BUDGETING AND BUDGETARY CONTROL

AT

TECUMSEH PRODUCTS INDIA PRIVATE LIMITED

M. HARISH KUMAR

151109672042

Project submitted in partial fulfillment

for the award of the Degree of

MASTER OF BUSINESS ADMINISTRATION

By

PULLA REDDY INSTITUTE OF COMPUTER SCIENCE

DOMADAGU VILLAGE NEAR DUNDIGAL AIR FORCE ACADEMY

JINNARAM MANDAL MEDAK DIST.

2009-2011

Osmania University, Hyderabad -500007

1

DECLARATION

I hereby declare that this Project Report titled Budgeting and

Budgetary Control submitted by me to the Department of Business

Management, O.U., Hyderabad, is a bonafide work undertaken by me and

it is not submitted to any other University or Institution for the award of

any degree diploma / certificate or published any time before.

Name and Address of the Student Signature of the StudentM.HARISH KUMARH.No. 2-78/2 GAJULARAMARAM VILLAGEASHRAMAM LANE JEEDIMETLA HYDERABAD-500055

2

ABSTRACT

Budget is one of the important and powerful tools available to the organization to

have estimates about expenses and income for a definite period of time. Budgetary

control involves the use of budget and budgetary reports, throughout the period to co-

ordinate, evaluate and control day to day operations in accordance with the goals

specified by the budget. In this present scenario it is very necessary to reduce the cost in

regard of all terms to sustain in the market. So i have taken budgetary control as my

study, which carries huge weight age to reduce the wastages and does the process

efficiently.

The following are the objectives of the study

To study the budgetary control system and techniques implemented in Tecumseh

Products India Pvt. Ltd.

To study the performance of the company and various cost control techniques

implemented and their impact.

The findings that I have come out of study

1. The actual subject matter, naming the project work on BUDGETING and

BUDGETARY CONTROL in a manufacturing concern is the practical exposure

drawn out from the efforts of management of Tecumseh, Hyderabad.

2. Preparation of master budgets, fixed budgets, flexible budgets are desired to be

prepared to have easy and fast access to the data required by the staff and line

management.

3. As the company incurred huge unexpected losses in the previous two years there

is a lot of requirement to review its standards, estimations and follow

accordingly.

3

ACKNOWLEDGMENTS

I express my humble gratitude to Mr. Sanjay Tangri (Senior Manager-

Accounts Dept.) Tecumseh products India Pvt. Ltd., who provided an opportunity

and helped me a lot for successful completion of my project work.

I am thankful to our internal guide and head of the department, Mrs. Suvarchala

Devi for his motivation, help and continuous support, which made this project, happen.

I also indebted to his for his valuable suggestions, which made me correct my faults and

improve myself.

I am very much obliged to “Pulla Reddy Institute of computer science”, which

has given me an opportunity to carry out our project work in its premises. I feel

privileged to thank wholeheartedly our Principal, Prof. GD PAWAN KUMAR for

giving us this great opportunity.

M.Harish Kumar.

4

CONTENTS

1. INTRODUCTION

2. REVIEW OF LITERATURE

3. THE COMPANY

4. DATA ANALYSIS & PRESENTATION

5. SUMMARY AND CONCLUSIONS

BIBLIOGRAPHY

5

TABLE OF CONTENTS:

Contents Page numbersList of tables 45-60

List of figures 45-60Chapter 1

1.1 Introduction 8

1.2 Need 91.3 Objectives of study 10

1.4 Scope 11

1.5 Methodology 12Chapter 2

2.1 Literature review2.2 Conceptual framework

14-29

Chapter 33.1 Industry profile 31-34

3.2 Company profile 36-46

Chapter 44.1Data analysis and interpretation 48-63

Chapter 5

5.1 Findings 655.2 Conclusion 66

5.3 Suggestions 67

5.4 Limitations 68Bibliography 70

6

CHAPTER-1

INTRODUCTION

7

INTRODUCTION

A budget is a comprehensive plan of action expressed in physical and financial

terms. It’s a blue print of a company’s financial estimates for the future. Budgeting

forms the most important part of the planning function. It’s a system of planning and

control covering all the segments of an organization and also giving a sense of direction

to the goals and objectives of an organization. A budget constitutes the principal

instrument for projecting the future cost revenues, which form an essential part of the

management accounting and the foundation of firm’s financial control.

A budget system should be such that it becomes imperative for the management

to establish goals and objectives, define policies, allocate resources, set targets, and try

to take corrective action if there are any deviations. A management is said to be

effective if it can accomplish the objectives of an organization. But it is equally

important for the organization to attain the objectives efficiently with minimum amount

of resource utilization. In order to attain these set goals within a given set of constraints

is a difficult job; hence with the help of a proper budget one can achieve the

organizational goals and objectives.

Electronics has made life simple. All of us in some form or other, directly or

indirectly are using electronics goods. Demand for electronics goods has led to the

establishment of many manufactures and development is on day-to-day basis. The

thermal, hydro, nuclear plants and power transmission industries play a vital role for the

establishment of heavy electronics industry.

The industry having a wide scope because of rapid improving technologies

because of such wide applications of electronics, there are several producers in different

fields of electronics, with the announcement of new industrial policy (NIP) in 1991 all

the Indian firms were exposed to global competition and foreign currency transactions

in a big way.

8

NEED FOR THE STUDY

The day-to–day’s cut throat competition in the world of business, trade and

commerce is leading to many complexities which when is not predicted properly

according to the fast growing changes that are taking place in the market situations may

result in adverse progress and some times may leads to exit from the industry or

domestic markets.

To avoid these kinds of threats endangering the survival prospects, there is a

compulsion today to have a proper plan of action in predicting the prices, costs, funding

the proposals, controlling the same and implementing the framed budgets and utilize the

scarce resources avoiding maximum extent of wastage.

Budget shows the real need to know the SWOT-analysis, which in turn is simply

known as Strengths, Weaknesses, Opportunities, and Threats. Following these

guidelines it is very simple to make proper budget allocations according to requirement

and make timely decisions. Budgeting and Budgetary control helps in this context of

dynamism.

Preparation of Budgets in various fields like purchases, production, salaries and

wages, and sales process of the company on a monthly basis, quarterly and half-yearly

basis gives effective control system in financial management and thus makes the

management aware of the regular price changes.

9

OBJECTIVES OF THE STUDY

The study has been undertaken with the following objectives:

To study the budgetary control system and techniques implemented in Tecumseh Products India Pvt. Ltd.

To study the performance of the company and various cost control techniques implemented and their impact.

To examine the feasibility of present system in Tecumseh Products India Pvt. Ltd.

To compare the present sales, production, raw materials and others with actuals.

10

SCOPE OF THE STUDY

The study is conducted with the available data from the Annual Reports, Internal

Reports, and other available data from several interactions with the staff of Tecumseh

Products India Pvt. Ltd., and analysis was made accordingly.

The budgeting is done only for the three years and it clearly explains the coverage

regarding the duration of the study. All the budgets are prepared in the organization by

the concerned departments and they share the same as and when they required for

proper adjustments and necessary updates. Hence the data collected from them is

regarded as fair and absolute. The intention behind preparation of budgets is to forecast

the sales and expenses to be incurred in the near future and compare with actuals.

11

METHODOLOGY OF THE STUDY

Every project work is based on certain methodology, which is a way to

systematically solve the problem or attain its objectives. It is a very important guideline

and lead to completion of any project work through observation, data collection and

data analysis.

DATA COLLECTION

To determine the appropriate data for research mainly two kinds of data was collected

namely primary & secondary data as explained below:

PRIMARY DATA

Primary data are those, which were collected a fresh & for the first time and thus

happen to be original in character. However, there are many methods of collecting the

primary data; all have not been used for the purpose of this project.

SECONDARY DATA

Secondary data is collected from previous researches and literature to fill in the

respective project. The secondary data was collected through the available data from the

annual reports, internal reports, and other available data from several interactions with

the staff of Tecumseh Products India Pvt. Ltd., and analysis was made accordingly.

The data is secondary in nature as the records and statements, which shows their own

limitations, and up to a certain extent it is even said to be primary while the collection

of data regarding actual facts are collected from the concerned staff.

STATISTICAL TOOLS USED

Graphs, variance, and tables.

12

CHAPTER –2

REVIEW OF

LITERATURE

13

CONCEPTUAL FRAME WORK OF THE STUDY

CONCEPT OF BUDGETING AND BUDGETARY CONTROL

BUDGET:

“A budget is a financial and quantitative statement, prepared and approved prior to

defined period of time, of the policy to be pursued during that period for the purpose of

attaining a given objective. It may include income, expenditure and the employment of

capital.” In other words, a budget is a systematic plan for the utilization of manpower

and material resources. In a business organization a budget represents an estimate of the

future costs and revenues.

ESSENTIAL FEATURES OF A BUDGET:

1. It’s a written plan of activities for the future period of time.

2. It is expressed in quantitative form, physical of monetary units or both.

3. It relates to the income and expenditure for individual functions of the business.

4. It is prepared for a definite period of time, usually for one year.

5. It relates to the future period for which the objectives or goals have already been laid down.

6. It is prepared in advance and is derived from the long-term strategy of the organization.

14

OBJECTIVES OF A BUDGET:

Budgets serve as a “Blue Print” of the desired plan of action.

Budgets help in reduction of wastage and losses by revealing them in time for

corrective action.

Budgets serve as means of communication. The organization communicates the

policies and targets to the managers in the organization who are responsible to

carry out the plan.

Budgets serve as the benchmark for controlling ongoing operations.

Budgets help to coordinate, integrate and balance various operations to achieve

set objectives of the organization.

Budgets are a way of communicating to the departmental, sectional, and

divisional heads their responsibilities and making them accountable to the same

if any deviations from the actuals arise.

Budgets facilitate centralized control with delegated authority and responsibility.

A system of control can be exercised by having a plan against which the actual

results can be progressively compared and corrective actions are taken when

ever necessary.

Budget brings out the efficiency and improvement in the working of the

organization as all the details are clearly spelled out.

Budgets compel advance planning. By having a formal budgeting procedure,

management is forced to look to the future instead of living “hand to mouth”

without any clear idea or purpose.

15

BUDGETARY CONTROL:

Budgetary control is a system of controlling costs that includes the preparation

of budgets, coordinating with the departments and establishing responsibilities,

comparing actual performance with that of the budget and acting upon results to achieve

maximum profitability. It’s a very important activity to ensure that the actuals confirm

to the plans set through the budgets. The meaning and purpose of setting of budgets will

not be achieved without effective budgetary control system.

No system of planning can be successful without having an effective and

efficient system of control. Budgeting is closely connected with control. The exercise of

control in the organization with the help of budgets is known as budgetary control.

The process of budgetary control includes:

Preparation of various budgets.

Continuous comparison of actual performance with the standard or the

budgetary performance.

Revision of budgets in the light of changed circumstances.

A system of budgetary system should not become rigid; there should be enough scope

for flexibility to provide individual initiative and drive, budgetary control is an

important device for making the organization more efficient on all fronts. It is an

important tool for controlling and achieving the organizational objectives.

16

STEPS INVOLVED IN BUDGETARY CONTROL SYSTEM:

Establish a plan or target of performance, which coordinates all the activities of

the business.

Record the actual performance.

Compare the actual performance with the standards set.

Calculate the variances and analyze the reasons for the difference.

Take the necessary corrective action to set the actual performance right.

OBJECTIVES OF BUDGETARY CONTROL:

To act as a guide for the management decision making when unforeseen

conditions affect the business.

To coordinate all the activities of the business

To plan and control income and expenditure so that maximum profitability is

achieved.

To combine all the levels of management in preparation of the budget so that

there is individual initiative.

To direct capital expenditure in the most profitable direction.

To provide a benchmark against which actual results can be compared.

To guide the management to remedy a given situation.

To ensure that sufficient funds and working capital is available for the efficient

functioning of the organization.

To clearly lay down responsibility and authority of each employee so that

valuable time is not wasted.

17

ADVANTAGES OF BUDGETARY CONTROL:

1. Budgeting helps to coordinate, integrate, and balance the efforts of various

departments in the light of the overall objectives of the enterprise.

2. Budgets compel management to plan for the future and become more effective

and efficient in administrating the business operations, it also instills into the

manager the habit of evaluating carefully their problems before making a

decision.

3. Budgeting increases the participation of the employees in the policy formulation

and implementation, thus increasing their morale and motivating them to work

in harmony with the organizational goals.

4. Budgeting helps in proper utilization of existing resources, both human and

capital and also helps in minimizing wastage.

5. Budgeting improves the quality of communication as all the procedures and

rules are written and communicated to all the employees in the organization,

which results in better understanding and harmonious relations among managers

and subordinates.

6. Budgeting helps the management to focus on significant issues affecting the

business, thus facilitating management by exception and also helps in saving the

precious time of the top management by not involving in day-to-day affairs.

7. Budgeting measures efficiency and thereby enables self-evaluation by the

management. It also indicates the progress made in attaining the enterprise

objectives.

8. Budgeting facilitates control as all the relevant details are clearly laid down. It

also helps in making the management more cost conscious.

18

CHARACTERISTICS OF A GOOD BUDGETING:

A good budgeting system should involve persons at different levels while

preparing the budgets. The subordinates should not feel any imposition on them.

There should be a proper fixation of authority and responsibility. The delegation

of authority should be done in a proper way.

The targets of the budgets should be realistic, if the targets are difficult to be

achieved then they will not enthuse the persons concerned.

A good system of accounting is also essential to make the budgeting successful.

The budgeting system should have a whole-hearted support of the top

management

The employees should be imparted budgeting education. There should be

meetings and discussions and the targets should be explained to the employees

concerned.

A proper reporting system should be introduced; their actual results should be

promptly reported so that their performance appraisal is undertaken.

19

BUDGETING FACTORS AT TECUMSEH PRIVATE LIMITED:

PROCUREMENT:

Modes of procurement: There are two main modes of procurement of raw

material.

1) DIRECT PROCUREMENT: Direct procurement means that the raw materials are

directly identifiable as part of the final product and are directly used on machine.

2) CONVERSION: In this process the base material is being converted into final

products through various processes applied on to shape them and give them the need

satisfaction power. Conversion process not only converts the material into final

products but also gives an ultimate solution.

SOURCE OF PROCUREMENT:

It has mainly two sources of procurement of raw material.

1) DOMESTIC: In this system mainly the procurement of raw materials can be made

from with in the country.

2) IMPORTED: In this system the procurement of raw materials can be made from

outside the country.

20

STRATEGIES OF MATERIALS MANAGEMENT:

The following are the strategies followed by materials management in Tecumseh

Product India Ltd.

Two sources for all materials: Even though there is shortage of supply from

one supplier, it could be accommodated by the other source.

Price: The price can be fixed based on the competitor’s price.

Quality: Quality of materials differs from one supplier to the other.

Decision-making: The activity of making a decision to buy the material directly

from supplier or to import the same.

PLANNING:

Budget planning determined how much of which material, components, goods,

labour, and other requirements are needed and when. This activity is the responsibility

of the planner or controller. Planning process initiates coordination and classification of

sub goals to achieve major corporate goals.

21

TYPES OF BUDGETS:

The budgets are usually classified according to their nature. The following are

the types of budgets, which are commonly used:

(A) Classification according to time:

1. Long term budgets.

2. Short term budgets.

3. Current budgets.

(B) Classification according to functions:

1. Operating budgets.

2. Financial budgets.

3. Master budgets.

(C) Classification according to flexibility:

1. Fixed budgets.

2. Flexible budgets.

(A) ACCORDING TO TIME:

1) Long term Budgets:

The budgets are prepared to depict long term planning of the business. The

period of long-term budgets varies between five to ten years. The long term planning is

done by the top management; it is not generally known to lower levels of management.

Long time budgets are prepared for some sectors of the concern such as capital

expenditure, research and development, long term finances, etc. These budgets are

useful for those industries where gestation period is long i.e., machinery electricity,

engineering etc.

2) Short Term Budgets:

These budgets are generally for one of two years and are in the form of

monetary terms. The consumer’s foods industries like sugar, cotton, textile, etc. use

shorter, budgets.

22

3) Current Budgets:

The period of current budgets is generally of months and weeks. These budgets

relate to the current activities of the business, according to ICWA London. A current

budget is a budget, which is established for use over a short period of time and is related

to current conditions.

(B) CLASSIFICATION ON THE BASIS OF FUNCTION:

1. Operating budgets:

These budgets relate to the different activities or operation of a firm. The

number of such budgets depends upon the size and nature of business. The commonly

used operating budgets are:

a) Sales budget

b) Production budget

c) Production Cost budget

d) Purchases budget

e) Raw Materials budget

f) Labour budget

g) Plant Utilization budget

h) Administrative expenses of Works Overheads budget

i) Administrative and selling expenses budget, etc.

The operating budget for a firm may be constructed in terms of programmers or

responsibility areas, and hence may consist of:

(i) Programmed Budget: It consists of expected revenues and costs of various

products or projects that are termed as the major programmers of the firm. Such a

budget can be prepared for each product line or project showing revenues, costs and the

relative profitability of the various programmers. Programmed budgets are thus, useful

in locating areas where efforts may be required to reduce costs and increase revenues.

They are also useful in determining Imbalances and inadequacies in programs so that

corrective action may be taken in future.

(ii) Responsibility Budgets: When the operating budget of a firm is constructed in

term of responsibility areas it is called the responsibility budgets. However

responsibility areas may be classified under three broad categories.

(a) Cost/expense centre

23

(b) Profit centre

(c) Investment centre

2. Financial Budgets:

Financial budgets are concerned with cash receipts, disbursements, working

capital, capital expenditure, financial position and results of business operations. The

commonly used financial budgets are:

(a) Cash budget

(b) Working capital budget

(c) Capital expenditure budget

(d) Income statement budget

(e) Statement of retained earnings budget

(f) Budget balance sheet or position statement budget

3. Master budget:

Various functional budgets are integrated into master budget. This budget is

prepared by the ultimate integration of separate functional budgets. According to ICWA

London ‘The master budget is the summary budget in corporation’s functional budget.

Master budget is prepared by the budget officer and it remains with the top-level

management. This budget is used to coordinate the activities of various functional

departments and also to help as a control device.

(C) CLASSIFICATION ON THE BASIS OF FLEXIBILITY:

1) Fixed budget: According to ICWA London, “fixed budget is a budget which is

designed to remind unchanged irrespective of the level of activity actual

attained”. Fixed budgets are suitable under static conditions. If sales, expenses

and costs can be forecasted with greater accuracy than this budget can be

advantageously used.

2) Flexible budget: A flexible budget consists of a series of budgets for different

levels of activity. It therefore, varies with the level of activity attained. A

flexible budget is prepared after taking into consideration unforeseen changes in

the condition of the business. A flexible budget is defined as a budget, which is

by recognizing the difference between fixed, semi-fixed and variable cost is

designed to change in relation to the level of activity.

24

REQUISITES FOR A SUCCESSFUL BUDGETARY CONTROL

SYSTEM:

For making a budgetary control system successful, following requisites are required:

Clarifying objectives: The budgets are used to realize objectives of the

business. The objectives must be clearly spelt out so that budgets are properly

prepared. In the absence of clear goals, the budgets will also be unrealistic.

Proper delegation of Authority and Responsibility: Budget preparation and

control is done at every level of management. Even though budgets are finalized

at top level but involvement of persons from lower levels of management is

essential for their success. This necessitates proper delegation of authority and

responsibility.

Proper communication system: An effective system of communication is

required for a successful budgetary control. The flow of information regarding

budgets should be quick so that these are implemented.

Budget Education: The employees should be properly educated about the

benefits of budgeting system. They should be educated about their role in the

success of this system.

Participation of all Employees: The success of budgetary control system

depends upon the participation of all employees of the organization.

Flexibility: Flexibility in budgets is required to make them suitable under

changed circumstances.

Motivation: Budgets are to be implemented by human beings. Their successful

implementation will depend upon the interest shown by the employees.

25

ADVANTAGES LIMITATIONS

Maximization of profit

Proper coordination

Provides specific aims

Tools for measuring

performance

Economy

Corrective action

Creates budget consciousness

Reduced cost

Determines weaknesses

Uncertain future

Revision required

Discourages efficient persons

Problem of coordination

Conflict among different

departments

Depends upon support of top

management

26

ARTICLES:

Coping with ambiguity through the budget: the positive effects of budgetary targets on managers' budgeting behaviours

David Marginson and Stuart Ogden

Manchester School of Management, UMIST, P.O. Box 88, Manchester M60 1QD, UK

Available online 2 July 2004.

Much consideration has been given over the years to what may be described as

the ‘negative' aspect of budgeting; that budgets may constrain innovation and learning,

and that budgetary pressure may lead to unintended behavioral side effects. In contrast

to this, the present study examines the extent to which budgets have a more positive,

‘comforting' role to play in the individual's work experiences. We argue that managers

confronted with uncertainties associated with role ambiguity may respond by becoming

positively committed to achieving budgetary targets as budgets offer a source of

structure and certainty. We find that the use of budgets as an antidote to role ambiguity

is a powerful influence on the manager's budgeting behavior. We test the strength of

this effect and we find that budgetary commitment brought on by the experience of role

ambiguity may over-ride the potential for recognized explanatory variables such as

leadership style, the expectations of the superior and occupational socialization, to

inform managers' budgeting behaviors in these circumstances. Budgets, it seems, may

be as useful to the individual as they are problematic.

27

Budgetary control and the labour force: Findings from a survey

of large British companies

Peter Armstrong, Paul Marginson, Paul Edwards and John Purcell

Sheffield University Management School, Management Building, Sheffield University

Industrial Relations Unit, University of Warwick, Warwick, U.K.

Templeton College, University of Oxford, Oxford, U.K.

Available online 24 April 2002.

This paper presents data obtained from a representative sample survey on hte

budgetary controls used in large U.K. companies. The results show a lower overall

incidence of such controls than might be expected from textbook descriptions. Only a

minority of companies uses a wide range of profit and cost ratios whilst an equally large

minority appears not to rely on budgetary control at all. The paper also uses cross-

sectional variations in the incidence of budgetary targets with features of the

organization and its workforce in order to illuminate the uses to which these budgets are

put. The findings are tested against the ‘conventional’ picture of budgetary controls as a

response to size diversity and problems of internal co-ordination, and against a ‘radical’

view that they are a response to trade union organization and flexibilities within the

workforce. Both the theories receive some prima facie support from the ‘raw’ cross-

sectional variations within the sample. Since internal trading of this type is also

associated with the presence of trade unions, the findings point to the existence of a

counter-trade union strategy in which ROI targets are used to define the profitability of

business units whilst competition from external markets is used to prevent this from

being achieved by the export of excess costs into the rest of the organization.

Ratios involving labor costs appear to be a response to weakness on the part of the

workforce, rather than strength. They are more frequently used in companies which

employ large proportions of part-time or female workers. Generally speaking, these

employees have higher wastage rates than full-timers and they are easier to lay off and

to put on short-time working. In this respect, the use of budgetary reports is related to

managerial freedom to act on the information. Overall, the data indicate that the usage

of budgetary controls in large U.K. companies is intimately linked with considerations

of labor control

28

Advanced budgeting: a journey to advanced management

systems

Peter Bunce, Robin Fraser and Lionel Woodcock

CAM-I Inc., 20 Market Street, Poole, Dorset BH15 1NF, U.K.; Coopers & Lybrand, 1

Embankment Place, London WC2N 6NN, U.K. and Proxima AMS, Albert House,

Beech Road, Spetisbury, Dorset DT11 9HQ, U.K.

Available online 2 May 2002.

This paper summarizes a journey that has taken the CAM-I advanced

management systems (AMS) program's Advanced Budgeting study group from an

initial interest in better budgeting towards a recognition that a wider framework is

needed to meet wider objectives (Woodcock, 1994). The work in advanced budgeting

started from two different approaches. The first evolved from CAM-I's research into the

application of activity-based costing (ABC) to product costing, during which the group

became convinced that it could be applied with benefit to activity planning and

budgeting. The second approach came from a recognition that the ultimate purpose of a

management system is to link strategies and operations in the most effective way. As

strategies are changing in response to many competitive and structural pressures, it

seems evident that new management systems are needed to reflect these new realities.

An initial conceptual framework for advanced budgeting was developed and tested with

field visits. As a result, it was concluded that traditional budgeting is dysfunctional, but

the solution is not better budgeting nor stand-alone advanced budgeting systems.

Rather, the advanced budgeting key goals can only be achieved through an advanced

management system which has a business process orientation and integrates a number

of different management functions and initiatives within an on-going system. This will

require significant changes in systems and culture. The work can be seen in retrospect

as an accumulation of knowledge about the advanced management systems that will be

needed to meet the challenges and opportunities of a new and volatile market place.

With that broader objective now in focus, it can be seen that an important staging has

been reached, but that the journey continue.

29

CHAPTER –3

INDUSTRY PROFILE

30

INDUSTRY PROFILE

Indian electronics and IT plays a major role in both the production and exports.

During the year (1992-97), the electronics industry has achieved an annual growth of

20% in production and over 40% in exports.

The production in the year (1997-2002) is targeted at about Rs.380 billion with a

growth rate of 37% and exports at about Rs.490 billion with a growth rate of 52%.

Overall production is based on Indian Electronics industry that is widely distributed and

there are more than 3500 units engaged in the electronic production. Which include in

13 central public sector units with 29 manufacturing establishments, 65 units in state

public sectors, 600 units in organized private sector and more than 2800 units in small

scale sectors.

Electronics has made life simple. All of us in some form or other, directly or

indirectly are using electronics goods. Demand for electronics goods has led to the

establishment of many manufactures and development is on day-to-day basis. The

thermal, hydro, nuclear plants and power transmission industries play a vital role for the

establishment of heavy electronics industry.

The industry having a wide scope because of rapid improving technologies

because of such wide applications of electronics, there are several producers in different

fields of electronics, with the announcement of new industrial policy (NIP) in 1991 all

the Indian firms were exposed to global competition and foreign currency transactions

in a big way.

AIR COMPRESSORS INDUSTRY:

Air compressors provide air at pressures higher than atmospheric. Refrigeration

compressors and air conditioning compressors are designed specifically for air

conditioning, heat pumping, and refrigeration enclosure air conditioners remove the

heat generated by electronic devices from the inside of cabinets or enclosures.

Industrial air filters reduce the number of particles in the air that passes through them.

Breathing and ventilation air systems provide reliable and safe air supply sources to

workers in hazardous industrial environments.

Compressed air-purgers and vortex coolers are used for spot heating or cooling

applications.

31

Industrial air filters reduce the number of particles in the air that passes through

them. Air filtration supplies the means to reduce the level of particulates in the air to a

cleanliness standard required by any definition of “air conditioning”. It extends from the

simple task of preventing lint and other debris from plugging heating/cooling coils to

removing particles as small as 0.1 micron which could cause a short circuit on

microchips.

Refrigerant compressors are designed specifically for air conditioning, heat

pumping, and refrigeration. Small, stand-alone compressors are not included within this

grouping. Refrigerant compressors are large-scale units specifically designed to be the

heart of an industrial cooling or air-conditioning system (HVAC). They are integral

components of the refrigeration cycle, in which refrigerant gases are cyclically

evaporated and condensed, absorbing heat from the load to be cooled, and moving to an

open environment where it is dissipated. The compressor serves two main functions: to

compress low pressure, low volume gases into high pressure and temperature gases, and

to remove vapor from the evaporator to maintain a low boiling point. There are three

main types of refrigerant compressors: scroll, screw, and piston. Other compressor

styles are available, but they are less common.

Industrial air filter

Haier Electrical Appliance is a China based $9.2 billion consumer durables and

electronics major, Haier Group, has recently taken control of 100% stake in Haier

appliances (India) Pvt. Ltd by buying out the initial Indian promoters. Haier appliances

(India) forayed into the Indian market when the Koreans, LG and Samsung, had

swamped the country’s consumer durable and electronics market. The company had

sought the Government’s permission to carry out manufacturing – directly through

original equipment manufactures (OEMs) as well as through contract manufacturers in

India. At present, the company is outsourcing its products from domestic appliances

32

manufacturers such as BPL and Voltas. The company plans to make India as a

production base for exports to neighboring countries in the near future.

ELGI has hived off unfavorable businesses in which it did not have a

competitive advantage and decided to concentrate more on core compressor business.

Its Pneumatic break business has already been hived off and it has tapered down the

production of multi-utility vehicles and plans to gradually close the multi-utility vehicle

business in which he does not have enough competitive advantage. It has rearranged its

entire operations by creating separate business units to concentrate on core products.

Apart from these initiatives, ELGI also undertakes turnkey projects for setting up

exclusive service stations for all major manufacturers and offers annual maintenance

contracts for all service station equipment. It has consistently been increasing its

presence in the compressor market to command 11.08% share as of 2004.

Atlas Copco (India). The Company's principal activity is to manufacture and sell air

and gas processors, rock drills, pusher legs, merchandised drilling equipment and rock

drilling tools. The Company's products serve industrial, construction and mining

industry. It operates through two segments: Industrial segment and Construction and

Mining segment. Industrial segment develops, manufactures and markets a wide range

of air compressors. The Company also manufactures and markets a wide range of tools

like grinders, drills, impact wrenches and screw drivers. The construction and mining

segment manufactures and markets rock drilling tools, rock drilling rigs, construction

tools, breakers, and pumps and loading equipment. The main brands are Atlas, Copco,

and Chicago Pneumatic.

Kirloskar, we are a 600 Million US Dollars engineering conglomerate driving critical

industries. We are century old pioneers in our areas of specialization like power,

construction and mining, agriculture, industry and transport, oil and gas and

environment protection with a range of world-class industrial products and turnkey

services. We are made up of 8 major group companies, each led by the best engineering

and managerial talent in India. In addition to engineering, we have interests in civic

utility systems and in Information Technology and communication.

33

Our multi-unit, multi-product, multi-location conglomerate is built on the plinths

of Experience, Expertise, Quality, Innovation and Values in the business. Our best play

is successful work and creation of a new industrial order where we can provide tailor

made solutions to the customers.

BPL Engineering Ltd., a well-known Indian conglomerate in the field of Consumer

Electronics & Home Appliances, Telecommunication Medical Electronics, Power and

Electronic components. BPL has Technical collaboration with SANYO – Japan in Co

lour Televisions, Washing Machines, Refrigerators and components such as

Compressors.

The Compressor Division of BPL Engineering Ltd, is engaged in manufacturing of

‘Hermetically Sealed Compressors’ for refrigeration industry. The products are widely

used in refrigerators, deep freezers, bottle coolers, water coolers and dehumidifiers. The

company commenced manufacturing compressors in 1994 in technical collaboration

with SANYO – Japan.

34

COMPANY PROFILE

35

COMPANY PROFILE

TECUMSEH PRODUCTS INDIA LTD. was originally established and registered in

1963 under the name of USHA REFRIGERATION INDUSTRIES LIMITED (URIL).

Usha Refrigeration Industries Limited (URIL) started in 1963. URIL manufactured

compressors for water cooler, air-conditioners and air-coolers. Lala Charath Ramji who

was from a renowned industrial family of DCM and Coromendal Group of Companies

started URIL.

In 1970 the URIL was changed to Shriram Refrigeration Limited and the

business was also diversified towards manufacturing of diesel engines and water

coolers. Shriram Industries played a great role in the field and captured more than 50%

of the market share in India. Shriram Industries also kept its hands in international trade

and were successful in exporting their products to the neighbouring countries, Nepal

and Bangladesh.

In 1980 Lala Charath Ramji’s son, Siddharth C. Shriram, became the chairman

cum Managing Director of the company. The period saw sea change in industrial

policy, which resulted in a great change in the industrial sector. In the process for

survival, Shriram went into Tech collaboration with Westing House, US and was named

as Siel Compressors.

Siel Compressors were the first Indian Company to manufacture compressors.

Later Westing House stopped manufacturing compressors and Siel went into

Technological Collaboration with Tecumseh Products Company (TPC), USA in 1988.

Tecumseh means “Crouching Panther” derived from chief of the Shawnee Tribe

(1768-1813), it started its operations to offer new state of art AW Series to Indian

customers. Subsequently TPC took over Siel Group in1997 and Siel Group became

100% subsidiary of TPC. As soon as Tecumseh took over the company it stopped

36

manufacturing water coolers and restricted its production to CFC/hermetically sealed

compressors.

TECUMSEH PRODUCTS INDIA LIMITED (TPIL) was incorporated in New

Delhi, India with limited liability on January 30, 1997. TPIL is principally promoted on

behalf of Tecumseh Products Company (TPC), USA and its nominees hold its shares.

Tecumseh India is a 100% subsidiary to Tecumseh Products Company (TPC) USA,

Which is the world’s only full line, independent manufacturer of compressors. TPC has

29 manufacturing locations in 4 continents. In India the company has 20 sales offices

and extensive networks of over 200 dealers and more than 600 registered small-scale

manufacturers.

TPC invested $80 million in Indian operation known as Tecumseh Products India Pvt.

Ltd (TPIPL). TPIPL has two states of art manufacturing facilities at Hyderabad (Andhra

Pradesh) and Ballabgarh (Haryana) with CADEM Center at Hyderabad plant to meet

Global Engineering needs.

TPIPL has gained core expertise in Research & Development, AW Assembly and AW

Machine Shops such that it acquired a Lion’s share of the Indian Compressor market by

gaining 50% share. TPIPL is an ISO 14001 and 9001 certified; American based Multi-

National Company, Which has core expertise in manufacturing compressors (mostly

hermetic) in the air conditioning and refrigeration industry in India. Tecumseh Products

Company’s (TPC) entered India through a dual acquisition of Siel Compressors Limited

– Hyderabad and the compressor division of Whirlpool India Limited at Ballabgarh in

July 1997. Tecumseh Products India Pvt. Ltd (TPIPL) is the largest independent

manufacturer of both air-conditioning and refrigerator compressors in India. It has two

state-of-the-art manufacturing facilities at Hyderabad (Andhra Pradesh) and Ballabgarh

(Haryana). Tecumseh India is the preferred supplier to those who deal in the AC&R

Industry in India and in the Middle East, SAARC countries.

37

HYDERABAD PLANT:

The plant at Hyderabad manufactures compressors only for the Air-conditioners and

compressors for deep freezers, bottle coolers, and water coolers which are considered to

be the World’s No. 1 in the 150 million compressor market a year. At Hyderabad both

reciprocating (AW series) and Rotary (RN series) compressors are manufactured, with

an installed capacity of 0.75 and 0.60 million units per annum respectively. It is spread

across 55-acres of land at Balanagar Industrial belt, 15 km away from the Hyderabad

City on the highway line going towards HMT Ltd, Narsapur Road, and has been

accredited with ISO 9001 and ISO 14001 certification for best operational and

environmental practices. The in house application engineering testing facility is well

equipped to constantly improve the performance of compressors.

The CADEM centre started in 2001 as a centre for Tecumseh’s global design needs.

Today CADEM centre undertakes not only the in sourced work from its different

manufacturing plants but also outsourced CAD/CAE work from the companies in

automobile, aeronautical and other verticals. Even this engineering facility is ISO 9001

certified.

The Hyderabad plant has six regional offices among which four offices are at the metro

cities: Delhi, Mumbai, Kolkata, and Chennai and the remaining two are at Ahmedabad

and Secunderabad. Besides these there are branch offices and depots located in prime

cities across the country.

The Hyderabad plant also has a network of about 177 dealers across the nation and are

preferred supplies to key original equipment manufactures (OEM’s) like LG, Voltas,

Blue Star, Godrej, Videocon, Fedders, Amtrex, Hitachi, etc., TPIPL Hyderabad plant

was successfully in getting the ISO 9001 certification for maintaining quality of the

compressors in 1994 and for the eco friendly environment maintenance the company

has got ISO 14001 certification.

38

The management has started development activities in the following areas:

Effluent treatment plant

Tree Plantation.

Rainwater harvesting is to increase the ground water level and TPIPL has the

distinction of being the first organization in this regard.

Vermiculture is the process of utilizing canteen food wastage for converting into

natural meaner.

DEPARTMENTS OF TPIPL (HYDERABAD):

Human Resource Department.

Accounts Department

Attendance and Pay Office (A&PO)

Export Oriented Unit (EOU)

Research and Development (R&D)

Maintenance and Engineering Department

Quality Development of AW assembly

AW Press Shop

AW Machine Shop

Service Center

Dispensary

Chemical and Technological Laboratories

TPIPL Hyderabad has a total of 766 permanent employees as on which includes:

172 officers

232 Staff

362 Workers

39

OPERATIONS:

Tecumseh’s operations can be organized into three business clusters. Each of these

commands into own well-defined infrastructure for market coverage and service to

original equipment manufacturers (OEMs).

Compressors for air-conditioning:

Residential Air-conditioners.

Commercial Air-conditioning systems (both room and central) and contract

manufacturing.

Compressors for refrigeration:

Household refrigerators and freezers.

Commercial refrigeration applications including the freezers, dehumidifiers and

vending machines.

CADEM centre for global design needs and services:

CAD (computer aided-design) for product design, design automation, re-

engineering and cost reduction.

CAE (computer aided engineering) for structural and CFD analysis.

CAM (computer aided manufacturing) for designing tools and mould.

Software and web development.

TPIPL’S Vision:

To provide comprehensive solutions to customers in the field of cooling while

providing autonomous working environment for employees, to tap their creative

potential, bring out the best in them and optimize stake holder’s returns.

40

TPIL’S Mission:

To be recognized as the world leader in the supply of refrigerator and air

conditioning compressors.

To provide our customers superior products and services.

To create an environment in which our employees can grow to their full

potential and make difference.

To provide superior value to our stake holders.

To be driven to reach the highest possible standards of excellence in all our

endeavors.

Nothing will be done to compromise our integrity.

TPIPL’s Quality Policy:

Committed to total customer satisfaction by meeting their evolving needs,

expectations and aspirations – stated, implied or latent.

Striving to provide products and service of global quality standards and to reach

a position of leadership in the field of operations, setting new values.

Vision Statement

It is our goal to be the global leader in all of

the Markets in which we choose to participate.

We will pursue disruptive technologies to

redefine our products.

41

Continuous improvement across the organization and upgradation of product,

technology and process supportive environment, at least const to society shall be the

means to achieve the goals.

The approach will be through proper systems and procedures and total

involvement of employees, vendors and other business associates.

TPIPL’s Environmental Policy:

The vision of Tecumseh India is to be a serene green and eco-friendly co-

operation carrying our all its operations contributing to preservation of environment and

natural resources for the benefit at large.

Among others this can be achieved through:

Allocation of company – wide priority for sustainable development with total

involvement and commitment.

Evaluation and up gradation of current technologies, products and raw materials

for minimization, handling and disposal of solid, liquid and gaseous wastes.

Realization of tangible objectives and targets set for continual improvement to

control and prevent pollution and conserve resources.

Legal compliance and going beyond setting new standards.

Meeting international expectations such as Montreal protocol, 1987 in phasing

our CFC’s as refrigerants in our compressors.

Training and propagation of Knowledge on environment.

TPIPL’s Key Business Objective:

Set the world industry standard of excellence for customer satisfaction.

Achieve total quality.

To attain and surpass global quality and reliability standards for our products.

Maintain clear technology leadership.

Market share leadership with focus on customer needs.

TPIPL’s Seven Deadly Sins:

42

1. Inconsistent product quality.

2. Slow response to market place.

3. Lack of innovative and competitive product.

4. Uncompetitive cost structure.

5. Inadequate employee involvement.

6. Unresponsive customer service.

7. Ineffective resource allocation.

STRATEGIES AND PROCESSES AT TPIPL:

Workplace improvements.

Creativity club.

KRA’s (improvements/suggestions)

Variable earnings sharing of value addition

Agreement process – organization needs

Non conformance reporting /audits

Open house/communication meetings

Team assessment and feedback

Changing life styles.

43

IMPORTANT EVENTS:

In the year 1998:

TECUMSEH fully acquired

Sri Ram, Hyderabad

Whirlpool compressor, facility at Faridabad/Ballabgarh.

In the year 1999:

Development of Plant in Ballabgarh

In the year 2000:

Amalgamation with TIPL

In the year 2001:

Voluntary Retirement Scheme

Industrial Unrest and lockout in the first half of the year.

Export obligations not met during the year.

High foreign outgo.

Obligations met towards customers by importing finished goods and selling at a

loss.

In the year 2002:

Setting up of the CADEM Center

In the year 2003:

Setting up of a 100% EOU for export of compressors and its parts.

Expansion in installed capacity at the Hyderabad plant.

44

Total foreign outgo reduced drastically.

Improvement in the market for compressors as a result of an improvement in the

market for air-conditioners and refrigerators.

In the year 2004:

This year export showed a growth of 3 times over previous years involvement.

AW capacity expansion program

Company has launched two new commercial models of MLA series

compressors.

Has won the “Green Tech Environment Excellence Silver Award” in the

countrywide competition among the engineering industries.

In the year 2005:

Tecumseh compressors for china.

Tecumseh posts 84% rise in export earnings.

Tecumseh India to set-up rotary compressors unit.

45

BOARD OF DIRECTORS

Mr. Todd W Herrick : Chairman & CEO

Mr. RKP Shankerdass: Director

Mr. MG Ramachandran : Director

Mr. Vipin Sondhi : Managing Director (till Jan 7th, 2007)

Mr. John H Ferguson : Director

Mr. James F Curley : Director (till Nov 7th, 2005)

Mr. Kent B Herrick : Director

Mr. James S Nicholson : Director

Mr. Eric L. Stolzenberg : Director (from Jan 19th. 2007)

Mr. R.K. Sachdeva : Director & CFO (from Nov 7th, 2005)

Company Secretary

T. Venkat

Registered Office

Balanagar Township, Hyderabad-500 037

Andhra Pradesh

Auditors

M/s Price Waterhouse, Chartered Accountants

Bankers

Allahabad Bank

State Bank of Hyderabad

Standard Chartered Bank

ICICI Bank

HDFC Bank

46

CHAPTER-4

DATA ANALYSIS

&

INTERPRETATION

47

ANNUAL BUDGETS

PRODUCTION BUDGET

Table 1.

PRODUCTION BUDGETAW all Models In Units

Particulars Year  2007 2008 2009Sale of units 750000 625000 600000Add: Closing Stock (as on 31st December) 110500 30000 50000  860500 655000 650000Less: Opening Stock (As on 1st January) 110500 110500 30000

Total Production in Units 750000 544500 620000

Graph 1.

48

INTERPRETATION:

Here production budgets for three years i.e., from the year 2007 to 2009 are

compared. The production, by observation, to the chart above is self explanatory that

the estimations or the budgeted figures of production in units has constantly decreased

and increased in the year 2009. The slight change in the production of units is

acceptable as it shows a favourable change.

The product cost figures are available in the following chart for the reference

purpose only. While calculating percentage changes year 2007 is taken as base year.

The percentage change in the year 2008 decreased to 72.6%. The percentage change in

the year 2009 decreased to 82.67%, but slightly increased from the year 2008.

Table 2.

PRODUCTION COST PER UNIT

AW (Domestic and Exports) all models

Particulars Year

2007 2008 2009

AW 1500 Q      Actual Material Cost 2387 2417 2782Add:      Consumables 181 186 175Rejection Cost 27 25 20Power Cost 100 85 65Wage Cost (Labour) 290 250 278New Lines (Stomat, Talent, and Lamination) 30 - -Freight Inwards (1.14%) 29 29 22Warranty 40 44 38PRODUCTION COST PER UNIT 3084 3036 3380

Table 3.

ACTUAL PRODUCTIONAW all Models In Units

Particulars Year  2007 2008 2009Total Production in Units 411013 591323 213476       Total Production in Units 411013 591323 213476

49

Table 4.

CALCULATION OF PRODUCTION VARIANCE

(BUDGETED VS ACTUALS)In Units

Year Budgeted Actuals Variance Result2007 750000 411013 -338987 Adverse2008 544500 591323 46823 Favourable2009 155000 213476 58476 Favourable

1449500 1215812 -233688

Graph 2.

INTERPRETATION:The variance in the year 2007 comparing to budget vs. actuals is very

unsatisfactory and the result is expressed as adverse. The reason behind is, the

overestimation of the budgeted figures over actuals. In the year 2008 & 2009, the

variance is positive and it is expressed to be favourable performance. The overall

variance of the three years i.e., from 2007 to 2009 is negative. Hence, there is a curious

requirement to review the budgets. Concentration of performance appraisal in

production is at most desired.

Note: In the year 2009, the actual production units are available only till March '08 i.e.,

for three months. Hence budgeted figures for variance purpose are adjusted for three

months.

Production variance

-400000

-200000

0

200000

400000

600000

800000

1000000

2007 2008 2009

budgeted

actuals

variance

50

DIRECT LABOUR BUDGET

Table 5.

DIRECT LABOUR BUDGETParticulars Year

  2007 2008 2009Production in Units 750000 544500 600000Labour hours per unit (in hrs) 3.93 1.93 2.24Total Hours (in Hrs) 190600 280825 267300Rate per hour (in Rs.) 78.17 56.32 43.56Total Direct Labour Amount 119193770 126531000 93169261

Graph 3.

51

INTERPRETATION:

From the above data direct labour budget for three years right from 2007 to 2009

are compared. The direct labour cost has increased in tune with decreased production.

This shows there is a lot of expenditure incurred in the year 2008. A gradual decrease

has been found in the year 2009 comparing to the base year 2007. The level of

expenditure is controlled up to a maximum level by thorough revisions. While

calculating percentage changes, 2007 is taken as base year. The percentage change in

the year 2008 increased to 106.16%, which is beyond the limit. This shows over

expenditure. The percentage change in the year 2009 decreased to 78.17%, showing that

the strict management control on this issue in this year.

Table 6.

ACTUAL LABOUR COSTParticulars Year

  2007 2008 2009Production in Units 411013 591323 213476Labour hours per unit (in hrs) 2.45 2.72 3.74Total Hours (in Hrs) 167480 217087 56967.5Rate per hour (in Rs.) 68.35 55.99 59.18Total Direct Labour Amount 91581564 97243000 26974347

Table 7.

CALCULATION OF DIRECT LABOUR VARIANCE(BUDGETED VS ACTUALS)

   Year Budgeted Actuals Variance Result2007 119193770 91581564 27612206 Favourable2008 126531000 97243000 29288000 Favourable2009 23292315 26974347 -3682031.8 Adverse

  269017085 215798911 53218174  

52

Graph 4.

INTERPRETATION:

In The year 2007 and 2008, all the budgeted actual and variance figures are

showing positive expenditures hence the variance is favourable, but whereas in

theyear2009

The variance is showing adverse as the actual expenditure is exceeding the

budgeted figure. It is suggested that strict supervision may yield favourable results.

Note: In the year 2009, the actual direct labour costs are available only till March ‘08

i.e., for three months. Hence budgeted figures for variance purpose are adjusted for

three months.

Direct labour variance

-200000000

20000000400000006000000080000000

100000000120000000140000000

2007 2008 2009

budgetedactualsvariance

53

SALES BUDGET

Table 8.

SALES BUDGETParticulars Year (Rs. In Lakhs)

  2007 2008 2009Domestic Sales:      Rate 3765 4492 4205Quantity 175000 100000 100000Value (Rs. In Lakhs) 6589 4492 4205       Exports:      Rate 3600 3918 4145Quantity 575000 525000 500000Value (Rs. In Lakhs) 20700 20570 20725       Combined Sales Value (Domestic and Exports):      

     Value (Rs. In Lakhs) 27289 25062 24930

Graph 5.

54

INTERPRETATION:

The year 2007 is clearly indicating high sales while comparing to the successive years.

It is the combination of total sales including domestic and exports. The increase in sales

in the year 2007 is due to excess production. In the year 2008, the total sales value has

drastically decreased due to less production. Quite improvements are required for

further recovery. In the year 2009, though the production has increased, sales did not

improve. Variation is very huge. Hence, quick redressal to the problem of sales is

desired. The percentage decreased to 92 and 91 for the years 2008 and 2009

respectively compared to base year 2007.

Table 9.

ACTUAL SALESParticulars Year

  2007 2008 2009Combined Sales Value (Domestic and Exports): 2115514759 2313188784 727495314       Value (Rs. In Lakhs) 2115514759 2313188784 727495314

Table 10.

CALCULATION OF SALES VARIANCE

Year Budgeted Actuals Variance Result

2007 27289 21155 -6134 Adverse2008 25062 23132 -1930 Adverse

2009 6233 7275 1042 Favourable

55

Graph 6.

INTERPRETATION:

The budgeted sales value is overestimated to the actual sales through which the

result of sales budget in the year 2007 and 2008 is showing adverse. In the year 2009,

excellent improvement is evident from the above graph and as such it indicates

favorable result. The performance in sales budget in the year 2009 is expressed to be

excellent. Keeping the same spirit may yield fruitful results and leads to further growth

opportunities. Domestic sales are to be increased as a remedy.

Note: In the year 2009, the actual sales value is available only till March '08 i.e., for

three months. Hence budgeted figures for variance purpose are adjusted for three

months.

Sales variance

-10000

-5000

0

5000

10000

15000

20000

25000

30000

2007` 2008 2009

budgetedactualsvariance

56

BUDGETED INCOME STATEMENT

Table 11.

BUDGETED INCOME STATEMENT

(RECIP, ROTARY AND CADEM)Particulars Year (Rs. In Lakhs)

  2007 2008 2009

Net Sales 41159 37632 30707Less: Cost of Sales (total) or COGS 36218 32503 26522Gross Profit 4941 5129 4185Less: Total Overheads 4698 4639 5106Profit Before Tax 243 490 -921Add: Other Income/DEPB 1829 1298 1245 CADEM Profitability - - 270Profit (including other income) Before Tax 2072 1788 594Less: Tax Provisions 30 - -Net Profit/Net Income/(Loss) 2042 1788 594

Graph 7.

57

INTERPRETATION:

From the year 2007-2009 there is a gradual decrease in the budgeted figures of

profit or income statement, which is evident from the above chart. This is due to

unexpected increase in the value of raw materials (copper per kilogram increased thrice

to the normal value). The variation between 2007 and 2008 is negligible as we see only

a normal difference, but there is a drastic decline in the year 2009 almost predicting

losses. The percentage change has been showing a drastic decrease to 87.56% in the

year 2008 and to 29% in the year 2009 comparing to the base year 2007.

Table 12.

ACTUAL INCOME STATEMENTParticulars Year

  2007 2008 2009Net Profit/Net Income/(Loss) 6192051 -76331610 93310955

Table 13.

CALCULATION OF INCOME VARIANCE

(BUDGETED VS ACTUALS)Year Budgeted Actuals Variance Result

2007 2042 62 -1980 Adverse2008 1788 -763 -2551 Adverse2009 149 933 785 Favourable

58

Graph 8.

INTERPRETATION:

There is an over estimation with regards to profits in the year 2007 by looking into the

chart, as the actual income is very less comparing to the budgeted income/profit which

has resulted in adverse result. Lack of proper planning is visualized.

Though the budgeted income/profit statement in the year 2008 is declined, even

then the actual profit went into losses. i.e., the actual loss is above 7 crores. Hence, the

result is adverse.

In the year 2009, due to proper revisions and effective budgetary controlling

techniques they recouped their profit back. This is evident by seeing only three months

statement, which is above 9 crores. This is indicated to be excellent progress.

Income variance

-3000

-2000

-1000

0

1000

2000

3000

2007 2008 2009

budgeted actualsvariance

59

MATERIAL PURCHASE BUDGET

Table 14.

MATERIAL PURCHASE BUDGET

Particulars Year (In Units)2007 2008 2009

Annual Production 750000 544500 620000Add: Closing Inventory 131400 23140 32806Quantity 881400 567640 652806Less: Opening Inventory 36000 107438 32903Materials to be Purchased 845400 460202 619903

Graph 9.

INTERPRETATION:

A zigzag curve is framed if a graph is plotted, by observing the above chart. In

the year 2007, material purchase is very high. This may be due to high production

volume. In the year 2008, a sudden steep decline is visualized showing very less

material volume. The reason behind is the decrease in production volume. The

performance in this year is very poor, which can be affidavit by seeing income

statements for the year 2008. In the year 2009, a good estimation, a proper revise, strict

supervisory control enabled the management to have an effective control over materials

purchased.

60

QUARTERLY BUDGETS

SALES VOLUME BUDGET

Table 15.

SALES VOLUME BUDGETMODEL UNITS

  JAN FEB MAR APR         AW 67541 70805 57060 81169RN 1000 2500 2500 7500AK 750 750 1800 1800AK- Kits 20833 20833 20833 20833AWJ - Kits 8333 8333 8333 8333         Total 98457 103221 90526 119635

Graph 10.

INTERPRETATION:

The above mentioned configured figures are the extracts from sales volume

budget prepared in the year 2010, which is the latest data. The models included in the

sales volume budget are AW, RN, AK, AK – Kits, and AWJ – Kits. Keen concentration

required on sales volume in the month of March in the successive years. Seasonal

fluctuations should be considered as very severe factors for sales variances. As the

booms and depressions (business cycles) changes at a fast phase during odd months or

off seasons.

61

TOTAL MATERIAL COST BUDGET

Table 16.

TOTAL MATERIAL COST BUDGETMODEL AMOUNT (Rs. In Lakhs)

  JAN FEB MAR APR       

AW 1761 1696 1838 1772RN 54 92 160 121AK 18 18 44 44AK- Kits 124 124 124 124AWJ - Kits 49 49 49 49         Total 2007 1979 2215 2110

Graph 11.

INTERPRETATION:

The quarterly total material cost budget witnessed above is the clear indication

for the months of January to April, 2010. The values are expressed in Rupees in Lakhs

for the models combined, naming AW, RN, AK, AK – Kits, and AWJ – Kits. The

material cost is moderately high in the month of January, March, and April. The costs

incurred for AK, AK – Kits, and AWJ – Kits are expressed to be absolutely normal.

The costs incurred on AW and RN models had drastic changes. The total material cost

control is absolutely satisfied. The performance in handling material cost is very high in

the current year.

62

TOTAL LABOUR ABSORPTION BUDGET

Table 17.

TOTAL LABOUR ABSORPTION BUDGETMODEL AMOUNT (Rs. In Lakhs)

  JAN FEB MAR APR         AW 174 167 181 174RN 5 9 16 12AK 2 2 4 4AK- Kits 12 12 12 12AWJ - Kits 5 5 5 5         Total 198 195 218 207

Graph 12.

INTERPRETATION:

Total labor absorption budget in the above chart is the imitation for the months

of Jan to Apr 2010. The allocation of budget on permanent workers is constant, whereas

on temporary and contract basis workers are fluctuating. Expenditure on blue collars

and technicians is always desired, whereas opting for badlis who are called to be surplus

workers is to be reduced. For fruitful results and getting excellent profitability labour

budget controlling is always suggested. Utilization of skilled labour progressively gives

desired results and it is also possible to curtail down unnecessary expenditure on

untrained workers.

63

CHAPTER 5 FINDINGS/RESULTS

64

FINDINGS

The study at Tecumseh Products India Pvt. Ltd. at Hyderabad Plant is defined to

be the most technical and analytical study. The professionalism that encapsulates the

various degrees of performances at every step of financial study is like a new game.

The actual subject matter, naming the project work on BUDGETING and

BUDGETARY CONTROL in a manufacturing concern is the practical exposure

drawn out from the efforts of management of Tecumseh, Hyderabad.

The various budgets called financial budgets, operating budgets, and their

performances are studied and interpreted according to the actual performance evidenced

from past three years.

Preparation of master budgets, fixed budgets, flexible budgets are desired to be

prepared to have easy and fast access to the data required by the staff and line

management.

As the company incurred huge unexpected losses in the previous two years there

is a lot of requirement to review its standards, estimations and follow accordingly.

The overall performance of the company is found to be improving, well, and

satisfactory.

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CONCLUSIONS

From the study conducted on Budgeting and Budgetary control at Tecumseh

Products India Pvt. Ltd., the following conclusions are drawn:

From this study it is observed that Annual Budgets and Quarterly Budgets it is

well understood that the estimates and their revisions are factualised according

to the past performances, which are over estimated in initial stages and got

adjusted in their successive stages.

As the business of the company depends on exports up to a larger extent,

increasing global standards is a vital element and that has to be practiced.

The overall performance of the company found to be improving and satisfactory.

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SUGGESTIONS

Financial interpretations for each and every budget are required to be clearly

analyzed and frequent revisions for setting dynamic goals according to the changing

market conditions may lead to the chasing of the actual target i.e., becoming the global

leader in the markets which ever they choose to participate.

Good review of mission, not from the point of theory, but required exact practical

implementations. Preparation of complicated data always leads to many conflicts,

requires lot of time and labour and this may delay decision making as well as the

information costs.

Collection of latest market information regarding the cost of raw materials, quality of

raw materials, competitor prices, alternative suppliers, growth opportunities, the

diversifying marketing expansion, upgradation of technology, observation of business

cycles, SMART production methods, SWOT analysis, concentration of skilled labour

are some of the important pre-requisites.

As the business of Tecumseh depends basically on exports up to a larger extent,

increasing global standards is a vital element that has to be practiced.

Taking timely appropriate steps may reduce the strain of incurring further losses is

assured. The effective six-sigma and participatory budgeting will be beneficial for the

organization.

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LIMITATIONS OF THE STUDY

This study is conducted in a short period, during this limited time the study may

not be detailed in all aspects.

The study is conducted with the available data gathered from annual reports,

internal reports, and from several interactions with the staff of TPIPL and analysis was

made accordingly.

The budgeting is done only for three years and it clearly explains the limitations

regarding the duration of the study.

With regards to the material purchase budget, the actual figures are not provided

by TPIPL. The data is highly confidential and was not supposed to reveal the data for

any purpose.

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BIBLIOGRAPHY

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BIBLIOGRAPHY

TECUMSEH REPORTS:

Business Plan Statements of the years 2007 to 2009.

Annual Reports of Tecumseh India Pvt. Ltd.

Articles published by Tecumseh.

BOOKS AND PERIODICALS:

Financial Management (Oxford University Press - 2003)…… M.Y. KHAN & JAIN

Financial Management …………………………… PRASANNA CHANDRA

Financial Management …………………………… BRIGHAM & VAN HORNE

WEBSITES:

www.tecumsehindia.com

www.netmba/finance/capitalbudgeting.com

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