Budgetary control-A technique of

performance evaluation.
Submitted By:
Soumil Popat-Roll no 3
Vaibhav Karia-Roll no 19
Sandeep Mishra-Roll no 25
Pushkar Pande-Roll no 27
Anamta Shaikh- Roll no 47
Sneha Tyagi-Roll no 50
Ajinkya Totla-Roll no 56

A Report Submitted to The METs Institute Of Management in partial

fulfilment of the requirement for the award of PGDM for 2014-2016.

Under the Guidance of:

Prof. L.N. Chopde.

CERTIFICATE
This is to certify that this project titled Budgetary Control-A technique of
performance evaluation. Is Based on the original study conducted by:
Soumil Popat-Roll no 3
Vaibhav Karia-Roll no 19
Sandeep Mishra-Roll no 25
Pushkar Pande-Roll no 27
Anamta Shaikh- Roll no 47
Sneha Tyagi-Roll no 50
Ajinkya Totla-Roll no 56

of METs Institute of computer science, PGDM (E-Business) under my guidance

and this had not formed a basis for the award of any other degree of this
institute/university.
Place: METs INSTITUTE COMPUTER SCIENCE.
Date: 06/04/2015
Prof. L.N. Chopde.

PREFACE
This report is the practical part of the most vital practice of our MBA-two year
program. The sole objective of this project is to familiarize the students with
understanding the procurement function of a business organization. This report has
been written to analyze and understand the Budgetary Control - A technique
of performance evaluation in industry.

ACKNOWLEDGEMENT
We take this opportunity to express our profound gratitude and deep regards to
our guide Prof. L. N. Chopde for his exemplary guidance, monitoring and
constant encouragement throughout the course for this project. The knowledge,
help and guidance given by him from time to time helped us understand the
topic precisely.

EXECUTIVE SUMMARY
Objective: To Study the Budgetary control.
Flow of the Project: The Project starts with a brief introduction on
meaning of Budget, its need, types of budget and budgetary control.
The project continues with the case introduction and the information
provided by the company such as the details of the various estimated
budgets and the comparison between the two.

CONTENTS

Sr.
No

Contents

Page No.

1.

Introduction-Budget

2.

Need for budget

3.

Types of budget

4.

Company 1: Silver Touch Smelting Industries

11

5.

Company 2: MX-MDR Technologies Limited

13

6.

Comparison between the Company

14

Introduction
BUDGET
Budget is derived from a French word Bougetts which means the purse in which funds are
collected for meeting the anticipated expenses. It is a financial plan serving as an estimate of
and control over future operations. It is any estimate of future costs. It is any systematic plan
for the utilization of manpower, material or other resources. .It is a financial and/or quantitative
statement prepared prior to a defined period of time, of the policy to be pursued during that
period for the purpose of attaining a given objective. It is an estimate of future needs arranged
according to an orderly basis, covering some or all of the activities of an enterprise for a definite
period of time. Budgets are made up of statistical data which establish measurements of
reasonable operating expectations. It is a cost plan for a period of time.
Kohler, in his Dictionary for Accountants defines budget as:
a) Any financial plan serving as an estimate of and a control over future operations.
b) Hence, any estimate of future costs.
c) Any systematic plan for the utilization of manpower, material, or any other resources.
The objective of budgeting is to:
Budgets communicate managements plans throughout the organization.
Budgeting forces managers to give planning top priority.
Budgets provide a means of allocating resources to their most effective uses.
Budgeting uncovers potential bottlenecks.
Budgeting coordinates the activities of the entire organization.
Budgeting provides goals that serve as benchmarks for evaluating subsequent
performance.

NEED FOR BUDGET

Budget provides a means of communication. It facilitates centralized control. It defines the
objectives / targets for executives at all levels of the management. It serves as a declaration of
policies. Budget helps to aid the planning of actual operations by forcing managers to
consider how the conditions might change and what steps should be taken now and by
encouraging managers to consider problems before they arise. It also helps co-ordinate the
activities of the organization by compelling managers to examine relationships between their
own operation and those of other departments. Other essentials of budget include
controlling activities. -To communicate plans to various responsibility center managers. -To
motivate managers to strive to achieve budget goals. -To evaluate the performance of
managers.

TYPES OF BUDGET
1. Materials and Utilities Budget:
This budget also known as operations budget includes budgeting for raw material required
for production, spare parts for maintenance, labour time, machine time, energy
consumption etc. The labour time and machine time is usually related to what a unit of time
is budgeted to
yield. It is the output per unit of time.
2. Control of Liquidity:
This involves cash flow and is very important in controlling cash and meeting current
financial obligations. This budget forecasts cash receipts and outlays on a set time basis
and is necessary to control the income and expenses, so that
there is no shortage of cash to pay bills and also there is no excessive unused cash which
may be unproductive.
3. Revenue and Expense Budgets:
The revenue budgets should show anticipated sales by product or by geographical territory
or department etc. The expense budgets should cover all necessary and relevant areas such
as rent, utilities, supplies, security etc.
4. Cash flow/cash budget:
A prediction of future cash receipts and expenditures for a particular time period is a cash
budget. It usually covers a period in the short term future. The cash flow budget helps the
business determine when income will be sufficient to cover expenses and when the
company will need to seek outside financing.
4. Capital Expenditure Budgets:
These budgets plan for long-term investments and include expenditure for new plant and
equipment, major installations replacement of existing equipment, building etc. Capital
budgeting is a part of long-range planning and must be broken into well-defined phases of

the programme, known as milestones, each phase being budgeted for cost, time and success
in a self-contained way.

5. Balance-sheet Budget:
It is a composite budget and reflects anticipated assets, liabilities and owner's equity or net
worth at the end of a given period in the future. It provides forecast of the anticipated
financial status of the company at a future date.
6. Flexible Budget:
Flexible or variable budget reflects and combats the changes in expenditure as a result of
changes in volume of production and revenues. These expenditures are primarily variable
costs since the fixed costs are not generally affected by changes in revenues. The basic idea
of flexible budget is to establish a relationship of changes in variable cost as affected by
changes in revenues due to changes in sales.
7. Project budget:
A prediction of the costs associated with a particular company project. These costs include
labour, materials, and other related expenses. The project budget is often broken down into
specific tasks, with task budgets assigned to each. A cost estimate is used to establish a
project budget.

Company 1: Silver touch smelting industries:

Silver touch smelting industries is a private firm that assembles soldering irons by acquiring different raw
materials required for it.
The company produces 2 types of product based on its capacity and standards

Expected sales, Selling price and Invetory

Product
Sales unit
Selling price
Product SRN25
30000 100
Product SRN35
35000 120
Material usage
Raw Materials
Iron Rod
Heater coil
Plastic Cap
Metal Ring
Extension wire
Insulator

Product SRN25
1
1
1
1
1
1

Inventory(Begining) inventory(Ending)
3000
2500
2500
2500

Product SRN35
1
1
1
1
1
2

Anticipated raw material price and Inventories

Raw Materials
Iron Rod
Heater coil
Plastic Cap
Metal Ring
Extension wire
Insulator

Unit
Each
Each
Each
Each
metres
Each

Price (In Rs.)

10
30
3
0.25
2
5

Inventory(Begining)
2000
2500
2300
2000
1600
4500

inventory(Ending)
Desired
2500
2500
2500
2500
2500
5000

Sales Budget
Products
Product SRN25
Product SRN35

Selling price per

unit
Sales unit
30000 100
35000 120
Total

Total (In Rs. )

3000000
4200000
7200000

Production budget
Product SRN25 Product SRN35
30000
35000

Budgeted Sales
Desired Closing
Add:

2500
32500

Total Requirement
Opening Stock of
Less: F.G.
Budgeted production

2500
37500

3000
29500

2500
35000

Raw Material Purchase Budget in Rs.

Raw Materials
Material Requirement
Add: Desired closing stock
Total Requirement
Less: Opening Stock
Budgeted
Purchases(Units)
Price per unit (In Rs.)
Budgeted Purchases (In
Rs.)

Iron Rod
Heater coil
Plastic Cap
Metal Ring
65000
65000
65000
65000
2500
2500
2500
2500
67500
67500
67500
67500
2000
2500
2300
2000

65000
2500
67500
1600

Insulator
100500
5000
105500
4500

65500
10

65000
30

65200
3

65500
0.25

65900
2

101000
5

655000

1950000

195600

16375
Total (In Rs.)

131800
3453775

505000

Product SRN25 (29500

Units)
Raw
Materials
Iron Rod
Heater coil
Plastic Cap
Metal Ring
Extension
wire
Insulator

Extension
wire

unit
1
1
1
1

Total
29500
29500
29500
29500

1
1

29500
29500

Product SRN35 (35500

Units)
unit

Total
Material
Required

1
1
1
1

Total
35500
35500
35500
35500

65000
65000
65000
65000

1
2

35500
71000

65000
100500

Performance
Budget

Sales Revenue
Raw material
Req.

Actual
Budgeted
Position
Plan
7200000
7150000
3453775

3500000

50000 Adverse
Sales Variance
Raw material
Variance 46225 Adverse

Company 2: MX-MDR Technologies Limited:

MX-MDR Technologies ltd is a private firm that assembles copper by acquiring
different raw materials required for it.
SALES BUDGET
Budgeted sales (units) ...............
Selling price per unit .................
Total sales..................................

Product A
20,000
10
200,000

Product B
50,000
10
500,000

Product C
30,000
10
300,000

Product D
100,000
10
1,000,000

=20, 00,000
PRODUCTION BUDGET
Additional data:
The company desires to have inventory on hand at the end of each month equal to 20%
of the following months budgeted unit sales.
On March 31, 4,000 units were on hand.

Budgeted sales [TM 9-4]........................

Add desired ending inventory ................
Total needs .............................................
Less beginning inventory .......................
Required production ...............................

Product A
20,000
10,000
30,000
4,000
26,000

Product B
50,000
6,000
56,000
10,000
46,000

Product C Product D
30,000
25,000
5,000
3,000*
35,000
28,000
6,000
5,000
29,000
23,000

* Budgeted sales of product D = 15,000 units.

Desired ending inventory of Product D = 15,000 units 20% = 3,000 units.
DIRECT MATERIALS BUDGET
Additional data:
Rs. 5 of material are required per unit of product.
Management desires to have materials on hand at the end of each month equal to 10%
of the following months production needs.
The beginning materials inventory was 13,000 Rs.
The material costs 0.40 per rupee.

Required production in units

[TM 9-6] ................................................
Raw materials per unit (Rs) ......................
Production needs (Rs) ...............................
Add desired ending inventory (Rs)* .........
Total needs (Rs) ........................................
Less beginning inventory (Rs) ..................
Raw materials to be purchased (Rs)..........
Cost of raw materials to be purchased at
0.40 per rupee ........................................

Product A

Product B

Product C

Product D

26,000
5
130,000
23,000
153,000
13,000
140,000

46,000
5
230,000
14,500
244,500
23,000
221,500

29,000
5
145,000
11,500
156,500
14,500
142,000

101,000
5
505,000
11,500
516,500
13,000
503,500

56,000

88,600

56,800

201,400

* For June: 23,000 units produced in July [TM 9-6] 5 rupees per unit = 115,000 rupees;
115,000 Rupees 10% = 11,500 Rupees
COMPARISON of Silver touch smelting industries and MX-MDR Technologies ltd:
From the above Companies we can analyses the below:
The Silver touch smelting industries has a sales of Rs 72, 00,000out of 2 products while the
MX-MDR Company is only making Rs 20, 00,000 out of 4 products. The Silver touch
smelting industries expected raw material cost is around 40% whereas the MX-MDR
Companys raw material cost is around 48% which is higher as compared to Silver touch.
Silver touch inventory is also 10% of the total cost whereas the inventory of the MX-MDR
Company is 20%. Also Company Silver touch will sell 35000 units whereas the MX-MDR
Company sales will be around 200,000 units. We can also conclude from the above that the
profit margin of Silver touch company is greater than that of MX-MDR Company.
Hence if we compare both the companies we feel that Silver touch Company will be the
best company to choose from both the Companies.