Inventory management and budgetary control system

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EXECUTIVE SUMMARY
As we know that Mahindra & Mahindra Co. Ltd. is a production unit. When
ever production term comes then first thing comes in our mind that is inventory.
Because inventory is base for any production unit so, when we control and manage
the inventory properly then the company is benefited. (By reducing holding and
carrying cost of inventory.) Thus after studying inventory Management the important
activity which is done on quarterly basis in the account department is Budgetary
Control in which operating Budget expenses is to be control in Mahaindra &
Mahindra Co. Ltd. Nagpur Branch.
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 serves as a
standard for comparing the actual results. Thus a budget is a tool in the actual results.
Thus a budget is tool in the hands of the management which serves as a guide to all
the employees in achieving their goals objectives and targets.
A budget can help us a planning and coordination with all the employees, and
departments, but the most important factor is that it is used for control purposes at all
levels of management.
M & M s Farm Equipment Sector is the largest manufacturer of tractors in
India with sustained market leadership of over 19 years. It designs, develops,
manufactures and markets tractors as well as implements which are used in

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conjunction with tractors. The tractor industry in Indian is segmented by horsepower
into the lower segment of 25 HP, segment of 35 HP and higher segment of 45 HP and
above. The Company s Farm Equipment Sector has a presence in all these segments
across all states.
M & M Co. Ltd. Farm equipment sector has four plant locations in Rudrapur,
Jaipur, Nagpur & Kandivalli. The project work is done for Nagpur branch. This
branch is certified for ISO 9001, QS-9000, ISO-14001, M & M tractor have earned
goodwill and trust of more than 8,00,000 customers and the Mahindra tractor has
come to be recognized as a powerful symbol of productivity and performance.
The project requires two months time for the completion. The steps involve in
collection of data from various sources like SAP, Monthly performance review
meetings (MPRM) Reports, Annual Reports, Computerized Inventory Management
system (CIMS).
Thus from this study of inventory management it is observed that by using
various techniques such as ABC, EOQ, Reorder level etc. management minimize
investment in inventory and meet a demand for the product by efficiently organizing
the production and sales operations. The firm should minimize investment in
inventory which involves costs i.e. ordering cost and carrying cost, so that smaller the
inventory, the lower is the cost to the firm.
The study of budgetary control system help business to function with
planning which is related to production, sales, stocks, requirement of labors, etc. The
advantage of planning is that we can anticipate the problems before hand. Planning

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through budgetary control is necessary at all levels of management in which there is
the process of thinking which enables to provide new idea to the management

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OBJECTIVES BEHIND THIS STUDY
The basic responsibility of the financial manager is to make sure the firm s
cash flows are managed efficiently.
The objective of inventory management consists of two counterbalancing
parts: (i) to minimize investments in inventory, and (ii) to meet a demand for
the product by efficiently organizing the production and sales operations.
These two conflicting objectives of inventory management can also be
expressed in terms of cost and benefit associated with inventory.
The firm should minimize investment in inventory implies that maintaining
inventory involves costs, such that the smaller the inventory, the lower is the
cost to the firm.
It should aim at a level of inventory which will reconcile these conflicting
elements. That is to say, an optimum level of inventory should be determined
on the basis of the trade off between costs and benefits associated with the
levels of inventory.

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SCOPE
Inventory management is the base for any production unit so; it is related to
overall objective on the firm. This study is basically concerned with inventory
management techniques. This aspect covered the determination of the type of
control required & Economic Order Quantity which help the financial
manager in planning & budgeting inventory.
This study helps to minimize cost of holding the inventory i.e. ordering cost &
Carrying cost. The maintenance of inventory also helps a firm to enhance its
sales efforts. It serves to bridge the gap between current production & actual
sales.
This study also helps to minimize the setup time & manufacturing time for
each unit. This is the time form when a product is ready to start on the
production line to when it become a finished good producing to demand often
means manufacturing small quantity of product. Producing small batches is
economical only if setup time are small. It encourages research and
development as budgetary control schedules are usually based on past
experience.

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Mission Statement :
TO STRIVE FURTHER THAN THE FARTHEST. TO SET NEW STANDARDS
IN PERFORMANCE, AND THEN BREAK THEM. TO REACH FOR THE
HELIGHTS AND THEN SEEK A NEW SUMMIT,
IT S ABOUT WINNING, AND BEYOND.

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CORE VALUES
Our core values are influenced by our past, tempered by our present and are designed
to shape our future. They are an amalgam of what we have been, what we are and
what we want to be.
These values are the compass that will guide our actions, both personal and corporate.
They are:
Good corporate citizenship: As in the past, we will continue to seek long
term success that is in alignment with our country's needs. We will do this
without compromising on ethical business standards.
Professionalism : We have always sought the best people and given them the
freedom and the opportunity to grow. We will continue to do so. We will
support innovation and well-reasoned risk-taking, but will demand
performance.
Customer First: We exist and prosper only because of our customers. We
will respond to their changing needs and expectations speedily, courteously
and effectively.
Quality focus :Quality is the key to delivering value for money to our
customers. We will make quality a driving value in our work, in our products
and in our interactions with others. We will do it "first time right .

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Dignity of the individual: We value individual dignity, uphold the right to
express disagreement and respect the time and efforts of others. Through our
actions, we nurture fairness, trust and transparency.
History
1963: Incorporation of International Tractor Company of India (ITCI), as a Joint
Venture between Mahindra & Mahindra Limited (M&M), International Harvester
Inc, and Voltas Limited sharing the responsibility of design, manufacturing &
marketing.
1965: Rolled out first batch of 225 Tractors in 35 H.P. Range Model B275 Regular
1970: Set up the Implements Division at Nagpur
1977: Merger with M&M forming its Tractor Division. Full fledged responsibility for design,
manufacturing & marketing.
1981: 100,000th Tractor rolled out.
1983: Market leader in domestic Tractor market - has maintained this position till date !
1985: Launched Quality Circle Movement as part of Total Quality Management.
1988: Introduced fuel-efficient DI Tractor.
1990: Started the Juran Quality Improvement Movement .
1991: Launched 265 DI tractor in 25 HP range.
Launched Statistical Process Control Cell.
Vendor upgradation through self-certification.
Implements Division achieves ISO 9002 certification.
Incorporation of Mahindra USA Inc. in U.S, as wholly owned subsidiary of M&M
1995: A decade of QC movement - 152 Quality Circles.

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Launched 475 DI tractor in 45 HP range.
Tractor assembly started at Implements Division, Nagpur
Kandivli Plant achieves ISO 9001 certification.
Rolled out 5,00,000th tractor.
1997: Launched 585 DI tractor in 50 HP range
Launched constant mesh version of 585 DI tractors and 275 DI TU series tractor in 35
HP range.
1998: Implemented SAP on 1st April 1998
5005 DI model (51 HP) with constant mesh transmission, power steering, alternator has
been developed for US market.
Reached a level of 6,00,000 tractors sales
Implemented.Business Process Re-engineering.
1999: 4005 DI & 4505 DI (40 HP) introduced in USA.
Nagpur Plant awarded QS-9000 certificate.
M&M acquired majority stake in Gujarat Tractors Corporation Ltd
2000: Launched 605 DI - 'Arjun', a new generation tractor - in 60 HP range.
Kandivli plant received the QS 9000 certification.
Set up its first satellite tractor plant at Rudrapur
2001: Nagpur Plant awarded the ISO 14001 certificate.
Launched 'Arjun' 5500 DI & 6000 DI tractors in the overseas market.
2002: Kandivli Plant awarded the IS0 14001 certificate.
Launched 'Arjun' 555DI tractor in 45 HP range & 445 DI tractor in the 40 HP range.
Launched 'Arjun' 6500 DI in overseas market.
Launched Compact series, Model C-27 & C-35, in the US market.
2003: Ventured into manufacturing of Industrial Engines

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MAHINDRA & MAHINDRA CO. LTD. : A CURTAIN RAISER
COMPANY PROFILE :
Mahindra & Mahindra Limited (M & M) is the flagship company of around
Rs. 7000 crore Mahindra Group, which has a significant presence in key sector of the
Indian economy. A consistently high performer, M & M is one of the most respected
companies in the country.
Set up in 1945 to make general-propose utility vehicles for the Indian market,
M & M soon branched out into manufacturing agricultural tractors and light
commercial vehicles (LCVs). The company later expended its operators form
automobiles and tractors to secure a significant presence in many more important
sectors. The company has, over the years, transformed itself into a Group that caters
to the Indian and overseas markets with a presence in vehicles, farm equipment,
information technology, trade and finance related services, and infrastructure
development.
An organizational restructuring exercise in 1994 arising from a Business
Process Re-engineering programme resulted in the core activities of manufacturing
utility and light commercial vehicles and agricultural tractors remaining with the
flagship company.
All other activities were spun off into separate entities and organized under
business groups. Thus groups are in the areas of Hospitality, Trade and Financial

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Services, Automotive Components, Information Technology, Telecom and
Infrastructure Development.
Today M & M has two main operating divisions:
The Automotive Division manufactures utility vehicles, light commercial
vehicles and three wheelers.
The Tractor (Farm Equipment) Division makes agricultural tractors and
implements that are used in conjunction with tractors. This division has also ventured
into manufacturing of industrial engines. It has won the coveted Deming Application
Prize 2003. Incidentally, this is the First Tractor Company in the world to win this
Prestigious Prize.
M & M employs around 12,000 people and has six state-of-the art
manufacturing facilities spread over 5,00,000 square meters, M & M has also set up
two satellite plants for tractors manufacturing. It has 49 sales offices that are
supported by a network of over 650 dealers across the country. This network is
connected to the company s plants by an extensive IT infrastructure.
M&M s outstanding manufacturing and engineering skills allow it to
constantly innovate and launch new products for the Indian market. Proof of this
expertise is the launch of the Bolero, Scorpio, a new-generation utility vehicle, and
the Arjun, a sophisticated agricultural tractor.

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The Company s commitment to technology driven innovation is reelected in
the setting up of the Mahindra Research Valley, a facility that will house the
Company s engineering research and product development wings, under one roof.
The M & M philosophy of growth is centered on its belief in people. As a
result, the company has put in place initiatives that seek to reward and retain the best
talent in the industry. M&M is also known for its progressive labour management
practices.
It the community development sphere, the company has implemented several
programs that have benefited the people and institutions in its areas of operations.
Farm Equipment Sector
For the third consecutive year, the Tractor Industry grew substantially
registering a growth of 18% for the year under review. This was mainly on account of
good monsoon, better availability of credit and focus on retail tractor financing by the
Banking Sector.
During the year, Company sold 85, 029 tractors as against 65,390 tractors sold in the
previous year recording a significant growth of 30% and produced 87,075 tractors as
against 67,115 tractors produced in the previous year recording notable growth of
29.7%. Company maintained its market leadership for the 23rd
consecutive year in the
domestic tractor market.

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Last year Company launched two new products 235 DI and 245 DI in the
domestic market in the low HP segment and new Arjun Ultra-1 range in the high HP
segment. These products have significantly strengthened your Company s position in
these segments.
Company sold 14,692 engines during the year under review as against, 6,672 engines
sold during the previous year, registering a massive growth of 120%. The engine
business which started from a customer base of a single client in 2002 has currently
22 corporate clients. Company has also made a foray into the retail and non-genset
segments. Beginning from this year Company has also sold 1,084 Mahindra branded
Diesel Generators (DG Sets).
Company s focus on exports continued with export volumes growing by 29.6%. The
major export markets are USA, SAARC countries, Africa, Australia and China.
Company established a Joint Venture Company (JVC) in China under the name of
Mahindra (China) Tractor Company Limited (MCTCL) in which a wholly owned
subsidiary of the Company, Mahindra Overseas Investment Company (Mauritius)
Limited, has a 80% shareholding, the balance 20% being held by Jiangling Motors
Co., Group, China. This JVC has a capacity of 12,000 tractors in 18-33 HP range.
This JVC became fully operational in July, 2005. Company has also started its East
European operations by launching tractors in Serbia. Company sold spare parts worth
Rs. 127.88 crores (including exports Rs. 11.7 crores) during the year under review as
compared to sales of Rs. 108.83 crores (including exports Rs. 7.6 crores) in the
previous year, registering a healthy growth of 17.5%.

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Company plans to offer various product solutions by offering value for money and
reliable products in domestic market. This will help your Company expand its product
range in low HP segment. Apart from new products, it is important to upgrade
existing products with contemporary features. F-06 was an encouraging year for
agriculture. Going forward, due to a good monsoon and water availability during the
year, crop production is expected to be higher by 2.5% over last year. As a result of
this, it is estimated that the agricultural GDP of India will grow by 3.2%.

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Financial Highlights
Year PAT Net Income
(Rs. In Lakhs)
2002 97 3320
2003 146 3811
2004 349 5057
2005 513 6769
2006 857 8327
146
349
513
97
857
3320
3811
5057
6769
8327
0
100
200
300
400
500
600
700
800
900
1000
2002 2003 2004 2005 2006
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
PAT
Net Income
Year Basic Earnings per share
2002 8.62
2003 12.55
2004 30.04
2005 44.19
2006 51.07
Earnings per share
0
10
20
30
40
50
60
2002 2003 2004 2005 2006
YEAR
Basic Earningsper share

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PERFORMANCE OF M & M WITH ITS COMPETITIORS
Performance of a M & M with Its Competitors
Comparative Performance in 25 HP Category
Graph 5.1
Table 5.1
Above graph shows market share of different companies dealing in tractor production
and it is clear that M & M takes 33% of the total market share, followed by Eicher
which is 26% that means M & M is market leader in 25 HP.
Particulars Percentage
Tafe 6.7
Escorts 9.2
M & M 33
HMT 2
Sonalika 8.9
PTL 9.7
Others 4.2
Eicher 26.3
Eicher , 26.3
Tafe, 6.7
Escorts , 9.2
Others , 4.2
PTL, 9.7
Sonalika , 8.9 HMT, 2
M & M , 33

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Comparative Performance in 35 HP Category :
Graph 5.2
Escorts 9.9
HMT 3.1
M & M 28.1
Eicher 5.8
Tafe 19.6
Others 6.2
PTL 18.1
Sonalika 9.2
Table 5.2
Above Graph shows market share of different companies dealing in tractor production
and it is clear that M & M takes 25% of total market share followed by Tafe which is
20% that means M & M is market leader in 35 HP.
M & M , 28.1
Eicher , 5.8Tafe, 19.6
Others , 6.2
PTL, 18.1
HMT, 3.1
Escorts , 9.9
Sonalika, 9.2

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Comparative Performance in 45 HP Category :
Escorts 20.2
HMT 1.5
M & M 18.8
Tafe 6.5
Others 3.1
PTL 9.2
Sonalika 13.4
JD 12.8
NHT 14.5
Table 5. 3
Above graph shows market share of different companies dealing in tractor production
and it is clear that M & M takes 19% total market share and Escort is also showing
19% market share in 45 HP.
NHT, 14.5
M & M , 18.8
Tafe, 6.5Others , 3.1PTL, 9.2
Sonalika, 13.4
HMT, 1.5
Escorts , 20.2
JD, 12.8

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Tractors Below 30 HP
265 DI Sarpanch
265 DI Bhoomiputra
Arjun 445 DI

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INTRODUCTION
As we know that Mahindra & Mahindra Co. Ltd. is a production unit. When
ever production term comes then first thing comes in our mind that is inventory.
Because inventory is base for any production unit so, when we control and manage
the inventory properly then the company is benefited. (By reducing holding and
carrying cost of inventory).
Inventory, as a current asset, differs from other current assets because only
financial managers are not involved. Rather, all the functional areas finance,
marketing, production, and purchasing, are involved. The views concerning the
appropriate level of inventory would differ among the different functional areas. The
Conflicting view points of the various functional areas regarding the appropriate
inventory levels in order to fulfill the overall objective of maximizing the owner s
wealth. Thus, inventory management, like the management of other current assets,
should be related to the overall objective of the firm. It is basically concerned with
inventory management techniques. Attention is given here to basic concepts relevant
to the management and control of inventory. The aspects covered are: (i)
determination of the type of control required, (ii) the basic economic order quantity,
(iii) the recorder point, and (iv) safety stocks. As a matter of fact, the inventory
management techniques are a part of production management. Thus it will help the
financial managers in planning and budgeting inventory
.

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Meaning of Inventory
Inventories are stock of the product a company is manufacturing for sale and
components that make up the product. The various forms in which inventories exist in
a manufacturing company are: raw materials, work-in-process and finished goods.
Raw materials are those basic inputs that are converted into finished product
through the manufacturing process. Raw materials inventories are those units
which have been purchased and stored for future productions.
Work-in-process inventories are semi-manufactured products. They represent
products that need more work before they become finished products for sale.
Finished goods inventories are those completely manufactured products
which are ready for sale. Stocks of raw materials and work-in-process
facilitate production, while stock of finished goods is required for smooth
marketing operations. Thus, inventories serve as a link between the production
and consumption of goods.
Costs of Holding Inventory
One operating objective of inventory management is to minimize cost. There
are two basic categories: (i) Ordering or Acquisition or Set-up costs, and (ii) Carrying
costs.

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Ordering Costs
This category of costs is associated with the acquisition or ordering of
inventory. Firms have to place orders with suppliers to replenish inventory of raw
materials. The expenses involved are referred to as ordering costs. Included in the
ordering costs are costs involved in (i) preparing purchase order or requisition form
and (ii) receiving, inspecting, and recording the goods received to ensure both
quantity and quality. The cost of acquiring materials consists of clerical costs and
costs of stationery. It is, therefore, called a set-up cost. They are generally fixed per
order placed, irrespective of the amount of the order. The larger the orders placed the
costs. The acquisition costs are inversely related to the size of inventory: they decline
with the level of inventory. Thus, such costs can be minimized by placing fewer
orders for a larger amount. But acquisition of a large quantity would increase the cost
associated with the maintenance of inventory that is, carrying costs.
CARRYING COSTS
1. Those that arise due to the storing of inventory. The main components of
this category of carrying costs are (i) storage cost, that is, tax, depreciation,
insurance of the building, utilities and janitorial services; (ii) insurance of
inventory against fire and theft; (iii) deterioration in inventory because of
pilferage, fire, technical obsolescence, style obsolescence and price decline ;
(iv) serving costs, such as, labour for handling, clerical and accounting costs.
2. The opportunity cost of funds. This consists of expenses in raising funds
(interest on capital) to finance the acquisition of inventory. If funds were not

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locked up in inventory, they would have earned a return. This is the
opportunity cost of funds or the financial cost component of the cost.
The sum of the order and carrying costs represents the total cost of
inventory. This is compared with the benefits arising out of inventory to
determine the optimum level of inventory.
Benefits of Holding Inventory
The basic function of inventories is to act as buffer to decouple or uncouple
the various activities of a firm so that all do not have to be pursued at exactly the same
rate 3
. The key activities are (1) purchasing, (2) production, and (3) selling.
Benefits in Purchasing
A firm can purchase larger quantities than is warranted by usage in production or
the sales level. This will enable it to avail of discounts that are available on bulk
purchases. Moreover, it will lower the ordering cost as fewer acquisitions would be made.
There will, thus, be a significant saving in the costs. Second, firms can purchase goods
before anticipated or announced price increases. This will lead to a decline in the cost of
production. Inventory, thus, serves s a hedge against price increase as well as shortages of
raw materials. This is a highly desirable inventory strategy.
Benefits in Production
Finished goods inventory serves to uncouple production and sale. This enables
production at a rate different from that of sales. That is, production can be carried on
at a rate higher or lower than the sales rate. This would be of special advantage to
firms with seasonal sales pattern. In their case, the sales rate will be higher than the

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production rate during a part of the year (peak season) and lower during the off-
season. The choice before the firm is either to produce at a level to meet the actual
demand, that is, higher production during peak season and lower (or nil) production
during off-season, or, produce continuously throughout the year and build up
inventory which will be sold during the period of seasonal demand.
Benefits in Work-in-Process
The inventory of work-in-process performs two functions. In the first place, it
is necessary because production processes are not instantaneous. The amount of such
inventory depends upon technology and the efficiency of production. The larger the
steps involved in the production process, the larger the work-in-process inventory and
vice versa. In a multi-stage production process, the work-in-process inventory serves
purpose also.
Benefits in Sales
The maintenance of inventory also helps a firm to enhance its sales efforts. A firm
will not be able to meet demand instantaneously. There will be a lag depending upon the
production process. If the firm has inventory, actual sales will not have to depend on
lengthy manufacturing processes. Thus, inventory serves to bridge the gap between
current production and actual sales. A basic requirement in a firm s competitive position
is its ability vis-à-vis its competitors to supply goods rapidly.

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Techniques for inventory management
A method of inventory control to indicate a broad framework for managing
inventories efficiently in conformity with the goal of wealth-maximization. The major
problem-areas that comprise the heart of inventory controls are (i) the classification
problem to determine the type of control required, (ii) the order quantity problem, (iii)
the order point problem, and (iv) safety stocks.
1. A B C System
The first step in the inventory control process is classification of different
types of inventories to determine the type and degree of control required for each. The
A B C system is a widely-used classification technique to identify various items of
inventory for purpose of inventory control.
On the basis of the cost involved, the various inventory items are, according to
this system, categorized into three classes: (i) A (ii) B and (iii) C.
2. Economic Order Quantity (EOQ) Model
After various inventory items are classified on the basis of the A B C analysis.
A key inventory problem particularly in respect of the Group. An items relates to the
determination of the size or quantity in which inventory will be acquired. In other
words, while purchasing raw materials or finished goods, the questions to be
addressed are 8. How much inventory should be bought in one lot under one order on
each replenishment? Should the quantity to be purchased be large or small? Or,
should the requirement of materials during a given period of time (say, six months or

26
one year) be acquired in one lot or should it be acquired in installments or in several
small lots? Such inventory problems are called order quantity problems.
Buying in large quantities implies a higher average inventory level which will
assure (i) smooth production/sale operations, and (ii) lower ordering or set-up costs.
But it will involve higher carrying costs. On the other hand, small orders would
reduce the carrying cost of inventory by reducing the average inventory level but the
ordering costs would increase as there is interruption in the operations due to stock-
outs. The optimum level of inventory is popularly referred to as the economic order
quantity (EOQ). It is also known as the economic lot size. The economic order
quantity may be defined as that level of inventory order that minimizes the total cost
associated with inventory management. EOQ refers to the level of inventory at which
the total cost of inventory comprising acquisition/ordering/set-up costs and carrying
cost is minimal.
C
AO
EOQ
2
A = Annual usage of inventory (unit)
O = Ordering cost per order
C = Carrying cost per unit
Assumptions
The firm knows with certainty the annual usage (consumption) of a particular
item of inventory.
The rate at which the firm uses inventory is steady over time.

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The orders placed to replenish inventory stocks are received at exactly that
point in time when inventories reach zero.
3. Order Point Problem
The EOQ technique determines the size of an order to acquire inventory so as
to minimize the carrying as well as the ordering costs. In other words, the EOQ
provides an answer to the question: how much inventory should be ordered in one lot?
The reorder point is stated in terms of the level of inventory at which order
should be placed for replenishing the current stock of inventory. In other words,
reorder point may be defined as the level of inventory when fresh order should be
placed with the suppliers for procuring additional inventory equal to the economic
order quantity. It is based on the following assumptions: (i) constant daily usage of
inventory, and (ii) fixed lead time. In other words, the formula assumes conditions of
certainly.
The recorder point = Lead time in days x average daily usage of inventory
4. Safety Stock
The safety stock as the minimum additional inventory to serve as a safety
margin or buffer or cushion to meet an unanticipated increase in usage resulting from
an unusually high demand and or an uncontrollable late receipt of incoming
inventory. The effect of increased and/or slower delivery would be a shortage of
inventory. The delay may arise from strikes, floods, transportation and other bottle
necks. That is, the firm would face a stock-out situation. This, in turn, as explained in

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detail below, would disrupt the production schedule and alienate the customers. The
firm would, therefore, be well advised to keep a sufficient safety margin by having
additional inventory to guard against stock-out situations. Such stocks are called
safety stocks. The safety stock involves two types of costs: (i) stock-out, and (ii)
carrying costs.
FINDING:

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Suggestion
As we study the inventory management system of Mahindra & Mahindra co.Ltd. We
can give few suggestions regarding the management control which increase the
production and reduce the lead time to some extend of that company-
1. Emphasis is placed on minimizing the setup time & manufacturing lead time
for each limit. This is the time from when a product is ready to start on the
production line to when it become a finished good producing to demand often
means manufacturing small quantities on product producing small batches is
economical only if setup time are small.
2. The production line is stopped if parts are absent or defective work is
discovered. Stoppage creates an emergency about correcting problem that
causes defective units.
3. This production limit consists of large amount of scrap which is the root cause
of the manufacturing unit. So the firm should emphasis on eliminating these
causes. So that wastage should not occur & that will reduce the lead time of
product.
4. The reorder point is the quantity level of inventory that triggers a new order.
It equals the sales per unit of time multiplied by the purchase-order lead time.
Safety stock is the buffer inventory held as a cushion against unexpected
unavailability of stock from suppliers.
Limitations:
1. All the programs are going under SAP System so there are the limitations
regarding the analysis of the data without user of that company only.
2. As inventory management is the vast topic it required lot of time to
understand the process in the company at each department.

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3. Some time respondent was busy because of that information regarding
project work will not available as soon as possible.
4. Non availability of data and transit or lead time is not fixed..
INTRODUCTION
Planning is the basic managerial function. It helps in determining the course of
action to be followed for achieving organizational goals. It is the decision in advance
what to do, and when to do, and who will do the particular task? Plan is made to
achieve best results. Control in the process of checking whether the plans are being
adhered to or not, keeping the record of process, comparing it with the plans and then
taking corrective measure for future if there is any devotion. Every business enterprise
needs the use of control techniques for surviving in the highly competitive and
managing economic world. There are various control devices in use .budget are the
most important tool of profit planning and control. They also act as an instrument of
coordination.
A budget is a detailed plan of operations for some specific future period. It is
an estimated prepared in advance of the future period to which it applies. It acts as a
business parameter. It is a complete programme of activities of the business for the
period covered.
According to Gordon and shilling law budget may be defined as A
redetermined detailed plan of action developed plan of action developed and

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distributed as a guide to current operations and as a partial basis for subsequent
evolution of performance
The chartered institute of management accountants, London, defines a budget
as A financial and/or quantitative statement, prepared prior to a defined period of
time, of the police to be pursued during that period for the purpose of attaining a
given objective .
Different types of budget are prepared by an industrial concern for different
purpose. A sales budget is prepared for the purpose of forecasting sale for the future
period. A manufacturing cost of budget is prepared for forecasting the manufacturing
costs. The master budget embodies forecasting the figure of profit or loss.
Control means, some sort of systematic effort to compare current performance
to the predetermined plan or objective. Presumably in order to take any remedial
action required this is a very general definition of term. However as the management
function, it has been defined as The process by which managers assure that resources
are obtained and used effectively and efficiently in the accomplishment of
organizations goals.
Management control process involves two separate but closely related
activities planing and control. Planning means deciding what it is to be done and how
it is to be done control is assuring that desired results (which may be different from
the planned onces on account of change in circumstances) are attained. Budget is

32
simply a plan of action hence the technique of budgetary control is an important tool
of managing control.
The chartered institute of management accountants, London, defines
budgetary control as The establishment of budget relating to the responsibilities of
executives to the requirement of the policy, and continuous comparison of actual with
budgeted results, either to secure by an individual action the objective of the policy or
to provide a basis for its revision. According to the J.A.Scott, it is the system of
management control and according in which all operation are forecasted and so for as
possible planned ahead and the actual results compared with the forecasted with the
forecasted and planned one.
In today s completive world, without proper planning and control over the
expenses no company can survive. Profit can be maximized by increasing sales,
which depends upon the external factor like market condition, demand, competitors
etc another way to increase profit is to decrese cost (profit=sales-total cost). But for
decreasing cost proper control system should be an action .with the help of proper
budgetary control system maximization of wheat of shareholder is possible. And for
company like m & m which comes under farm equipment sector comparison of actual
with budgets and taking remedial major for division is must do job. Termined

33
OBJECTIVE BEHIND THE STUDY
Budget and Budgetary control system is a very vast subject. But at the same
time it is basic need of every company to make the budget. So it requires the overall
knowledge and skill for making budget and without planning nobody can achieve
organizational goals. This topic is very essential to every company and it's have
special importance in the current competitive world.
Taking into consideration the vast importance of Budget and Budgetary
control. The objective behind this study work is as follows:
To study in detail the budget procedure of Mahindra & Mahindra Co. Ltd.
Nagpur.
To list of various types of budgets generally Mahindra & Mahindra Co. Ltd.
Nagpur prepares.
To evaluate variance analysis of Mahindra & Mahindra Co. Ltd. for taking
suitable action by comparing actual results with budgets so that the causes are
not repeated and remedial action should be taken in future.

34
Scope
M & M Co. Ltd. Is the large organization where budgetary control is the
important aspects. From this study we see that how Company plan there budged
according to the requirement is important the i.e. planning, co-ordination and control
a. Any modern business can t not function without planning which is related to
production, sales, stocks, requirement of labour, etc. The advantage of
planning is that we can anticipate the problems before hand. Planning through
budgetary control is necessary at all levels of management in which there is
the process of thinking which enables to provide new idea to the management.
b. A detailed budgetary control system is one where the plans are written down
and these plans are circulated to all the levels management this can be achieve
only through proper communication.
c. It encourages research and development as budgetary control schedules are
usually based on past experience. From the study variances analysis is possible
so that corrective action taken wherever necessary.

36
MEANING AND NATURE OF BUDGETORY CONTROL
MEANING OF A BUDGET
A budget is the monetary or/and quantitative expression of business plans and
policies to be pursued in the future period of time. The term budgeting is used for
repairing budgets and other procedures for planning, co-ordination and control of
business enterprise. According to ICMA, official terminology, A budget is a
financial and/or quantitative statement prepared prior to a defined period of time, of
the policy to be pursued during that period for the purpose of attaining a given
objective. In other words of Brown and Howard, A budget is a pre-determined
statement of management policy during a given period which provides a standard for
comparison with the results actually achieved.
Budgetary control is the process of determining various budgeted figures for
enterprises for me future period and then comparing the budgeted figures with the
actual performance for calculating variances, if any, first of all budgets are prepared
and then actual results are recorded. The comparison of budgeted and factual figures
will enable the management to find out discrepancies and lake remedial measures at a
proper time. The budgetary control is a continuous process, which helps in planning
and coordination. It provides a method of control too. A budget is a means and
budgetary control is the end result.
J. Batty defines it as A system, which uses budgets as a means of planning
and controlling all aspects of producing and /or selling commodities and services.

37
This relates budgetary control with day to day control process. According to him,
Budgetary control involves the use of budget and budgetaryreports,
Thought the period to co ordinate, evaluate and control day-to-day operations
in according with the goals specified by the budget . From the above given definitions
it is clear that budgetary control involves the following:
The objects are set by preparing budgets.
The business is dividend in to various responsibilities,
centers for preparing various budgets.
The actual figures are recorded.
The budgeted and actual figures are compared for
studying the performance of different cost centers.
If actual performance is less than the budgeted
norms, remedial action is taken immediately.
Thus, the three cardinal features of budgetary
control are: Planning, co-ordination, control.
BUDGET, BUDGETING AND BUDGETARY CONTROL
A budget is the blue print of a plan expressed in quantitative terms. Budgeting
is the technique for. Budgetary control, on the other hand, refers to the principles,
procedures and practices of achieving given objectives through budgets.
Rowland and William have differentiated the three terms as Budgets are the
individual objectives of a department, etc where as budgeting may be said to be act of
building budgets. Budgetary control embraces all and in addition includes the science

38
of planning the budgets to affect an overall management tool for the business
planning and control .
The budgetary involves use of budgeting techniques to help the management
for carrying various functions and carrying the activities of the business. The
budgetary technique includes:
Establishment of budgets for each department.
Variance analysis is taking suitable action.
To see that the mistake of past are not repeated in future.
Comparing the budget with the actual this is know as
variance.

39
OBJECTIVES OF BUDGETARY CONTROL
Budgetary control is essential for policy planning and control. It also
acts as an instrument of co-ordination. The main objectives of budgetary
control are as follows.
To ensure the planning for future by setting up various
budgets. The requirement and expected performance of
the enterprise are anticipated.
To co-ordinate the activities of different departments.
To operated the cost centers and department with the
efficiency and expected.
Elimination of waste and increasing profitability.
To anticipate capital expenditures for future.
To centralize the cost system
Correction of deviation from establish standard.
Fixation of responsibility of various individuals in the
organization.

40
Requisites for a successful budgetary control
system
For making a budgetary control system successful, following request are
required.
1. 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 absence of clear
goals, the budget must be unrealistic.
2. 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 person from lower
levels of management is essential for success. This necessitates proper delegation of
authority and responsibility.
3. Proper communication system:
An efficient system of communication is required for successful budgetary
control. The flow of information regarding is quick so that these are to be
implemented. The upward communication to be help in knowing the difficulties in
implementation of budgets. The performance level will help the top management in
budgetary control.
4. Budget education:

41
The employees should be properly educated about me benefits of budgeting
system. They should be educated about there role in the success of this system.
Budgetary control may be mil he taken, only as control device by employees but it
should be used as a tool for improving efficiency.
5. Participation of all employees:
Budgeting is done for every segment of business. It will require the active
participation and involvement of an employee. In practice the budgets are to be
executed at lower level management. Those for whom the budget is framed should be
actively associated with their participation and execution. The employees on the basis
of their past experience may give more practical and useful suggestions. The success
of the organization will depend on the participation of employee.
6. Flexibility:
Flexibility in the budget required to make them suitable under the change
in circumstances. Budget is made for future which is always uncertain. Even through
budget are prepared by consideration of future possibility but still some occurrences
later on may necessitate certain adjustments. It will make the budget more appropriate
and realistic.
7. Motivation:
Budgets are to be implemented by human beings. It will depend on the
interest shown by the employees. All persons should be motivated to improve their

42
working so that the budget is successful. a proper system of motivation should be
introduced for making this system a success.
TYPES OF BUDGETS
Time Functions Flexibility
1. Long-term budgets 1. Operating Budgets 1. Fixed budged
2. Short term budgets 2. Financial budgets 2- Flexible budged
3. Current budgets 3. Master budget

43
CLASSIFICATION AND TYPES OF BUDGETS:
The budgets are classified according to their nature. The following are the
budgets, which are commonly used.
A. CLASSIFICATION ACCORDING TO TIME.
1. Long term budgets:
The budgets are to be prepared to depict the long term planning of the
business. The period of long term planning varies from five to ten years. The
top level management does the long term planning; it is not generally to the
lower level of management. long time budgets are prepared for some sectors
of the concern such as capital expenditure, research and development, long
term finance etc. those budget are useful or those industries where gestation
period is long i.e. machinery, electricity, engineering, etc.
2. Short term budgets:
These budgets are generally for one to two years and are in the form of
monetary terms. The consumer s goods industries like sugar, cotton, textile,
and etc. use for short term budgets.
3. Current budgets:
The period of current budget is generally of months and weeks. These budgets
relate to the current activities of the business. According to I.C.W.A London,
current budget is the budget which is established for the use over the short
period of time and is related to the current condition .

44
B. CLASSIFICATION ON THE BASIS OF FUNCTIONS
1. Operating budgets:
These budgets relate to different activities or operations of the firm. The
number of such budget depends upon the size and the nature of the business. The
commonly operating budgets are:
Sales budget
Production budget
Purchase budget
Production cost budget
Row material budget
Labours budget
Plant utilization budget
Manufacturing expenses or work overhead budget
Administrative and selling expenses budget, etc.
The operating budget for the firm may be constructed in terms of programs or
responsibility areas, and these may consist of:
A. Program budget
B. Responsibility budget.
Chart ..

45
A. Program budget:
It consists of expected revenues and costs of various product or projects that
are termed as die major programme of the firm. Such a budget is prepared for each
product line or project showing revenues, costs and the relative profitability of the
various programs. Program budget are useful in locating areas where efforts may be
required to reduce cost and increase revenues. They are us useful in determining
imbalances and inadequacies in programs so much corrective action may be taken in
future.

46
B. Responsibility budget:
When the operating budget of the firm is constructed in terms of responsibly
areas is called the responsibility budget. Such a budget had shown the plan in terms of
person responsible for achieving them. The management uses it as a control device to
evaluate the performance of executives who are in charge of various cost centers.
Their performance is compared to targets (budgets), set for them and proper action is
taken for adverse results, if any. The kind of responsibility area depends upon the size
and nature of business activities and the organizational structure. However
responsibility area may be classified under three broad categories:
Cost/expenses center.
Profit center.
Investment center.
2. Financial budgets:
Financial budgets are concerned with cash receipts and disbursements, working
capital expenditure, financial position and result of business operations. The
commonly used financial budgets are:
Cash budget.
Working capital budget.
Capital expenditure budget.
Income statement budget.
Statement of retained earning budget.
budgeted balance sheet or position statement budget

47
3. Master budget:
Various functional budget are integrated into master budget .this budget is
prepared by ultimate integration of separate functional budgets. According to
I.C.W.A. London, master budget is the summary budget incorporating its functional
budgets . The budget officer prepared master budget and it remains in the top level
management. This level is to coordinate the activity of various functional departments
and also to help as a control device.
C. CLASSIFICATION ON THE BASIS OF FLEXIBILITY
1. Fixed budget:
The fixed budgets are prepared for a given level of activity; the budget is
prepared before the beginning of the financial year. If the financial period starts in
January then the budget will be prepared a month or two earlier, i.e. November or
December. The hang in expenditure arising out of anticipated change will not be
adjusted in budget. There is a difference of about twelve months in the budgeted and
actual figures. According to I.C.W.A London, fixed budget is the budget which is to
be designing to remain unchanged irrespective of the level of activity actually
attained . Fixed budgets are suitable under static conditions. If sales, expenses and
costs can be forecasted with greater accuracy then this budget can be advantageously
used.
2. Flexible budget:
A flexible budget consists of series of budgets for different level of activity.
Therefore, varies with the activity attained. A flexible budget is prepared after taking

48
in to consideration unforeseen change in conditions of the business. A flexible budget
is defined as budget which is recognized the difference between fixed, semi-fixed and
variable cost is designed to change in relation to the level of activity. The flexible
budget will be useful where levels of activity are changes from time to time. Then the
forecasting of demand is uncertain and the undertaking operates under condition of
shortage of material, labour etc, then this budget will be more suited.
PROCEDURE IN BUDGET PREPARATION:
When control through budgets is desired the budgetary organization are to busy with
the following preliminaries:
A. ESTABLISHMENT OF BUDGET CENTRES:
A Budget centre is the section of organization of an organization undertaking
defined for the purpose of budgetary control. Budget centers should be clearly defined
and established for each of which a budget will set with the help of the departments
concerned e.g. labour budget, production cost budget etc. by the accountant in
conjunction with production manager and other executives
B. PREPARATION OF THE ORGANIZATIONAL CHART:
An organization chart when properly drafted will shown the functional
responsibilities of each member management and that he knows his position in the
organization and this relation to other members .the organization chart may have to be
adjusted to ensure that each center is to be controlled by an appropriate member to the
staff.

49
SPECIMEN OF ORGANISATION CHARTS:
.

50
C. PREPARATION OF ADEQUATE ACCOUNTING RECORD:
It is essential that the accounting system should be able to record and analysis and
transactions involved. An account code should be maintained which should be
linked with the budget centers for the establishment of budget and control through the
budgets.
D. FORMATION OF BUDGET COMMITTEE:
In small sized organizations a budget officer may establish budget &
coordinate all work involved, but in larger organization the budget committee consist
of chief executive , budget officer and heads of departments or budget centers, is
established. The main functions of budget committee are as follows:
To accept the scrutinize all budgets.
To decide overall policies to be followed.
To approved finally revised budgets
To recommended action should be taken under different situations.
C. PREPARATION OF BUDGET MANUAL :
It is the document setting out the responsibilities of the person engaged in,
the routine of, and the forms and the records required for, budgetary control. a budget
manual helps in standardizing methods and procedures and the risk of overlapping of
function is eliminated.

51
C. FIXATION OF BUDGET PERIOD:
A budget period is the period of time for which the budget is to be prepared
and employed. Except in case of capital expenditure budget, the budget prepared is
generally the accounting year subdivided into 4 quarter or 12 months.
D. DETERMINATION OF GOVERNING FACTORS:
It is the factor to the extend whose influence must first be assessed in order to
ensure that functional budgets are reasonably capable of fulfillment. The key factor
serves as the starting point for preparing the budget. Generally, sales become the key
factor, but other factors of production, such as men, material, capital etc. may also be
factors.
USES/ADVANTAGES OF BUDGETORY CONTROL:
a. It locates the inefficient areas and person in the business.
b. It help to increase the efficiency, reduce the wastage and control the costs.
c. It helps to coordinate the activities of various employees, department and thus
helps to achieve the goal of the management.
d. With the help of budgeting, the responsibility of the manager can be fixed for
planning, so that they can think for future, anticipated and be prepared to meet
the challenges ahead.
e. Actual result is compared with the budget so that corrective action can be
taken in time.
f. It is like a barometer which enables to study the changes in business condition.
LIMITATIONS OF BUDGETARY CONTROL:

52
The budgetary control system is not perfect tool. It has its own limitations
which are as follows:
1. Opposition against the every sprit of budgeting.
These will always be active and passive resistance to budgetary control as it
efficiency of individuals. The opposition is also due to human nature the
tendency to resist the change. Moreover, any system of budgetary control
cannot be successful unless it has the full support of the top management
Chir Argyris has, in his study of Human Problems with budget has pointed
out the following reasons for a high degree of negative reaction against
budgeting on the part of the front line managers
a) Budgets are evaluation instruments. They tend to set the goals against which
the people are measured hence they nautically are complained about
b) Some of the supervisors tend to use budgets as whipping possible in order to
realize their feelings about many (often totally unrelated) problems.
c) Budgets are thought of as pressure devices as such they produce the same kind
of unfavorable reaction as do other kinds of pressure, regardless of origin
2. Budgeting and changing economy.
The preparation of budget which gives a realistic position of the firm s affair
under inflationary pressure and changing government policies is really
difficult. Thus the accurate position of business cannot be estimated.

53
3. Time factor.
The accuracy in budgeting came through experience. Management must not
expect too much during the development period
4. Not a substitute/ or management
Budget is only a management tool. It cannot substitute management. Besides
that budgetary programme can be successful unless adequate arrangements are
made for supervision and administration.
5. Cooperation required.
The success of the budgetary control depends upon willing co-operation and
teamwork. Budget officer must get cooperation from all department managers.
These managers must feel the responsibility for achieving or bettering
department goals laid down in the budget.
In spite of these limitations, it can be safely said the technique of budgetary
control is a must for each enterprise. It leaves sufficient time for the top
management for formulation of overall policy and planning. Much success can
be achieved if the top management devotes attention chiefly to unusual or
exceptional items that appears in daily, weekly, monthly statements and
reports. In the word of George R. Terry The success of budgetary must
depend upon adequacy and reliability records, the past and present
performances, on the interest of all the executives and ordinate in the purpose
of such control, proper, departmentalization and sub-division factory
activities, a close classification and proper division and analysis of the

54
expenditure, and the most suitable system of cost and financial accounts .

55
VARIANCE ANALYSIS FOR OPERATING EXPENSE BUDGETS
1. Nagpur PU Total
Financial Year Budgeted Expenses Actual Expenses Variance Variance in %
F - 2004 879.26 773.58 105.68 12.02
F - 2005 807.96 822.86 -14.9 -1.84
F - 2006 974.41 1150.09 -175.68 -18.03
Budget figure with variance
-400
-200
0
200
400
600
800
1000
1200
1400
F - 2004 F - 2005 F - 2006
Year
Rs.inlakhs
Budget
Actual
Variance
Causes:-
F-2004 Variable expenses such as stores consumption decrease by Rs.12.18
lakhs, Power & Fuel consumption decreased by Rs.36.97 lakhs.
Fix expenses like repair and maintenance are decreased by Rs.30.59
lakhs, and traveling, postage, printing, telephone etc. are in increased.
F-2005 Variable expenses such as store consumption increased by Rs.10.43
lakes, Tools and power consumption are decreased.
Fix expenses like repair and maintenance is increased by Rs.2.25
lakes, rate & taxes, insurance are increased.
F-2006 Variable expenses such as store consumption increased by Rs.63.43
lakes, Tools and power consumption are increased by 26.32 lakes.
Fix expenses like repair and maintenance is increased by Rs.57.12
lakes, foreign travel, repair, professional exp, special sanctions of
Rs.97.75 lakes are increased.

56
Remedies:-
F-2004 Company has to prepare a budget as per production requirement.
Company has to reduce traveling, postage, printing, telephone etc.
exp.
F-2005 Company has to keep max. production target acc. to the market
condition of product.
Company has to provide training to employee so that they can use
machinery properly.
F-2006 Company has to done some R & D activity for controlling stores
consumption, Tools and power consumption exp.
Repair and maintenance technique of the company may not be good
due to that reason exp. Increases.
2. Tractor PGL
Financial Year Budget Expenses Actual Expenses Variance Variance in %
F - 2004 227.76 191.69 36.07 15.84
F - 2005 190.15 199.86 -9.71 -5.11
F - 2006 186.77 237.08 -50.31 -26.94
-100
-50
0
50
100
150
200
250
300
F - 2004 F - 2005 F - 2006
Year
Rs.inlakhs
Budget
Actual
Variance

57
Causes:-
F-2004 Variable expenses such as power & fuel consumption increased by
Rs.24.29 lakhs.
Fix expenses like repair and maintenance are decreased by Rs.5.66
lakhs, other expenses is in control.
F-2005 Variable expenses such as stores consumption increased by Rs.8.36
lakes.
Fix expenses like repair and maintenance, traveling, postage,
printing, telephone etc. are increased.
F-2006 Variable expenses such as stores consumption increased by
Rs.49.33 lakhs, repair and maintenance are decreased by Rs.6.98
lakhs.
Fix expenses like repair and maintenance on spares are increased
by Rs.8.33 lakhs, other expenses such as traveling, postage,
printing, telephone etc. are decreased.
Remedies:-
F-
2004
Company has to keep contingency reserve due to change in
government policy.
Company has to keep on doing regular maintenance of machinery so
that break down will not occur.
F-
2005
Company always keep maximum target according to the market
condition.
Traveling, postage, printing and telephone exp. can be reduce by
using internet services.
F-
2006
Company has to focus on handling of inventory so that wastage not
occurs.
Repair and maintenance technique of the company for the machinery
may not be good due to that reason exp. Increases.

58
3. Engine PGL
-150
-100
-50
0
50
100
150
200
250
F - 2004 F - 2005 F - 2006
Year
Rs.inlakhs
Budget
Actual
Variance
Causes:-
F-2004 Variable expenses such as stores consumption decrease by Rs.3.67
lakhs.
Fix expenses like repair and maintenance are increased by Rs.5.94
lakhs.
F-2005 Variable expenses such as stores consumption increase by Rs.1.33
lakhs, tools consumption increased by Rs.1.82 lakhs & repair and
maintenance of spare are increased by Rs.2.93lakhs.
lakhs.
F - 2004 84.51 81.07 3.44 4.07
F - 2005 119.5 131.82 -12.32 -10.31
F - 2006 130.42 223.07 -92.65 -71.04

59
F-2006 Variable expenses such as stores consumption increase by Rs.12.21
lakhs, Tools consumption increased by Rs.31.26 lakes, repair and
maintenance are decreased by Rs.6.70 lakhs.
lakhs.
Remedies:-
machinery properly.
F-2005 Company has to keep contingency reserve due to change in
government policy.
Company has to provide proper and regular attention to each
machinery.
F-2006 Company has to make strategy according to the product type.
Repair and maintenance technique of the company for the
machinery may not be good due to that reason expenses increased.
4. Transmission PGL
F - 2004 47.28 41.36 5.92 12.52
F - 2005 95.85 95.03 0.82 0.86
F - 2006 80.62 91.34 -10.72 -13.30

60
-20
0
20
40
60
80
100
120
F - 2004 F - 2005 F - 2006
Year
Rs.inlakhs
Budget
Actual
Variance

61
Causes:-
F-2004 Variable expenses like store consumption & repair and
maintenance of spare are increased.
Fix expenses like printing and stationary, postage and general &
mis. Exp. are decreased.
F-2005 Variable expenses such as stores consumption decreased by
Rs.9.10 lakhs.
Fix expenses like repair and maintenance are increase by
Rs.5.98 lakhs.
F-2006 Variable expenses like store consumption is increased by Rs.1.6
lakhs.
Fix expenses like repair and maintenance are increased by
Rs.11.46 lakhs
Remedies:-
F-2004 There is considerable increase in variable expenses occurs.
F-2005 Company has to work on new marketing strategy for their survival
in market.
machinery properly.
F-2006 Over utilization of machinery should not be done.
5. Hydraulics PGL
F - 2004 100.83 75.31 25.52 25.31
F - 2005 81.53 82.52 -0.99 -1.21
F - 2006 88.13 93.63 -5.5 -6.24

62
-20
0
20
40
60
80
100
120
F - 2004 F - 2005 F - 2006
Year
Rs.inlakhs
Budget
Actual
Variance
Causes:-
F-2004 Variable expenses like store consumption is decrease by Rs.10.89
lakhs.
Power and fuel are decrease by Rs.8.62 lakhs..
F-2005 Variable expenses like store consumption is increase by Rs.3.11
lakhs.
Fix expenses like printing and stationary, postage and general &
mis. Exp. are increased.
F-2006 Variable expenses like store consumption and tool consumption
are increased.
Fix expenses like Gen & Misc expense are increase by Rs.1.32
lakhs.
Remedies:-
Company can think on another project by saving amount.
F-2005 Company always keep maximum target according to the market
condition.
There is considerable increase in fix expenses occurs.
F-2006 Company has to keep max. production target acc. to the market
condition of product.
Company has to keep some extra amount for Gen & Misc expense.
6. Engineering services PGL

63
-20
0
20
40
60
80
100
120
F - 2004 F - 2005 F - 2006
Year
Rs.inlakhs
Budget
Actual
Variance
Causes:-
F-2004 Variable expenses such as stores consumption increase by Rs.
4.36 lakhs.
Rs.19.37lakhs
F-2005 Variable expenses are decreased by Rs.1.36 lakhs.
Rs.5.47 lakhs
F-2006 Variable expenses such as Tools consumption increased by
Rs.6.49 lakhs.
Fix expenses like repair and maintenance on building are
increased by Rs.2.33 lakhs, and on machinery Rs.3.28 lakhs.
Remedies:-
F-2004 Company has to provide training to employee so that they can use
inventory properly.
F - 2004 108.29 100.13 8.16 7.54
F - 2005 89.52 92.02 -2.5 -2.79
F - 2006 85.39 97.43 -12.04 -14.10

64
Machinery is not working properly so we have to change that
particular machine.
F-2005 There is considerable increase in variable expenses.
Make new strategies for continuous breakdowns.
F-2006 Company has to use tool in proper way so that over utilization or
improper consumption is not done.
7. ER & D PGL
-50
0
50
100
150
200
F - 2004 F - 2005 F - 2006
Year
Rs.inlakhs
Budget
Actual
Variance
F - 2004 136.58 119.52 17.06 12.49
F - 2005 126.83 126.75 0.08 0.06
F - 2006 123.87 162.7 -38.83 -31.35

65
Causes:-
F-2004 Fix expenses like Hire & Service charges are decreased by
Rs.3.96 lakhs, Gen & Misc expense are decrease by Rs.5.83
lakhs.
F-2005 Fix expenses like General repair and maintenance are
increased by Rs2.38 lakhs
Legal exp. is decrease by Rs.3.84 lakhs.
F-2006 Variable expenses such as store consumption increase by Rs.
5.81 lakhs.
Fix expenses like General repair and maintenance are
increased by Rs.7.28 lakhs & legal expenses due to wage
settlement, increased by Rs.15.53 lakhs.
Remedies:-
F-2004 Company has to do their necessary material transportation
activity, which is pending.
Company has to maintain labours as per their requirement and
need, for cleaning and lab testing activity.
F-2005 Upkeepment of assets is good for machinery but it should not
be repeated in nature.
Company has to spend money on legal exp. because legal cases
should be solve as fast as possible.
F-2006 Company has to try to maintain the relationship with their
labours by listening problem of them and by solving it.
Improve preventive maintenance and conditioning monitoring.

66
8. Account PGL
0
1
2
3
4
5
6
7
8
F - 2004 F - 2005 F - 2006
Year
Rs.inlakhs
Budget
Actual
Variance
Causes:-
F-2004 Fix expenses like traveling exp. are increased by Rs.0.86 lakhs.
Professional exp. is decrease by Rs. 1.98 lakhs.
F-2005 Fix expenses are decreased.
F-2006 Fix expenses are decreased.
Remedies:-
F-2004 Company can use video conferencing system so that traveling
exp. is reduce.
Company has to take expertise suggestions from outsider also.
F-2005 There is a considerable change in fix expenses.
F-2006 There is a considerable change in fix expenses.
F - 2004 7.16 5.95 1.21 16.90
F - 2005 5.69 5.47 0.22 3.87
F - 2006 5.01 4.79 0.22 4.39

67
Sourcing PGL
0
1
2
3
4
5
6
7
8
F - 2004 F - 2005 F - 2006
Year
Rs.inlakhs
Budget
Actual
Variance
Causes:-
F-2004 Fix expenses like traveling exp. are increased by Rs.0.96 lakhs.
F-2005 Fix expenses like traveling exp. are increased by Rs.2.35 lakhs
F-2006 Variable expenses like tool consumption are increased by
Rs.0.05 Lakhs.
Fix expenses are decreased by Rs.1.30 lakhs.
Remedies:-
F-2004 Company has to change their mode of traveling.
F - 2004 7.58 7.38 0.2 2.64
F - 2005 7.54 4.14 3.4 45.09
F - 2006 3.77 2.52 1.25 33.16

68
F-2005 Traveling means required for employee should be economical.
F-2006 There is considerable increase in tools consumption.
Company has to make proper communication with their vendor or
other person / company.
10. Quality PG
F - 2004 9.78 7.65 2.13 21.78
F - 2005 8.35 7.79 0.56 6.71
F - 2006 7.14 6.12 1.02 14.29
0
2
4
6
8
10
12
F - 2004 F - 2005 F - 2006
Year
Rs.inlakhs
Budget
Actual
Variance
Causes:-
F-2004 Fix expenses like traveling exp. decreased by Rs.2.21 lakhs.
F-2005 Store consumption is decrease by Rs.1.04 lakhs
Fix expenses like repair & maintenances, traveling, postage,
telephone and gen. & misc. exp. are increased.
F-2006 Variable expenses like stores & tools consumption are increased
.

69
Fix expenses are increased by 1.68 lakhs.

70
Remedies:-
F-2004 Changes in government policy of tax is the reason of decrease in
fix exp.
Traveling, postage, printing and telephone exp. can be reduce by
using internet services.
F-2006 There is a considerable change in variable expenses.
There is a considerable change in fix expenses.
11. SC PC
0
5
10
15
20
25
F - 2004 F - 2005 F - 2006
Year
Rs.inlakhs
Budget
Actual
Variance
F - 2004 3.1 1.86 1.24 40.00
F - 2005 2.17 1.76 0.41 18.89
F - 2006 22.98 21.19 1.79 7.79

71
Causes:-
F-2004 Fix expenses are decrease by Rs.1.86 lakhs.
F-2005 Fix expenses are increased.
F-2006 Variable expenses like store consumption are decreased by
Rs.1.91 lakhs.
Fix expenses decreased by Rs.2.62 lakhs.
Remedies:-
F-2004 Company has to make proper communication with their vendor or
other person / company.
F-2005 Company has to change their mode of traveling and also traveling
means required for employee should be economical.
F-2006 Company has to provide training to employee about logistic &
quality management so that they can use inventory properly.
12. Nagpur Others
F - 2004 43.07 21.86 21.21 49.25
F - 2005 70.82 48.94 21.88 30.90
F - 2006 225.5 184.84 40.66 18.03

72
0
50
100
150
200
250
F - 2004 F - 2005 F - 2006
Year
Rs.inlakhs
Budget
Actual
Variance
Causes:-
F-2004 Fix expenses like repair and maintenance are increased by
Rs.23.97lakhs.
F-2005 Variable expenses are decreased by Rs.5.73 lakhs
Fix expenses like repair and maintenance are decreased by
Rs.6.24lakhs.
Insurance exp. is increase by Rs.3.38 lakhs.
F-2006 Variable expenses are decreased on stores & tools consumption
Rs.18.24 lakhs
Rs.21.47lakhs & traveling by Rs.21.47 lakhs
Remedies:-
F-2004 Company has to install new machinery for continuous production.
Company has to done proper and timely maintenance for all
machinery.
Company has to purchase insurance policy which is necessary as
per safety point of view.
F-2006 Company has to work on new marketing strategy and adopt new
technology for their survival in market.

73
Company has to focus on proper handling of inventory so that
wastage not occurs.

74
CONCLUSION
Inventory management:
The study of Inventory management control the activities focus on the flow of
inventory from the organization. Many decisions fall under the inventory management
umbrella which is to be seen in M & M Co. Ltd..
1. There are four main department in M & M which control, plan,
&organize the flow of inventory. They are Hydraulics, Engine,
Transmission, & Tractor departments. In this department large number
of inventory are manage according the requirement the number of
component differs according to the production requirement i.e. for
Engine-1200, Tansmission-400 to 600, Hydraulics-500, Tractor-1400
to 1600 .
2. The EOQ decision model calculates the optimal quantity of inventory
to order. The larger the order quantity, the higher the annual carrying
costs and lowers the annual ordering costs. The smaller the order
quantity, the lower annual carrying costs and higher the annual
ordering costs. The EOQ model includes those transactions routinely
recorded in the accounting system and opportunity cost not routinely
recorded.

75
3. The reorder point is the quantity level of that inventory that trigger a
new order. Safety stock is the buffer inventory held as a cushion
against unexpected unavailability of stock from suppliers.
4. EOQ analysis helps to minimize the cost of holding the inventory. This
is to be done only for hydraulics department in M & M Co. Ltd. In this
department the profit which is obtained is Rs. 4695599.7 lakhs.
5. The result is based on map which is used in calculating the ordering
cost and carryings cost which is one of the critical factor in the project.
BUDGET AND BUDGETARY CONTROL SYSTEM:
Budget and budgetary control system is basis need of entire finance gamut.
Without budget and budgetary control system no company can achieve his goals.
Budget and budgetary control system is a master key which is determining the profit
level for the company.
It is a method of forecasting future demand because of that the work of achieving the
goal can be done easy. It helps to introduce standard costing technique.
It also help to ensure cash flow and hence bank credit can be obtained. It creates cost
consciousness in the mind of the employees in the organization. Maximization of
profit is possible through budgeting. It ensures the capital of the firm utilized in
proper way and that there is no mis-utilization of funds.

76
The control system of Mahindra and Mahindra Co. Ltd. Nagpur is based on
responsibility basis means every department get the target and that department must
be complete given the target.
After carefully analyzing and studding the entire procedure of budget and
budgetary control system of M & M Co .Ltd. at Nagpur, Some observation are made
as well as the following recommendations are being suggested.
1. Changes in market condition:
M & M Co. Ltd. Should be carefully observe the market. Because if there is
any single words that can best describe today s market, it is change if they
will observe properly to the changing market condition they will not face the
problem of changes in market scenario.
2. Volume changes:
M & M Co. Ltd should determine the proper volume of production because of
changing in volume budget always remain uncertain.
3. Store consumption:
M & M Co. Ltd. Should provides sufficient material to every department
because of that every department can be completed their target within time.
Then there is no need special fund to that department.
4. Machinery fault:

77
Company is expensing the more money than budget on machinery and spare
parts for repairs and maintenance. So. M & M Co. Ltd should concentrate on
machinery.
The success lies in the budget and budgetary control system as accurate as
possible. And as M & M co. Ltd at Nagpur adopts a scientific budget and
budgetary control system it is required to maintain accuracy in the process.

78
SUGGESTIONS
As we were calculate the variation of all the functional unit on department of
Mahindra & Mahindra Co. Ltd. we suggest them
1. Constant review of performance should be made to evaluate the actual
results as compared to budgets so that corrective action can be taken at the
right time.
2. Company can take help of expertise personality for the review of
making accurate budget analysis so that variances is to be minimized..
LIMITATIONS
1. Company have limited amount to spend.
2. Govt. policy is not fixed.
3. Future is uncertain so, it is not easy to predict future.
4. Budgetary control deals with quantitative data only.

79
BIBLIOGRAPHY
1. Management Accounting - Dr. Mahesh Kulkarni
2. Principles of Financial Management - Satish M. Inamdar
3. Financial Management - M. Y. Khan & P. K. Jain
4. Financial Management - I. M. Pande
Annual Report 2002 - 2006
WEBSITE :
1. www.mahindra.com
2. www.mahindraworld.com

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