A

PROJECT REPORT

ON

““CCOOMMPPAARRAATTIIVVEE AANNAALLYYSSIISS OOFF EEXXPPEENNDDIITTUURREE BBUUDDGGEETT””

FOR

HINDUSTAN PETROLEUM CORPORATION LIMITED

SUBMITTED TO

UNIVERSITY OF PUNE

IN PARTIAL FULFILLMENT OF 2 YEARS FULL TIME COURSE

MASTER OF BUSINESS ADMINISTRATION (MBA)

SUBMITTED BY

MMRR.. RRAAHHUULL AASSHHOOKK GGHHOOSSAALLEE

(BATCH-2009-2011)

UNDER THE GUIDANCE OF

PROF.VIKAS BARBATE

JSPM‟S

JAYAWANT INSTITUTE OF COMPUTER APPLICATION S.N.80/3, Pune Mumbai Bypass Highway, Tathwade

Pune-411033

DECLARATION

I Mr. RAHUL ASHOK GHOSALE Student of MBA II (Finance) 2009-2011

studying at JAYWANT INSTITUTE OF COMPUTER APPLICATION;

TATHWADE PUNE- 33 declared that the project work entitled

“COMPARITIVE ANALYSIS OF EXPENDITURE BUDGET”FOR

HINDUSTAN PETROLEUM CORPORATION LIMITED. It was carried by

me in the partial fulfillment Of MBA program under the University of Pune.

This project was undertaken as a part of academic curriculum according

to the university rules and norms and it has not commercial interest and

motive. It is my original work. It is not submitted to any other organization for any

other purpose.

PLACE: PUNE

Date: (Rahul Ashok Ghosale)

Roll No

ACKNOWLEDGEMENT

I take immense pleasure in completing this project and submitting the final

Project report in 60 days with HINDUSTAN PETROLEUM CORPORATION

LIMITED. It has been full of learning and sense of contribution towards the

organisation. I would like to thank HINDUSTAN PETROLEUM

CORPORATION LIMITED for giving me an opportunity of learning and

contributing through this project. I also take this opportunity to thank all those people

that made this experience a memorable one.

A successful project can never be prepared by this single effort of the person to

whom the project is assigned, but it also demands the help and guardianship of some

concern persons who helped the undersigned activity or passively in the completion

of successful project.

The project couldn‟t have been completed without timely and vital help of

other office staff. Special thank to Mr.MDS Sastry (Sr. Manager –Finance O&D),

and thanks to their invaluable guidance, keen interest cooperation inspiration, and

course moral support through my project session.

I would like to give special thanks to my project guide Prof. Vikas Barbate for

their guidance, cooperation, and inspiration for fulfilling my project.

Rahul Ashok Ghosale

Table of Contents:

CHAPTER NO PARTICULARS PAGE

NO 1 Introduction

2 Profile of Organization

3 Research Methodology

4 Conceptual Background

5 Data Presentation, Analysis and

Interpretation

6 Findings ,Suggestion and Conclusion

Bibliography

LIST OF TABLES

TABLE OF NAME

PAGE NO

History about HPCL

Marketing network

Number of employee

Capital structure & Financial ratio

Expenditure budget statement

Statement showing volume handled

Advertising & publishing

Consultancy & Technical services

Bank charges

Casual/Contract labour

Communication

Depreciation

Electricity & Water

Employee training

Employee welfare expenses

Insurance

Maintenance & Repairs

Manpower cost

Others

Overtime

Printing & Stationery

Public Awareness Program

Rates & Taxes

Rent expenses

Security

Stores & Spares

Travel & Conveyance

Utilities (Power & fuel)

LIST OF CHARTS

CHART NAME PAGE NO

Market share of the company

Organisation chart

Manager wise budget

Types of budget

Zone operation & distribution

Digramic representation of expenditure

Advertising & publishing

Consultancy & Technical services

Bank charges

Casual/Contract labour

Communication

Depreciation

Electricity & Water

Employee training

Employee welfare expenses

Insurance

Maintenance & Repairs

Manpower cost

Others

Overtime

Printing & Stationery

Public Awareness Program

Rates & Taxes

Rent expenses

Security

Stores & Spares

Travel & Conveyance

Utilities (Power & fuel)

CHAPTER 1

INTRODUCTION

EXECUTIVE SUMMARY

Managerial control becomes essential in case of public limited Companies and government

undertaking which are run by hired managerial personnel with little interest in the result of such

enterprises. The proprietors have, therefore, to think of a device which may encourage the

management to work with greater case and caution to serve the interests of all by optimizing the use

of investment in the form of man, money and material.

Budgeting is one of such device which helps the management to understand the business

programmes in their right perspective and take steps to achieve business objective .Business means

planning for future .It involves the preparation of departmental budgets ,budgetary control and

related issues. The budgetary control is concerned with the management of business activities with

help of budgets .In this way, budget serve as a control device.

A Budget is a plan which relates to a definite period of time and which is expressed in

quantitative terms. It is thus a predetermined statement which incorporates the policy of the

management during a given period and serve as a standard for Comparing the actual results .Thus , a

Budget is a tool in the hands of the management during a given period and serve as a guide to all

planning and co-ordination with all the employee in achieving their goals objectives and targets .A

Budget helps in planning and co-ordination with all the employees and departments, but the most

important factor is that it is used for control purpose at all levels of management.

There is a difference between budget and budgetary control. A budget is a quantitative statement

prepared in advance and keeping it as the base, the actual are compared. Budgetory control involves

use of the budgeting techniques to help the management for carrying out the various functions viz.

Planning, Organising, Co-ordinating and controlling the activities of a business.

In this report, I dealt with the planning for the more immediate future, i.e. the next financial

year. Budgeting is used by businesses as a method of financial planning for the future. Budgets are

prepared for main areas of the business – purchases, sales, Production, labour, debtors, creditors,

cash – and provide detailed plans of the business for the next three, six or twelve months.

The focus of this Report is on the expenditure budget. In this report shall be examining on the

following topics:

• The benefits of budgets and budgetary control

• The limitations of budgets and budgetary control

• The preparation and use of expenditure budgets

The objective behind this project is to understand the meaning and importance of budget and to

study the various aspects of budget and to find out future spending power of the Unit of the

Organisation under study.

In this project theoretical background includes the budget, budgetary control, objective of budget,

budgetary control and types of budget. The data analysis includes projection for future spending

controllable expenditure, forecasted expenditure and volume handled, cost per KL and their

interpretation

AIM, OBJECTIVE AND SCOPE

AIM

As brought out in the title of the project the basic aim of the project is to analyze the budget

& budgetary control of the west zone (HINDUSTAN PETROLEUM CORPORATION LIMITED)

and this as the major priority in the mind it was carried out in the systematic manner.

OBJECTIVE

1. To understand meaning and importance of Budget

2. To analyze various tools and techniques of Budgetory Control.

3. To study the various aspect of Budget & budgetary control.

4. To analyze allocation pattern of Units of HPCL – O &D Dept. i.e. WEST ZONE.

5. To make observation and suggestions.

SCOPE

The scope of the project is concerned with the study of future amount forecasted. The study

of budget is based on the various tools and techniques of budget and also giving recommendations

and suggestion based on the analysis of the data. The study of the project based on the last 4 years

data of one of the Units of HPCL – O &D Dept. i.e. WEST ZONE

LIMITATIONS

As the project duration was two month, it was not possible to study in detail each and every

concept.

Some data was confidential in nature. Hence as per policy that data could not available

where ever necessary for analysis purpose, so approximate figures have been used for

interpretation and conclusion.

Due to busy schedule of higher authorities in their assignment, they were not available on

proper time, so data would not cross verified from them.

CHAPTER 2

PROFILE OF

THE ORGANISATION

HINDUSTAN PETRROLEUM CORPORATION LIMITED

HPCL is a Fortune 500, mega integrated oil company, with an HPCL accounts for about

20% of the market share and about 10% of the nation's refining capacity with two coastal refineries,

one at Mumbai (West Coast) having a capacity of 6.5 Million Metric Tonnes Per Annum (MMTPA)

and the other in Vishakhapatnam (East Coast) with a capacity of 7.5 MMTPA. HPCL also holds an

equity stake of 16.95% in Mangalore Refinery & Petrochemicals Limited (MRPL), a state-of-the-art

refinery at Mangalore with a capacity of 9 MMTPA.HPCL owns the country's largest Lube Refinery

with a capacity of 335,000 Metric Tones which amounts to 40% of the national capacity of Lube Oil

Production. HPCL has given India a firm ground in this sector with its world class standard of Lube

Base Oils.

History about HPCL

1952:

The Company was incorporated in the name of Standard Vacuum Refining Company of

India Limited on July 5, 1952

1962:

On 31st March, 1962 the name was changed to ESSO Standard Refining Company of

India Limited.

1974:

Hindustan Petroleum Corporation Limited comes into being after the takeover and merger

of erstwhile Esso and Lube India Undertaking

1976:

Caltex Oil Refining Ltd. is taken over by the Government of India and subsequently

merged with HPCL in 1978.

1979:

Kosan Gas Company, the concessionaries of HPCL in the domestic LPG market, are taken

over and merged with HPCL.

HPCL thus comes into being after merging four different organizations at different points of time.

Mission

"HPCL, along with its joint ventures, will be a fully integrated Company in the hydrocarbons sector

of exploration and Production, refining and marketing; focusing on enhancement of Production,

quality and profitability; caring for customers and employees; caring for environment protection and

cultural heritage. It will also attain scale dimensions by diversifying into other energy related fields

and by taking up transnational operations."

Vision

To be a World Class Energy Company known for caring and delighting the customers with high

quality Production and innovative services across domestic and international markets with

aggressive growth and delivering superior financial performance. The Company will be a model of

excellence in meeting social commitment, environment, health and safety norms and in employee

welfare

Logo of company

45%

20%

15%

20%

Market share of the company

Indian oil

HPCL

BPCL

Other

Infrastructure

HPCL's infrastructure is at par with that of the best global corporations in the hydrocarbons sector.

For over a quarter century now, HPCL has been consistently breaking

new grounds in Production and marketing. A glimpse of the vast

marketing network already developed is given below in a table.

The strengthening of the marketing network over the years has lead to dominance in the market

reflected in its growth and leading to best quality of service. HPCL was one of the first Companies

to understand the nation's energy requirements and take necessary measures to fulfill the

expectations. Its increasing infrastructure facilities are due to the successful realization of set targets

and sustained quality of service and customer relations. HPCL presently owns and operates two

coastal refineries at Mumbai and Visakhapatnam along with a joint venture refinery at Mangalore.

Another Refinery of 9 MMTPA is under construction in Bhatinda, Punjab by HMEL, and a Joint

Venture with Mittal Energy Investments Private Ltd.

COMPETITOR OF HPCL

Marketing Network 2009-10 2008-09 2007-08 2006-07 2005-06

Regional Offices 101 90 91 86 85

Terminals/Installations/TOPs 31 31 42 37 37

Depots 92 100 93 93 92

LPG Bottling Plants 44 43 43 42 41

ASFs 31 21 16 13 13

Retail Outlets 9127 8539 8329 7909 7313

SKO/LDO Dealers 1638 1638 1648 1648 1648

LPG Distributors 2404 2250 2232 2238 2202

LPG Customers (in crores) 2.92 2.70 2.52 2.39 2.28

PRODUCT OF THE COMPANY

STATEMENT SHOWING NUMBER OF EMPLOYEE

Group Total No .of

Employees

No. of women

employee

% of Women

employee

A 4479 393 8.22

B - - -

C 6396 404 6.32

D 116 7 6.03

TOTAL 11291 804 7.12

Aviation

• Supply the fuel of airport and Defense service

Lubes

• The lube provide Various companies and customer .

Retail

• With the help of retail outlet company sell Petrol ,Diesel and kerosene

LPG

• The LPG gas supply for the house use

FUTURE PLANS

In order to strengthen core processes and modernize, HPCL has developed ambitious plans

for expansion and diversification in the areas of increasing energy demand, technological up

gradation and environment management. HPCL has proposed capital expenditure (including equity

investments in Joint Ventures) of Rs. 11487 Crores during the eleventh plan. Currently, several

projects are in progress in different parts of India. Here is a brief introduction to these projects.

Major Ongoing Projects

New FCCU at Mumbai Refinery:

Lube Oil Base Stock (LOBS) Up gradation project at Mumbai Refinery:

Diesel Hydro Treating (DHT) at Mumbai & Visakhapatnam refineries:

SPM Project at Visakh Refinery:

Resitement of Visakh Terminal:

Guru Gobind Singh Refinery Production Evacuation Project:

Ennore Terminal Project:

FINANCIAL AWARDS Listed in Fortune Global 500 and Forbes Global 2000 companies

Listed in “World‟s Most Reputable Companies” compiled by Reputation Institute (RI)

during Janurary-February 2009.

Awarded the prestigious „NDTV Profit‟ Business Leadership Award 2008 in the category

of Oil & Gas. The Award honours business excellence & recognizes companies that have

fuelled the Indian economy to currently being among the fastest growing economies in the

world.

The „World Council for Corporate Governance‟ (WCFCG), UK and Institute of Directors,

India has conferred on HPCL the prestigious „Golden Peacock Corporate Governance

Award 2008‟ under the petroleum category. This annual award is conferred to companies

which demonstrate benchmark standards and excellence in Corporate Governance

National Award For Excellence in Cost Management from the Institute of Cost

Accountants of India (ICWAI) under the category of Public Sector – Manufacturing

Organization of Turnover more than Rs. 1000 Crores.

Mayaram Surjan Foundation Award for in-house journal „HP News‟ in recognition of the

„effective use of the media of house Journal as an essential tool for image building for

furtherance of Internal Communication & for creating better Public Relations‟

Directorates of Commercial Taxes have conferred on HPCL with the Second Best Tax

Payer Award for the State of Madhya Pradesh.

CAPITAL STRUCTURE

FUNDS 2009-10 2008-09 2007-08 2006-07

2005-06

Net Worth 11,557.97 10,730.63 10,563.30 9,598.64 8,735.74

Share Capital 339.71 339.71 339.71 338.95 338.94

Share

Forfeiture

0.70) ( (0.70) (0.70) - -

Reserves

11,218.96 10,391.62 10,224.28 9,259.69 8,396.80

Borrowings 21,302.37 22,755.51 16,786.70 10,517.54 6,663.83

Net Profit 1,301.37 574.98 1,134.88 1,571.17 405.63

FINANCIAL RATIO

RATIOS

2009-10 2008-09 2007-08 2006-07

2005-06

Gross Profit/Sales ( % ) 3.65 2.87 2.43 3.19 1.50

Net Profit/Sales ( % ) 1.13 0.44

1.01 1.62 0.53

Earnings Per Share

(Rs.) 38.43 16.98 33.48 46.35

11.97

Cash Earnings Per

Share (Rs.) 78.86 46.92 64.55 68.20

32.62

Average

Sales/Employee (Rs.

Crores)

9.62 10.35 9.48 8.40 6.87

Average Net

Profit/Employee (Rs.

Crores)

0.11 0.05 0.11 0.14 0.04

Debt Equity Ratio

(Long term debt to

equity)

0.30:1 0.30:1 0.26:1 0.24:1

0.13:1

ORGANISATION CHART

Mr.Arun Balakrishnan Chairman &

Managing Director

Functional Directors

Mr.S.Roy Choudhury

Director- Marketing

Mr.V. Vizia Saradhi Director- Human

Resources

Mr.B.Mukherjee Director- Finance

Mr.K. Murali Director- Refineries

Part-time ex-official Directors

Mr.P.K.Sinha Director

Mr.L.N.Gupta Director

Part-time non-official Directors

Prof. Prakash G Apte Director

Mr.P.V.Rajaraman

Director

Dr. Gitesh K Shah Director

CHAPTER 3

RESEARCH

METHODOLOGY

RESEARCH METHODOLOGY

RESEARCH

“A careful investigation or inquiry especially through search for new facts in any branch of

knowledge”

According to Radman and Mory research means “Systematic effort to gain new knowledge.”

Research is thus an original contribution to the existing stock of knowledge made for its

advancement .As such the term „research‟ refers to the systematic method consisting of enunciating

the problem, formulating a hypothesis, collecting the fact o data, analyzing the facts and reaching

certain generation for some theoretical formulation .Research has its special significance in solving

various operational and planning problems of business and industry.

TYPES OF RESEARCH

Descriptive Vs Analytical

Applied Vs Fundamental

Quantitative Vs Qualitative

Conceptual Vs Empirical

TYPES OF RESEARCH USED FOR PROJECT

Analytical Research

Analytical Research is that research where the researchers already have all the facts or

information available to them, and they make a critical evaluation of that information for finding the

solution to certain problem. In these types of research the researcher uses that facts or information

which is already collected by some other person. The research uses this facts or information and

makes critical of data for providing results or solution to specific problem.

In analytical research two type of analysis can mode:-

i. Analysis of historical? Recording of notes ,content analysis, tape and film listening and

analysis

ii. Analysis of document? Statistical compilations a manipulation reference and abstract content

analysis.

METHDOLOGY USED FOR PROJECT

Research Methodology is way to systematically solve the research problem .Research is a

systematically search for pertinent information on a specific topic. It has its special significance in

solving various operational and planning problems of business and industry in it we study the

various steps that are generally adopted by researcher in studying his research problem along with

the logic behind them.

The methodology used for calculating Budget of the company had based on budget

estimation and the values from various document of the company

The methodology to analyzing the financial data of the company had based on figure and

values from available data of the company.

For theories related to topic, ratios and interpretation web sites and interviews of people who

have good knowledge about these topics.

For this project analytical research is carried.

DATA

Data is a raw form of information .Data is used for generating some useful information

related to this project, data is that information or raw information which is used to find the solution

of the problem.

There were two types of data used in the project.

PRIMARY DATA:-

Primary data are those data which are collected afresh and for the first time ,and thus

happen to be original in character .primary data is directly collect for individuals by:-

Survey method

Personal interview

Primary data related to the project was collected from formal and informal discussion and

interaction with senior employees of the company. This data helps in calculating budget, volume

handled and some other topic.

SECONDARY DATA

Secondary data are those data which have collected by someone else and which have already

been passed though the statistically process. The researcher uses this data for further research.

Secondary data can be collected by:-

Catalogues

Reports

Broachers

Magazines, etc.

The project mainly depends upon the secondary data.

CHAPTER 4

CONCEPTUAL

BACKGROUND

Introduction Businesses need to plan for the future. In large businesses such planning is very formal

while, for smaller businesses, it will be less formal. Planning for the future falls into three time

scales:

• Long-term: from about three years up to, sometimes, as far as twenty years ahead

• Medium-term: one to three years ahead

• Short-term: for the next year

Clearly, planning for these different time scales needs different approaches: the further on in time,

the less detailed are the plans. In the medium and longer term, a business will establish broad

business objectives. Such objectives do not have to be formally written down, although in a large

business they are likely to be. In smaller businesses, objectives will certainly be considered and

discussed by the owners or managers. Planning takes note of these broader business objectives and

sets out how these are to be achieved in the form of detailed plans known as budgets .In this chapter

we are concerned with planning for the more immediate future, i.e. the next financial year.

Budgeting is used by businesses as a method of financial planning for the future. Budgets are

prepared for main areas of the business – purchases ,sales, Production, labour, debtors, creditors,

cash – and provide detailed plans of the business for the next three, six or twelve months

• The benefits of budgets and budgetary control

• The limitations of budgets and budgetary control

Objectives of budget

This chapter is intended to provide:

An indication and explanation of the importance of budgetary control in marketing as a key

marketing control technique

An overview of the advantages and disadvantages of budgeting

An introduction to the methods for preparing budgets

An appreciation of the uses of budgets.

DEFINITIONS: “Budget”

1. The Chartered Institute of Management Accountants (CIMA), London:

“A financial and / or quantitative statement, prepared and approved prior to a 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".

2. Kolhar:

“A financial plan serving as a pattern for and a control over future operations".

3. Brown and Howard:

"It is a pre-determined statement of management policy during a given period which

provides a standard for Comparison with the result actually achieved".

Budgetary control methods

a) Budget:

A formal statement of the financial resources set aside for carrying out specific activities in a

given period of time.

It helps to co-ordinate the activities of the organisation.

An example would be an advertising budget or sales force budget.

b) Budgetary control:

A control technique whereby actual results are Compared with budgets.

Any differences (variances) are made the responsibility of key individuals who can either

exercise control action or revise the original budgets.

Budgetary control and responsibility centres;

These enable managers to monitor organisational functions.

A responsibility centre can be defined as any functional unit headed by a manager who is

responsible for the activities of that unit.

There are four types of responsibility centres:

a) Revenue centres

Organisational units in which outputs are measured in monetary terms but are not directly

compared to input costs.

b) Expense centres

Units where inputs are measured in monetary terms but outputs are not.

c) Profit centres

Where performance is measured by the difference between revenues (outputs) and

expenditure (inputs). Inter-departmental sales are often made using "transfer prices".

d) Investment centres

Where outputs are compared with the assets employed in Production them, i.e.ROI

Advantages of budgeting and budgetary control

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

Company‟s management to think about the future, which is probably the most important

feature of a budgetary planning and control system. Forces management to look ahead, to

set out detailed plans for achieving the targets for each department, operation and

(ideally) each manager, to anticipate and give the organisation purpose and direction.

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.

Characteristics of a budget

A good budget is characterized by the following:

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

Comprehensiveness: Embrace the whole organization.

Standards: base it on established standards of performance.

Flexibility: allow for changing circumstances.

Feedback: constantly monitor performance.

Analysis of costs and revenues: this can be done on the basis of Production lines,

departments or cost centers.

Budget organization and administration:

In organizing and administering a budget system the following characteristics may apply:

a) Budget centers: Units responsible for the preparation of budgets. A budget centre may

Compensation several cost centers.

b) Budget committee: This may consist of senior members of the organization, e.g. departmental

heads and executives (with the managing director as chairman). Every part of the organization

should be represented on the committee, so there should be a representative from sales, Production,

marketing and so on.

Functions of the budget committee include:

Coordination of the preparation of budgets, including the issue of a manual

Issuing of timetables for preparation of budgets

Provision of information to assist budget preparations

Comparison of actual results with budget and investigation of variances.

c) Budget Officer: Controls the budget administration the job involves:

Liaising between the budget committee and managers responsible for budget preparation

Dealing with budgetary control problems

Ensuring that deadlines are met

Educating people about budgetary control.

d) Budget manual:

This document deals with the:

Charts the organization.

Details the budget procedures.

Contains account codes for items of expenditure and revenue.

Timetables the process.

Clearly defines the responsibility of persons involved in the budgeting system.

Budget preparation

Firstly, determine the principal budget factor. This is also known as the key budget factor or limiting

budget factor and is the factor which will limit the activities of an undertaking. This limits output,

e.g. sales, material or labour.

Preparation of an organisation chart:

An organisation chart when property drafted will shows the functional responsibilities of

each member of management and ensures that he knows his position in the organisation and his

relationship to other members .The organisation chart may have to ensure that each centre is

controlled by an appropriate member of the staff .The figure shows the specimen of organisation

chart for implementation of Budgetory Control System.

Chief executive officer(CEO)

Budget officer

Personnel Manager

*Labour Budget

(Human Resource budget)

Purchase Manager

*Purchase Budget

Poroduction Manager

*Material Budget

*Production Budget

*Plant Utilisation Budget

Finance Manager

*Financial Budget

*Expenditure Budget

*Production Cost Budget

*Administrtive Budget

*Master Budget

Sales Manager

*Sales Budget

*Advertisement Budget

*Selling and distribution Cost Budget

TYPES OF BUDGET

The budgets is different types which are classified according to the various bases as shown in Figure

as under

Budgeting is an undertaking may be done for a particular segment or it may cover all the

activities depending upon the need and resources of the enterprises The large scales business

enterprises prepare different types of budgets covering almost all activities where control is desired

.In order to understand the nature of budgets, it is desirable to know their classification which is

usually done on time, flexibility, functions and management control instrument basis:

TYPES OF BUDGET

According to Time

i)Long-Term Budget

ii)Short -Term Budget

iii)Current Budget

According to Flexibility

i)Fixed Budget

ii)Flexible Budget

According to Function

i)Sales Budget

ii)Production Budget

iii)Purchase Budget

iv)Cash Budget

v)Expenditure Budget

vi)Master Budget

(A)According to Time According to time, budgets can be of three types:

1) Long –Term budget

The period covered by budget is more than 1 year budget may be prepared 1,5,10 year etc.

But it budget in no use in practical because it is very difficult to predict about the future.

2) Short-Time Budget

The period covers by budget of one year .This type of budget are prepared continuously and

regularly

E.g. Union budget of central government

3) Current Budget

The period Covered by this budget is one week, one month or maximum 3 month. These

budgets are regularly prepared. Generally current budget regarding the sales, purchase etc, are

prepared by the concern manager.

(B)According to Flexibility On the basis of flexibility budgets are classified in two categories

1) Fixed Budget

According to ICMA, London Defines Fixed Budget as, “a budget which is designed to

remain unchanged irrespective of the volume of output or turnover achieved”

It is rigid budget and it is drawn on the assumption that there will no changes in the budget

level of activity .A does not take in to account any changes in expenditure arising out of changes in

the level of activity.

However in practice the fixed budget is rarely used .The main reason is that the actual output

and budgeted output is not equal & actual output may changes in various reasons. This budget

cannot be used the purpose of cost control.

2) Flexible Budget

According to ICMA, London Defines Flexible Budget as, “a budget which is to designed

to change in accordance with the level of activity actually attend”

This budget gives different budgeted cost for different level of activity while preparing

budget are classified in to fixed overhead and semi variable overhead. This budget is useful

especially in the business of which the sales cannot be predicted.

E.g. New business trading luxuries and fashionable goods

Certain adjustment are possible in to the flexible budget .Flexible budget is more useful to

practical and realistic than the fixed budget .it is more useful for cost control and decision making.

(C) According to the Function

1) Sales budget

Sales budget is most important budget all budget are depend upon the sales budget .if sales

budget is incurred then all other budgets will get affected .Sales budget shows future sales in

quantity or in amount .It is an estimate of sales to be made during the budget period. The sales

budget is the statement of sales in terms of quantity and value in sales.

Sales budget is prepared by Sales Manager. He is assisted by salesman and market research

.The preparation of sales budget is most difficult job it is very difficult to estimate future demand for

the Production

It involves a realistic sales forecast. This is prepared in units of each Production and also in sales

value.

Methods of sales forecasting include:

Sales force opinions

Market research

Statistical methods (correlation analysis and examination of trends)

Mathematical models.

In using these techniques consider:

Company's pricing policy

general economic and political conditions

changes in the population

consumers' income and tastes

advertising and other sales promotion techniques

after sales service

credit terms offered

2) Production Budget

After preparing the sales budget, the Production budget prepared .This budget prepared by

Production Manager .It concern with Purchase Manager ,Sales Manager and General Manager

while Preparing by Production Budget is the estimate of goods of the during the budget period. It is

an estimated of quantity of goods to be manufacture. This budget is also known as Manufacturing

Budget .This budget is based on sales Budget This Budget is consist of three Subsidiary budgets.

I. Material Cost Budget

II. Labour Cost budget

III. Overhead budget

Production budget: expressed in quantitative terms only and is geared to the sales budget. The

Production manager's duties include:

Analysis of plant utilization

Work-in-progress budgets.

If requirements exceed capacity he may:

Subcontract

Plan for overtime

Introduce shift work

Hire or buy additional machinery

The materials purchases budget's both quantitative and financial.

3) Purchase Budget

Shows the future purchases in terms of quantity in terms of quantity and value. It is an

estimate and purchase to make during the year. It includes cost of direct material, indirect material

and cost of services. It is prepared by Purchase Manager. Purchase Manager helps of Stores

Manager, Sales Manager, Finance Manager, while preparing budget.

The materials usage budget is in quantities.

The materials purchases budget is both quantitative and financial.

Factors influencing a) and b) include:

Production requirements

Planning stock levels

Storage space

Trends of material prices.

4) Cash Budget

Cash budget is a most important budget in the financial budget .cash budget shows the

Estimated Cash Receipt & Estimated Cash Payment during the budgeted period .this budget is

divided 2 parts .One part show the Estimated Cash receipt and other part show an estimated cash

payment. This budget shows the cash position of the budget or business concern.

The Cash Budget is prepared by the cashier or by the Chief Accountant. Cash budget is

closely related to the Sales Budget and Purchase Budget. This budget shows cash receipt and cash

payment as well as cash balance of each month of the budgeted period.

Cash budget hence to know whether business has sufficient cash available to meet its need it

also helps to know whether their will be shortage or surplus of cash during the budget period The

business concern can take loan or overdraft of bank if there is shortage of cash .The business can

take decision regarding the investment of excess cash

A cash plan for a defined period of time. It summarizes monthly receipts and payments.

Hence, it highlights monthly surpluses and deficits of actual cash. Its main uses are:

To maintain control over a firm's cash requirements, e.g. stock and debtors

To enable a firm to take precautionary measures and arrange in advance for

investment and loan facilities whenever cash surpluses or deficits arises

To show the feasibility of management's plans in cash terms

To illustrate the financial impact of changes in management policy, e.g. change

of credit terms offered to customers.

Receipts of cash

Cash sales

Payments by debtors

The sale of fixed assets

The issue of new shares

The receipt of interest and dividends from investments.

Payments of cash

Purchase of stocks

Payments of wages or other expenses

Purchase of capital items

Payment of interest, dividends or taxation.

5) Expenditure Budget

Definition

1. Budget based on the cost of goods and services already received and paid for.

2. Financial plan based on the cost of goods and services already received and paid for.

Expenditure Budget is to define an economic policy, with respect to the financial spending

made for operational & distribution purpose, which include their making and maintenances.

In an Expenditure Budget, operation & distribution expenses are described in terms of the

construction, maintenance of assets like plant, machineries and other facilities. In fact, all the

possible expenses are listed and recorded in an Expenditure Budget.

As an integral part of the Expenditure Budget, the calculation of spending is based on the

submission of facts for acceptance, from various portfolio departments to the Administration and

Finance Divisions. It is the Administration and Finance Division, which suggests an operational

budget scheme to the President and the Board of Trustees of the concerned Company for final

approval.

In case of Expenditure Budgets, there may arise a necessity for buying or renting equipments,

even after the sales and the Production budgets are compiled simultaneously. This is because there

is deficit in the availability of resources which are unable to satisfy the demand at a particular point

of time. This ultimately leads to an escalation of the total expenses.

Primary objectives of Expenditure Budget:

At the time of allocation and spending of money, an Expenditure Budget takes into account the

following few factors:

Budgetary financial acquisitions are allocated in a manner to the create symmetry and bring

about a parity among the collective requirements of all customers.

Expenditure Budgets aim to maintain parity between the persisting commitments and fresh

initiatives.

Expenditure Budgets balance different subject disciplines.

Symmetry is preserved by all Expenditure Budgets between all the available financial

resources of a Company as well as resources like research work. This ultimately earns funds

for the organization

6) Master Budget

When all subsidiary or functions budget are prepared the Master Budget is prepared. Master

Budget is the summary of functional budget .This budget consists of budgeted Profit & Loss A/C

and budgeted Balance Sheet. The Master Budget is prepared by the Budget Officer or Budget

Directors. Master budget presenting to the budget committee for the final approval.

The budget committee will discuss in a meeting and submit it to the board if directors for

approval the board of director make certain changes before it is finally approval after the final

approval the budget becomes the official cleark.

Management action and cost control

Production information in management accounting form is expensive in terms of the time and effort

involved. It will be very wasteful if the information once Production is not put into effective use.

There are five parts to an effective cost control system. These are:

a) Preparation of budgets

b) Communicating and agreeing budgets with all concerned

c) Having an accounting system that will record all actual costs

d) Preparing statements that will Compare actual costs with budgets, showing any variances and

disclosing the reasons for them, and

e) Taking any appropriate action based on the analysis of the variances in d) above.

Action(s) that can be taken when a significant variance has been revealed will depend on the

nature of the variance itself. Some variances can be identified to a specific department and it is

within that department's control to take corrective action. Other variances might prove to be much

more difficult, and sometimes impossible, to control.

Variances revealed are historic. They show what happened last month or last quarter and no amount

of analysis and discussion can alter that. However, they can be used to influence managerial action

CHAPTER 5

DATA ANALYSIS AND

INTERPRETATION

The following are of the zones under the operation & distribution of HINDUSTAN PETROLEUM

CORPORATION LIMITED

The operation & distribution department is operated thru 7 zones. Out of 7 zones the West zone is

choose for the Comparative study & analysis, due to paucity of time it is possible to analyses the

data pertaining to each and every Zone.

ZONE OPERATION

&DISTRIBUTION

EAST ZONE

NORTH ZONE

NORTH WEST ZONE

NORTH CENTRAL

ZONE

SOUTH ZONE

SOUTH CENTRAL

ZONE

WEST ZONE

EXPENDITURE BUDGET

(All the information pertain to West Zone-O&D Marketing)

PARTICULARS

2006-07 2007-08 (volume

handled in

7616971 KL)

2008-09 (volume

handled in

8080599 KL)

2009-10 (volume

handled in

8423005 KL)

Amount

(Rs in

lacs)

Amount

(Rs in

lacs)

%(in

change)

Amount

(Rs in

lacs)

%(in

change)

Amount

(Rs in

lacs)

%(in

change)

Advertisement & Publishing 0.24 0.19 -20.83 0.07 -63.16 0.09 28.57

Consultancy & Technical

Services

21.01 21.55 2.57 21.13 -1.95 25.83 22.24

Bank/ M.O. Charges -6.52 63.43 0.00 108.08 70.39 34.39 -68.18

Casual / Contract Labour 11.34 11.08 -2.29 9.77 -11.82 9.93 1.64

Communications 37.02 37.75 1.97 31.71 -16.00 41.42 30.62

Depreciation 1090.06 1225.39 12.41 1593.18 30.01 1524.86 -4.29

Electricity & Water 315.26 318.06 0.89 365.92 15.05 447.18 22.21

Employee Training 0.29 0.9 210.34 0.42 -53.33 1.32 214.29

Employee Welfare Expenses 379.98 422.08 11.08 462.48 9.57 574.68 24.26

Insurance 2.33 1.8 -22.75 2.48 37.78 1.46 -41.13

Maintenance & Repairs –

Others

212.66 211.92 -0.35 642.68 203.27 806.5 25.49

Manpower Cost 3614.62 3526.64 -2.43 4068.85 15.37 5006.13 23.04

Others 58.71 140.09 138.61 130.05 -7.17 1092.25 739.87

Overtime 120.74 109.94 -8.94 104.38 -5.06 98.83 -5.32

Printing & Stationery 31.64 21.33 -32.59 22.92 7.45 50.03 118.28

Public Awareness programs 18.07 27.96 54.73 43.22 54.58 16.55 -61.71

Rates & Taxes 2607.69 1287.28 -50.64 693.18 -46.15 752.4 8.54

Rent Expenses 533.52 503.25 -5.67 587.25 16.69 619.68 5.52

Security 118.94 140.56 18.18 163.98 16.66 226.7 38.25

Stores & Spares 792.96 74.83 -90.56 173.67 132.09 187.34 7.87

Travel & Conveyance 153.58 163.44 6.42 162.06 -0.84 159.69 -1.46

Utilities (Power & Fuel) 236.66 239.87 1.36 38.77 -83.84 61.12 57.65

TOTAL 10350.8 8549.34 -17.40 9426.25 10.26 11738.38 24.53

DIGRAMIC REPRESENTATION OF EXPENDITURE

From the above Comparison of actual expenditure it is clear that in the year 2007-08 West

Zone needed Rs.8549.34 lacs that for the operation & distribution purpose.As Compared to 2006-

07, there is a decrease in expenditure by 17.41% during 2007-08.In the year 2007-08 West Zone

handled 8423005 KL (KILO LITER) of petrol,disel,black oil,special Product & kerosine .

In the year 2008-09 West Zone spent Rs.9426.25 lacs. As Compared to 2007-08, the

expenditure for 2008-09 is high .The variation between year 2007-08 & 2008-09 is Rs 876.96 lacs

as Compared to 2007-08 there is an increase of 10.26 % in expenditure for the year and the

corresponding increase in volume handled was about 6% .

During the year 2009-10 West Zone expanditure is Rs. 11738.38 lacs as Compared to

previous year expenditure, there is an increase of 24.53% in expenditure for the year and the

corresponding increase in volume handled was about 4% .

Statement showing Expenditure/Volume Handled for the years 07-08/08-09/09-10

Particulars 2007-08 2008-09 2009-10

Total Expenditure (Rs in lacs) 8549.34 9426.25 11738.38

Volume handled (in KL) 7616971 8080599 8423005

% increase in Vol. handled - 6% 4%

Cost per KL (in Rs.) 112.24 116.65 139.36

8549.34 9426.25

11738.38

0.00

2000.00

4000.00

6000.00

8000.00

10000.00

12000.00

14000.00

2007-08 2008-09 2009-10

(Rs

in l

acs

)

EXPENDITURE (Rs in lacs)

EXPENDITURE

(Rs in lacs)

INTERPRETATION

It is found that, during the year 2007-08 based on the volumes handled, the cost per

KLworks out to Rs. 112.24 and for the years 2008-09 & 2009-10, the cost per KL is at Rs 116.65

& Rs.139.36 respectively, it means that the expenditure does not change in the ratio of the volume

handled. It seems that there is no control on expenditure which incurred on volumed handled.

Therefore it is prooved that Company should keep constant watch on its.

Analysis of Expenditure

1.Advertisement & publishing

Expenses incurred in advertising petroleum and other Production through newspapers,

magazines/ banner displays, radio, TV, films, cinema slides, hoardings and exhibitions including

outside agency fees, artwork, Production and media costs.

INTERPRETATION

Advertisement & publishing expenditure in the year 2006-07 Rs.0.24 lacs & 2007-

08,2008-09 and 2009-10 is respectively Rs.0.19 lacs,0.07 lacs and 0.09 lacs ,so the advertising &

publishing expenses is decrease because of the some of the volume handled depo were closed that‟s

reason the advertising & publishing expenses decrease.

0.24

0.19

0.07

0.09

0.00

0.05

0.10

0.15

0.20

0.25

2006-07 2007-08 2008-09 2009-10

(Rs

in l

acs

)

Advertisement & Publishing

Advertisement &Publishing

Advertisement & Publishing 2006-07(Rs

in lacs)

2007-08(Rs

in lacs)

2008-09(Rs

in lacs)

2009-10(Rs

in lacs)

Gifts to Outsiders 0.10 0.19 0.04 0.09

Production Promotion-other Media 0.02 0.00 0.03 0.00

Production Advertising- Mass Media 0.12 0.00 0.00 0.00

TOTAL 0.24 0.19 0.07 0.09

2. Consultancy & Technical Services

Expenditure incurred mainly on account of hiring consultants for technical services are

covered under this charter of expense:

Particulars 2006-

07(Rs in

lacs)

2007-

08(Rs in

lacs)

2008-

09(Rs in

lacs)

2009-

10(Rs in

lacs)

Consultancy/Technical Services 21.01 21.55 21.13 25.83

TOTAL 21.01 21.55 21.13 25.83

INTERPRETATION

It may be noted from the above data/information, charges incurred on Consultancy &

Technical services for the year 2006-07 is at Rs.21.01 lacs. Whereas these expenses for the years

2007-08 ,2008-09 & 2009-10 is at Rs.21.55 lacs,Rs.21.13 lacs,and Rs.25.83 lacs respectively. As

can be seen from the data that there is a slight increase in this head of expenditure during the year

2009-10 as Compared to the past three years, This increase was occurred due to payment of

consultancy charges for conducting study of manpower to identify excess/shortages at the locations

which is required to control overtime as well as for the best utilisation of available manpower.

21.01 21.55 21.13

25.83

0

5

10

15

20

25

30

2006-07 2007-08 2008-09 2009-10

(Rs

in la

cs)

Consultancy/Technical Services

Consultancy/TechServices

3. Bank/ M.O. Charges

Expenses pertaining to Remittance charges for transmitting Funds from upcountry locations

to Mumbai, Cost of negotiating upcountry cheques Deposited at various locations, Stamp duty and

service charges for Consortium arrangements, Encashing Payroll cheques- Bank charges-Excise

duty payments

Bank/ M.O. Charges 2006-07(Rs

in lacs)

2007-08(Rs

in lacs)

2008-09(Rs

in lacs)

2009-10(Rs

in lacs)

Bank Charges -6.52 63.43 108.08 34.25

Brokerage /Commission 0 0 0 0.15

TOTAL -6.52 63.43 108.08 34.39

INTERPRETATION

From the above information the Bank/M.O Charges is the important expenditure is the

Company the Bank/M.O charges is 2006-07 is Rs.-6.52 lacs & 2007-08 ,2008-09 and 2009-10 is

Rs.63.43 lacs,Rs.108.08 lacs and Rs.34.83 lacs. Bank /M.O.charges increase up to 2008-09 and after

that decrease by73.69 lacs. Bank M.O charges have decreased by 68.18% because presently instead

of traditional method new E-commerce system has been applied.

-6.52

63.43

108.08

34.39

-20.00

0.00

20.00

40.00

60.00

80.00

100.00

120.00

2006-07 2007-08 2008-09 2009-10

(Rs

in la

cs)

Bank/ M.O. Charges

Bank/ M.O.

Charges

4. Casual / Contract Labour

Cost of directly hired casual workers (not through a contractor) for non-M&R jobs to

replace regular employees on leave or for intermittent work/exigencies, For Example: - Casual

drivers, cleaners, helpers, part-time sweepers/gardeners.

Stipend paid to T&E station attendants/Apprentices when not on Company payroll.

Casual / Contract Labour 2006-07(Rs

in lacs)

2007-08(Rs

in lacs)

2008-09(Rs

in lacs)

2009-10(Rs

in lacs)

Casual Lab-Mat & Non M&R 11.34 11.08 9.77 9.93

TOTAL 11.34 11.08 9.77 9.93

INTERPRETATION

From the above information casual /contract labour in the year 2006-07 is Rs .11.34 lacs and

the year 2007-08,2008-09 & 2009-10 is Rs.11.08 lacs,Rs.9.77lacs,Rs.9.93 lacs respectively,so

overall expenditure is position good because the casual /contract labour expenditure is decrease the

Company less concentrate on the casual /contract labour expenditure .Because of the removal of the

casual labours from the Company.

11.34

11.08

9.77 9.93

8.50

9.00

9.50

10.00

10.50

11.00

11.50

2006-07 2007-08 2008-09 2009-10

(Rs

in l

acs

)

Casual / Contract Labour

Casual /

Contract

Labour

5. Communication

This constitutes Rental Expenses pertaining to Petro net, Internet, I-net, E-mail, Lease lines,

VSAT, VPN, Dial-up data circuits, ISDN Circuits etc.( Including License Fees.)

Communications 2006-07(Rs

in lacs)

2007-08(Rs

in lacs)

2008-09(Rs

in lacs)

2009-10(Rs

in lacs)

Communication Means-IT 2.01 4.23 2.32 5.66

Mobiles 0.2 0.45 0.2 3.14

Postage/Courier charges 6.73 5.56 6.35 6.52

Telephone 27.98 27.41 22.61 26.07

Telex/Fax/Teleprinter/Telegram 0.1 0.1 0.23 0.03

TOTAL 37.02 37.75 31.71 41.42

INTERPRETATION

It may be noted from the above data/ information that the expenses incurred on

communication means is at Rs.37.02acs in the year 2006-07. Whereas this expenditure in the last

three financial years 2007-08,2008-09 & 2009-10 is at Rs.37.75 lacs,Rs.31.71 lacs & 41.42 lacs

respectively. It is noted that there is an increase in this expenditure in the year 2009-10 because of

new modes of communications has been used.

37.02 37.75

31.71

41.42

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

2006-07 2007-08 2008-09 2009-10

(Rs

in l

acs

)

Communications

Communications

6. Depreciation

Depreciation on fixed asset is provided on the straight line method, in the manner and at

the rates prescribed under schedule XIV to the Companies Act, 1956 and is charged pro rata on a

monthly basis on asset, from /up to and inclusive of the month of capitalization /sale, disposal or

deletion during the year

Depreciation 2006-07(Rs

in lacs)

2007-08(Rs

in lacs)

2008-09(Rs

in lacs)

2009-10(Rs

in lacs)

Depreciation 1090.1 1225.39 1593.18 1524.86

TOTAL 1090.1 1225.39 1593.18 1524.86

INTERPRETATION

It may be noted from the above data/ information that the charge of depreciation for the year

2006-07 is at Rs.1090.01 lacs .Whereas this charge for the past three years 2007-08 ,2008-09 and

2009-10 is Rs 1225.39 lacs ,Rs.1593.18 lacs and Rs.1524.86 lacs respectively.The fluctuations

occured in the charges of depreciation is on account of addition and deletion/transfer of assets

to/from other Zones. Company has adopted and consistently being followed the deprecition policy

in line with Company Law provisions.

1090.01

1225.39

1593.18 1524.86

0.00

200.00

400.00

600.00

800.00

1000.00

1200.00

1400.00

1600.00

1800.00

2006-07 2007-08 2008-09 2009-10

(Rs

in l

acs

)

Depreciation

Depreciation

7. Electricity & Water:

Payment of Electricity consumption charges on equipments and other operations at various

locations at the Zone and cost of water purchased are being accounted under this character of

expense.

Electricity & Water 2006-07(Rs

in lacs)

2007-08(Rs

in lacs)

2008-09(Rs

in lacs)

2009-10(Rs

in lacs)

Electricity - Energy Charges 6.36 30.16 8.65 1.79

Electricity 279.16 249.44 320.07 407.84

Electricity - other 4.12 0.41 0 0

Water 25.62 38.05 37.2 37.55

TOTAL 315.26 318.06 365.92 447.18

INTERPRETATION

It may be noted from the above data that the cost of electricity & water in the year 2006-07

is at Rs.315.26 lacs. Whereas in the immediate past three years 2007-08,2008-09 & 2009-10, this

expenditure is at Rs.318.06 lacs ,Rs.365,92lacs &Rs. 447.18 lacs respectively. As can be seen from

the above that there is an increase in this expenditure which is mainly due to increase in tariff and

also due to increase in volumes handled at the loctions.On over all basis this expenditure is under

control.

315.26 318.06

365.92

447.18

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

400.00

450.00

500.00

2006-07 2007-08 2008-09 2009-10

(Rs

in l

acs

)

Electricity & Water

Electricity &

Water

8. Employee Training

The expenses paid for the training to the employee for effective work for new/old employee.

Employee Training 2006-07(Rs

in lacs)

2007-08(Rs

in lacs)

2008-09(Rs

in lacs)

2009-10(Rs

in lacs)

Training Expenses 0.29 0.9 0.42 1.32

TOTAL 0.29 0.9 0.42 1.32

INTERPRETATION

From the above data the expenditure in the employee training is expenditure in the year

2006-07 for the Rs.0.29 lacs ,2007-08 is Rs.0.90 lacs ,2008-09 is Rs.0.42 lacs and in the year 2009-

10 is Rs.1.32 lacs,expenditure on the emploee training has increased as Compare to last some

years.Because new employee has been recruited and imparted a training .

9. Employee Welfare Expenses

These expenses are incurred in connection with the welfare of regular employees and other

benefit being provided to the employee as per the terms of employment and the policy of the

Corporation, like work cloths, lunch facility ,employee health club, sports etc.

0.29

0.90

0.42

1.32

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

2006-07 2007-08 2008-09 2009-10

(Rs

in l

acs)

Employee Training

Employee

Training

Employee Welfare Expenses 2006-07(Rs

in lacs)

2007-08(Rs

in lacs)

2008-09(Rs

in lacs)

2009-10(Rs

in lacs)

Admin Charges - EPF 2.52 0.41 0 0

Cafeteria Provisions 37.05 42.16 43.58 103.2

Club Membership fee - Employee 0 0 0 0

Contract Labour-Cafeteria 10.59 0.3 0.02 8.29

Contract -Labor Welfare 0.46 0.45 0.45 1.06

Compensation- Extra Hours 0 0 0 0.37

Compensation-Holiday Working 0 0 0 0.09

Contribution - EDLI 0 0.05 0 0

Double /Triple Shift-Normal Day 0.03 0 0 0.53

Employee Death Benefits 0 0.08 0.04 0.12

Employee Other Benefits 5.76 8.44 5.44 15.04

Employee Pension 0 0 0.02 0

Employee Settlement Benefits 0 0 0 0.18

Employee Staff Function 3.14 4.6 3.46 4.16

Employee Transportation-Bus-

Non mgmt

16.89 24.15 25.7 32.84

Employee Welfare Programs 13.53 8.19 12.26 8.17

Employee Recreation 1.33 2.68 7.53 12.21

Employee-Welfare Medical 10.51 14.34 19.61 14.82

Family Plan Incentive 0 0.01 0 0

Furniture R&M - Employee

Asset

5.23 23.94 23.14 25.94

Health Club, sports exp -

Employee

0.05 0 0.28 0.28

Lunch-Management 4.88 4.59 5.56 5.7

Lunch-Non-Management 31.01 36.16 59.25 77.35

National Fest Celeb Exp 0.17 0.4 0.94 1.39

Other Exp-As Welfare Exp 0 0 0 0.05

Provisions 41.29 40.71 28.52 18.81

Scholarship to Emp Children 0 0 0.03 0

Uniform-Shoe-Work Cloth 195.54 210.42 226.71 244.19

TOTAL 379.98 422.08 462.48 574.68

INTERPRETATION

As can be seen from the above data, employee welfare expenses for the year 2006-07 is at

Rs.379.98 lacs, whereas in the last three year 2007-08.2008-09 and 2009-10, expenditure incurred

on employee welfare is at Rs.422.08 lacs, Rs.462.48 lacs and Rs.574.68 lacs respectively. It is

observered that in last two years there is reduction in expenditure as Compared to the years 2006-

07 and 2007-08 .The increase of welfare expenses in the year 2009-10 by 24.26 % is mainly on

account of increase in cost of cafetaria provisions/lunch facility. The cafetaria provisions /lunch

facility expenditure increase is due to inflation.

10. Insurance

Insurance means price paid for to avoid future loss for natural, human or any other

damaged ,like as premium of Computers ,premium of building ,fire fighting equipment & insurance

premium fixed asset.

Insurance 2006-07(Rs

in lacs)

2007-08(Rs

in lacs)

2008-09(Rs

in lacs)

2009-10(Rs

in lacs)

Insurance Premium - Marine 0 0 0 0.01

Insurance Premium - Other 0.6 0.07 0 0

Insurance Premium - Vehicles 0 0 0.26 0.18

Ins Premium-Fixed Asset / Stocks 2.33 1.73 2.22 1.27

TOTAL 2.93 1.8 2.48 1.46

379.98 422.08

462.48

574.68

0

100

200

300

400

500

600

700

2006-07 2007-08 2008-09 2009-10

Employee Welfare Expenses

Employee

Welfare

Expenses

INTERPRETATION

From the above data insurance premium expenditure in the year 2006-07 is Rs.2.93 lacs

,2007-08 is Rs.1.8 lacs ,2008-09 is Rs.2.48 lacs and the year 2009-10 is Rs.1.46 lacs , insurance

charges decrease as Compare to previous year 2008-09 .the insurance expenditure decrease by

41.13 % ,as Compared to last few years the asset value has decrease therefore the insurance

premium charges has decreased.

11. Maintenance & Repairs It represent the expenses incurred on regular and preventive maintenance and upkeeping of

various assets at the locations like roads, building ,plant & equipment and other misc. assets:

Maintenance & Repairs 2006-

07(Rs

in lacs)

2007-

08(Rs in

lacs)

2008-

09(Rs in

lacs)

2009-

10(Rs in

lacs)

Maintenance &Repairs-Vehicle 123.18 124.47 152.35 236.31

Maintenance &Repairs – Roads 0.24 24 11.96 31.46

Maintenance &Repairs Others Marketing 13.77 7.06 7.66 2.97

Maintenance &Repairs Building Maintenance 0 0 0.61 0.08

Maintenance &Repairs -Buildings-Marketing 49.34 37.92 43.29 64.58

Maintenance &Repairs -Expenses

Construction

2.54 0 0 0.2

Maintenance &Repairs -P&M-Local Sup-Elect 0.38 4.16 402.83 403.66

R & M, Hire of Motor Cars 0.28 1.15 0.55 41.01

Tyres, Tubes, Batteries 22.93 13.16 23.43 26.23

TOTAL 212.66 211.92 642.68 806.50

2.93

1.8

2.48

1.46

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2006-07 2007-08 2008-09 2009-10

(Rs

in l

acs

) Insurance

Insurance

INTERPRETATION

As can be seen from the above data/information, that the expenses incurred towards

Maintenance & repairs of location assets for the year 2006-07 is at Rs.212.66 lacs, whereas in the

last three years 2007-08,2008-09 and 2009-10 this expenditure is at Rs.211.92 lacs, Rs. 642.68 lacs

and Rs.806.50 lacs. On Comperison of the figures of last three years, it is observed that there is a

substantial increase in this expenditure in the last two years. On further analyses of this increase, it

is noted that the Company has taken up new initiative called “ Visual Indentity of Locations” for

improving safety and image of stake holders. This a one time exercise. The increase is justified for

betterment of the locations.

12. Manpower Cost

Salaries and Wages (excluding Overtime / Out of Pocket Expenses) is worked out on

centralized basis taking into account the changes in manpower numbers allocated SBU wise.

Manpower Cost 2006-07(Rs

in lacs)

2007-08(Rs

in lacs)

2008-09(Rs

in lacs)

2009-10(Rs

in lacs)

Basic Salaries 1398.7 1398.92 1502.21 2520.07

Contribution To PF 260.42 279.94 289.78 379.35

Other Allowances 471.44 426.8 599.63 783.27

Overtime allowances 0 6.59 6.41 9.24

Dearness allowances 597.44 732.53 897.64 536.59

Production Incentive 672.79 452.83 515.14 369.2

Housings Allowances 194.76 217.26 246.95 396.6

Transport Reimbursement 19.07 11.77 11.09 11.81

TOTAL 3614.62 3526.64 4068.85 5006.13

212.66 211.92

642.68

806.50

0.00

100.00

200.00

300.00

400.00

500.00

600.00

700.00

800.00

900.00

2006-07 2007-08 2008-09 2009-10

(Rs

in l

acs

)

Maintenance & Repairs

Maintenance &

Repairs - Others

INTERPRETATION

As can be seen from the above data that the cost of manpower in the year 2006-07 is at

Rs.3614.62 lacs, whereas in the last three years 2007-08,2008-09 and 2009-10, this expenditure is

at Rs.3526.64 lacs, Rs.4068.85 lacs, and Rs.5006.13lacs respectively. It is noted that there is an

increase of about 23.04 % recorded in last year in manpower cost as Compared to 2006-07. This

increase is attributable to the revision in salaries of the management staff which has taken place

during the year 2009-10 w.e.f Jan.07.

13. Others

In this category the books, magazines, newspaper, entertainment outsiders expenses and

other expenses coming.

Others 2006-07(Rs in

lacs)

2007-08(Rs

in lacs)

2008-09(Rs

in lacs)

2009-10(Rs

in lacs)

Books 16.38 58.97 5.81 30.73

Entertainment 2.93 20.92 33.67 977.46

Magazines 25.79 25.91 27.88 1.67

Newspaper 13.61 34.29 62.69 82.39

TOTAL 58.71 140.09 130.05 1092.25

3614.62 3526.64

4068.85

5006.13

0

1000

2000

3000

4000

5000

6000

2006-07 2007-08 2008-09 2009-10

Rs

in l

acs

Manpower Cost

Manpower Cost

INTERPRETATION

From the above data the other expenses in the year 2006-07 Rs.58.71 lacs ,in the year 2007-

08 Rs.140.09 lacs,in the year 2008-09 Rs.130.05lacs and in the year 2009-10 Rs.1092.25 lacs.As

Compensetionare to last year figure tis year increase big variance .The variance between 2009-10

and 2008-09 is Rs.962.2 lacs.739.77 % increase with respect to expenditure in 2008-09 in order to

motivate the employee to raise the job morale and job enrollment.

14. Overtime

Overtime of Non-Management staff in ERP through payroll includes:

Over time payment for working in excess of normal working hours,

Working on Saturday for 5 day week locations beyond normal working hours

Working on Sunday or a weekly off day with CDO

Working on declared National/ Festival holiday

Call on allowances, occasional shifts absentee relief.

58.71 140.09 130.05

1092.25

0

200

400

600

800

1000

1200

2006-07 2007-08 2008-09 2009-10

(Rs

in l

acs

)

Others

Others

Overtime 2006-07(Rs

in lacs)

2007-08(Rs

in lacs)

2008-09(Rs

in lacs)

2009-10(Rs

in lacs)

Overtime 120.74 109.94 104.38 98.83

TOTAL 120.74 109.94 104.38 98.83

INTERPRETATION

It is noted from data presented above that the expenditure incurred on payment of wages to

Non-management staff towards overtime is at Rs.120.74 lacs in the year 2006-07, whereas in the

last three years 2007-08.2008-09 and 2009-10, this is at Rs.109.94 lacs, Rs.104.38 and Rs.98.83

lacs respectively. It is observed that there is constant reduction in this cost element in the past three

years, it shows that Management is taking necessary steps in controlling this cost thru manpower

realignment and proper planning in working hours etc,Hence it is undoubtly a very good trend in

expenditure management.

15. Printing & Stationery

In this category the expenses relating to the printing & stationery, Documents, Xerox,

Drawing expenses etc. are covered.

120.74

109.94 104.38

98.83

0

20

40

60

80

100

120

140

2006-07 2007-08 2008-09 2009-10

(RS

in

la

cs)

Overtime

Overtime

Printing & Stationery 2006-07(Rs

in lacs)

2007-08(Rs

in lacs)

2008-09(Rs

in lacs)

2009-10(Rs

in lacs)

Computer Stationery 0.56 0.58 0.73 2.08

Documentation, Xerox, Drawing. 0 0 0.1 0.08

Printing 3.44 0 0 12.31

Other Office Supplies 9.34 2.51 3.83 4.82

Stationery & 18.3 18.24 18.26 30.74

TOTAL 31.64 21.33 22.92 50.03

INTERPRETATION

It may be noted from the data given above that the expenditure incurred on Printing &

stationery at the Zone for the year 2006-07 is at Rs.31.64 lacs. Whereas in the last three years this

expendute is at Rs.21.33 lacs ( 2007-08), Rs.22.92 lacs (2008-09) and Rs.50.03 lacs(2009-10). It is

observed that there is an increase of 118.28 % in this head of expenses during last year as Compared

to 2008-09. The primary reasons for such an increase in Printing and Stationery are

(a) Increase in Prices of stationery Items (b) Usage of more computer Stationery. Hence, it is

suggested to have a thorough review of this element of cost .

31.64

21.33 22.92

50.03

0

10

20

30

40

50

60

2006-07 2007-08 2008-09 2009-10

(Rs

in l

acs

)

Printing & Stationery

Printing &

Stationery

16. Public Awareness programs:

This expenditure paid for the public awareness program.

Public Awareness programs 2006-07(Rs

in lacs)

2007-08(Rs

in lacs)

2008-09(Rs

in lacs)

200910(Rs

in lacs)

Oil/Energy Conservation Program 0.08 0.06 0 0

Public/Dealer/Customer Education

Program

17.99 27.9 43.22 16.55

TOTAL 18.07 27.96 43.22 16.55

INTERPRETATION

As can be seen from the above data, expenditure incurred on Public Awareness Programs

in the year 2006-07 is at Rs18.07 lacs, whereas in the last three years 2007-08, 2008-09 and 2009-

10, this expenditure is at Rs.27.96 lacs, Rs.43.22 lacs and Rs.16.55 lacs respectively. It is noted that

there is an increase in expenditure on this head of expenditure as Compared to 2006-07. As these

programs are aim at improving customer services and utimately results customer delight, this is

possitive sign which shows that the Company has committed for the growth path of the business.

18.07

27.96

43.22

16.55

0

5

10

15

20

25

30

35

40

45

50

2006-07 2007-08 2008-09 2009-10

(Rs

in l

acs

)

Public Awareness programs

Public

Awareness

programs

17. Rates & Taxes

These expenses include the payment of statutory levies like property tax, vehicle tax and

various licence fees like Factory license, Explosive license, Sales tax Registration expenses,

interstate sales Tax, lease and rentals Land tax, municipal tax and other taxes ,Levied on property.

INTERPRETATION

It is noted from the above graphical representation, that the expenditure incurred on Rates

and Taxes at the Zone in the year 2006-07 is at Rs. 2109.09 lacs, whereas in the last three years,

2007-08, 2008-09 and 2009-10, this expenditure is at Rs.831.53 lacs, Rs.693.23 lacs and Rs.752.5

lacs respectively. It may be observed that this Zone has recorded a substantial reduction in this

expenditure in the last three years mainly due to controlling irrecoverable Taxes & Transport

Equipment.

2607.69

1287.28

693.18 752.4

0

500

1000

1500

2000

2500

3000

2006-07 2007-08 2008-09 2009-10

(Rs

in l

acs

)

Rates & Taxes

Rates &

Taxes

Rates & Taxes 2006-07(Rs

in lacs)

2007-08(Rs

in lacs)

2008-09(Rs

in lacs)

2009-10(Rs

in lacs)

Ser Tax-SSLF MS/HSD/LPG Dealer 0 0 0 78.88

Taxes - Automobiles 0.12 0.89 0.39 0.04

Taxes - Business 176.64 15.47 89.3 10.74

Taxes - Other 240.03 211.98 290.94 321.28

Taxes - Property 82.03 64.71 69.53 80.61

Taxes - Transport Equipment 510.32 457.59 3.07 3.75

Taxes - Irrecoverable 1598.55 536.64 239.93 257.1

Taxes - Vac Land-NALA 0 0 0.02 0

TOTAL 2607.69 1287.28 693.18 752.4

18. Rent Expenses Rental paid on land, building, right of way, rail way siding tracks, wharfs and other real

property other than those associated with Automotive Retail Outlets.

INTERPRETATION

It can be observed from the above data that the rental expenses for the year 2006-07 is at

Rs.533.52 lacs, whereas in the last three years 2007-08,2008-09 and 2009-10, the expenditure

incurred on this head is gradually increased at Rs.503.25 lacs, Rs.587.25 lacs and Rs.619.68 lacs

respectively, The sharp increase is due to the enhancement in Rent in one of the Location of WZ-

O&D paid w.e.f. March‟08 during 2009-10.

533.52 503.25

587.25 619.68

0

100

200

300

400

500

600

700

2006-07 2007-08 2008-09 2009-10

(Rs

in l

acs

)

Rent Expenses

Rent

Expenses

Rent Expenses 2006-07(Rs

in lacs)

2007-08(Rs

in lacs)

2008-09(Rs

in lacs)

2009-10(Rs

in lacs)

Rent Paid - Retail 2.04 0 0 0.12

Rent Paid - Self Lease 215.03 199.85 151.28 62.51

Rentals-Other 316.45 303.4 435.97 557.05

TOTAL 533.52 503.25 587.25 619.68

19. Security

Expenses pertaining to the Engagement of Contract services for providing security staff at

Locations and Office Building etc., Engagement of security services for imports supervision,

regular supervision & bunkering supervision (Shipping) etc., are also covered in this element of

cost.

INTERPRETATION

From the above diagram, it may be noted that the expenditure incurred on the security in the

year 2006-07 is at Rs.118.94 lacs, and in past three years i.e 2007-08, 2008-09 and 2009-10, this

expenditure is at Rs.140.56 lacs, Rs.163.98 lacs and Rs.226.7 lacsrespectively. It is observed from

Comparision of figures that the expenditure incurred on the security has been continously

increasing in the last four years on an average of 38.25 % . HPCL has been very much concerned

about scurity at the lcoations in view of increasing threats due to Terrotist activitites etc. Further a

new initiative of Tell-Tell clock has also been installed for the purposes and resulting in increased

expenditure. Hence, the Company is justified in incurring additional cost as there is no Compromise

security aspect.

118.94

140.56

163.98

226.7

0

50

100

150

200

250

2006-07 2007-08 2008-09 2009-10

(Rs

in l

acs

)

Security

Security

Security 2006-07(Rs

in lacs)

2007-08(Rs

in lacs)

2008-09(Rs

in lacs)

2009-10(Rs

in lacs)

Security 118.94 140.56 163.98 226.7

TOTAL 118.94 140.56 163.98 226.7

20. Stores & Spares

Stores and spare expenses is relatig to the stock of material ,spares and other pats.

Stores & Spares 2006-07(Rs

in lacs)

2007-08(Rs

in lacs)

2008-09(Rs

in lacs)

2009-10(Rs

in lacs)

Stores & Spares 792.95 74.83 173.67 187.34

TOTAL 792.95 74.83 173.67 187.34

INTERPRETATION

From the above information the stoes & spares expenses in the year 2006-07 Rs.792.95 lacs

,in the year 2007-08 Rs.74.83 lacs,in the year 2008-09 Rs.173.67 lacs and in the year 2009-10

Rs.187.34 lacs,so good control for the stores & spares expenditure because as Compare to 2006-07

expenditure the storage & spares expenses.Because of the efficient and alert inventory management

and control.

21. Travel & Conveyance

Traveling and conveyance expenses incurred on domestic/foreign Tour in connection with

business are shown hereunder:

792.95

74.83

173.67 187.34

0.00

100.00

200.00

300.00

400.00

500.00

600.00

700.00

800.00

900.00

2006-07 2007-08 2008-09 2009-10

(Rs.

in l

acs

)

Stores & Spares

Stores &

Spares

INTERPRETATION

As can be seen from the above chart, the travel & conveyance expenses in the year 2006-07

is at Rs.153.58 lacs, whereas in the years 2007-08, 2008-09 and 2009-10, this expenditure is at

Rs.163.45 lacs,Rs.162.06 lacs and Rs.159.69 lacs respectively. It may be noted that there is

decreasing trend in the expenses of travel & conveyance in the last three years at this Zone by

approximately by 1.46 % despite increase in cost of travel which is a good sign. It is because

efficient control over traveling and conveyance expenses.

153.58

163.45 162.06

159.69

148.00

150.00

152.00

154.00

156.00

158.00

160.00

162.00

164.00

166.00

2006-07 2007-08 2008-09 2009-10

(Rs

in l

acs

)

Travel & Conveyance

Travel &

Conveyance

Travel & Conveyance 2006-07(Rs

in lacs)

2007-08(Rs

in lacs)

2008-09(Rs

in lacs)

2009-10(Rs

in lacs)

Car Hire Charges 5.44 5.14 3.94 5.71

Local Convince/Meals T & I 0.00 0.00 0.00 0.11

Local Conveyance/Meals 5.13 4.90 4.59 4.80

Travailing- Domestic Tours 24.60 34.62 29.30 32.98

Traveling- Foreign Tours 0.25 0.05 0.00 0.00

Travailing- Recruitment Employee 0.06 0.00 0.00 0.04

Traveling– Training 13.78 10.02 9.30 10.58

Traveling Car/Scooter 104.19 108.68 114.76 105.47

Travel-Sales Officer 0.13 0.03 0.17 0.00

TOTAL 153.58 163.45 162.06 159.69

22. Utilities (Power & Fuel)

Facilities for the supply of drinking water, electric power or disposal of waste.

Utilities (Power & Fuel) 2006-07(Rs

in lacs)

2007-08(Rs

in lacs)

2008-09(Rs

in lacs)

2009-10(Rs

in lacs)

Power & Fuel 236.65 239.86 38.78 61.12

TOTAL 236.65 239.86 38.78 61.12

INTERPRETATION

From the above data the utilities (Power & Fuel) in the year 2006-07 Rs.236.65 lacs, in the year

2007-08 Rs.236.65 lacs, in the year 239.86 lacs, in the year Rs.38.78 lacs and in the year 2009-10

Rs.61.12 lacs, so the expenditure in the power and fuel increase as compare to last year data .The

utilities (Power & fuel) increase by 57.61 % as compare to the 2008-09 expenditure. The utilities

(power & fuel) expenses decrease as compare to previous year because of the some volume handled

depos were closed due to loss, Hence the utilities expenses is decrease.

236.65 239.86

38.78 61.12

0.00

50.00

100.00

150.00

200.00

250.00

300.00

2006-07 2007-08 2008-09 2009-10

(Rs.

in l

acs

)

Utilities (Power & Fuel)

Utilities (Power

& Fuel)

CHAPTER 6

FINDINGS,

CONCLUSIONS

FINDINGS:

It is noted that the total amount incurred on all West Zone locations during the year 2006-07

was at Rs.10350.8lacs, there is decrease in over all spending (total spending being

Rs.8549.34 lacs in the year 2007-08) as Compared to 2006-07. Then again during the year

2008-09, the total expenditure has gone up to Rs.9426.25 lacs and in the year 2009-10 it is

further increased to Rs.11738.38 lacs, due to fluctuation in the volume handled.

It is further noted that in the year 2009-10, increase in total expenditure is substantial as

Compared to other years in view of various new initiatives taken up by SBU during the

period like visual identity, manpower study.

It is found that 43 % (approx.) expenditure incurred on account of manpower cost.

It is found that the ratio of expenditure is not commensurate with the changes in volume

handled.

It is also noted that the cost per KL of volume handled is increasing year by year.

CONCLUSION

A. The Manpower cost is the major cost i.e. 43% approximately, which has covered

large portion of total cost.

B. The total capacity of plant is 90,00,000 Kilo Liter but actual utilization is 84,23,005

Kilo Liter.

C. The total cost of the unit may be reduced; .if full capacity is utilized properly.

D. Cost reduction will lead to the profit maximization and then profit maximization lead

to rise in the value of share.

CHAPTER 7

RECOMMENDATIONS

RECOMMENDATIONS

Is it recommended that the west zone should aggressive in carrying out its business

operations at top gears, i.e. in terms of volume handled.

It is recommended that the Company should increase in the percentage of volume handled

and reduce the percentage of the expenses.

YEAR

TOTAL

EXPENDITURE

(Rs. In lacs)

Volume

handled

(KL)

%

In

expenditure

In volume

handled

2007-08 8549.34 7616971 - -

2008-09 9426.25 8080599 10 6

2009-10 11738.38 8423005 25 4

It is recommended that Company should think on controlling/decreasing manpower cost

because share of manpower cost is large as Compared to other expenses.

YEAR TOTAL EXPENDITURE(Rs in

Lacs)

Manpower cost

(Rs in lacs) % of manpower

cost

2007-08 8549.34 3626.64 41.25

2008-09 9426.25 4068.85 43.16

2009-10 11738.38 5006.13 42.64

It is recommended that the capacity of depot (volume handled) should be enhanced.

ANNEXURE

AND

BIBLIOGRAPHY

QUESTIONNAIRE:-

1. How many zones are under Operation & Distribution of HPCL? Also mention which they

are.

2. How much is the total expenditure per year Operation and Distribution of HPCL? And also

mention the different ingredients of total expenditure?

3. What is the cost incurred to stock per 1000 Liter (Per Kiloliters) of petrochemical product

per year?

4. According to the nature of expenditure how the expenditure can be classified?

5. Among the expenditure mentioned above which is the largest one?

6. Can this cost be reduced?

7. How many liter capacities of each depos?

8. Can the capacity of depos be increased?

9. Is the expenditure directly or inversely proportional to the stock volume?

10. Have you established the standard for setting the budget?

11. Does the deviation occur between actual performance and standard performance?

12. If yes, what corrective actions do you take to recover the deviation?

BIBLOGRAPHY

1. Financial information of Hindustan Petroleum Corporation Limited (West Zone) from the

year 2006-07 till 2009-10.

2. Financial Management by

1) Mr. Mahesh Kulkarni.

2) Mr. R.P. Rustagi.

Financial Management, Theory, Concepts & problem

Galgotia Publishing Company 3rd

Edition

3. Cost & Works Accounting by

Mr. B. K. Bhar.

4. Research methodology by

Mr. C.R.Kothari.

Research Methodology, Methods & Techniques,

New Age International Publisher, edition II, 2004.

5. www.hpcl.com