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

1
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
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
 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.

 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.
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.

 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 .

 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.

1992: Launched 225 DI tractor in 25 HP range.

Vendor upgradation through self-certification.

1994: Launched 575 DI tractor in 45 HP range.

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.

 Launched 475 DI tractor in 45 HP range.

1996: Launched 365 DI tractor in 35 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

 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
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.

 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.

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%.

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%.
Financial Highlights

Year PAT Net Income

(Rs. In Lakhs)
2002 97 3320
2003 146 3811
2004 349 5057
2005 513 6769
2006 857 8327

1000 9000
900 8327 857 8000
800 7000
6769
700 6000
600 5000
500 5057 4000
513 PAT
400 3000
3811 Net Income
300 3320 2000
200 349 1000
100 0
0 146
97

20022003200420052006

Year Basic Earnings per share

2002 8.62
2003 12.55
2004 30.04
2005 44.19
2006 51.07

Earnings per share

60

50

40

30

20

2002 2003 2004 2005 2006

10

Basic Earningsper share

YEA R
0
PERFORMANCE OF M & M WITH ITS COMPETITIORS

Performance of a M & M with Its

Competitors Comparative Performance in 25

HP Category

Tafe, 6.7
Escorts , 9.2
Eicher , 26.3

t hers , 4.2
M & M , 33
PTL, 9.7
Sonalika , 8.9 HMT, 2

Graph 5.1

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

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.
 Comparative Performance in 35 HP Category :

Escorts , 9.9
Sonalika, 9.2
HMT, 3.1
PTL, 18.1

M & M , 28.
Others , 6.2

Tafe, 19.6 Eicher , 5.8

Graph 5.2

Particulars Percentage
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.
 Comparative Performance in 45 HP Category :

Escorts , 20.2
NHT, 14.5

JD, 12.8 HMT, 1.5

M & M , 18.8
Sonalika, 13.4

PTL, 9.2 Others , 3.1 Tafe, 6.5

Particulars Percentage
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.
Tractors Below 30 HP

265 DI Sarpanch

265 DI Bhoomiputra

Arjun 445 DI
 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

.
 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.
 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

 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

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.

 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

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.

2 AO
EOQ
C

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.
 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
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:
 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.
 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

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
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
 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.
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.

 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.
 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
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.
 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.
 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:
 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
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

 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 .

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 ..
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.
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

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
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.
SPECIMEN OF ORGANISATION CHARTS:

.
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.

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:

 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.

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

1400
1200
1000
800
600
400
Rs. in lakhs

200 Budget Actual

0 Variance
-200
-400

F - 2004 F - 2005 F - 2006

Year

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.
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

Budget figure with variance

300
250
200
150
100
50
Rs. in lakhs

Budget Actual
0
Variance
-50
-100

F - 2004 F - 2005 F - 2006

Year
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- Company has to keep contingency reserve due to change in
2004 government policy.
Company has to keep on doing regular maintenance of machinery so
that break down will not occur.
F- Company always keep maximum target according to the market
2005 condition.
Traveling, postage, printing and telephone exp. can be reduce by
using internet services.
F- Company has to focus on handling of inventory so that wastage not
2006 occurs.
Repair and maintenance technique of the company for the machinery
may not be good due to that reason exp. Increases.
3. Engine PGL

Financial Year Budget Expenses Actual Expenses Variance Variance in %

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

Budget figure with variance

250
200
150
100
50
0
Rs. in lakhs

Budget Actual
-50
Variance
-100
-150

F - 2004 F - 2005 F - 2006

Year

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.
Fix expenses like repair and maintenance are increased by Rs.2.78
lakhs.
 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.
Fix expenses like repair and maintenance are increased by
Rs.50.94
lakhs.
Remedies:-
F-2004 Company has to prepare a budget as per production requirement.
Company has to provide training to employee so that they can use
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
Financial Year Budget Expenses Actual Expenses Variance Variance in %
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
 Budget figure with variance

120

100

80

Rs. in lakhs
Budget
Actual
60
Variance
20
40

0
F - 2004 F - 2005 F - 2006
-20
Year
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.
Company has to provide training to employee so that they can use
machinery properly.
F-2006 Over utilization of machinery should not be done.

5. Hydraulics PGL

Financial Year Budget Expenses Actual Expenses Variance Variance in %

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
 Budget figure with variance

120

100

80

Rs. in lakhs
Budget
Actual
60
Variance
20
40

0
F - 2004 F - 2005 F - 2006
-20
Year

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:-
F-2004 Company has to prepare a budget as per production requirement.
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
Financial Year Budget Expenses Actual Expenses Variance Variance in %
 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

Budget figure with variance

120

100

80
Rs. in lakhs

Budget
Actual
60
Variance
20
40

0
F - 2004 F - 2005 F - 2006
-20
Year

Causes:-
F-2004 Variable expenses such as stores consumption increase by Rs.
4.36 lakhs.
Fix expenses like repair and maintenance are increased by
Rs.19.37lakhs
F-2005 Variable expenses are decreased by Rs.1.36 lakhs.
Fix expenses like repair and maintenance are increased by
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.
 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
Financial Year Budget Expenses Actual Expenses Variance Variance in %
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

Budget figure with variance

200

150

100
Rs. in lakhs

Budget Actual
Variance

50

0
F - 2004 F - 2005 F - 2006
-50
Year
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.
8. Account PGL
Financial Year Budget Expenses Actual Expenses Variance Variance in %
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

Budget figure with variance

8
7
6
5
4
Rs. in lakhs

3 Budget Actual
2 Variance
1
0

F - 2004 F - 2005 F - 2006

Year

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.
 Sourcing PGL
Financial Year Budget Expenses Actual Expenses Variance Variance in %
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

Budget figure with variance

8
7
6
5
4
Rs. in lakhs

3 Budget
2 Actual Variance
1
0

F - 2004 F - 2005 F - 2006

Year

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-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
Financial Year Budget Expenses Actual Expenses Variance Variance in %
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

Budget figure with variance

12

10
R s. in lakh s

8 Budget
Actual Variance

F - 2004 F - 2005 F - 2006

0 Year

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
.
Fix expenses are increased by 1.68 lakhs.
Remedies:-
F-2004 Changes in government policy of tax is the reason of decrease in
fix exp.
F-2005 Company has to prepare a budget as per production requirement.
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
Financial Year Budget Expenses Actual Expenses Variance Variance in %
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

Budget figure with variance

25

20

Budget Actual
R s . in la k h s

15
Variance

10

F - 2004 F - 2005 F - 2006

Year
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

Financial Year Budget Expenses Actual Expenses Variance Variance in %

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
 Budget figure with variance

250

200

Budget Actual

R s . in la k h s
150 Variance

100

50

0
F - 2004 F - 2005 F - 2006
Year

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
Fix expenses like repair and maintenance are increased by
Rs.21.47lakhs & traveling by Rs.21.47 lakhs

Remedies:-
F-2004 Company has to install new machinery for continuous production.
F-2005 Company has to prepare a budget as per production requirement.
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.
Company has to focus on proper handling of inventory so that
wastage not occurs.
 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.

 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.
 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:
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.

 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.

 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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