CHAPTER-1

INTRODUCTION

INTRODUCTION TO BUDGET AND BUDGETARY CONROL

BUDGET:
Budget is essential in every walk of our life national, domestic and Business. A
budget is prepared to have effective utilization of funds and for the realization of
objective as efficiently as possible. Budgeting is a powerful tool to the management for
performing its functions i.e., formulation plans, coordination activities and controlling
operations etc., efficiently. For efficient and effective management planning and control
are tow highly essential functions. Budget and budgetary control provide a set of basic
techniques for planning and control.
A budget fixes a target in terms of rupees or quantities against which the actual
performance is measured. A budget is closely related to both the management function as
well as the accounting function of an organization.
As the size of the organization increases, the need for budgeting is
correspondingly more because a budget is an effective tool of planning and control.
Budget is helpful in coordinating the various activities (such as production, sales,
purchase etc) of the organization with result that all the activities precede according to the
objective. Budgets are means of communication. Ideas of the top management are given
the practical shape. As the activities of various department heads are coordinated at the
much needed for the very success of an organization. Budget is necessary to future to

motivate the staff associated, to coordinate the activities of different departments and to
control the performance of various persons operating at different levels.
Budgets may be divided into two basic classes. Capital and operating budgets.
Capital budget are directed towards proposed expenditure for new projects and often
require special financing.
The operating budgets are directed towards achieving short-term operational goals
of the organization for instance, production or profit goals in a business firm. Operating
budgets may be sub-divided into various departmental of functional budgets.
Definitions of Budget:
According to Institute of Charted Management Accountants, England

A plan

quantified in monetary term prepared and approved prior to a defined period of time
usually showing planned income to be generated and / or to be incurred during that
period and the capital to be employed to attain a given objective.
According to ICMA, England, a budget is, a financial and/or quantitative
statement, prepared and approved prior to a defined period of time, of the policy to be
pursed during the period for the purpose of attaining a given objective.
It is also defined as, a blue print of projected plan of a action of a business for a
definite period of time.
BUDGETARY CONTROL:
No system of planning can be successful without having an effective and efficient
system of control. Budgeting is closely connected with control. The exercise of control in
the organization with the help of budgets is known as budgetary control. The process of
budgetary control includes.

1. Establishment of budget for each function and section of the organization.

2. Executive responsibility in order to perform the specific tasks so that objectives of
the enterprise may be attained.
3. Continues comparison of the actual performance with that of the budget and
placing the responsibility of executives for failure to achieve the desired result a
given in the budget.
4. Taking suitable remedial action to achieve the desired objective if there is a
variation of the actual performance from the budgeted performance.
5. Revision of budgets in the light of changed circumstances.

Definitions of Budgetary Control:

According to the Brown and Howard Budgetary control is the system of
controlling costs which includes the preparation of Budgets, co-coordinating the
department and establishing the responsibilities, comparing the actual performance with
the budgeted and acing upon the results to achieve the maximum profitability
According to the J.Betty: A system which uses budgets as a means of planning
and controlling all aspects of producing and / or selling commodities and services
According to the CIMA, London, Budgetary control is the establishment of
budgets relating to responsibilities of executives to the requirement of a policy, and the
continuous comparison of actual with budged results, either to secure by individual action
the objective of that policy or to provide a basis for revision.

OBJECTIVES OF STUDY

THE STUDY HAS THE FOLLOWING:

To provide a theoretical framework of budget, and budgetary control.
To describe the profile of the organization as a backdrop for undertaking a study of
budgetary control system.
To analyze the budgetary system in practice in Heritage Foods India Limited with
particular reference to their objectives and phases of organizational and reappropriation.
In addition to the analysis of the conventional budgetary system in practice in
Heritage DAIRY PRODUCT Industries limited. The study aims at evaluation and
modification to the budgetary system with reference to the various types of budgets.
The scope in the formulation of performance budget is also studied.

SOURCES OF DATA:
The data of Basant Nagar, HERITAGE FOODS (INDIA) LIMITED, have been
collected mainly from secondary sources viz

From the concerned officers of the Heritage Foods India Limited

Heritage Foods India Limited Journals.

Accounting books, records

Key books of concerned title.

Statistical records

Heritage Foods India Limited library.

METHODOLOGY OF THE STUDY:

The study is based on the both primary and secondary data
The primary data has been collected through structured questionnaire reflecting
budget management practice of Heritage Dairy products
The collected data is tabulated and suitable interpretation has been made by
considering the data collection through secondary data like annual reports.

LIMITATIONS:

Estimates are used as basis for budget plan and estimates are based on available
facts and best managerial judgment

Budgetary control cannot reduce the managerial function to a formula. It is only

a managerial Tool which increase effectiveness of managerial control

The use of budget may lead to restricted use of resources.

Efforts may therefore not be made to exceed the performance beyond the
budgeted targets.

Frequent changes may be called for in budgets due to fast changing industrial
climate.

In order that a system may be successful, adequate budget education should be

imparted at least through the formative period. Sufficient training programs
should be arranged to make employees gibe positive response to budgetary
activities.
5

The study is the limited up to the date and information provided by Heritage
Foods India Limited and its annual reports

SCOPE OF THE STUDY:

The budget for operation and maintenance activities will be called performance
budget operation. This, in effect means that all financial targets in the budget
will be based on performance targets in physical terms.

The current budgetary control system operation pays envisages generation and
transmission line projects as independents investment centers. It becomes
applicable to a project in the year in which it plans to commercialize its first
generation unit.

CHAPTER-II
REVIEW OF LITERATURE
INTORDUCTION TO BUDGET IN BUDGETORY CONTROL:
The management is efficient if it is able to accomplish the objectives of the enterprise It
is effective when it accomplish the objectives with minimum effort and most in
attain

long-range efficiency

and systematic

approach

in facilitate

effective

management performance is profit planning and control or budgeting .Budgeting is

therefore an integral part historical combination of a goal setting machine for
increasing an enterprises profits and a goal achieving machine for facilitating
generational coordination and planning while achieving the budgeted gets
EARNING OF BUDGET:
It is a financial and quantitative statement prepared and approved or to a defined
period of time of policy to be pursued during that period purpose of attaining a given
objective it may include income expenditure and employment capital
In other words it is a pre-defined detailed plan of action development distributed as guide
operations and as a partial basis for subsequent evolution of performance

PLANNING OF BUDGETING:

The process of planning all flows of financial resources into within from an entity
during some specified future period it includes providing detailed allocation

of

available future resources to projects ,responsibilities and time periods

From above definition I it clear that budgeting Is the actual act of caring the

budget

it is the process of evolving the final statement yet is the end product of budgeting
ESSENTIALS OF GOOD BUDGET:
1. It is prepared prior to a defined period of time
2. It is prepared for the definite future period
3. The policy to followed to attain the given objectivities must be laid before the
budget.
4. It is monetary and/or quantitative statements of the policy

MEANING OF BUDGETARY CONTROL:

It is the process of establishing of departmental budget relating the responsibilities
of executives to the requirements of a policy and the continuous comparison of
actual with budgeted results either to secure by individual action the objectives
of that policy or to provide a firm basis for revision First of all budgets are prepared
and then actual results are the comparison

of budgeted and actual figures will

enable the management to out discrepancies and take 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 means and

budgetary control is the end result.

In the words of J.A.scolt budgetary control is the system of management control and
accounting in which all operations are forecast so as possible planned ahead and
actual results compared with the forecast and the planned ones

ESSENTIALS OF BUDGETARY CONTROL:

1. Budgetary of the process of preparing the budget is the starting point for
budgetary point for budgetary control.
2. Distribution of budgets pertaining to each function to all the relevant section with
in organization
3. Collection of actual data pertaining to all budgeted activities
4. Continuous comparison of actual performance with budgeted performance
5. Analysis of variances in actual performance and budgeted performance
6. Initiation of corrective action to ensure that actual performance is inline with
budgeted performance
7. Revision of budgeted if it is felt that the budgets prepared are no longer relevant
on account of unforeseen developments

OBJECTIVES OF BUDGETARY CONTROL:

The primary objective of budgetary controls to help the management
systematic

planning and controlling

in

the operations of the enterprises the primary

objective can be met only if there is proper communication and coordination amongst
different organization thus the objectivities can be stated as:

1. COORDINATION:
Coordination is a managerial function under which all factors of production and
all departmental activities are departmental are balanced and integrated to achieve the
objectivities of the organization budgeting provides the basis for organization
objectivities can be realized executives are forced to think of the relationship
between their

department and the company

as a whole this removes unconscious

biases against other departments it also helps to identify weakness in the organization
structure.
2. COMMUNICATION:
All people in the organization

must know the objectivities

polices and

performances of the organizations they must have a clear understanding of their part in
the organization

goals this is made possible by ensuring their participation in the

budgeting process.

3. CONTROLS AND PERFORMANCE EVALUTION:

Control ensures control by continuous comparison of actual performance with the
budgeted performance variances are highlighted and corrective action
initiated

can be

budgets also from the basis if performance evolution in an organization as

they reflect realistic estimates of acceptable and expected performance.

BUDGET BUDGETING AND BUDGETRY CONTROL:

10

A budget is a blue print of a plan expressed in a quantitative terms budgeting Is

a technique budgetary control terms to the principles procedures and practice of
achieving given objectivities through budgets.
From the above definitions we can differentiated the three terms as budgets
are the individual objectivities of a department etc where as budgeting may be said to
act of building budgets
Budgetary control embraces all and in addition includes the science of Planning the
budgets to effect on overall management tool the business planning and control.
ESSENTIALS OF BUDEGTRY CONTROL
1. ORGANISATION FOR BUDGETRY CONTROL:
The proper organization is essential for the successful preparation maintenance
and administration of budgets A budgetary committee is formed which

comprises

the departmental heads of various departments All the functional heads are entrusted
with the responsibility if ensuring proper

implementation of their respective

departmental budgets.
The chief executive is the overall in the charge of budgetary

system

he

constitutes a budget committee for preparing realistic budgets A budget officer is the
convener

of the budget

committee

who co-ordinates

departments responsible fro their departmental budgets.

2. BUDGET OFFICER:

11

the budgets

of different

The chief executives appoints the budget officer such budget officer also called as
Budget controller or budget Director thus rank should be equal to other functional
managers.
The Budget officer does not have the direct responsibility of preparing the
budgets the various functional managers prepare the budgets his role is that of a
supervisor the budget officer

has the specific duty of the budgeting

various departments and for co-ordination between

between them He is empowered to scrutinize

activity by

them so that there is a proper link

the budgets prepared by different

functional heads and to make changes in them if the situation so demands.

The budget officer works as a coordinator among different departments he

continuously monitors the actual performance different departments steps to rectify the
defiance if any he also informs the top management about the performance of different
departments.
The budget officer will be able to carry out his work only if he is versant with the
working of all the departments

he must have technical knowledge of the business and

should also process accounting knowledge.

BUDGET COMMITTEE:
A budget committee is formed to assist the budget officer. The heads all the
important departments are made members of this committee. The committee is
responsible for preparation and execution of budgets. The chambers of this committee put
up the case of their respective departments to help the committee to take collective

12

decisions if necessary. The budget committees responsible for reviewing the budgets
prepared by various functional heads coordinate all the budgets and approve the final
budgets. The budget officer acts as a coordinate of this committee all the functional heads
are entrusted with the responsibility of ensuring proper implementation of their respective
final departmental budgets.

BUDGETS CENTERS:
A budget center is the part of the organization for which the budget is prepared. A
budget creator may be a department section of department or any other part of department
ideally, the head of every center should be a member of the budget committee. However
it must be ensured that each budget center at least has an indirect representation in the
budget committee.
The establishment of budget centers is essential for covering all parts of the organization
becomes easy when different centers are established the budget centers are also
necessary for cost control purpose.

BUDGET MANUAL:
A budget manual is a document that spells out duties and responsible the various
executives conquered with it specifies among various functional areas A budget manual
covers the following matters.
1. A budget manual clarity defines the objectivities of budgetary control systems it
also gives the benefits and principles of this system.

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2. the duties and responsibilities of various persons dealing with preparation and
execution

of budgets are also given in the budget

manual it enables

the

management to know the persons dealing with various aspects to budgets and
provides clarity on their duties and responsibilities it gives the information
about the sanctioning authorities of various budgets the financial powers of
sanctioning authorities of various budgets the financial powers of different
manages are given in the manual for enabling the spending amount on various
expenses
3. A dropper table for budgets including the sending of performance reports is drawn
so that every work starts in the and a systematic control is exercised.
4. the specimen forms and number of copies to be lased fro ore oaring budget
reports is also stated budget centers involved should be clearly stated.
5. the length of various budget periods and control points is clearly given
6. The problem follow all in the centre system clearly stated.
7. A method of accounting to be used for various expenditures is also stated in the
manual.
8.

A budget manual helps the documentation the role of every employee his duties

responsibilities the ways

of undertaking

reducing ambiguity at any point of time

BUDGET PERIOD:

14

various tasks etc thus it also helps n

A budget period is the length of time for which a budget is prepared upon a number of
factors the choice of a budget period depends upon the following considerations the type
of budget (long\short).
The nature of demand for the products
The timing for the availability of the finance
The construction situation of the cycles
All the above mentioned factors are taken into account while fixing the period of budgets
In this budgeting process the financial decision on the budgets
The financial manager usually responsible for organizing this budget he must
perform the following functions.
To decide the general polices and guidelines
To offer technical advice.
To suggest changes.
To receive and review individual budget estimates.
To reconcile divergent with or without revisions.
To coordinate budgeting activities.
To approve budgets with or without revisions.
To scrutinize control reports later on
To scrutinize to budget reports later on.
To disseminate these guidelines.

15

After finalizing the budget proposal the budget committee subjects the final budget to the
Board of Directories or Budget Director for approval.

CONTINUOUS BUDGETING SYSTEM:

A continuous budgeting system is a method of having two different budget
periods within the sane budget the purpose of having this system is to have greater
control in terms of operational activities without losing sight is have greater control
in terms of it results in incorporating the effect of changes in the short term on the
long-term targets of the organization

DETERMINATION OF KEY FACTOR:

The budgets are prepared for all functional areas these budgets are dependent
and inter-related A proper co-ordination among different budgets is necessary for
budgetary control to be successful The constraints some budgets too A factor which
influences all other budgets is known as key factor or principal factor.
The key factor may not necessarily remain the same the raw materials may be
limited at one time but it may be easily available at another similarly other factors
may also improve at different times. The key factor highlights the limitations of the
enterprise. This will enable the management to improve the working of those departments
we here scope for improvement exists.

1. OUISITES FOR A SUCCESSFUL BUDGETARY CONTROL SYSTEM.

Making budgetary control system successful requisites are required.

16

2. CLARIFYING OBJECTIVES.
The budgets are used to realize objectives of the business. The objectives must be clearly
spelt out so that budgets are properly prepared. In the sense of clear goals, the budgets
will also be unrealistic.

3. PROPER DELEGATION OF AUTHORITY AND RESPONSIBILITY.

Budget preparation and control is done at every level of management. Even though
budgets are finalized at top level but involvement of persons. In lower levels of
management is essential for their success. This Hesitates proper delegation and
responsibility.

4. PROPER COMMUNICATIONS SYSTEM.

An effective system of communication is required for a successful budgetary control. The
flow of information regarding budgets should be quick so that these are implemented.
The upward communication will help in knowing the difficulties in implementation of
budgets. The performance reports of various levels will help top management in
budgetary control.

5. BUDGET EDUCATION.
The employees should be educated about the benefits of budgeting system the
should be the benefits of budgeting system they should be educate about their roles in the

17

success of this system. Budgetary control may not be taken only as a control device by
the employees but it should be used as a tool to improve their efficiency.

6. FLEXIBILITY.
Flexibility in budgets is required to make them suitable under changed
circumstances. Budgets are prepared for the future, which is always uncertain, even
though budgets are prepared by considering the future possibilities but still some
adjustments. Flexible makes the budgets more appropriate and realistic.

7. MOTIVATION
Budgets are implemented by human beings. Their successful implementation will
depend upon the interest shown by the employees. All persons should be motivated to
improve their working so that budgeting is successful. A proper system of motivation be
introduced for making is system a success.

8. TYPES OF BUDGETS.
LONG TERM BUDGETS:
The long-term budgets are the budgets prepared for a long period of five to years.
They are concerned with planning the operations of a firm over a considerably long
period of time. The financial Controller exclusively for top management usually
prepares long-term budgets. These budgets are useful in terms of physical units (i.e...
quantities) or percentages, the accurate values may be difficult to forecast over such long

18

period. Initial expenditure, research and development budgets, etc, are examples longterm budgets.

SHORT TERM BUDGETS.

Short term budgets are budgets prepared for a short period of one to two is. They
are prepared for those activities the trend in which cannot be seen easily over long
periods. These budgets are very useful are very useful in case of consumer goods
industries such as sugar, cotton, textiles, etc. they are generally, prepared in terms of
physical units (i.e., Quantities) as well as monetary units (i.e., values..) Materials budget,
cash budget. Etc are examples of short-term budgets. They are useful to lower level of
management for control purpose.

CURRENT BUDGETS.
A current budget is a budget, which is established for use over a short period of
time and is related to current conditions. Thus current budgets are essentially short term
budgets adjusted to current (i.e., present or prevailing) conditions or circumstances. They
are prepared, for a very short period. Say, a quarter or a month. They relate to current
activities of the budgets.

INTERIM BUDGETS:
Interim budgets are budgets, which are prepared in between two budgets periods.
These budgets may get integrated with the budgets of the following period.

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CLASSIFICATION OF BUDGETS ACCORDING TO CONTENT:

Budget may be classified into budgets in physical terms and into budgets in monetary
terms.
A) BUDGETS IN PHYSICAL TERMS:
Budgets in physical terms are budgeted that budget in terms of quantities only.
They do not include corresponding rupee value. Long term budgets are usually in
prepared in physical terms. Examples of such budgets are production budget, materials
budget, etc.

B) BUDGETS IN MONETAY TERMS:

Budgets in monetary terms are budgets that budget in terms of quantities as well
as their corresponding rupee value. Sales budget, purchase budget, etc are examples of
such budgets. Budgets such as cash budget, capital expenditure budget, etc that may not
have physical quantities also from part of budgets in Monetary terms.

CLASSIFCATION OF BUDGETS ACCORDING TO FUNCTION:

Budgets can be classified into:
1. Operating Budgets
2. Financial Budgets
3. Master Budget

1) OPERATING BUDETS.

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These budgets relate to different activities or operations of a firm. The number of

such budgets depends upon the size and nature of the business, The commonly used
operation budgets are:
i)

Sales Budgets

ii)

Purchase Budget

iii)

Raw Materials Budget

iv)

Lab our Budget

v)

Factory Utilization Budget

vi)

Manufacturing Expenses or Works overhead budget

vii)

Administrative and Selling Expenses Budget etc.

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

responsibility areas, and hence may consist of:

A) Programmed Budget
B) Responsibility Budget

A) PROGRAMME BUDGET
It Consists of expected revenues and costs of various products or projects that are termed
as the major programmers of the firm, Such a budget can be prepared for each product
line or project showing revenues, Cost and the relative profitability of the various in
locating areas where efforts may be required to reduce COST5 ad increase revenues.
They are so useful in determining imbalances and inadequacies in programmers so at
corrective action may be taken in future.

21

Responsibility Budgets:
Here the operating of a firm is constructed in terms of responsibility areas. Such a budget
shows the plan in terms of persons for achieving them. It is used by the management as a
control thus used by the management as a control device to evaluate the of executives
who are in charge of various cost centers. Their is compared to the targets (Budgets), set
for them and proper taken for adverse results.

Responsibility areas may be classified under three brand categories:

I.

Cost / expense center

II.

Profit center

III.

Investment center

2) FINANCIAL BUDGETS
Financial budgets are concerned with cash receipts and payments, working
capital, financial position and results of business. The commonly used financial budgets
include Cash budget, Capital budget, and Income statement budget, Statement of earnings
budget, Budgeted balance sheet or position statement.

3) MASTER BUDGET
The Master budget is the summary budget incorporating its functional budgets.
All the operational and financial budgets are integrated into the Master budget. The
budget officer for the benefits of the top-level management prepares this budget. This

22

budget is used to coordinate the activities of various functional departments. It is also

used an effective control devices.

CLASSIFICATION ON THE BASIS OF FLEXIBILITY.

A) FIXED BUDGET
According to ICMA, London a fixed budget is a budget which is designed to
remain unchanged irrespective of the level of activity actually attained. It is based on a
fixed volume of activity and shows one volume of output and related cost. It is not
adjusted according to the actual level of activity attained.
A fixed budget is useful only when the actual level of activity corresponds with the
budgeted level of activity. But this, generally, does not happen; as such a fixed budget is
not useful for managerial purposes.

B) FLEXIBLE VARIABLE SLIDING SCALE OR CONTROL TYPE BUDGET:

According to ICMA, London a flexible budget is a budget which is designed to

change in accordance with the level of activity) actually attained. Thus, a flexible budget
changes.
According to the change in the level of activity. In other words it provides the
budgeted costs at any level of activity.
Business activity cannot be accurately predicted on account of uncertainties of
business environment. A flexible budget contains several estimates for different assume
circumstances instead of just one estimate, it provides for automatic adjustments with

23

changes in the volume of activity. Hence, a situations operating in an unpredictable

environment.

BUDGETED AND BUDGETART SYSTEM INHERITAGE

FOODS (INDIA) LTD
ZERO BASED BUDGETING:
Zero budgeting is the latest technique of budgeting and it has increased use as a
material tool. This technique was first used in America in 1962, by the former president
America, Jimmy Carter.
As the name suggests, it is starting from a "scratch, the normal technique of
Budgeting is to use previous levels as a base for preparing this year's budget. This method
carries previous years inefficiencies to the present year because we taken last year as a
guide, and decide "what is to be done this year when this much was the performance of
the last year.
In the zero based budgeting every year is taken as new year and previous year is not
as a base, the budget for this year will have to be justified according to present situation,
zero is taken as base and likely future activities are decided according to present
24

situations. In zero based budgeting a manager is to justify why he wants to spend. The
performance of spending on various activities will depend upon their justification and
priority for spending will have to be that an activity is essential and the amounts asked for
are really reasonable taking into account the volume of activity.

BUDGET AND BUDGETARY SYSTEM IN HERITAGE DAIRY PRODUCT

INDUSTRIES LIMITED, BASANTH NAGAR, KARIMNAGAR

The budgeting process is used in the performance budgeting for the construction
of phase which includes pre commissioning activities. Besides meeting the essential
requirements of managerial control. The budgeting exercise also covers the long term
capital budgeting, which is presented in the form of annual plan.

OBJECTIVES OF THE BUDGETARY SYSTEM:

To prepare annual budgets in such a manner those managers at various levels in
organization carry out periodical exercise in respect of each contact or responsible centre
for physical planning and matching resources broke up into monthly targets or cash
flows.
To introduce and operate responsible for achievement of specified targets with the
recourses allocated for the purpose.

25

To bring about effective co-ordinate of all activities of the organization and To gear
up service divisions to meet effectively the requirements of project.

BUDGET PERIOD AND PHASING:

The budget period or annual begets should with the financial year. In October
every year the budget should drawn up for the ensuring the financial year in the form of
Budget estimates financial year in the form of Revised Estimates [R.E].In addition the
budgets are to be reviewed on monthly basis by project review teams, in the light of
actual expenditure and projections in the budget period. Budegt should indicate monthly
phasing of. Expenditure and targets for the first and quarterly phasing for the second half
of the year. At the time of review of the budget estimates to frame revised estimates the
quarterly Phasing should be broken up into monthly phasing.
While drawing up the actual budget in October every year, the long term capital
budget for ongoing and new schemes should be formulated as apart of exercise as
preparation of annual plan. The long term capital budget should indicate for a period of
six years following the budget period of six years following the budget period of six
years following the budget period wise annual phasing of the capital expenditure and
physical schedules recourse based network.

BUDGET HEADS:
For uniform accounting, it is essential that costs are collected for each of the
factory though this may involve splitting up of payments against contracts which embrace
more than one system. Allocation of the cost as system wise affords a sound basis for cost

26

accounting, inter-firm comparisons and provides valuable inputs to the data bank. Budget
provisions are related to project estimates and monitoring of actual expenditure where as
control variables for part control and instrumentation system.
Factory piping which includes pipelines, for ash water mains, compressed air
system and civil works piping. Auxiliary pumps for water treatment plant and civil works
system. If there are, any contracts not covered in the budget heads provisions for such
contracts should be shown against the appropriate system by head by adding code
number.
TYPES OF BUDGETS IN HERITAGE DAIRY PRODUCT INDUSTRIES
LIMITED:
According to the nature expenditure budget are classified under:
Direct capital outlay on works
Technical consultancy
incidental construction during construction
Employee cost
Other establishment expenses:
Training and recruitment
Preliminary expenses
misc.brought-out assets
cash budget
Township budget

27

BRIEF EXPLANATION TO THE NATURE OF EXPENDITURE INCLUDED IN

EACH BUDGET IS INDICATED BELOW:
INCIDENTAL

EXPENDITURE

DURING

CONSTRUCTION

PERSONEL

PAYMENT:
These comprises of salary, wages, allowance, contribution of PF and other funds
and other expenses such as LIC, medical reimbursement, canteen subsidy etc. any
provision of areas of salary/D.A.

28

OFFICE AND OTHER EXPENSES:

Expenses incidental to construction and capital works not traceable directly to
incidental expenditure, during contribution equipments, vehicle running expense, office
rent. LC

and cost of drawings, traveling expenses, printing and stationary,

communication expenses, advertisement for tenders etc., are major items in the category.

TRAINING

RECRUITMENT

&

OTHER

DEFFEREDREVENUE

EXPENDITURE:
The first part of the budget consists of expenses for training executives, and Non
executive trainees, rent for training halls and expenses for management development
courses. The second part consists of expenses for recruitment such as advertisement for
recruitment, interview expenses, T.A. candidate etc. the third part combines preliminary
expenses including registration fees and research ad development expenses.

MISCELLANEOUS BOUGHT OUTPASSES:

Vehicles, furniture and fixtures equipments, hospital and medical equipment.
Miscellaneous assesses township figure in the budget.

REVIEW OF PROJECT BUDGET:

MONTHLY REVIEW:
At monthly intervals, the budget should be reviewed by project review committee
[PRC]. Project budget should report actual expenditure against budget heads. Work heads
and corporate budget by the 7th of month following the report month. The monthly

29

review should be examined by project review team [PRT], who should record variations
for any variations and proposed for expending works in the minutes of the meetings
reasons for any variations in the case of budget heads exceeding 10% of the budget
estimates revised estimates or whichever is Rs.5 lakhs should be analyzed and report
upon.

QUTERLY REVIEW:
PRT should conduct a quarterly budget review with a view to projecting
anticipated expenditure during the year against approved budget estimates/revised
estimates. As time is essence of such review, only a quick review of anticipated
expenditure for individual budget heads involving provisions exceeding Rs.50 lakhs in
each case should be made and reported in minutes to PRT. For this purpose, project
budget should furnish all the relevant data to project manager [project] and planning and
system by the 10th,of the month following the quarter project budget committee should
review the actual expenditure and assess anticipated

expenditure contract co-

ordination/engineers in charge. The assessments of anticipated expenditure should be

furnished by the project budget committee to General Manager [project] by the 30th of the
month following the quarter under review.

BUDGET OF SERVICE DIVISION/CORPORATE BUDGETS:

A review of budgets of service and corporate divisions should be conducted at
quarterly intervals by corporate budget committee[CS'C].For this purpose corporate
accounts should report actual expenditure up to the Ned of the quarter by the 10th of the

30

month following quarter to corporate budget and budget-coordination of the remaining

period of the year should be sent to the corporate budget should put up a consolidated
report division wise and project wise to corporate budget committee[CBC] by the 15th of
the may, August, November and February every year.

OBJECTIVES OF THE CURRENT BUDGETARY CONTROL SYSTEM IN

HERITAGE DAIRY PRODUCT INDUSTRIES LIMITED, BASANTH NAGAR:

The current budgetary control system-operating phase has been compiled to

achieve the following objectives.
To control actual performance with reference to standards/norms adapted
in the budget ascertain the deviations analyze and establish the reasons.
To identify constraints in generational and timely action for estimation
constraints.
To monitor the generation of internal recourses so as to ensure
the availability of adequate funds.
To prepare the revenue budget so as to forecasting the periodical
Profitability of the organization.
To develop standards/norms of performance in the various areas of
Operation and maintenance based on the experience.
To ensure effective coordinate planning of all activities so that all the
inputs and services necessary for achieving the physical targets are
available at appropriate time.
31

 To provide data regarding operational norms and cost for the purpose of
formulating tariff.
to provide data basis for assessment of working capital requirements
To control the working capital particularly book debts spares and other
items inventory.
To improve profitability and internal recourses generation.

SCOPE OF THE PERFORAMNCE BUDGET:

The budget for operation and maintenance activities will be called performance
budget operation.
This, in effect, means that all financial targets in the budget will be based on performance
targets in physical terms.
The current budgetary control system operation pays envisages generation and
transmission line projects as independents investment canters. It becomes applicable to a
project in the year in which it plans to commercialize its first generation unit. How ever,
the budget infer expenses from the date of synchronization to the date of commercial
generation is to be taken case of in the capital budget of the respective project similarly in
the case of transmission line projects the system becomes applicable from the year in
which it plans to commissions its first line along with substation or the date commercial
generation of the first unit of generative project with which this line is associated, which
ever is later. For subsequent lines, the O&M will be prepared from the cute generation of
energisation.
32

The system investigates the preparation of operation and maintenance budget for
each of the cost canters as per the requirements of coatings systems.
The performance budget operation will consists of following budgets along with
the supporting schedules:
1. Budget balance sheet.
2. Budget profit and loss account.
3. Revenue budget.

In addition, separate budgets for revenue activities other than operation for
research and development consultancy contracts etc.
The expenses respect of developmental expenditure for improvements additions
replay DAIRY PRODUCT, renewals, balancing facilities etc. arc of capital nature and
will be budgeted for in the construction budget of budgetary control system-construction
pairs.
To facilitate management control the system also investigates, phasing of this
budgets into monthly targets. The actual performance then will be reasons for variation s
will be analyzed and established for taking corrective remedial actions.

STAGES IN THE FORMULATION OF PERFORMANCE BUDGET:

The system provides for a two stages formulation for performance budget
operation the stages are given below:

33

INITIAL PROPOSAL:
In the initial proposal the project is required to indicate yearly targets. In the
addition to furnishing basic information like Pasteurization and commercial generation
dates.

Constraint and coal operation at less than the designed specification calorific value
of raw material and milk, material consumptions. In physical terms for items whose
consumption value in Rs.5 lakhs or more planned shutdown for a maintenance and
overhauling and norms for serious operating parameters provided for designs
specifications and in the tariff agreements to the corporate budget committee.
In the initial proposals is planned to be submitted after considering else factors and
keeping in view the perspective plan of the organization, as well as norms for various
operating parameters. These targets and terms are then communicated to all stations and
transmissions line offices of the last week of July to be used for formulating detailed
budget in the final proposal

FINAL PROPOSAL:
Budgeted balance sheet. Budgeted profit and loss account and budgets in the form of
cash budget along with the final proposal will consist of detailed supporting schedules for
each of the investment centre/cost centre. This final proposal needs to be submitted to
corporate centre with in three weeks of receiving approval for initial proposal.
The final proposal, after approval by board, will become the basis of monitoring
performance for cost centers and investment centers.

34

The frequency and extent review and monitoring will be done is under:
1. The monitoring of actual performance against budgeted target for investment
center/profit center on monthly basis and for cost centers on quarterly for
remedial/corrective action.
2. The review of performance budget on quarterly basis to assess the anticipated
profitability.
The first step in the preparation of performance budget, O&M is formulation of
maintenance and overhauling schedules for boiler and TO with generation, then
considering the grid demand, the availability or inputs and factory problems, if any. The
utilization of capacity will be worked out on month-month basis for the budget period the
gross generation targets can be worked and accordingly.

NET GENERATION:
The sales value will be determined from quantum of net generation
[i.e., grass generation aux. consumption].

AUXILLARY CONSUMPTION / CONSUMPTION BY UTILITIES:

The DAIRY PRODUCT consumption by each of the cost centers for individual unit
auxiliaries, station auxiliaries as well as transformer losses are to be estimated separately
based on designed specification and added in order to work out total auxiliary
consumption rather than fixing overall percentage similarly consumption by utilities will
also need to be indicated by concerned cost centers like township and construction

35

department this will be valued at cost net generation to arrive at the sales values for owns
consumption.
CHEMICAL CONSUMPTION:
The chemicals are used by many cost centers by many cost centers for treatment of
water. The consumption of chemicals will be co-related with volume of water certain
norms will have to be developed for different type of chemicals and different type of
treatment.
Based on these norms each of the cost centers will indicate
Consumptions of chemicals in quantitative as well as financial terms the most centre wise
requirement will be consolidated to arrive at total chemicals consumption to be charged
to profit and loss account.

EMPLOYEE COST:
The basis of employee cost will be the approved manpower budget effective of
respective years of budget period. The estimation of employee cost is to be done for each
grade considering mid-point as the scale as basis pay and after reading various
allowances like "D.A., H.R.A., C.C.A" project allowance etc. admissible in respective
grades. This is to be worked 49 out or each of the budget periods based on existing
strength (at the time of estimation) in each grade and additions during each quarter
(taking 70% satisfaction for additions).
The provisions of LTC medical reimbursement, PF and other welfare expenses in
previous years and taking into account polices changes, if any. the details of welfare
expenses like liveries and uniforms, safety expenses, accident compensation, games &

36

sports, canteen subsidy etc. are to list out as per chart of account .the provisions for
incentive, bonus and payments of one time nature are to be shown separately based on
total employee cost for executives, supervisors and non-supervisors and total man power
in these categories, separates of cost per employee will be worked out for each of theses
categories as under.
1. Salaries and allowance
2. Contribution of PF and other funds
3. Welfare expenses

The cost centre of employee cost will be worked out based on these rates
separately for theses executives, supervisors and non-supervisors. This will again be
consolidated separately for operations, maintenance and common [service] function. The
employee cost of common functions will be appropriated between construction and O&M
budgets in ratio of capital expenditure and sales during respective years.

REPAIRS & MAINTAINENCE:

In line, with costing system following three activities can represent major
classification of repairs and maintenance.
1. Major overhaul
2. Preventive maintenance
3. Breakdown maintenance
Normally, budgeting will be done for the former two; under each activity separate
estimates will be prepared for consumption of materials and maintenance jobs. This

37

estimation will be done at ach of sub cost centre wise details are required to be
mentioned.
The consumption material for repairs and maintenance will be classified into
spares, lubricant; loose tools and plants, consumables and others.

The cost centre totals separately for three activities will be added to arrive at
summary of material consumption and maintenance jobs, which will be reflected in the
profile & loss account.
The material consumption, especially of spares, can be estimated based on the
expected life of various components/spares in the installed equipment the frequency of
breakdowns in the past and the requirement for preventive Maintenance and major
overhauls. The actual life of components may be different from that indicated in the
manufacturer's specification. Therefore, it is very difficult to estimate requirements of
spares. But this estimation will become Gradually accurate as more experience is gained.
For new stations it will be advisable to collect such information from old stations that
have gained experience in this field.
Normally, maintenance of equipment through contractors should be avoided. But
in certain areas, if the expertise and in house capability or sufficient man power is not
available,

maintenance jobs can be got done through contractors. Such contracts will

need to be listed out separately .If owner supply items are covered in such contracts the
cost of theses items will be included in the material cost.

38

FACTORY & GENERAL OVERHEADS:

All the items of an expenditures under this head will be estimated based on past
trend with due adjustment for policy changes. The estimates will be given by cost centre
needs for items identified with respective cost centers. The total
Administrative cost of service cost centers will be allocated between construction and
O&M in the ratio of capital expenditure and sales during respective years.
DEPRECIATION:
This is to be charged as per ES act from the year following the year in
which assets have been capitalized value an4, rates of depreciation furnished by the site
finance and account for different categories of assets. Cost centre-wise
Depreciation will be added to arrive at total deprecation for the investment centre.

INTEREST ON FIXED CAPITAL:

As per existing accounting policy, the interest is to be charged to profit & loss
account based on the loan content in the capitalized assets restricted to total accrued
interests on actual loans.
For budgeting purposes, interest will be worked on equated loan content or
equated loan whichever is less.

39

EQUATED LOAN CONTENT:

Equated loan content is to taken as 50% of total capital cost and adjusted for number
of operating months in respective years. Incase of both generating factory and
transmission lines with associated factory, the cost for each profit centre will be taken as
per actual or anticipated capital cost.
The equated loan content is to be appollioned

to individual units

transmission lines separately for each of phases/stages. The total capital cost will be taken
as proposed in the performance budget-construction.

40

CHAPTER-III
INDUSTRY PROFILE & COMPANY PROFILE
INDUSTRY PROFILE
India is the world's second largest producer of food next to China, and has the
potential of being the biggest with the food and agricultural sector. The total food
production in India is likely to double in the next ten years and there is an opportunity for
large investments in food and food processing technologies, skills and equipment,
especially in areas of Canning, Dairy and Food Processing, Specialty Processing,
Packaging, Frozen Food/Refrigeration and Thermo Processing. Fruits & Vegetables,
Fisheries, Milk & Milk Products, Meat & Poultry, Packaged/Convenience Foods,
Alcoholic Beverages & Soft Drinks and Grains are important sub-sectors of the food
processing industry. Health food and health food supplements is another rapidly rising
segment of this industry which is gaining vast popularity amongst the health conscious.
India is one of the worlds major food producers but accounts for less than 1.5 per
cent of international food trade. This indicates vast scope for both investors and
exporters. Food exports in 1998 stood at US $5.8 billion whereas the world total was US
$438 billion. The Indian food industries sales turnover is Rs 140,000 crore (1 crore = 10
million) annually as at the start of year 2000. The industry has the highest number of
plants approved by the US Food and Drug Administration (FDA) outside the USA.
India's food processing sector covers fruit and vegetables; meat and poultry; milk
and milk products, alcoholic beverages, fisheries, plantation, grain processing and other
consumer product groups like confectionery, chocolates and cocoa products, Soya-based
41

products, mineral water, high protein foods etc. We cover an exhaustive database of an
array of suppliers, manufacturers, exporters and importers widely dealing in sectors like
the -Food Industry, Dairy processing, Indian beverage industry etc. We also cover sectors
like dairy plants, canning, bottling plants, packaging industries, process machinery etc.
The most promising sub-sectors includes -Soft-drink bottling, Confectionery
manufacture, Fishing, aquaculture, Grain-milling and grain-based products, Meat and
poultry processing, Alcoholic beverages, Milk processing, Tomato paste, Fast-food,
Ready-to-eat breakfast cereals, Food additives, flavors etc.

Food processing
The food industry is the complex, global collective of diverse businesses that
together supply much of the food energy consumed by the world population.
Only subsistence farmers, those who survive on what they grow, can be considered
outside of the scope of the modern food industry.
Food processing is the methods and techniques used to transform raw ingredients
into food for human consumption. Food processing takes clean, harvested or slaughtered
and butchered components and uses them to produce marketable food products. There are
several different ways in which food can be produced.
One Off Production This method is used when customers make an order for
something to be made to their own specifications, for example a wedding cake. The
making of One Off Products could take days depending on how intricate the design is and
also the ability of the chef making the product.

42

Batch Production This method is used when the size of the market for a product
is not clear, and where there is a range within a product line. A certain number of the
same goods will be produced to make up a batch or run, for example at Greggs Bakery
they will bake a certain number of chicken bakes. This method involves estimating the
amount of customers that will want to buy that product.
Mass production this method is used when there is a mass market for a large
number of identical products, for example, chocolate bars, ready meals and canned food.
The product passes from one stage of production to another along a production line.
Just In Time This method of production is mainly used in sandwich bars such as
Subway, it is when all the components of the product are there and the customer chooses
what they want in their product and it is made for them fresh in front of them.

WHOLESALE AND DISTRIBUTION

A vast global transportation network is required by the food industry in order to
connect its numerous parts. These include suppliers, manufacturers, warehousing,
retailers and the end consumers. There are also those companies that, during the food
processing process, add vitamins, minerals, and other necessary requirements usually lost
during preparation. Wholesale markets for fresh food products have tended to decline in
importance in OECD countries as well as in Latin America and some Asian countries as a
result of the growth of supermarkets, which procure directly from farmers or through
preferred suppliers, rather than going through markets.

43

The constant and uninterrupted flow of product from distribution centers to store
locations is a critical link in food industry operations. Distribution centers run more
efficiently, throughput can be increased, costs can be lowered, and manpower better
utilized if the proper steps are taken when setting up a material handling system in a
warehouse.
The Indian food market is estimated at over US$ 182 billion, and accounts for
about two thirds of the total Indian retail market. Further, according to consultancy firm
McKinsey & Co, the retail food sector in India is likely to grow from around US$ 70
billion in 2011 to US$ 150 billion by 2025, accounting for a large chunk of the world
food industry, which would grow to US$ 400 billion from US$ 175 billion by 2025.

EXPORTS
Exports of agricultural products from India are expected to more than double to top US$
20.6 billion in the next five years, according to the commerce ministry.
According to estimates by the Agricultural and Processed Food Products Export
Development Authority (APEDA), the share of India's farm product exports in the global
trade will grow from 2 per cent now to over 5 per cent.
Exports of fresh and processed vegetables, fruits, livestock and cereals rose 10 per cent to
US$ 8.67 billion in 2011-2014.

SPICES
Despite a global slowdown, Indian spice exports are growing. India exported
470,520 tons of spices valued at US$ 11.68 billionan all-time highin 2011-2014.
44

During the 2013-14, 444,250 tons valued at US$ 11.01 billion were exported. Compared
with 2013-14, exports had shown an increase of 19 per cent in rupee value and six per
cent in dollar terms.

FOOD PROCESSING
The Indian packaged processed foods industry is estimated at US$ 10.87 billion
US$ 13.05 billion, including biscuits, chocolates, ice-cream, confectionery, snacks,
cheese and butter. Growing at a healthy 14-15 per cent over the past two-three years,
major players in the sector include Britannia, Nestle, Amul, ITC Foods, Parle, Kelloggs,
GlaxoSmithKline, Wrigley and Frito-Lay, among others.
The industry received foreign direct investments (FDI) totalling US$ 143.80
million in 2011-2014against US$ 5.70 million in the previous fiscal. The cumulative
FDI received by the industry from April 2000-August 2014 stood at US$ 878.32 million.
However, Indias share in exports of processed food in global trade is only 1.5 per
cent; whereas the size of the global processed-food market is estimated at US$ 3.2 trillion
and nearly 80 per cent of agricultural products in the developed countries get processed
and packaged.
In order to further grow the food processing industry, the government has
formulated a Vision-2015 action plan under which specific targets have been set. This
includes tripling the size of the food processing industry from around US$ 70 billion to
45

about US$ 210 billion, raising the level of processing of perishables from 6 per cent to 20
per cent, increasing value addition from 20 per cent to 35 per cent, and enhancing Indias
share in global food trade from 1.5 per cent to 3 per cent. This would require an
investment of US$ 20.6 billion.
According to an Ernst and Young (E&Y) presentation, the food processing
industry in India will grow 30-40 per cent as against the present 15 per cent in the next
10-years.
Prime Minister Dr Manmohan Singh on October 6, 2010 laid out a blueprint for
rapid growth in the countrys food processing sector. The Prime Minister said that this
can be achieved by simplifying the tax structure, formulating a National Food Processing
Policy and improving rural infrastructure.
Moreover, according to Union Minister for Food Processing Industries, Subodh
Kant Sahai the central government is envisaging an investment of US$ 21.50 billion in
the food processing industry over the next five years, a major chunk of which it plans to
attract from the private sector and financial institutions.

SNACKS AND CONFECTIONERY

The Indian market holds enormous growth potential for snack food, which is
estimated to be worth US$ 3 billion, with the branded snack market estimated to be
around US$ 1.34 billion, growing at 15-20 per cent a year. While the growth rate of the
US$ 1.56 billion unorganised sector is 7-8 per cent.

46

HEALTH FOOD
Recognizing the growth potential of the branded health food sector in India, fast
moving consumer goods (FMCG) majors are foraying into this sector in a big way. As
Hindustan Lever Ltd (HUL) is test marketing its health food brand, Kissan Amaze, in
three southern states in India, Godrej Hershey Foods & Beverages Ltd (GHFBL), a joint
venture between Godrej Beverages & Foods Ltd and Hershey Company, is planning to
introduce select brands from its international portfolio in the domestic market.
DAIRY
According to Dairy India 2014 estimates, the current size of the Indian dairy
sector is US$ 62.67 billion and has been growing at a rate of 5 per cent a year. The dairy
exports in 201112 rose to US$ 210.5 million against US$ 113.57 last fiscal, whereas the
domestic dairy sector is slated to cross US$ 110 billion in revenues by 2014.
India continues to be the largest producer of milk in the world. It produced 110
million tons of milk in 2011-2014.
BEVERAGES
According to industry experts, the market for carbonated drinks in India is worth
US$ 1.5 billion while the juice and juice-based drinks market accounts for US$ 0.25
billion. Growing at a rate of 25 per cent, the fruit-drinks category is one of the fastest
growing in the beverages market. Sports and energy drinks, which currently have a low
penetration in the Indian market, have sufficient potential to grow.
47

The market for alcoholic beverages has been growing consistently. 'The Future of
Wine', a report on the state of the wine industry over 50 years, suggests that the market
for wine in India was growing at over 25 per cent per year.
MAJOR INVESTMENTS
Private investment has been one of the key drivers for growth of the Indian food
industry. The 'India Food Report 2014', reveals that the total amount of investments in the
food processing sector in the pipeline for the next three years is about US$ 23 billion.

The government has received around 40 expressions of interest (EoI) for the
setting up of 10 MFPs with an investment of US$ 514.37 million.

Reliance Industries Ltd has invested US$ 1.25 billion in a dairy project.

Focusing on India as a rapidly growing market, US soft drinks giant Pepsico

would pump in an estimated US$ 152.30 million to set up four new food and
beverages projects by 2014.

Geneva-based food service chain Global Franchise Architects (GFA) aims to open
250 stores around the world by MARCH 2014, of which 100 will be in India.

GOVERNMENT INITIATIVES
The new trade policy places increased focus on agro-based industries.

Food processing industries have been put in the list of priority sectors for bank
lending. The Centre has also announced a series of new initiatives which include a

48

separate policy at the state level, thrust on contract farming and making the sector
tax-free.

The government plans to open 30 mega food parks by the end of the 11th five
year plan (2011-2014).

Fruit and vegetable processing units have been completely exempted from paying
excise duty.

Automatic approval for foreign equity up to 100 per cent is permitted for most of
the processed food items.

Items like fruits and vegetables products, condensed milk, ice cream, meat
production have been completely exempted from Central Excise Duty.

Excise duty on ready to eat packaged foods and instant food mixes has been
brought down to 8 per cent from 16 per cent.

Excise duty on aerated drinks has been reduced to 16 per cent from 24 per cent.

The Ministry of Food Processing Industry would assist in the setting up of more
food processing units so that the industry could create 10 million jobs by 2015,
according to Mr Subodh Kant Sahai, Union Minister for Food Processing.

LOOKING AHEAD
According to the India Food and Drink Report Q3 2011 by research analysis firm
Research and Markets, by 2014, Indias processed food output is likely to grow by 44.2
per cent to touch US$ 90.1 billion, while packaged food sales will increase by 67.5 per
cent to reach US$ 21.7 billion. On a per capita basis, per capita packaged food spending
is expected to grow by 56.5 per cent to US$ 18.06 by 2014.

49

Moreover, according to a FICCI-E&Y study on the Indian food industry,

investment opportunities in the Indian food industry are set to shoot up by a huge 42.5
per cent to US$ 181 billion in 2015 and to US$ 318 billion by 2020.

50

COMPANY PROFILE
About Us (Over View of the company)
The Heritage Group, founded in 1992 by Sri Nara Chandra Babu Naidu, is one of
the fastest growing Private Sector Enterprises in India, with four-business divisions viz.,
Dairy, Retail, Agri, and Bakery under its flagship Company Heritage Foods (India)
Limited (HFIL). The annual turnover of Heritage Foods crossed Rs.1096 crores in 201314.
Presently Heritages milk products have market presence in Andhra Pradesh,
Karnataka, Kerala, Tamil Nadu, Maharashtra and Orissa and its retail stores across
Bangalore, Chennai and Hyderabad. Integrated agri operations are in Chittoor and Medak
Districts and these are backbone to retail operations and the state of art Bakery division at
Uppal, Hyderabad, Telangana.
In the year 1994, HFIL went to Public Issue to raise resources, which was
oversubscribed 54 times and its shares are listed under B1 Category on BSE (Stock Code:
519552) and NSE (Stock Code: HERITGFOOD)
About the founder:
Sri Chandra Babu Naidu is one of the greatest Dynamic, Pragmatic, Progressive
and Visionary Leaders of the 21st Century. With an objective of bringing prosperity in to
the rural families through co-operative efforts, he along with his relatives, friends and
associates promoted Heritage Foods in the year 1992 taking opportunity from the

51

Industrial Policy, 1991 of the Government of India and he has been successful in his
endeavour.
At present, Heritage has market presence in all the states of South India. More
than three thousand villages and five lakh farmers are being benefited in these states. On
the other side, Heritage is serving more than 6 lakh customers needs, employing more
than 700 employees and generating indirectly employment opportunity to more than 5000
people. Beginning with a humble annual turnover of just Rs.4.38 crores in 1993-94, the
sales turnover has reached close to Rs.1096 crores during the financial year 2010-2011.
Sri Naidu held various coveted and honorable positions including Chief Minister
of Andhra Pradesh, Minister for Finance & Revenue, Minister for Archives &
Cinematography, Member of the A.P. Legislative Assembly, Director of A.P. Small
Industries Development Corporation, and Chairman of Karshaka Parishad.
Sri Naidu has won numerous awards including " Member of the World Economic
Forum's Dream Cabinet" (Time Asia ), "South Asian of the Year " (Time Asia ), "
Business Person of the Year " (Economic Times), and " IT Indian of the Millennium "
( India Today).
Sri Naidu was chosen as one of 50 leaders at the forefront of change in the year
2000 by the Business Week magazine for being an unflinching proponent of technology
and for his drive to transform the State of Andhra Pradesh .

52

Forward looking statements: We have grown, and intended to grow, focusing on

harnessing our willingness to experiment and innovate our ability to transform our drive
towards excellence in quality, our people first attitude and our strategic direction.
Mission & vision
Mission
Bringing prosperity into rural families of India through co-operative efforts and providing
customers with hygienic, affordable and convenient supply of "Fresh and Healthy" food
products.
Vision
To be a progressive billion dollar organization with a pan India foot print by 2015.
To achieve this by delighting customers with "Fresh and Healthy" food products, those
are a benchmark for quality in the industry.
We are committed to enhanced prosperity and the empowerment of the farming
community through our unique "Relationship Farming" Model.
To be a preferred employer by nurturing entrepreneurship, managing career aspirations
and providing innovative avenues for enhanced employee prosperity.
Heritage Slogan:
When you are healthy, we are healthy
When you are happy, we are happy
We live for your "HEALTH & HAPPINESS"

53

PROMOTERS (HINT: - CEO, DIRECTORS)

Board Of Directors
Sri D. Seetharamiah
Chairman
Dr. A. Appa Rao
Director
Dr. V. Nagaraja Naidu
Director
Dr. N. R Sivaswamy
Director
Sri N. P Ramakrishna
Director
Smt N. Bhuvaneswari
Vice-Chairman & Managing Director
Sri Lokesh Nara
Executive Director
Core Management Team
Dr. M. SambaSiva Rao
President
CA A Prabhakara Naidu Vice President
Umakanta Barik
Company Secretary
K Durga Prasada Rao
Chief Operating Officer
S Jagdish Krishnan
Chief Operating Officer
Anil Kumar Srivastava
Chief Operating Officer
Quality policy of HFIL:
We are committed to achieve customer satisfaction through hygienically
processed and packed Milk and Milk Products. We strive to continually improve the
quality of our products and services through upgradation of technologies and systems.
Heritage's soul has always been imbibed with an unwritten perpetual commitment
to itself, to always produce and provide quality products with continuous efforts to
improve the process and environment.
Adhering to its moral commitment and its continuous drive to achieve excellence
in quality of Milk, Milk products & Systems, Heritage has always been laying emphasis
on not only reviewing & re-defining quality standards, but also in implementing them
successfully. All activities of Processing, Quality control, Purchase, Stores, Marketing

54

and Training have been documented with detailed quality plans in each of the
departments.
Today Heritage feels that the ISO certificate is not only an epitome of achieved
targets, but also a scale to identify & reckon, what is yet to be achieved on a continuous
basis. Though, it is a beginning, Heritage has initiated the process of standardizing and
adopting similar quality systems at most of its other plants.
Commitments:
Milk Producers:
Change in life styles of rural families in terms of:

Regular high income through co-operative efforts.

Women participation in income generation .

Saved from price exploitation by un-organized sector .

Remunerative prices for milk.

Increase of milk productivity through input and extension activities

Shift from risky agriculture to dairy farming

Heritage

Financial support for purchase of cattle; insuring cattle

55

Establishment of Cattle Health Care Centers

Supplying high quality Cattle feed

Organizing "Rythu Sadasu" and Video programmes for educating the farmers in
dairy farming

Customers:

Timely Supply of Quality & Healthy Products

Supply high quality milk and milk products at affordable prices

Focused on Nutritional Foods

More than 4 lakh happy customers

High customer satisfaction

24 hours help lines ( <10 complaints a day)

Employees:

Enhancing the Technical and Managerial skills of Employees through continuous

training and development

Best appraisal systems to motivate employees

Incentive, bonus and reward systems to encourage employees

56

Heritage forges ahead with a motto "add value to everything you do"

Shareholders:
Returns: Consistent Dividend Payment since Public Issue (January 1995)
Service:

Highest impotence to investor service; no notice from any regulatory authority

since 2001 in respect of investor service

Very transparent disclosures

Suppliers:
Doehlar: technical collaboration in Milk drinks, yogurts drinks and fruit
flavoured drinks Alfa-Laval: supplier of high-end machinery and technical support
Focusing on Tetra pack association for products package.
QUALITIES OF MANAGEMENT PRINCIPLES:
1. Customer focus to understand and meet the changing needs and expectations of
customers.
2. People involvement to promote team work and tap the potential of people.
3. Leadership to set constancy of purpose and promote quality culture trough out the
organization.
4. Process approach to assess the efficiency and effectiveness of each process.
57

5. Systems approach to understand the sequence and interaction of process.

6. Factual approach to decision making to ensure its accuracy.
7. Continual improvement processes for improved business results.
8. Development of suppliers to get right product and services in right time at right
place.
Fact Sheet (Milestones)
Awards & Recognition 1st prize in Energy Conservation
Main Dairy Plant, Gokul, near Kasipentla on Tirupati- Chittoor Highway had won
the Prestigious 1st prize in Energy Conservation for the Year 2010 at the National Level
for it's outstanding performance in conserving the Natural Resources through the most
efficient use of Energy.
THE GREAT INDIAN ICE CREAM CONTEST 2009

Contact us (Hint :- Address Of the company or plant location Head Office)

Corporate Office
Heritage Foods (India) Limited
58

6-3-541/C, Panjagutta,
Hyderabad, AP.
Phone : 040 - 23391221/222
Fax : 040 - 23318090
Email : hfil@heritagefoods.co.in

59

Products of the company (For Marketing Projects with Logo if it is possible)

Milk
2.Full

Cream 3.Double

1.Toned Milk Milk

7.UHT Toned 8.UHT

Toned Milk
Slim 9.Smart

Milk
Milk
Milk
Milk Products - Fresh
2.Full Cream
1.Toned Milk Milk
Curd Cup
7.Garlic

6.Slim

Milk
10.Manjunath

d Milk
11.Ezhumalai

Milk
12.Padman

a Milk

Milk

abha Milk
6.Jeera

Curd 3.Curd

Cup

4.Golden Cow 5.Standardise

4.Fruit n Curd

Butter

Pouch
9.Cooking

Cup
10.Pasturised

5.Butter Milk
11.Cheese

Milk
12.Cheese

Butter Milk
8.Paneer
13.Cheese -

Butter

Table Butter

Chiplets

Slice

Carton & Tin

15.Milk

16.Malai

Packs
14.Doodhpeda Cake
Milk Products - Long Shelf Life
1.Ghee
Polypack
Cow

- 2.Ghee

Laddu

18.Soan
17.Sunundalu

Papidi

Alu

& Foil - Cow & 3.Ghee Jar - 4.Ghee Tin - 5.Skimmed

6.Dairy

Buffalo
Ice Cream
1.Small Cup
7.Celebration

Buffalo

Cow

Buffalo

Milk Powder

Whitener

2.Large Cup

3.Kulfi
9.Bar

4.Twin Bars

5.Sundae
11.Sundae

6.Novelties
12.Home

Cone

8.Chocobars
14.Premium

Novelties
15.Utsav

10.Juicy Bar
16.Party

Magic

Packs

13.Eco-Packs
Beverages
1.Packaged

Tubs

Packs

Packs

Drinking

2.Premium

3.Popular

4.Flavoured Milk Milk

Water

Tea

Tea

- Bottles

5.Flavoured

60

Tetrapack

- 6.Sweet
Lassi

8.Instant
7.Fruit Lassi
Coffee
Cleaning Aids

9.Ground
Coffee
6.Floor

1.Utensil

2.Toilet

Cleaners
Cleaners
Daily Fresh Needs

3.Solid

4.Glass/Other

5.Bar

Cleaner

Freshener

Cleaners

Detergents

3.Heritage

4.Heritage

5.Heritage

6.Herita

Brown

Premium

Milk Sandwich

ge Fruit

1.Poultry

2.Heritage

Eggs
7.Heritage

Milk Bread
Bread
8.Instant Mix

Bread

Bread

Bread

Mumbai Pav
Food
General Merchandise
6.Kitch
1.Toilet

2.Paper

3.Face

en

Tissues
Towels
Tissues
Health & Beauty
2.Liquid Hand 3.Tooth
1.Hair Oils
Instant Food

Wash

4.Candles

5.Agarbatti

Towels

Brush
6.South
Indian
4.North

1.Appalams
7.Vermicelli
Ready Foods
1.Chilly/Soya

2.Cereal Based 3.Fryums

Based
7.Tomato

2.Honey

Indian

Ready Mixes

3.Indian

4.Jams/Marmala

Sweets

des

Based

61

Ready
5.Papads

Mixes

5.Namkeens

6.Pickle

62

CHAPTER-IV

ANALYSIS AND INTERPRETATION

63

HERITAGE FOODS INDIA LIMITED

REVENUE BUDGET
TABLE-I
No

Particulars

(RS IN CRORES)
Budgeted
Estimated

Actual
for

the year 2015-16

Amount

the

for
year

SMTP

2015-16
Amount

Rs\mt

Sales

Fixed and recovery

724

72.4

618

61.8

Variable cost recovery

840

84.0

740

74.0

Fuel price adjustment 820

82.0

863

86.3

recovery
Own consumption

132

13.2

148

14.8

Total of .1

2516

251.6

2369

236.9

Average intensives

102

10.2

98

9.8

Other income

56

5.6

49

4.9

Grand total(1+2+3)

2674

267.4

2516

251.6

INTERPRETATION:

64

The data pertaining to the generation and consumption of DAIRY PRODUCT at

Heritage Foods India Limited have been obtained

from the year 2015-16 and

presented in Table-1.The aspect included are total generation of DAIRY PRODUCT

in(cores Rs) and utilization for auxiliary consumption, raw material consumption and line
store respectively.
During the year 2015-16 the sales, fixed cost, variable cost, fuel price,
consumption was decreased. When the estimated budgeted, so sales consumption is
236.9% respectively.
During the year 2015-16 the average intensives are decreased 9.8%,there income
also decreased 4.9% respectively.
Finally, with regard to the result in revenue budget of Heritage DAIRY PRODUCT
industries limited, totally decreased 251.6% in the year 2015-16 respectively.

THE HERITAGE INDUSTRIES LIMITEED OPERATIONAL EXPENDITURE

BUDGET FOR THE YEAR 2015-16

65

TABLE-II
Sino

(RS IN CRORES)
Particulars

Budgeted estimated

Actual for the year

Variable cost

for the 2015-16

Amount

Rs

2015-16
Amount

Rs

2
3
4
5

Raw material
Milk
Total of .1
Operative

420
200
870

42.0
20.0
87.0

450
220
920

45.0
22.0
92.0

cost
Chemicals and 130

13.0

150

15.0

water
Repairs

28.0

300

30.0

32.0

350

35.0

& 65

6.5

80

8.0

11
of 8

1.1
0.8

13
10

1.3
1.0

168.4

903

90.3

maintained

& 280

maintenance
8

Employee cost

Stationary

320

general
10
11

expenses
Rebate
Share
operating

12
13

expenses
Total of-2
Finance

14
15

charges
Deprecation
42
Interest
on 18

4.2
1.8

15
20

1.5
2.0

16

fixed capital
Totalof-3

6.0

35

3.5

1684

60
66

17

Gland

total 1744

17.44

1916

191.6

(1+2+3)
INTERPRETATION:
Observed from the above table that the "Operational Expenditure Budget" of Heritage
Foods India Limited in the year 2015-16.
In the year 2015-16 variable cost components, Raw material consumption 45%
increased and the milk consumption 47% also increased.
In operating & maintain aces cost components, chemicals & water, repair &
maintenance, employee cost, stationary & general expenses rebate and share of other
expenses in all are fluctuating expenses of the year 2015-16.how ever the total operating
maintenance costs are 90.3% decreasing respectively.

In finance charges depreciation and interest on fixed capital, has been included, the
total finance charges recording decreasing of 3.5% in the year 2015-16 respectively.
Finally with regard to the operational expenditure budget of Heritage Foods India
Limited the total profit has increase with 191.6% during the year 2014-16.
The overall budget results of Heritage DAIRY PRODUCT is industries limited is
earning more profits.

CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH, 2016

CASH FLOW FROM OPERATING ACTIVITIES

Net profit before tax
Adjustments for:
Deprecation
67

3,41,78,32,892

80,92,92,132

58,30,64,022

51,57,16,762

Loss/profit on food assets sold/disable

5,45,85,229

Loss on sale of long term investments

3,58,952

Income from long term investments (other trades)

4,91,46,881

2,61,37,771

Interest paid/payable on loans etc

interest received/receivable on loans
provision for doubtful debts/advances/deposits
provision fro doubtful debts/deposits(net)
debts/advances/deposits written off
long term investments(other than trade)written off
Unrealized loss/gain on foreign currency

33,50,30,376
2,50,55,563
3,82,15,119
5,34,50,070
7,700
2,95,96,073

32,75,37,771
9,05,21,426

fluctuation
provision for diminution in value of investments

5 ,76,15,772
-

93,92,067
55,44,394
19,16,075

-----4,28,13,42,377
OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES
Adjustment for:
Inventories
(1,21,69,75,334)
Trade and other receivables
(50,17,40,397)
Trade payable
65,61,02,594

(24,94,24,615)
2,92,62,288
(20,01,35,,318)

Cash generated from operations

Direct taxes/refund
Net cash from operating activities

6,31,57,979
1,10,42,01,672

(93,49,80,671)
1,98,37,48,569

1,10,09,232
1,46,13,41,338

CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2016
Cash flow from investigating activities
purchase of fixed assets
Sale of fixed assets
Proceeds from sale of refractory unit
Investment in shares
Proceeds from sale of refractory
Unit from sale of shares
Incomefrom long team investments
Loans/deposits given
Registration of loans/deposits given
Interest received on loans
Net cashused in investing activities
Cash flow from financing activities
68

(4,17,22,87,73)

(2,22,09,13,891

6,22,31,087
1,60,00,000
2,66,224

)
6,83,68,985
2,50,00,000
2,01,87,974

13,42,476
4,91,46,881
65,05,00,000
1,00,80,000
2,13,22,677
3,66,50,30,842

-2,51,37,527
1,15,90,00,000
1,48,08,25,000
8,07,36,965
8,07,36,965

Allotment money
released
Long term borrowings
Short-term borrowings
Long-term borrowings
Short-term borrowings

3,150
3,47,00,00,000
11,53,25,82,956
(70,31,00,557)
(11,99,94,40,000)

4,500
1,93,00,00,000
5,53,69,08,223
(48,37,39,218)
(5,91,42,30,841

Increase in cash credit and overdrafts from banks

Interest paid

23,36,27,575
(48,27,22,502)

)
7,66,75,770
(33,84,31,360)

Dividends paid
Net cash from financing activities
Net increase in cash and cash equivalents
Opening cash and cash equivalents

(35,06,99,081)
1,70,53,90,985
2,41,08,712
24,83,13,629

(13,05,42,125)
67,42,71,694
5,04,39,979
19,78,35,867

Cash and cash equivalents taken over

Consequent upon imagination
Closing cash and cash equivalents

---27,24,22,341

37,783
24,83,13,629

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2016
Schedule
Sales
Less excise duty
Net sales
Other income

13

EXPENDITURE
Finished goods
14
And administration expenses
15
deprecation
Less transfer from capital
reserve of asserts
Schedule
Interest
16
PROFIT BEFORE TAXATION
Provision for current taxation
Provision for benefit tax
profit after taxation
PROFIT
AVAILABLE
FOR

2014-15
25,16,45,89,369
3,07,41,00,000
22,06,96,60,339
49,04,06,410
22,58,00,66,749

2015-16
18,17,81,55,294
2,04,63,80,752
16,13,17,74,542
53,74,29,621
16,66,92,64,153

9,20,98,35,678
9,03,43,03,781
59,52,33,509

7,61,14,89,922
7,40,51,67,576
53,05,56,255

1,21,74,487
52,30,64,022
33, 50,30,375

1,48,449,493
51,57,16,762
32,75,37,771

75,00,00,000
1,10,00,000
2,65,68,32,892
2,65,68,32,892

34,00,00,000
1,22,00,000
45,70,92,132
45,70,92,132

APPROPRIATION
69

Proposed dividend
Tax on proposed dividend
Intendividend
Tax on intent dividend
General resene
Balance Carried To Shcedule2
Earnings per share

----------18,29,73,272
2,56,,62,001
30,00,00,000
50,86,35,273
2,14,81,97,619
58.08

13,72,29,954
1,92,46,501
-----------5,00,00,000
20,64,70,455
25,06,15,677
9.99

BALANCE SHEET OF HERITAGE FOODS INDIA Ltd

(Rs.Crore)

70

Balance Sheet of Heritage Foods

------------------- in Rs. Cr. -------------------

Mar '16 Mar '15 Mar '14 Mar '13

Mar '12

12 mths 12 mths 12 mths 12 mths

12 mths

Sources Of Funds
Total Share Capital

23.20

11.60

11.53

11.53

11.53

Equity Share Capital

23.20

11.60

11.53

11.53

11.53

Share Application Money

0.00

0.00

0.00

3.19

3.19

Preference Share Capital

0.00

0.00

0.00

0.00

0.00

Reserves

155.79

130.29

81.60

71.82

72.16

Networth

178.99

141.89

93.13

86.54

86.88

Secured Loans

127.42

98.18

129.37

176.61

175.53

0.00

0.00

11.00

9.45

8.92

Total Debt

127.42

98.18

140.37

186.06

184.45

Total Liabilities

306.41

240.07

233.50

272.60

271.33

Mar '15 Mar '14 Mar '13 Mar '12

Mar '11

12 mths 12 mths 12 mths 12 mths

12 mths

Unsecured Loans

Application Of Funds
Gross Block

408.41

353.48

337.29

317.50

294.24

0.00

0.00

0.00

0.00

0.00

Less: Accum. Depreciation

136.93

116.69

107.03

95.78

79.00

Net Block

271.48

236.79

230.26

221.72

215.24

11.12

8.27

8.92

11.98

8.71

0.99

1.12

1.12

1.02

0.92

108.55

82.09

93.45

66.07

76.31

Sundry Debtors

16.61

15.07

11.20

14.44

12.08

Cash and Bank Balance

44.42

32.95

29.99

26.58

22.25

130.11 134.64

107.09

110.64

33.41

36.05

Less: Revaluation
Reserves

Capital Work in Progress

Investments
Inventories

Total Current Assets

169.58

Loans and Advances

38.88
71

34.49

34.13

Fixed Deposits

0.00

0.00

0.00

3.86

2.39

208.46

164.60

168.77

144.36

149.08

0.00

0.00

0.00

0.00

0.00

171.82

161.54

165.56

100.41

95.01

13.81

9.19

10.03

6.08

7.60

Total CL & Provisions

185.63

170.73

175.59

106.49

102.61

Net Current Assets

22.83

-6.13

-6.82

37.87

46.47

0.00

0.00

0.00

0.00

0.00

306.42

240.05

233.48

272.59

271.34

Contingent Liabilities

52.04

55.90

56.00

14.63

8.49

Book Value (Rs)

77.16

122.32

80.77

72.29

72.59

Total CA, Loans &

Advances
Deferred Credit
Current Liabilities
Provisions

Miscellaneous Expenses
Total Assets

Source : Dion Global Solutions Limited

CHAPTER-VI
72

CONCLUSION & SUGGESTIONS

SUGGESTIONS
Planning has become the primary function of management most of the planning
Relates to individual situations and individual proposals. Budgets are nothing but
Expressions largely in financial terms, budgetary control has, therefore become and
essential Tool of management for controlling and maximizing profits.

The company objectives organization and how they can be achieved through
budgetary control.
Time-tables for all stages of budgeting follows.
Reports, statements, forms and other record to be maintained.
Continuous comparison of actual performance with budgeted performance.

CONCLUSIONS
73

Every organization has predetermined set of objectives and goals, but reaching
their objectives and goals by proper planning and executing of these plans
economically.
The Heritage Foods India Limited is objectives of planning promoting and
organizing an integrated development of dairy product Company.
The corporation machine of Heritage Dairy Product industries is to make
available and quickly dairy product in increasingly small quantities, the company will
spear head the process of accelerated development of dairy product sector by
expeditiously.
The organization needs the capable personalities as management makes the
plans and implement of these plans are expressed in terms of budget and budgetary
control.
The Heritage Foods India Limited has budget process in two stages. one is the
capital expenditure budget and another is operating maintenance budget, the capital
expenditure budget shows the list of capital projects selected for investment along
with their estimated costs, operating maintenance budgets, the medical budgets are
rarely used in the organization like long term budgets, search & development budget
for consultancy.
The Heritage dairy product industries ladies to make available and quality dairy
product efficient utilization of its resource and implementation of sophisticated
technology and dairy product generation and also creating ambience of collective
working of its employees.

BIBLIOGRAPHY
74

S.No

Author

Title of the Book

1.

S .KRISHNA
MURTHY

2.

V.A. AVADHANI

4.

Donald E. Fischer and

Ronald J. Jordan

MUTUAL
FUNDS IN
INDIA
INVESTMENT
MANAGEMENT
Security and
Portfolio
Management

FACT SHEETS OF

Edition

Year of
Publication

Name of the
Publication

Second
Edition

1999

Chandra Bose

Fourth
Edition

2000

Sixth
Edition

2006

Himalaya
publications
Tata McGraw
Hill.

: PRU ICICI, SBI, HDFC, UTI MUTUAL FUND

Web References & Magazines

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www.sbimf.com
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www.bseindia.com
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www.amfiindia.com
Economic times
Business world

75