procurement of material, labour, etc. are balanced and co-ordinated
so that all the activities proceed according to the objective.

Budgets are means of communication. Complex plans lead down by the top management
are passed on to those who are responsible for putting them into action. Budgets facilitate
centralized control with delegated authority and responsibility. Group according to the
responsibilities of different executive levels, they facilitate decentralization of work.
Budgets are instruments of managerial control by means of which the management can
measure performance in every part of the concern and take corrective actions as soon as
any deviations from the budget come into light.

Features of Budgeting

The essential features of the budget are that:

 A budget can be expressed in terms of money or quantity, or both.

 It should be developed prior to the period during which it is to be operated.
 It is set for definite period.
 Before its preparation, the objective to be attained and the policy to be pursued to
achieve that objective are required to be laid down.

9
Advantages of Budgeting

 A basis for internal audit for regularly evaluating departmental result

 Scarce resources can be allocated in an optimal way
 It forces management to plan ahead so that long term goals are achieved
 Communication and coordination throughout the firm improves
 Participation in budget has a motivational impact on the work force
 Areas of efficiency and inefficiency are identified
 People are made responsible for items of cost and revenue

Problems in Budgeting

 They are perceived by work force as pressure device imposed by top management
 Departmental conflict arises because of competition for resources allocation.
 They make allowance for task to be performed only in relation to volume rather than
time

Budgeting Process

 Specification and communication of organizational objective

 Determination of key success factor
 Establishment of clear lines of authority and responsibility
 Establishment of budget centers
 Determination of budget period
 Establishment of budget committee
 Appointment of budget controller
 Preparation of budget manual

The necessity of budgeting arises out of the scarcity of economic resources and the number
of alternative uses in which these scarce resources can be deployed.

10
Budget Period:

Budget can be prepared for any definite future period. Generally period of 12 months is
treated as normal period for the purpose of budgeting. At TVS & Sons Ltd, budgeting
exercise is done for the financial year April to March every year.

Types of Budget:

There are various types of budgets, which are formulated in various organizations for
different purpose. At TVS & Sons Ltd, the budgeting exercise is done as below:

Corporate
Plan

Sales Service
Budget Budget

Sales and Service Budgets are formulated separately. The purpose of splitting up the budget
into two sections is so that it is more manageable. Four distinctive phases can be identified
in the budgeting process as follows:

1. Budget formulation

2. Implementation

3. Control

4. Evaluation.

11
Budgeting Process:
At TVS & Sons SBU Renault, the following steps are followed for compilation of Budgeting
procedure:

1. Fixation of Targets

a. While initiating the budgeting exercise at the head office level, sale targets are fixed in
consultation with marketing division.

b. Production targets are fixed in consultation with Unit Head after giving due consideration
to various constraints

2. Communication of Targets.

After taking into consideration the above parameters and constraints, Units are advised to
communicate their production plan, consumption norms and other proposals which are
reviewed at Head Office. Having due regard to other constraints and parameters with in the
knowledge of top management, production targets are fixed for individual production units
and same are communicated to concerned units.

Detailed circular for initiating the budget exercise is issued to all the units by Executive
Director (Finance) from Head office. The circular contains necessary information and
guidelines required for the purpose of preparation of budgets.

3. Delegation of responsibility for formulating revenue budget proposals at unit level.

On receipt of the communication from Head office regarding formulation of budget, a

meeting is arranged by Unit Head with all Head of the Departments to explain various
important aspects of budget to be prepared. The compilation of revenue budget is
coordinated by Head of Finance and Accounts Department, who is responsible for collecting
the required data from all the concerned and compiled budget proposals, discusses the
same with the unit head and submits the budget proposal to Head Office within the
scheduled date prescribed in the Head office circular/communication.

12
 3. BUDGET ANALYSIS
Sales Budgets

Outlet Name RENAULT COCHIN

Function SALES
SBU Name RIPL

Summary of Profit and Loss Account

( Values in Rs. Lakhs) FY 12 FY 13 FY 14

Number of Vehicles Sold 204 1,199 2,141

Turnover 2,151.4 9,328.8 17,099.9

Cost of Sales 2,076.1 9,002.3 16,608.5

Gross Margin 75.3 326.5 491.4

Other Income 195.5 333.6 610.6

Total Revenue 270.8 660.1 1,102.1

Finance charges (Interest & Bank
charges) 101.2 123.9 226.3

Variable expenses 18.5 37.5 69.6

Contribution (CO 1) 151.1 498.7 806.1

Business Overheads 220.1 303.8 502.0

CO 2 (68.9) 194.9 304.2

Function Overheads - 5.3 5.8

CO 3 (68.9) 189.7 298.4

SBU overheads allocated - 7.2 7.2

CO 4 (68.9) 182.4 291.1

LoB overheads allocated - 10.6 10.6

CO 5 (68.9) 171.8 280.5

Expertise cost - 4.8 5.3

13
CO 6 (68.9) 167.0 275.2

Corporate Expenses - 4.4 4.8

CO 7 (68.9) 162.6 270.4

Depreciation 86.3 47.3 67.8

CO8 (PBT) (155.2) 115.4 202.6

EBITDA 32.3 286.5 496.7

Key Ratios

Ratios - % of Turnover FY 12 FY 13 FY 14
Gross Margin 3.5% 3.5% 2.9%
Other Income 9.1% 3.6% 3.6%
Finance charges (Interest & Bank
charges) 4.7% 1.3% 1.3%
Variable expenses 0.9% 0.4% 0.4%
Business OH 10.2% 3.3% 2.9%
Function OH 0.0% 0.1% 0.0%
Allocated Costs 0.0% 0.3% 0.2%
Depreciation 4.0% 0.5% 0.4%
PBT -7.2% 1.2% 1.2%

Ratios - Per Vehicle (Rs.) FY 12 FY 13 FY 14

Gross Margin 36,911.9 27,231.7 22,954.1

Other Income 95,837.0 27,821.8 28,519.6

Finance charges (Interest & Bank
charges) 49,605.5 10,332.0 10,571.0

Variable expenses 9,058.1 3,125.0 3,250.0

Business OH 1,07,870.4 25,337.9 23,446.7

Function OH - 439.0 270.4

Allocated Costs - 2,254.3 1,305.3

Depreciation 42,279.9 3,941.1 3,168.6

PBT (76,065.0) 9,624.2 9,461.8

14
Outlet Name RENAULT CALICUT
Function SALES
SBU Name RIPL

Summary of Profit and Loss Account

( Values in Rs. Lakhs) FY 12 FY 13 FY 14

Number of Vehicles Sold 39 652 1,121

Turnover 307.6 5,017.0 8,846.2

Cost of Sales 296.8 4,841.4 8,592.7

Gross Margin 10.8 175.6 253.6

Other Income 6.7 208.3 318.3

Total Revenue 17.5 383.8 571.9

Finance charges (Interest & Bank
charges) 0.4 67.1 115.3

Variable expenses 0.9 10.9 36.4

Contribution (CO 1) 16.1 305.9 420.2

Business Overheads 12.3 133.5 222.8

CO 2 3.8 172.4 197.4

Function Overheads - 2.3 2.5

CO 3 3.8 170.1 194.8

SBU overheads allocated - 5.2 5.2

CO 4 3.8 164.9 189.7

LoB overheads allocated - 7.6 7.6

CO 5 3.8 157.3 182.1

Expertise cost - 2.1 2.3

CO 6 3.8 155.3 179.8

Corporate Expenses - 1.9 2.1

15
CO 7 3.8 153.4 177.7

Depreciation 1.4 16.1 25.4

CO8 (PBT) 2.4 137.3 152.3

EBITDA 4.2 220.4 293.0

Key Ratios

Ratios - % of Turnover FY 12 FY 13 FY 14
Gross Margin 3.5% 3.5% 2.9%
Other Income 2.2% 4.2% 3.6%
Finance charges (Interest & Bank
charges) 0.1% 1.3% 1.3%
Variable expenses 0.3% 0.2% 0.4%
Business OH 4.0% 2.7% 2.5%
Function OH 0.0% 0.0% 0.0%
Allocated Costs 0.0% 0.3% 0.2%
Depreciation 0.5% 0.3% 0.3%
PBT 0.8% 2.7% 1.7%

Ratios - Per Vehicle (Rs.) FY 12 FY 13 FY 14

Gross Margin 27,602.7 26,931.5 22,619.8

Other Income 17,151.7 31,940.2 28,396.5

Finance charges (Interest & Bank
charges) 1,000.0 10,285.4 10,285.4

Variable expenses 2,403.7 1,667.2 3,250.0

Business OH 31,603.9 20,477.7 19,875.6

Function OH - 351.6 224.9

Allocated Costs - 2,569.2 1,529.9

Depreciation 3,574.5 2,465.8 2,263.2

PBT 6,172.2 21,054.9 13,587.4

16
Outlet Name RENAULT TRIVANDRUM
Function SALES
SBU Name RIPL

Summary of Profit and Loss Account

( Values in Rs. Lakhs) FY 12 FY 13 FY 14

Number of Vehicles Sold 29 485 866

Turnover 196.2 3,785.5 6,831.4

Cost of Sales 189.4 3,653.0 6,635.6

Gross Margin 6.9 132.5 195.8

Other Income 6.0 153.7 245.9

Total Revenue 12.9 286.2 441.7

Finance charges (Interest & Bank
charges) 7.9 50.9 91.2

Variable expenses 1.0 10.4 28.1

Contribution (CO 1) 4.0 224.9 322.3

Business Overheads 19.1 170.9 222.7

CO 2 (15.1) 54.0 99.7

Function Overheads - 2.5 2.7

CO 3 (15.1) 51.6 97.0

SBU overheads allocated - 3.1 3.1

CO 4 (15.1) 48.5 93.9

LoB overheads allocated - 4.6 4.6

CO 5 (15.1) 43.9 89.3

Expertise cost - 4.8 5.3

CO 6 (15.1) 39.1 84.0

Corporate Expenses - 4.4 4.8

17
CO 7 (15.1) 34.7 79.2

Depreciation 3.5 18.7 29.3

CO8 (PBT) (18.6) 16.1 49.9

EBITDA (7.2) 85.6 170.4

Key Ratios

Ratios - % of Turnover FY 12 FY 13 FY 14
Gross Margin 3.5% 3.5% 2.9%
Other Income 3.1% 4.1% 3.6%
Finance charges (Interest & Bank
charges) 4.0% 1.3% 1.3%
Variable expenses 0.5% 0.3% 0.4%
Business OH 9.8% 4.5% 3.3%
Function OH 0.0% 0.1% 0.0%
Allocated Costs 0.0% 0.4% 0.3%
Depreciation 1.8% 0.5% 0.4%
PBT -9.5% 0.4% 0.7%

Ratios - Per Vehicle (Rs.) FY 12 FY 13 FY 14

Gross Margin 23,684.6 27,317.8 22,609.5

Other Income 20,789.4 31,690.7 28,392.7

Finance charges (Interest & Bank
charges) 27,254.6 10,485.9 10,533.4

Variable expenses 3,339.4 2,145.7 3,250.0

Business OH 66,001.1 35,240.0 25,711.1

Function OH - 506.4 312.0

Allocated Costs - 3,468.7 2,048.5

Depreciation 11,925.8 3,846.3 3,384.5

PBT (64,046.9) 3,315.5 5,762.8

18
Outlet Name RENAULT THRISSUR
Function SALES
SBU Name RIPL

Summary of Profit and Loss Account

( Values in Rs. Lakhs) FY 14

Number of Vehicles Sold 509

Turnover 4,016.1

Cost of Sales 3,901.0

Gross Margin 115.1

Other Income 144.2

Total Revenue 259.3

Finance charges (Interest & Bank charges) 53.3

Variable expenses 16.5

Contribution (CO 1) 189.5

Business Overheads 96.5

CO 2 93.0

Function Overheads -

CO 3 93.0

SBU overheads allocated 2.1

CO 4 90.9

LoB overheads allocated 3.0

CO 5 87.9

Expertise cost -

CO 6 87.9

Corporate Expenses -

19
CO 7 87.9

Depreciation 19.6

CO8 (PBT) 68.3

EBITDA 141.1

Key Ratios

Ratios - % of Turnover FY 14 (Projected)

Gross Margin 2.9%
Other Income 3.6%
Finance charges (Interest & Bank charges) 1.3%
Variable expenses 0.4%
Business OH 2.4%
Function OH 0.0%
Allocated Costs 0.1%
Depreciation 0.5%
PBT 1.7%

Ratios - Per Vehicle (Rs.) FY 14 (Projected)

Gross Margin 22,615.5

Other Income 28,331.1

Finance charges (Interest & Bank charges) 10,468.0

Variable expenses 3,250.0

Business OH 18,963.3

Function OH -

Allocated Costs 1,002.6

Depreciation 3,845.7

PBT 13,416.9

20
Consolidated Sales Budget

Summary of Profit and Loss Account

FY 12 FY 13 FY 14

Number of Vehicles Sold 326 4,070 8,000

Turnover 3,050.7 31,675.5 63,760.3

Cost of Sales 2,944.0 30,384.9 61,620.8

Gross Margin 106.8 1,290.6 2,139.4

Other Income 219.4 1,243.7 2,272.4

Total Revenue 326.2 2,534.2 4,411.8

Finance charges (Interest & Bank
charges) 133.1 441.4 850.2

Variable expenses 22.6 90.1 260.0

Contribution (CO 1) 170.5 2,002.8 3,301.6

Business Overheads 299.3 1,213.6 2,095.1

CO 2 (128.8) 789.3 1,206.5

Function Overheads - 17.4 19.1

CO 3 (128.8) 771.9 1,187.4

SBU overheads allocated - 38.6 38.6

CO 4 (128.8) 733.3 1,148.8

LoB overheads allocated - 45.5 45.5

CO 5 (128.8) 687.8 1,103.3

Expertise cost - 18.3 20.1

CO 6 (128.8) 669.5 1,083.2

Corporate Expenses - 16.8 18.5

CO 7 (128.8) 652.7 1,064.7

Depreciation 99.3 152.2 261.5

CO8 (PBT) (228.1) 500.5 803.3

21
 EBITDA 4.3 1,094.0 1,914.9

Key Ratios

FY 13 FY 14
Ratios - % of Turnover FY 12 (Estimated) (Projected)
Gross Margin 3.5% 2.8% 3.3%
Other Income 7.1% 2.7% 3.6%
Finance charges (Interest & Bank
charges) 4.3% 0.9% 1.3%
Variable expenses 0.6% 0.2% 0.4%
Business OH 5.5% 2.5% 3.4%
Function OH 0.0% 0.0% 0.0%
Allocated Costs 0.0% 0.2% 0.2%
Depreciation 3.2% 0.3% 0.5%
PBT -6.4% 1.2% 1.1%

Sales Budget components:

Other Income includes:

 Vehicle financing income

 Vehicle Insurance income
 Commission received from vendor
 Scrap Sales
 Miscellaneous income

Variable Expenses include:

 Fuel for new vehicle

 Product maintenance
 TVS commission +ADSL Commission
 Freight & delivery expense
 Allowance to customers

Business Overheads include:

 Salaries and Establishment

 Security Charges
 Medical & welfare expenses including Medical Insurance
 Staff training expenses
 Maintenance - IT Cost
 Building maintenance
 Other maintenance expenses

22
  Vehicle maintenance expenses
 Lease Rent
 Rates & Taxes
 Communication expense
 Printing & Stationery
 Legal & Professional
 Bad debts
 Loss/(Profit) on Sale of Assets
 Travel expenses
 Other Insurance
 Rent & Electricity charges
 Advertisement & Sales expense
 Other bank & finance charges
 Other fixed expenses

Allocated Costs include:

 IT transaction costs
 IT business partner costs
 HR transaction costs
 HR business partner costs
 Admin transaction costs
 Finance onsite costs
 Finance transaction costs
 Finance business partner costs

Service Budgets
RENAULT COCHIN

Summary of Profit and Loss Account

Values in Rs. Lakhs FY 12 FY 13 FY 14

Total Turnover 27.5 161.4 547.4

Total Cost of Sales 20.3 112.9 342.4

Total Gross margin 7.2 48.5 205.0

Other Income - - 4.2

Total Revenue 7.2 48.5 209.2

Finance charges (Interest & Bank
charges) 36.9 56.8 64.0
Variable expenses

23
 11.9 4.4 19.1

CO1 ( Contribution) (41.5) (12.7) 126.1

Business Overheads 114.3 140.6 158.4

CO2 (155.8) (153.3) (32.3)

Function Overheads - 4.8 4.8

CO3 (155.8) (158.1) (37.2)

SBU overheads allocated - 10.2 10.2

CO4 (155.8) (168.3) (47.4)

LoB overheads allocated - 10.6 10.6

CO5 (155.8) (178.9) (58.0)

Total Expertise cost - 3.0 3.0

CO6 (155.8) (181.9) (61.0)

Corporate Expenses - 9.0 10.3

CO7 (155.8) (190.9) (71.3)

Depreciation 25.6 22.3 32.2

CO8 (PBT) -181.4 -213.2 -103.5

EBITDA -118.9 -134.1 -7.3

Key Ratios

Ratios - % of Turnover FY 12 FY 13 FY 14
Gross Margin 26.3% 30.0% 37.5%
Other Income 0.0% 0.0% 0.8%
Finance charges (Interest & Bank
charges) 134.0% 35.2% 11.7%
Variable expenses 43.3% 2.7% 3.5%
Business OH 415.2% 87.1% 28.9%
Function OH 0.0% 3.0% 0.9%
Allocated Costs 0.0% 20.3% 6.2%
Depreciation 92.9% 13.8% 5.9%
PBT -659.1% -132.1% -18.9%

24
RENAULT CALICUT

Summary of Profit and Loss Account

Values in Rs. Lakhs FY 13 FY 14

Total Turnover 72.4 284.7

Total Cost of Sales 53.1 183.0

Total Gross margin 19.2 101.8

Other Income 0.2 2.0

Total Revenue 19.4 103.8

Finance charges (Interest & Bank
charges) 16.8 18.9

Variable expenses 4.6 15.1

CO1 ( Contribution) (2.0) 69.8

Business Overheads 30.5 64.7

CO2 (32.5) 5.1

Function Overheads 2.3 2.3

CO3 (34.7) 2.9

SBU overheads allocated 7.3 7.3

CO4 (42.0) (4.4)

LoB overheads allocated 7.6 7.6

CO5 (49.6) (12.0)

Total Expertise cost 2.3 2.3

CO6 (51.9) (14.3)

Corporate Expenses - -

CO7 (51.9) (14.3)

Depreciation 13.7 17.3

CO8 (PBT) -65.5 -31.6

EBITDA -35.1 4.6

25
Key Ratios

Ratios - % of Turnover FY 13 FY 14
Gross Margin 26.6% 35.7%
Other Income 0.2% 0.7%
Finance charges (Interest & Bank
charges) 23.2% 6.6%
Variable expenses 6.4% 5.3%
Business OH 42.1% 22.7%
Function OH 3.1% 0.8%
Allocated Costs 23.7% 6.0%
Depreciation 18.9% 6.1%
PBT -90.6% -11.1%

RENAULT TRIVANDRUM

Summary of Profit and Loss Account

Values in Rs. Lakhs FY 13 FY 14

Total Turnover 60.3 221.6

Total Cost of Sales 36.4 139.5

Total Gross margin 24.0 82.0

Other Income - 1.5

Total Revenue 24.0 83.6

Finance charges (Interest & Bank
charges) 6.6 32.3

Variable expenses 0.8 13.0

CO1 ( Contribution) 16.5 38.2

Business Overheads 12.2 106.3

CO2 4.3 (68.1)

Function Overheads 2.3 2.3

CO3 2.1 (70.3)

SBU overheads allocated 4.4 4.4

CO4 (2.3) (74.7)

26
LoB overheads allocated 4.6 4.6

CO5 (6.8) (79.2)

Total Expertise cost 2.3 2.3

CO6 (9.1) (81.5)

Corporate Expenses 4.8 5.5

CO7 (13.9) (87.0)

Depreciation 7.6 33.8

CO8 (PBT) -21.5 -120.8

EBITDA -7.3 -54.7

Key Ratios

Ratios - % of Turnover FY 13 FY 14
Gross Margin 39.7% 37.0%
Other Income 0.0% 0.7%
Finance charges (Interest & Bank
charges) 11.0% 14.6%
Variable expenses 1.3% 5.9%
Business OH 20.2% 48.0%
Function OH 3.7% 1.0%
Allocated Costs 26.5% 7.5%
Depreciation 12.6% 15.2%
PBT -35.6% -54.5%

RENAULT THRISSUR

Summary of Profit and Loss Account

Values in Rs. Lakhs FY 14

Total Turnover 86.6

Total Cost of Sales 53.6

Total Gross margin 33.0

Other Income -
Total Revenue

27
 33.0

Finance charges (Interest & Bank charges) 11.3

Variable expenses 4.6

CO1 ( Contribution) 17.1

Business Overheads 43.7

CO2 (26.6)

Function Overheads -

CO3 (26.6)

SBU overheads allocated 2.9

CO4 (29.5)

LoB overheads allocated 3.0

CO5 (32.5)

Total Expertise cost -

CO6 (32.5)

Corporate Expenses -

CO7 (32.5)

Depreciation 12.1
CO8 (PBT) -44.7

EBITDA -21.2

Ratios - % of Turnover FY 14
Gross Margin 38.1%
Other Income 0.0%
Finance charges (Interest & Bank charges) 13.1%
Variable expenses 5.3%
Business OH 50.5%
Function OH 0.0%
Allocated Costs 6.9%
Depreciation 14.0%
PBT -51.6%

28
 4. BUDGETARY CONTROL

Budgetary control is establishment of budget relating the responsibilities of executives to

the requirements of a policy and the continuous comparison of the actual with budgeted
result either to secure by individual action the objective of that policy or to provide a basis
for its revision

Essentials of Budgetary control:

1. Establishment of budgets for each function and section of the organization.

2. Continuous comparison of the actual performance with that of the budget so as to know
the variations from budget and placing the responsibility of executives for failure to achieve
the desires results as given in the budget.

3. Taking suitable remedial action to achieve the desires objective if there is a variation of
the actual of the actual performance from the budgeted performance.

4. Revision of budgets in the light of changed circumstances.

Objective of Budgetary Control:

1. Planning: A budget is a plan of the policy to be pursued during the defined period of time
to attain a given objective. The budgetary control will force management of all levels to plan
in time all the activities to be done during the future periods.

2. Co-ordination: The budgetary control coordinates the various activities of the firm and
secures C-operation of all concerned so that the common objective of the firm may be
successfully achieved.

3. Control: Control consists of the action necessary to ensure that the performance of the
organization conforms to the plans and objectives. Budgetary control makes control
possible by continuous comparisons of actual performance will that of the budget so as to
report the variations from the budget to the management for corrective action.

29
Variance Analysis

Variances between budgeted and actual figures reveal important information to company
management about how the business is performing. Ideally the budget would have been
carefully prepared so it could be as accurate as possible a prediction of what the company
will be able to achieve in the upcoming year. When the budget comparison reports show
significant variances, it means either the assumptions used to prepare the budget were in
error, or the business environment changed from what had been expected. The budget
comparison reports allow the management team to quickly identify where the problems are
occurring.

Departmental Sales
Departmental
and Cost
Expenses
Multiple
Multiple Departments
departments

Departmental
Budget
Analysis and
Variance

Consolidated
Budget, Actual and
Variance

General
Assumptions
and Overhead
Expenses

30
Analysis and Interpretation:

Budgets represent internal reports that detail how a company spends capital. Managerial
accounting activities often include the preparation of several different budget types and the
calculation and interpretation of variances. Companies review variances to determine areas
where the company is working well and not working well. The interpretation of budget
variances is often a monthly process for managerial accountants. This process commonly
falls under the flexible budget process, in which accountants compare actual expenses to
the budgeted expenses.

To prepare its budget, the company projects its sales, inventory usage, production, labour
and other expenses. Using these projections, the company prepares income statements and
balance sheets. The variation between the amounts on the actual financial statements and
the projected financial statements are budget variances.

Measuring Results:

Measuring actual results against budget is aimed at monitoring and recording business
activities, the results of which are used for further performance evaluation. The comparison
of actual vs. budget often shows a difference, or "variance," that can be either favourable or
unfavourable.

Variance is analysed to find out what caused the variation between actual and budget.
Planning budgets and measuring results are only the start of the process of comparing
actual vs. budget. Management uses the budget report to identify the reasons for any
variation so that it can recommend appropriate corrective actions. Potential causes for
unfavourable variances may include unrealistic budget or subpar performance.

Causes for Variances in Budgeting:

Budget variances are caused by inaccurate projections in materials, labour and sales figures.

Resources: The company may inaccurately project the amount of resources it uses or how
efficiently it uses these resources. If there is a change in the market price of any of the

31
resources the company uses in production, and the company does not account for this
change, that change could cause inaccurate projections. Also, the purchasing department
may not account for purchasing discounts or transportation costs, resulting in inaccurate
projections. Inexperienced workers, poor supervision and poor scheduling may result in an
inefficient use of.

Labour: The company attempts to accurately project labour, but several factors cause
variations between labour projections and actual labour. Each worker is different and no
single worker has an equal skill level, speed, knowledge base and experience level, which
makes it more difficult for the company to make accurately labour projections. The
company also cannot anticipate employee behaviour. Employees arrive late, call in sick and
find new employment. If some of the company's most skilled workers quit during the
projected period, this would cause a large variation in labour. Overtimes also cause
variations between labour projections and actual labour. When projects take longer than
expected and employees must work overtime, this often results in unfavourable budget
variances.

Sales: Variations in sales figures result from changes and inaccurate predictions related to
market and economic conditions. If a competitor opens up nearby, that may result in lower
sales figures than expected. In contrast, if a nearby competitor moves its location away from
the company, this may result in higher sales figures than anticipated. Changes and
inaccurate predictions in the demand for the company's product also result in variation.

Corrective Action:

After reviewing the budget comparison reports, senior management must determine if the
variances are significant enough to warrant corrective action being taken. One issue is
whether the variances were one-time unusual events or part of a recurring pattern. If sales
for one product fall below budget for a number of months, a change in marketing strategy
may be made to get sales back on track. Alternatively, the revenue shortfall may be due to
factors beyond the company's ability to control, such as a general economic downturn. The
response in that case might be to cut back on budgeted expenditures to narrow the gap
between budget and actual results in upcoming months. Top management addresses higher

32
than budgeted expenses by meeting with the managers whose departments were
responsible for the variances and asking why they occurred.

KERALA
Description
Budget Actual Difference %Difference
FINANCIAL REPORT -
RESULT FLOW
Sales 19,097.47 21,455.31 2,357.84 12.35
Cost of Sales 18,429.06 20,902.39 2,473.33 13.42
Gross Margin 668.41 552.92 (115.49) (17.28)
Other Income 543.89 1,066.67 522.78 96.12
Total Revenue 1,212.31 1,619.58 407.27 33.59
Finance Charges 251.36 520.49 269.13 107.07
Variable Expenses 115.29 69.22 (46.07) (39.96)
Contribution 845.67 1,029.87 184.20 21.78
Business Overheads 692.63 737.89 45.26 6.53
Function Overheads 10.51 15.88 5.37 51.09
Corporate and
16.29 27.17 10.88 66.79
Expertise Cost

PBT 126.23 248.94 122.71 97.21

Total
Description
Budget Actual Difference %Difference
FINANCIAL REPORT -
RESULT FLOW
Sales 31,604.16 37,759.29 6,155.13 19.48
Cost of Sales 30,498.02 36,488.57 5,990.55 19.64
Gross Margin 1,106.15 1,270.72 164.57 14.88
Other Income 906.18 1,245.69 339.51 37.47
Total Revenue 2,012.32 2,516.41 504.09 25.05
Finance Charges 422.12 520.58 98.46 23.33
Variable Expenses 199.45 106.13 (93.32) (46.79)
Contribution 1,390.75 1,889.70 498.95 35.88
Business Overheads 1,147.40 1,449.42 302.02 26.32
Function Overheads 18.13 17.04 (1.09) (6.01)
Corporate and
28.08 27.17 (0.91) (3.24)
Expertise Cost

PBT 197.14 396.07 198.93 100.91

33
25000

12%
13%
20000

15000 Excess
Budget
Shortfall
10000
Variance

5000

-17% 7% 97%
0
Sales Cost of Sales Gross Margin Overheads PBT

34
 5. CONCLUSIONS AND SUGGESTIONS

I have carried out my training in a period of two months in the Finance Department, Renault
under TVS & Sons Kochi. During this period I have studied in brief and have taken overview
of the activities of the Finance Department at TVS & Sons and in particular the Budgeting
process and Budgetary Control.

Values in Rs. Lakhs FY 12 FY 13 FY 14

RENAULT COCHIN 75.3 326.5 491.4

RENAULT CALICUT 10.8 175.6 253.6

RENAULT
Gross Margin
TRIVANDRUM 6.9 132.5 195.8

RENAULT THRISSUR - - 115.1

CONSOLIDATED 106.8 1,290.6 2,139.4

Values in Rs. Lakhs FY 12 FY 13 FY 14

RENAULT COCHIN (155.2) 115.4 202.6

RENAULT CALICUT 2.4 137.3 152.3

RENAULT
PBT
TRIVANDRUM (18.6) 16.1 49.9

RENAULT THRISSUR - - 68.3

CONSOLIDATED (228.1) 500.5 803.3

TVS & Sons Renault Dealership is seen to be expanding steadily with increasing sales
turnover and profit margins.

There are a number of advantages to budgeting and budgetary control:

 It compels management to think about the future, which is probably the most
important feature of a budgetary planning and control system. It forces
management to set out detailed plans for achieving the targets for each department

35
  Promotes coordination and communication.
 Clearly defines areas of responsibility. Requires managers of budget centres to be
made responsible for the achievement of budget targets for the operations under
their personal control.
 Provides a basis for performance appraisal (variance analysis). A budget is basically a
yardstick against which actual performance is measured and assessed. Control is
provided by comparisons of actual results against budget plan. Departures from
budget can then be investigated and the reasons for the differences can be divided
into controllable and non-controllable factors.
 Enables remedial action to be taken as variances emerge.
 Motivates employees by participating in the setting of budgets.
 Improves the allocation of scarce resources.
 Economises management time by using the management by exception principle.

Problems in budgeting:

Whilst budgets may be an essential part of any marketing activity they do have a number of
disadvantages, particularly in perception terms. Budgets can be seen as pressure devices
imposed by management, thus resulting in bad labour relations or inaccurate record-
keeping. Departmental conflict arises due to disputes over resource allocation. It is difficult
to reconcile personal/individual and corporate goals. Waste may arise as managers adopt
the view, "we had better spend it or we will lose it". This is often coupled with "empire
building" in order to enhance the prestige of a department. Responsibility versus
controlling, i.e. some costs are under the influence of more than one person, e.g. power
costs. Managers may overestimate costs so that they will not be blamed in the future should
they overspend.

Suggestions:

Better research and information while preparing budgets can help reduce budgeting
variances.

Proper analysis of variations between actual and budgeted values will ensure that they are
able to deal with problems before they arise.

36
TVS & Sons do not currently use any control process for analysing the causes for Budget
Variances and taking corrective action. This needs to be implemented to prevent the large
variances which are currently seen and thus ensure more accurate budgeting.

Also, the use of an ERP software to record data, and also compatibility of software in
different locations can help speed up the data transfer process. Implementing the software
in different locations can help integrate the different departments as well as different
dealerships.

37
REFERENCES

www.tvs.in

www.renault.co.in

www.siamindia.com

www.financialmanagementdevelopment.com

Correia, Carlos, Flynn, David, Uliana, Enrico. (2012), “Financial Management”, Juta and
Company Ltd

Gelman, Andrew. (2004). “Analysis of Variance”, Columbia University

Hinka, Roman. (2007), “Budgeting: Approaches and Shortcomings”, GRIN Verlag

Schermerhorn, John. R. (1986), “Management for Productivity”, John Wiley & Sons

38