A study on budgetory control system conducted at hassan co operative milk producers societies ltd.

A Study On Budgetary Control System

1.1 Problem Statement
Hassan Milk Union is the producer of milk and various milk products and
prepares a budget estimating the various expenses and income for each financial year.
The budget is prepared by the accounts department in consultation with the various other
departments.

However, the estimated figure does not match with the actual figures always. Milk
procurement is based on population of milch animal, availability of green fodder. It is
almost impossible to predict the exact figures and so deviations are bound to occur. Thus,
it becomes necessary to identify the deviations and analyse the reasons for the same.
Thus, this study focuses on the calculation of the deviation and ascertaining the reasons
for the same.

1.2 Objectives

An effective budgeting system is very vital to the success of any organization.
Thus a detailed study on the budget and the budgetary system is being carried out with the
following objectives:

1. The main objective is to study about the budgetary system which is being
followed at Hassan Milk Union and evaluate the same to know the limitations in
the existing system.
2. Computation and analysis of variances for the purpose of control and performance
evaluation.
3. Basis on which the yearly budgets are prepared and measures taken to control in
variances.

Thus, the detail study on the budgetary control system would give a knowledge on
how controlling is carried out in an organization.

H.R.I.H.E, Hassan Page 1


1.3 Scope of the Study

The study is extended to the accounts department of Hassan Milk Union. The data
has been collected for the financial year 2008-09 and has been analysed using pictorial
diagrams like graphs, bar and column charts etc. Most of the data has been collected from
secondary sources.

1.4 Research Methodology

The study is conducted at Hassan co-operative Milk Producers Societies union
Limited, which is situated at B M Road, Hassan over a period of 10 weeks.

1.5 Data Collection Method

In order to fulfil the objectives of the study the data has been collected from both-

• Primary Data
• Secondary Data

Primary Data
To generate primary data for the analysis, discussion was made with company
assistant manager of finance, accountants and other officials from the accounts
department. The data collected from such discussions are coordinated, analyzed and
integrated in this study.

Secondary Data

For gathering secondary data various other sources were used, which are-

• Different accounting records of the company.
• Magazines and journals
• Internets and other publication.



1.6 Limitations of the Study
There are bound to be certain limitations while carrying out a study in an
organisation.

• Due to busy schedule of the employees, it was not possible to get access to “each
and every”, information.
• Due to certain constraints, current data could not be disclosed.



2.1 Introduction
One the primary functions of the management is planning. Most of the planning
relates to individual situations and individual proposals. However, this has to be
supplemented and reinforced by overall periodic planning followed by continuous
comparison of the actual performance with the planned performance. Budgetary control
has, therefore, become as essential tool of management for controlling costs and
maximizing

“Budget” and “Budgeting” are concepts traceable to the bible days, precisely the
days of Joseph in Egypt. It was reported that “nothing was given out of the treasure
without a written order”. History has it that Joseph budgeted and stored grains which
lasted the Egyptians throughout the seven years of famine.

Budgets were first introduced in the 1920s as a tool to manage costs and cash
flows in large industrial organizations. Johnson states that it was during the 1960s that
companies began to use budgets to dictate what people needed to do. In the 1970s
performance improvement was based on meeting financial targets rather than
effectiveness. Companies then faced problems in the 1980s and 1990s when they were
not willing to spend money on innovations in order to stay with the rigid budgets; they
were no longer concerned about how customers were being treated; only meeting sales
targets became essential.

Budgeting in business organizations is formally associated with the advent of
industrial capitalism for the industrial revolution of the eighteenth century, which
presented a challenge for industrial management.

Glautier and Under (1987) state that “the emergence of scientific management
philosophy with its emphasis on detailed info’ as a basis for taking decision provided a
tremendous impetus for the development of management accounting and indeed
budgeting techniques”.



However, budgeting at the early stage of its development was concerned with
preparing and presenting credible information to legitimize accountability and to permit
correct performance evaluation and consequently, rewards.

Over the years, the function and focus of budgeting has shifted considerably and
business organization became more complex and their environment became dynamic
coupled with the emergence trend, the term budget and budgeting have been differently
defined and examined by various scholars in several ways.

The Institute Of Cost and Management Accountants (UK) defines a budget as “a
financial and/ or quantitative statement, prepared and approved prior to a defined period
of time, of the policy to be pursued during that period for the purpose of attaining a given
objective. It may include income, expenditure and the employment of capital.”

Omolehinwa (1989) defined a budget as a plan of dominant individuals in an
organization expressed in monetary terms and subject to the constraints imposed by the
participants and the environments, indicating how the available resources may be utilized,
to achieve whatever the dominant individuals agreed to be the organisation’s priorities.
The impressive thing about this definition is that, it recognizes the constraint imposed on
budget by other participants who are to ensure that the objectives and targets enunciated
in the budget are achieved.

Pandey (2003) defines budget as a short term financial plan. It is an action plan to
guide managers in achieving the objectives of the firm. The Tennessee board of Regents
(2006) defines budgeting as the process whereby the plans of an institutions are translated
into an itemized, authorized and systematic plan of operation, expressed in dollars for a
given period.

Budgeting, at both management level and operation level looks at the future and
lays down what has to be achieved. Control checks whether the plans are being realized
and put into effect corrective measures, where deviation or short-fall is occurring. Egan
emphasized that without effective controls, an enterprise will be at the mercy of internal
and external forces that can disrupt its efficiency, and be unaware; such enterprise will



not be able to combat such forces. When a budgeting and control system is in use,
budgets are established which set out in financial terms, the responsibility of managers in
relation to the requirement of the overall policy of the company. Continuous comparison
is made between the actual and budgeted results, which are intended to either secure,
thorough action of managers, the objectives of policy or to even provide a basis for policy
revision.

Budgets have now grown beyond a financial tool. It is above all managerial tool;
in essence, it is the best tool for making sure that key resources, especially performance
resource are assigned to priorities and to results. It is a tool that enables the manager to
know when to review and revise plans, either because results are different from
expectation or due to environmental, economic conditions, market conditions or
technologies change, which no longer correspond to the assumptions of the budget.

According to Hudson and Andrew (1996), control involves the making of
decisions based on relevant information which leads to plans and actions that improve the
utilization of the productive assets and services available to organizations management.
Effective control is said to be based on standards with which actual performance can be
compared. If there are no standards, then there can be no effective measure of attainment.
Effective control is a key management task which ensures that efforts produced at all
levels are commensurate with those required to ensure the long-term future effectiveness
and success of the organization.

2.2 Elements of a Successful Budget Plan

The success of the budgeting process in an organization depends on the following
essential elements:

• Accurate forecasting of business activities.
• Coordinating business activities.
• Communicating the budgets.
• Acceptance and cooperation.
• Reasonable flexibility.



• Providing a framework for evaluation.

2.3 Budgeting Process

The budgeting process varies widely from one organization to another.
Differences in management styles, organization objectives, structure of competition and
such other factors affect the procedures companies adopt in budget preparations.
However, the common steps are as follows:

 Obtaining estimates of sales, production levels, expected costs and availability of
resources from each sub-unit/division/department.
 Coordinating estimates.
 Communicating the budget to responsible managers and the concerned
departments.
 Implementing the budget plan.
 Reporting the interim progress towards budgeted objectives.

2.4 Fixed and Flexible Budgeting

Fixed Budgeting

The Institute of Cost and Management Accountants, London, defines a fixed
budget as the budget which is designed to remain unchanged irrespective of the level of
activity actually attained. It is based on a single level of activity. Fixed budgets do not
change when production level changes. This budget is rarely used as the actual output is
often significantly different from the budgeted output.

Flexible Budgeting

A flexible budget is a budget that is prepared for a range, i.e., for more than one
level of activity. It is a set of alternative budgets to different expected levels of activity.
This budget is also known as variable budget, dynamic budget, step budget, sliding scale
budget, expense formula budget and expense control budget. The underlying principle of
a flexible budget is that every business is dynamic, ever-changing and never static. A
flexible budget has the following features:


1. It covers a range of activity.
2. It is flexible and facilitates performance measurement and evaluation.

2.5 Types of Budget

Budgets are the end process of the budgeting process. The number and types of
budgets in a business enterprise depends on the size and nature of business. However, in a
manufacturing concern, the following budgets are generally prepared:

(A) Operating and Functional Budgets:
1. Sales budget.
2. Production budget.
3. Production cost budget.
(i) Direct material budget.
(ii) Direct labour budget.
(iii) Factory overhead budget.
4. Ending inventories budget.
5. Cost of goods sold budget.
6. Selling expense budget.
7. Administrative expense budget.
8. Budgeted income statement.
(B) Financial budgets:
1. Capital expenditure budget.
2. Research and development budget.
3. Cash budget.
4. Budgeted balance sheet.
5. Budgeted statement of changes in financial position.



Sales Budget

The most important budget, which all other budgets are contingent upon, is the
sales budget. Sales budget forecasts the future sales. The information about past
performance is the starting point for sales forecasting. After collecting all relevant
information sales budget is prepared.

Production Budget

After preparing sales budget, the production budget is prepared. A production
budget is stated in physical units. It specifies the number of units of each product that
must be produced to satisfy the sales forecasts and to achieve the desired level of closing
finished goods inventory.

Units to produce= budgeted sales + desired closing inventory of finished goods –
beginning inventory of finished goods.

Production Cost Budget

A production cost budget summarizes material budget, labour budget, the factory
overhead budget and may be expressed and analysed by departments and or products.

Ending Inventories Budget

An inventory budget can be prepared to find out the values of direct materials and
finished goods inventory.

Cost of Goods Sold Budget

A cost of goods sold budget summarizes direct material, direct labour, factory
overhead and ending inventory.

Selling Expense Budget

This budget shows the budgeted cost of promoting sales for the budget period. It
is also known as marketing expense budget.

Administrative Expense Budget



This budget covers the administrative costs for non-manufacturing business activities. It
contains expenses like directors’ remuneration, legal charges, audit fees, salaries, rent,
office expenses, postage, telephone etc.

Budgeted Income Statement

A budgeted income statement summarizes all the individual budgets, i.e., sales
budget, cost of goods sold budget, selling budget and administrative expense budget.

Capital Expenditure Budget

The budgeting of capital expenditure is one of the important areas of managerial
decisions. Capital expenditure budgets are prepared for both short and long- range
projects depending on the requirements of the business firm. Short- range projects are
implemented during the accounting period. Long-range projects are not executed in the
current period; they are expressed only in general terms. They become budget
commitments only when the time for their implementation approach

Cash Budget

A cash budget contains detailed estimates of cash receipts (cash inflows) and
disbursements (cash outflows) for the budget period or some other specific period. Such a
budget helps to ascertain the cash requirements needed for a plant or equipment
expansion programme. It shows the availability of funds for a given period of time and
thus helps to make financial decisions.

Projected Balance Sheet

A projected balance sheet represents the expected financial position at a particular
date. The projected balance sheet automatically determines the arithmetical accuracy of
other budgets since they are used in preparing the forecasted balance sheet.

Budgeted Statement of Changes in Financial Position



The projected statement of changes in financial position is usually prepared from
data in the budgeted income statement and changes between the projected balance sheet
at the beginning of the budget period and projected balance sheet at the end of the budget
period. This projected statement is very useful to management in the financial planning
process.

2.6 BUDGETARY CONTROL

Budgetary control is a means of control in which the actual state affairs is
compared with the budget so that appropriate action may be taken with regard to any
deviations before it is too late. The use of a budget to control a firm’s activities is known
as budgetary control. Budgetary control has the following main objectives:

1. To provide an organized procedure for planning. It provides a detailed plan of
action for a business over a definite period of time.
2. To coordinate all the activities of various departments of a business firm in such a
manner that the maximum profit will be achieved for the minimum use of
resources.
3. To provide a means of determining the responsibility for all deviations from the
plan (budget) and to supply information on the basis of which necessary corrective
action may be taken. Thus, budgetary control has the objective of controlling cost.

2.6.1 Budgetary Control as a Management Tool

Budgetary control has become an essential tool of management for controlling
costs and maximizing profits. It may be conceived as one of the supreme examples of the
rationality in management. It is a useful management tool in comparing the current
performance with the pre-planned performance with a view to attain equilibrium between
ends and means, output and effort. It corrects the deviations from pre-planned path
through the media of observation, research planning, control and decision-making and
thus helps in the performance of the future activities in an orderly way. It uncovers
uneconomies in operations, weaknesses in the organization structure and minimizes



wasteful spending. It acts as a friend, philosopher and guide to the management. Its
advantages to the management can be summarized as follows:

i. Brings Economy in Working – It brings efficiency and economy in the working of
the business enterprise. Budget helps to achieve a goal and attain the target. The
budget helps to bring about efficiency in the results.
ii. Establishes Coordination – It coordinates the various divisions of a business,
namely, the production, marketing, financial and administrative divisions. It
“forces the executives to think and think as a group”. This results in smoother
operation of the entire unit.
iii. Guards Against Undue Optimism – It guards against undue optimism leading to
over-expansion because the targets are fixed by executives after a careful thought.
iv. Acts as a Safety Signal – It acts as a safety signal for the management. It shows
when to proceed cautiously and when manufacturing can be safely undertaken. It
serves as an automatic check on the judgment of the executives as losses are
revealed in time which is a caution to the management to stop wastages.
v. Optimum Mix – It helps management in obtaining the most profitable
combination of different factors of production. This results in a more economical
use of capital.
vi. Management by Exception – Budgetary control reveals variations of actual
performance from budgeted performance. The variations point to the root
inefficiencies and thus enabling the management to consider only the items that do
not go according to plan and leave the others, i.e., to concentrate on exceptions.



2.6.2 Effective Budgetary Control

In order to make the budgetary system really effective, the management should
pay attention to the following aspects:

 Consultation with Non-financial Executives- The effective participation of non-
financial executives should be solicited in the formulation of the budget in order
to make each manager emotionally committed to the budget.
 Total Corporate Exercise- Budgeting should be a total corporate exercise.
Piecemeal budgeting cannot be effective.
 True Delegation of Authority and Responsibility- There should be a true
delegation of authority and responsibility beginning with top management itself.
Each executive should have maximum opportunity to take decisions within the
scope of his/her authority.
 Past Experience- Past experience is a useful guide for the future. It is, therefore,
necessary that points revealed by past experience should be taken note of while
formulating plans for the future.
 Minimum Limits only- budget should be taken as only minimum and not the
maximum level of performance. However, budget should not be suffocating.
Sufficient freedom should be given to the concerned executives within the overall
framework.
 Good Reporting System- Budgeting cannot be successful unless there is a proper
feed-back system. The reporting system should be so devised that it not only tells
about major variations but also the persons who are responsible for these
variations. The causes for the variances should be analyzed and the management
should be kept informed about the major and proper remedial measures should be
taken by the management at appropriate level and appropriate time.



2.6.3 Calculation of the Variances in Budgetary Control

Variances = Actual yearly total – Budgeted yearly total

% of variances = variance amount X 100

Budgeted yearly total

2.6.4 Limitations of Budgetary Control

The budgetary control system is not a perfect tool. It has its own limitations which are
as follows:

 Budgeting and Changing Economy- The preparation of a budget which gives a
realistic position of the firm’s affairs under inflationary pressure and changing
government policies is really difficult. Thus, the accurate position of the business
cannot be estimated.
 Time Factor- Accuracy in budgeting comes through experience. Management
must not expect too much during the development period.
 Not a Substitute for Management- Budget is only a management tool. It cannot
substitute management. Besides that no budgetary program can be successful
unless adequate arrangements are made for supervision and administration.
 Cooperation Required- The success of the budgetary control depends upon the
willing cooperation and teamwork. Budget officer must get co-operation from all
departmental managers. These managers must feel the responsibility for achieving
or bettering departmental goals laid down in the budget.



3.1 Industry Scenario

India is called the “country of villages” where it covers nearly 70% of its total
area. In this relation we can say that Indian economy is base on rural activities and their
development. Therefore we have to give prime importance to the rural activities.

A dairy is a place for handling milk and milk products. Technology refers to the
application of scientific knowledge for practical purposes. Dairy technology has been
defined as that branch of dairy science which deals with the processing of milk and the
milk products on an industrial scale. In developed dairying countries such as the USA the
year 1850 is seen as the dividing line between farm and factory scale production. Various
factors distribute to this change in these countries such as the concentration of the
population in cities where the jobs are plentiful, rapid industrialization, improvement of
transportation facilities, development of machines etc., The rural areas are identified for
the production, urban areas are for the processing of the milk.



3.2 Origin of Dairying in India

Around 1500 BC to 2000 BC the Aryans were first to domesticate cattle. Use
them for tilling their land obtain milk to be consumed as food. Again it were Aryans who
priced the milk of a cow more than its meat, forbade its slaughter, created legends about it
and even worshipped it. Hindus even to this day consider cow as sacred. Besides it were
only the East (India/China) which domesticated buffalo as milch animal and succeeded so
well that today, more than half the total production of milk in India is obtained from
buffalo.

Most of the farmers have one milk animal; they sell the milk through local milk
contractors or middlemen. These traders have always exploited the poor and uneducated
milk producers. It was in the late forties, when integrated approach for dairy development
based on farmers owned milk co-operative was first adopted at Anand. The system
includes milk procurement productions and marketing through farmer co-operatives. In
India, the market milk technology may be considered to have commenced in1950 with the
functioning of the Central Dairy of Aarey Milk Colony and milk product technology in
1956 with the establishment of AMUL dairy, Anand. The system of collective ownership,
operation and control of milk trade by farmers came to be known as ANAND PATTERN.
Anand pattern has given them an opportunity to have access to the modern technology.
The Brand ' ' is the household name for Pure and Fresh milk and milk products.

The premises institution is NDDB and IDC for application of the Anand pattern
throughout the country. The whole project under which replication was envisioned, is
named as “operation flood”. The success of Anand pattern depends as establishing a
strong co operative infrastructure at the grass root level, making economically viable to
strengthen.

Dairy industry offers employment opportunity to the people so as to help the
farmers to get fair price of milk. The farmers are provided with medical facilities to their
cattle. Milk is becoming an alternative life line in our rural economy. With the advent of
white revolution that is “SKHEERA KRANTI” in the same pattern of Denmark and
Holland.



Export of dairy products plays an important role in our foreign trade. It increases
the foreign exchange and national income of our country and also economic development
of our country.

3.3 History of Indian milk market industry:

• Organized milk handling was made in India with the establishment of Military
Dairy Farms
• Handling of milk in co operative milk unions established all over the country on a
small scale in early stages.
• Long distance refrigerated rail-transport of milk from Anand to Bombay since
1945.
• Pasteurization and bottling of milk on a large scale for organized distributed was
started at:

Aarey - 1950

Calcutta - 1958

Delhi - 1959

Mumbai - 1961

Madras - 1963

• Establishment of milk plants under the 3 year plans for dairy development all over
India. They were taken up the dual object of increasing the national level of milk
consumption and ensuring better returns to the primary milk producer.
Now India is one of the richest milk producing country in the world. In 1999 it produced
milk up to 770 lakhs tons and the milk valued up to 75000 crores and 13% of total
production in the world is produced by India itself.

3.4 Dairy Industry in Karnataka


3.4.1 Background

In June 1974, an integrated project was launched in Karnataka to restructure and
reorganize the dairy industry on the co-operative principle and to lay foundation for a new
direction in dairy development. Work on the first ever, World Bank aided dairy
development project was initiated in 1975. Initially the project covered 8 southern
districts of Karnataka and Karnataka Dairy Development Corporation was set up to
implement the project. Dairy developmental activities was set up with dairy co operative
societies at grass root level, milk unions at the middle level and dairy development
corporation at state level as an apex body with the responsibility of implementing Rs.51
crores project. After the closure of operation flood II the dairy development activities
which continued under operation flood III ended on 1996. The post operation flood works
are financed by NDDB under different terms and conditions.

KMF has 13 Milk Unions throughout the State which procure milk from Primary Dairy
Cooperative Societies (DCS) and distribute milk to the consumers in various
Towns/Cities/Rural markets in Karnataka.

Bangalore Belgaum

Dakshina Kannada Gulbarga

Shimoga Bijapur

Mysore Bellary

Mandya Dharwad

Tumkur Kolar

Hassan

The Corporate Office of the Karnataka Milk Federation is located on
Dr.M.H.Marigowda Road in Bangalore. The Federation has a Board consisting
representatives of Milk Producers and the Government nominees. The day to day
functions of the Federation is managed by a group of professional managers headed by
the Managing Director



Karnataka Cooperative Milk Producers' Federation Limited (KMF) is the Apex
Body in Karnataka representing Dairy Farmers' Co-operatives. It is the second largest
dairy co-operative amongst the dairy cooperatives in the country. In South India it stands
first in terms of procurement as well as sales. One of the core functions of the Federation
is marketing of Milk and Milk Products.

Mother Dairy, Bangalore, a Unit of KMF, is set up by NDDB on 7.12.1984. The
Dairy which has expanded from 4LLPD to capacity of 7.00 LLPD has a unique nature of
homogenising the milk and selling to its consumers through 50 Automatic Bulk Vending
Booths, 83 Shoppees and 70 FRP tanks. The Dairy also caters Milk in sachets and Milk
Products through its 289 retailers. The average sale of milk per day is 2.60 Lakh litres
during the year 2008-09. The entire requirement of milk is procured from Kolar Milk
Union. The Dairy produces Butter, Ghee, Curds, and Ice Cream & Skim Milk Powder.
The activities of all the Departments at Mother Dairy are being carried out through an on-
line computer system.



3.5 PROFILE OF HASSAN CO-OPERATIVE MILK
PRODUCER’S SOCIETIES UNION LTD

3.5.1 Introduction

The Union was registered on 30th March 1977 with the operational jurisdiction
extended to 3 Districts namely Hassan, Kodagu &Chikkamagalur.

The Dairy was setup under the Operation Flood II & III and has a processing
capacity of 1.2 Lakh Litres of milk per day. The Union also has a Dairy at Kudige with a
capacity of 50,000 litres per day which is the first Dairy in Karnataka State started during
January 1955.

The Union has three Chilling Centres at Birur, Holenarasipur and
channarayapatna with chilling capacity of 20000 liters per day at Birur and
Holenarasipura and 100000 liters per day at Channarayapatna. The Union also produces
Ghee, Peda, Curds, Khova and Butter Milk. The Union procures on an average 4.07 Lakh



litres of milk and sells 1.04 Lakh litres per day. There are 5 Bulk Milk Coolers & 46
Automatic Milk Collection Units in the Union.

Hassan Dairy was established under the World Bank aid with an initial handling
capacity of 60,000 KGPD and was being managed by Karnataka dairy development
corporation.

In the year 1987 with an idea of bringing all milk allied activities such as milk
procurement, milk processing and milk marketing the Hassan dairy and the Kudige dairy
(the first commission dairy plant) were handed over to Hassan Co operative Milk
Producers Societies Union. The integrated system of monitoring the milk procurement,
processing and marketing activities by milk producers themselves was established.

3.5.2 Mission Statement

Hassan milk union aims to render the best services at normal cost to its members
to increase milk production and produce good quality milk by paying remunerative price
throughout the year, thereby improving their economic and social condition while
ensuring high quality milk and milk products to the delighted level of the consumers at
competitive price.

3.5.3 Vision Statement

The union thrives hard to adopt the modern and eco friendly technologies to
produce milk and milk products of international standards to make our presence
prominent in the global market.

3.5.4 Aims and Objectives

Hassan Co-Operative Milk Producers’ Societies Union is completely an autonomous
body consisting of representatives from milk producers as policy makers

• To produce continuous and remunerative market for the surplus milk in the rural
areas.
• To supply quality milk to customers in the urban areas at a competitive price.



• To provide the technical inputs necessary to produce good quality milk and to
facilitate increase in milk yield.
• To provide self employment to rural folk and to make them economically self
sustainable by which the migration of rural folk to urban areas is minimized.
• To prevent the role of the middle men in the milk business and to increase their
returns.
• To establish a bridge between rural and urban folk and to play a vital role in
changing he social and economic status of the rural folk.

3.5.5 Role of Diary Co-Operative Society

The dairy co operatives are organized in rural areas for the milk producers keeping in
view the domestic principles and values. These societies educate, guide, and support the
milk producers in dairy development activities.

3.5.6 Functioning of Diary Co-Operatives

The dairy co operative function all through the year in two shifts, this will provide
continuous market for the surplus milk produced and the payment for the milk supplied
will be distributed to the producers on the predetermined day.

Input activities include:

• Veterinary services like regular vaccination
• Artificial insemination services
• Supply of balanced cattle feed and fodder slips
• Training facilities



3.5.7 Growth of the Union

The milk union which was established in the year 1977 with 100 functional dairy co
operatives collecting 10,300 Kgs of milk per day is procuring on an average 386462 Kgs
per day from 1122 co operatives as on date with the increase in milk production the
Hassan dairy with the initial capacity of 60,000 KGPD was expanded to 120000 KGPD
during 1996.The union has also established three chilling centers with a chilling capacity
of 20,000 KPD and 100000 KPD.

3.5.8 Activities of Hassan Milk Union

1. Organization of dairy co operative societies: As at the end of March 2010, 1197
societies have been registered. Out of functional societies, 330 women societies
are functioning.
2. Membership Enrolment: As on 31st March 2010 173396 members have been
enrolled of which 71046 are small farmer48866 are marginal farmers, 22199 are
agriculture labourers and 31285 are other big farmers.
3. Milk procurement activities: The present average milk procurement from 1122
milk societies is 386462 Kgs/day.

3.5.9 Product Profile

Milk is marketed under Nandini brand name in different types. The pricing
adopted is mainly on four categories namely:

• Double Toned Milk – Rs 14 /1000ml
• Toned Milk – Rs 16 /1000ml
• Standardized (homogenized) Milk – Rs 18 /1000ml
• Full Cream Milk – Rs 20 /1000ml
Apart from this, milk is marketed in 3 variants-

• Nandini Goodlife with 3.5% fat and 8.5% SNF
• Nandini Smart with 1.5% fat and 9% SNF
• Nandini Goodlife Slim with 0.5% fat and 9% SNF



Types of milk and milk products marketing by HAMUL

Nandini Toned Milk

Karnataka’s most favorite milk, Nandini Toned Milk is a Fresh and pure milk containing
3.0% fat and 8.5% SNF. Available in 500ml and 1 liter packs. Better to use within a day
from the date of pack. Maximum Retail Price is Rs. 13/- per liter.

Nandini Homogenized Toned Milk

Nandini Homogenized Milk is pure milk containing 3% Fat and 8.5% SNF. This is
homogenized and pasteurized. Consistent right through, it gives you more cups of tea or
coffee and is easily digestible. Available in 500 ml packets



Nandini Full Cream Milk

Nandini Full Cream Milk, Contains 6% Fat and 9% SNF. A rich, creamier and tastier
milk, ideal for preparing home-made sweets and savouries- available in 500ml and 1 litre
packs. MRP Rs. 15/- per litre

Good life

Cow's pure milk, UHT processed, bacteria free in a tamper-proof tetra-fino pack which
keeps this milk fresh for 60 days without refrigeration until opened. Available in 500 ml
Fino and in 200ml bricks at premium stores across the state.

Smart

Cow's pure milk, homogenized, double toned UHT processed milk bacteria free in a
tamper proof tetra fino pack which keep the milk fresh for 60days without refrigeration



until opened. At present the milk is being directly home delivered on request. Available in
500ml pack.

Slim

Cow's pure milk, homogenized, Skimmed. UHT processed milk bacteria free in a tamper
proof tetra-fino pack which keep the milk fresh for 60 days without refrigeration until
opened. Nandini Goodlife slim skimmed milk is 99.5% fat free. Available in 500ml Fino
and in200ml bricks at premium stores across the state.

Shubham

Buffalo's milk, 100% pure pasteurized processed and packed hygienically. This milk has
5% fat and 9% SNF. Available in 500ml and ltr, packs

Mysore pak



Fresh and tasty, Nandini Mysore Pak is made from quality Bengal Gram, Nandini Ghee
and Sugar. It's a delicious way to relish a sweet moment. Available in 250gms.PP
container shrink packed to preserve freshness. Can be kept for 7 days.advised to consume
fresh to enjoy its excellent taste

Nandini Curd

Nandini Curd made from pure milk. It’s thick and delicious giving you all the goodness
of homemade curds. Available in 200 grams and 500 grams packs. Nandini butter is rich
smooth and delicious. Nandini Butter is made out of fresh pasteurized cream. Rich taste,
smooth texture and the rich purity of cow’s milk, makes any preparation a delicious treat.
Available in 100 grams, 200grams and 500grams cartons both salted and unsalted.

Nandini Ghee

A taste of purity, Nandini Ghee made from pure butter. It is fresh and pure with a
delicious flavor. Hygienically manufactured and packed in a special pack to retain the
goodness of pure ghee, having Shelf life of 6 months at ambient temperatures. Available
in 200ml, 500ml, 1000ml, sachets and also in 5lts tins and 15.0 kg tins.

Nandini Butter



Nandini spiced buttermilk is a refreshing health drink. It is made from quality curds and is
blended with fresh green chillies, green coriander leaves, asafetida and fresh ginger.
Nandini spiced butter promotes health and easy digestion. It is available in 200ml packs
and is priced at most competitive rates, so that it is affordable to all sections of people.

Nandini Butter Milk

Nandini butter milk is Rich, smooth and delicious. Available in 100 grams (salted), 200
grams and 500 grams cartons both salted and unsalted.

Cheese



Delicious Cheese, processed with utmost care to ensure the smooth and rich taste of pure
cheese. It's highly nutritious an excellent source of milk proteins and a rich source of
calcium. Need to be kept under refrigeration. Available in 100gms carton

Paneer

Pure and tasty dishes with Nandini Paneer! A fresh, nutritive product made by
coagulating pure milk, it is an excellent source of milk protein. Nandini paneer is ideal for
vegetarian dishes such as mutter paneer, sag paneer and various other dishes.Refrigerated
storage in preferable. Available in 200gms pack, specially packed in a five layer film and
vacuum packed to preserve its quality. Bulk packings are also available.

Flavored milk



Sterilized flavored milk, a nutritious and healthy drink and an all-season wholesome drink
available in five different flavors - pineapple, rose, badam, pista and natural orange. Apart
from refreshing energy. Available in 200ml

Nandini Peda

No matter what you are celebrating! Made from pure milk, Nandini ‘Peda’ is a delicious
treat for the family. It is maintained at room temperature, for approximately 7 days.
Available in 250grams pack containing 10 pieces each.

Gulab jamon mix



Great way to those soft and juicy jamoon treats at home! Nandini Gulab Jamoon Mix is
made from Nandini skimmed milk powder, maida, soji and Nandini Special Grade
Ghee.Available in 100gms and 200 gms standy pouch with a five layer foil lamination
shelf life of 6 months

Khova

Khova is prepared out of fresh milk. It is an ideal base to prepare delicious sweets at
home like peda, Gulab Jamoon, Kalakand, Burfi, Gajar Halwa and the like. Nandini
Khova gives you a high nutritive value with large quantities of muscle building proteins,
bone forming minerals and energy giving fat and lactose. To be kept under refrigeration
available in 200gms vaccum packed in a special five layer pocu film Khova is also
available in bulk pack for marriages and other functions

Milk powder



Enjoy the taste of pure milk! Skimmed milk powder made from pure milk, processed and
packed hygienically. Available in 50gms, 200gms, 500gms, 1kg and 25kg pack

Cashew Burfi

Prepared using quality Cashew nuts, Khova and Ghee. It leaves a lingering Cashew flavor
in your mouth. Available in 250 gm in a P.P.Box, shrink wrapped to preserve its
freshness .shelf life 12 days

Nandini Basan Ladoo

It is a delicious indigenous product prepared from pure Ghee, Gramflour and sugar added
with cashews. Available in 250 Gms pack containing 6 Pieces. Shelf life 1 month

Nandini bite



A unique sweet. Cocoa based. Nandini Bite is a three-in-one sweet prepared by using
Mysorepak, Khova and dremed with Almond. Available in 25 gm Aluminium foil
packing. Shelf life 12 days

Nandini Set Curd

NANDINI SET CURD, thick and highly nutritive curd is made from 3% Toned Milk
with added imported bacterial cultures, filled into 200gm and 400gm cups and allowed to
set into curds. Imported bacterial cultures constitute curd forming bacteria of high genetic
abilities and release antimicrobial substances into curd imparting disease resistance to
consumers( probiotic characteristic). The curd apart from therapeutic in nature has very
high shelf-life and can be kept for 15 days in refrigerator without curds becoming sour.

NANDINI SET CURD is competitively priced at Rs.7 per 200gm cup and at Rs.13 per
400gm cup. Shelf life 15 days in refrigerator without curds becoming sour

3.5.10 ORGANIZATION STRUCTURE



BOARD OF DIRECTORS - CHAIRMAN

MANAGING
DIRECTOR

(C.E.O.)

ADMINISTRATION

PERSONEL
ASSISTANCE
DEPARTMENT FINANCE PRODUC TION MANAG E MENT
PROCUREMENT & PURCHASE INFOR MATION
A -Staff
Sr. 1 B- C-23 D-69
INPUT (Dairy Plant)
E-275
MARKE TING
F-25 G-3
SYSTEM

15 H-3

3.5.11 Personnel Department

Administration



Deputy Manager

Training/ Legal Cell
Domestic Establishment (Personnel)
Enquiry

Assistant Officer in charge
Administrative officer
Manager

Office superintendent

Support staff

It plays a crucial role in an organization which is always referred as the strength of
the organization.

Recruitment:

Recruitment is made as per the cader strength approved by Registrar of co
operatives. And the said cader strength is within the preview of co operative act and rules.
Reservation policies of the government are being followed for recruitments.



Whenever Union goes for recruitment the necessary steps are being taken as per
the guidelines stated in its Bye law and proper advertisement will be given in the State
News papers for the posts required and all the processes are made as per Govt. norms and
Suitable candidates will be called either for written test or interview or both.

Training:

Hassan Milk Union is having training facilities for its employees at various
reputed training centers and for new employees, they will be facilitated with one month
on the job training at their respective areas.

CTI (Central training institute), a unit of KMF, Bangalore, is one of the best
training centers having its own facilities with residential facilities providing training to
skilled and unskilled employees as well. Management development program to middle
level management officers of the milk union on various subjects related to dairy,
marketing, administration and procurement and input.

In addition to this, Hassan Milk Union deputes its officers and personnel for
different technical and non technical training in the following training centers:

• SRDTC(Southern regional demonstration and training center) for both technical
and non technical training.
• Mansinh institute of training, Mahsana, Gujrat, only for technical training.
• Vaikunt Mehta institute, Pune. For management development programmes.
• Institute of rural management, Anand.
• Regional institute of co operative management, BANG
• CII- Confederation of Indian industries, institute for quality- for food industrial
platforms are created.
Orientation programme:

The new employees are given 3 to 4 days orientation training program at CTI,
Bangalore, and a unit of KMF. This particular training is given to the newly recruited
employees irrespective of their cader.



Employee promotion:

It is clearly stated in the cadre and strength document which is approved by
registrar of co-operative societies. The employee promotion is dependent on the merit and
seniority basis. It is the mandatory method followed. To decide on this, the employee
education, obedience, carrying of the job and attendance are taken into consideration.

Record maintenance:

Hassan Milk Union is having well establishment section under the administration
department which maintains and updates records and other details of each employee with
individual record book and file.

Leave:

Casual leave of 15 days per year and for new entrants 1 day per month for one
year is followed. Employees of the Hassan Milk Union are eligible for 30 days earned
leave in each year during their service and also once in 2 year block period they will be
given the option facility for surrender of leave of one month and to avail the encashment
facility. The accumulation of leave days at present is restricted to 240 days. HPL (Half
pay leave) facilities are available.

If any accident takes place during the working hours the special leave is given:

• Special leave: the rabies leave is given for the infected dog bite. And also the
blood donation leave for 1 day is given.
• Maternity leave: on condition, with payment.
• Extra-ordinary leave: depending on the service or any major health issues.

Conveyance Allowance:



The Hassan Milk Union is providing conveyance allowance to its employees who
are having two wheeler vehicles and commuter charges for those who are dependent on
public transport per month is fixed.

Uniform:

Uniform will be provided to the employees who are working in the factory and
this facility is extended to only up to the cader of Technical Officers.

Transfer:

The transfer facilities are given. It is in the hands of Managing Director. If the
transfer is on the request, employee is not entitled for cash benefits but if it is not on
request, he is entitled for cash benefits.

Retirement:

The retirement age is 60 years. But on health grounds there is a consideration.
And the 3 months prior notice is a must before leaving the job anytime before the
retirement.

Retirement benefits:

A salary of 15 days per year of completed years of service is given. 3.5 lakhs
ceiling is applicable and all the gratuity announcements are according to government
notifications. Provident fund is as per the government norms. 12.5% toward provident
fund contribution per the entire employee.

3.5.12 Production Department:

Every morning by 9.30am, the scheduled is drawn depending on the consolidation
of all the information from different units. Entire milk has to dispatched before the next
raw milk comes in. All the availability options should be weighed and instant decisions
have to be taken. Presently the day to procurement on an average comes up to 2,50,000
litres per day. All the indents are moved there by 11am and this has to be intimated to the
packing division.



Packing material purchase is based on the integrated business plan. The rolls have
to be weighed and bought out because by the end of the month the statement has to be
prepared if the loss is 2% over and above the loss is recovered from the suppliers. If the
loss is >1% and <2% that loss is recovered from the packing contractor.

For each and every product the organization has fixed some standard.

For 500ml it is 45-55 micron.

For 1000ml it is 55-65 micron.

This comes in pre-printed rolls but the date of packing, batch number and machine
number is printed on the time of packing.

After the packing being done, it is handed over to the finished goods section then
dispatch starts. The longest route is Hassan to Kudremukh (180km) through an insulated
vehicle. The document from the last point has to be bought back. No credit services. Day
to day payments is being made. Only for milk pourers it is 7 days and sometime it even
goes up to 15 days. The statement is being made deducting the commission and the next
day’s indent also has to be collected.

In case of any eventualities other than natural calamities, it is accepted. Suppose
any negligence, accidents penalty is fixed.

3.5.13 Marketing Department:

Marketing should be considered as the core business function in this competitive
world as it establishes, develops, and commercializes long term customer relationships
and helps in meeting organizational goals.

Pricing is a federal policy and KMF decides the marketing price of the milk end
the milk products.

KMF has adopted pricing mainly on four categories namely:



• Double Toned Milk – Rs 14/100ml
• Toned Milk – Rs 16/1000ml
• Standardized (homogenized) Milk – Rs 18/1000ml
• Full Cream Milk – Rs 20/1000ml

As Hassan Milk Union is procuring 4 lakhs milk per day and its local market
requirement is 1.2 lakhs Kgs/day. As such the excess milk is being sent to sister unions
and Interstate federations and balance if any will be sent for conversion into butter and
SNP.



3.5.14 Procurement Department:

The milk co operative societies will be organized in villages where there is excess
milk production. The extension staff of the union will visit the villages and conducts the
survey about the village population, animal population and the availability of the surplus
milk and report to the office for consideration. The office will issue necessary instructions
to organize the societies.

Then the first Gramasabha meeting will be conducted and select the promoters to
promote the Dairy cooperative in the village and with the permission of Registrar of
Cooperative with the recommendation of Milk union the Village Chief promoter will
permitted to collect the share capital and with all fulfilment of required norms then
proposal will be sent to registrar of co operative department for registration. On
registration, milk co operative society will be commissioned and starts procuring milk
from the producers. The milk procured will be transported through trucks to nearby
chilling centers and dairy where milk is processed further. The society will be provided
with veterinary services, AH services, feed and fader services, training and extension
services.

The village dairy Cooperatives will receives payments for the milk supplied to
Union once in a week and the same will be distributed among its produce members every
week and day is fixed which is convenient to the concerned village.



3.5.15 Stores/ Purchase Department:

Purchase

Purchase/stores Officer

Sub staff

Hassan Milk Union is having a separate purchase department and purchases are
made based on the requirements of various department and purchases are made as per the
relation laid out.

Hassan Milk Union is having full pledged stores which supplies materials to
various based on the indents or requirements and the people who are working in the stores
are very well worked in inventory management. Both purchase and store departments are
working under the supervision of manager dairy.

Stores:

The storage place for almost all necessary goods which come into the factory
premises:

But here the store is the place where all these are there:

1. Packing materials
2. Stationery
3. Spares
4. Oil and lubricants
5. sugar
6. Testing chemicals



7. Cleaning acids
8. Uniforms and Shoes
9. Cans for societies
10. Ledgers

The activity takes place in stores:

Requisition letter: First the manager of concerned department depending upon the
need for the goods sends a requisition letter to the manager dairy and then once approved
the same reaches the stores in charge, the purchase section places an order.

Purchase order: But for the goods regular nature depending upon the stock level,
the stores in charge takes up the responsibility to place order and have the materials ready
when ever required. Here in the co operative sector as per the transparency act if the
goods and where the capital expenditure is involved, the enquire letters are sent the
suppliers and who ever quotes the least and also with quality gets the order.

And the same purchase order copy goes to

1. the supplier
2. the store in charge
3. Accounts section
4. concerned user section

Purchase order also includes

1. Mode of payment after and before supply
2. Terms and conditions(taxes)
3. Delivery period
4. Mode of dispatch

Invoice:



Against the purchase order the concerned supplier gives the invoice. Once the
invoice is received the cross checking of materials as per the specifications purchase
order is done. The concerned department communicated about the goods and the
concerned person gives a user section remark on the quality of the product. Hence the
goods received note is sent to concerned user section

3.5.16 MIS

Management Information System

Assistant Manager

System Officer

Support Staff

The main activity of the MIS department in the organization is to act as the
information source for all the levels of management for the decision making in different



situation. Hence to say the integration of information from all the departments for the
decision making for all the three levels which exist in the organization:

1. Top level
2. Middle level
3. Lower level

The information collected from the dairy and various chilling units on on-line and
information collected from Marketing on every day will be processed and send to KMF
every day and also monthly procurement and input wing and the data related to artificial
insemination and progress achieved in Fodder and Feeds division are collected and
necessary information will be prepared and sent to various department as well will be
submitted to CEO and other section heads to enable them to take necessary action and
also with the help of these data MIS department will prepare the annual Targets to the
Dept of Procurement and Input and Marketing.

Also, all these data is given to the MIS department and the integration on monthly
basis is taken up and the report as sent to the managing director and same place before the
monthly meetings held of all the milk unions.

3.5.17 Finance Department

Source of finance to start KMF and its units is from World Bank channels through
agreement between NDDB under Tripartite agreement between NDDB, KMF and
Government of Karnataka.

Now, source of funds are share capital and realization from sale proceeds of milk
and milk products. As on 31.03.2010 the paid up capital was 765.32 lakhs and 218.03
lakhs loan was taken for operating.



3.5.18 Production Department:

The dairy works in 3 shifts to receive milk in the morning and evening shifts. The
milk received from DCS in cans will be tested for quality and weight is recorded. The
payment will be made based on the quality and the quantity. The milk received in tankers
will be weighed and tested and pumped into chiller and stored in insulator storage tank.
The local market needed quantity will be pasteurized and stored in insulated HMST for
packing toned milk, double toned milk and standardized homogenized milk. Apart from
this, union also produces ghee, peda, flavored milk, curds and butter milk.

The excess fat in the milk will be separated in the form of cream and issued for
butter making. The cream breaks into butter and butter milk where butter is issued for
ghee making and butter milk is tested for fat/COB (clout on boiling) and it will be
reprocessed or will be drained out. Based on the market demand, butter is drawn for ghee
production and same will be packed as per requirement.



3.5.19 Channels of Distribution

The network of distribution of milk was founded to be very systematic and has
made distinct role in the successful marketing of milk.

The processed and pasteurized milk is first packed and stored and then distributed
to the target customers.

Processing and manufacturing

Storage

Dealers or Retailers

Consumer

Power

The KPTCL supplies the power up to 325 kilo watts per month. In case of
shortage in supply diesel generator is used.

Vehicle

The union owns 5 milk tankers. In addition to this, it has one car, and two jeeps.

3.5.20 ACHIEVEMENTS



• Hassan milk union is procuring milk from all the 13 taluks of three districts and
selling quality milk in all the taluks and small towns.

• The union and all the dairy co operatives are being managed by the democratically
elected boards from among the milk producers.

• The technical input to dairy co operatives and the dairy plants are managed by
well trained, committed professionals and technical team.

• 91% of the milk co operative societies are operating under profit

• The union has successfully implemented the animal induction program for SC ST
and OBC since 1996 with the financial assistance from central and state
governments and rendered direct loans to the beneficiaries at lower interest rates.

• 254 women dairy co operatives (as on May 2009) have been organized since 1997
under support training and education program(STEP)

• The union has also implemented mini dairy scheme and bring entrepreneurial
environment in the rural area.

• The union has set up Artificial insemination facilities for dairy co operatives.

• The union has rendered emergency veterinary services round the clock.

• The union has implemented foot and mouth disease control program(FMDCP)
• Fertility camps are being conducted once in three months by inviting experts in
the field.



• The union supplies quality fodder slips and seeds through the year and facilitates
the availability of green fodder.

• The union is insuring the life of milk producers and dairy co operative staff with
the co ordination from Life Insurance Corporation and National insurance
company since 1997-1998 under “samajika suraksha yojana”.

• The union has launched the “YESHASHVINI” program to the milk producers
wherein the milk producers are provided with the best available medical facility at
free of cost.

• Smokeless chula have been provided to the milk producers with an intention of
improving the health of rural women folk.

• The union has successfully implemented the Total energy management program
and Total quality management program (quality excellence from cow to
consumer) since 2001 respectively.

• Quality awareness programs are being conducted regularly for school children,
house wives and consumers.

• The union has got ISO 9001:2000 certification from TUV India, Mumbai.

• The union has got Energy Conservation Award

3.5.21 SWOT Analysis

Strengths

• Procurement and Input( P&I) network



• Goodwill
• ISO 9001:2000 certified
• Second largest producer
• Vast market

Weaknesses

• WTO standards
• Advertisement execution in its early
• Early stages of automation and computerization

Opportunities

• Enter rural market
• Neutraceuticals
• Exports

Threats

• Entry of big players
• WTO standards
• Government policies

4.1 Budget 2008-09 of the Union

The first objective of this study is to analyze the budget of the organization. The
budget of the organization is prepared by a budget committee with consultation with the
various departments. The budget is prepared on the basis of the estimations given by each



department and the same is consolidated into a yearly budget by taking into consideration
the various sources of income and expenditure.

For the purpose of analysis, the budget of 2008-09 of Hassan Milk Union is
considered wherein the current year figures are compared with the actual of the year to
obtain the variations thereof. The budget of the union is shown in the following page:



The previous table shows the budget which was prepared by the committee for the
year 2008-09. It shows the monthly estimation of the various sources of income like sales,
interest on deposits with banks, grants received, advances, other income etc. Similarly, it
also shows the monthly expenditure incurred on various items like purchases, staff
expenses, interest on loans borrowed, administrative expenses, selling and distribution
expenses etc. With these items, the estimated net loss or profit is ascertained.



4.2 Budget Process at Hassan Milk Union

The budget prepared by any organization is an estimate of the various
sources through which revenue would be generated and the various expenditures
which would be incurred during the year. Excess of income over expenditure would
result in net profit and excess of expenditure over income results in net loss during
the year.

At Hassan Milk Union, the budget is prepared by the accounts department
with consultation from various other departments.

Estimation Of Procurement Of Milk From Various Societies
The budget of Hassan Milk Union mainly depends on the procurement of
milk from its various societies. Thus the estimation of the same plays a vital role in
the budget process. The accounts department obtains estimation on the quantity of
procurement from the MIS department based on the past experience and the trend.
Procurement of milk depends on the seasonal fluctuations. In the milk industry, a
period from October to January is considered as a flesh period during which there is
abnormal procurement i.e. over and above the normal procurement. A period of 3
months from March to June is considered as lean period during which the quantity
of milk obtained is less. The remaining months in the year generate normal
procurement. Also in the milk industry, once in 3 years is considered as lean period
wherein the procurement of milk reduces in all the diaries throughout the country.

However, there has been a change in the trend recently wherein in
November the procurement is normal and May to August is a period when the
procurement is abnormal and January to April has turned out to be lean period.

Based on these trends, the MIS department estimates the procurement and
that is the basis on which the yearly budget is based.

Marketing Plan is Set Out
The Marketing department of Hassan Milk Union lays down its marketing
plan which gives an estimate of the local sales of milk and various milk products.



Based on this plan, an estimate is made on the milk which is to be sent to other
diaries and what quantity of milk is to be sent for conversion. Based on this, the
transportation costs and conversion costs are estimated.

Target is Laid Down by Different Departments
Each department of the Union lays down its own targets for which has
finance to be provided for by the accounts department in its budget. All this has to
be incorporated for in the yearly budget.

Costs are Estimated
Based the plans of various departments, the total expenditure and revenue
are penned down in a prescribed manner which would estimate the net profit/ loss
for the year.



4.3 Analysis of Budget

Here each item of the budget is calculated as a % of sales and analyzed. The yearly
figures are considered for these calculations.

PARTICULARS YEARLY BUDGETED AS % OF SALES
AMOUNT( in lakhs)

OPENING STOCK 50.45 0.31

PURCHASE & MATERIAL 14167.26 86.35
CONSUMPTION

PROCUREMENT TRANSPORT 372.97 2.27
EXPS

PROCESSING & MANFG EXPS 438.54 2.67

TOTAL 15029.22 91.61

SALES 16405.08 100.00

CLOSING STOCK 70.56 0.43

TOTAL 16475.63 100.43

STAFF EXPENSES 986.77 6.02

ADMINSTRATIVE EXPENSES 134.06 0.82

SELLING & DISTN EXPS 289.32 1.76

INTEREST & BANK CHARGES 18.25 0.11

TECHNICAL INPUT SERVICES 12.36 0.07

DEPRECIATION 60.00 0.37

TOTAL 1500.76 9.15



OTHER INCOME 61.48

INTEREST ON DEPOSITS & 24.18
ADVANCES

GRANTS RECEIPTS 0.00

TOTAL 85.66

N E T PROFIT / LOSS 31.32



The table above shows the projected annual figures of the on various items
for year 2008-09. It also shows the various incomes and expenditure as a % to
sales. As per the budget, the Hassan Milk Union is expecting a net profit of Rs 31,
32,000 for the year with a net profit ratio of 0.19%. The major source of revenue is
from sales of milk and milk products in local markets and inter-diaries. There are
certain other sources of income as well like interest on deposits and other income.
However, they contribute to only 0.15% and 0.37% respectively which indicates it
is a minor source of revenue to them. The major expense projected is purchase of
milk and milk products which is about 86.35% of sales. Hassan Milk Union
procures milk from various societies at different rates. It is the basic raw material
required for processing into Skimmed Milk Pouches and for conversion to various
milk products like ghee, butter, peda, buttermilk etc,

The graph depicts the budget in a diagrammatic manner. The graph shows
that the main items in the budget are sales and purchases. All the remaining items
are very minor and are thus hardly pointed on the graph.

4.4 Comparing the Actual with the Budgeted Figures and
Computing the Variances.

The table on the next page shows the annual budgeted figures and the actual
figures which is obtained from the audited reports of the union.

The following 2 formulas have been used to calculate the variances and
the % of variances.



Calculation of Variance and % of Variance

Variances = Actual yearly total – Budgeted yearly total

% of variances = variance amount X 100

Budgeted yearly total



PARTICULARS Budgeted Actual Variance % of
Amt Amt (in lakhs) variance
(in lakhs) (in lakhs)
Opening Stock 50.45 155.14 89.68 177.76
Purchases & Material Consumption 18810.83 1904.56 13.44
14167.26
Procurement Transportation Expenses 637.48 52.13 13.97
372.97
Processing & Manufacturing Expenses 931.05 237.65 54.19
438.54

TOTAL 15029.22 20534.5 2284.34 15.19

Sales 16405.07 21852.33 3040.82 18.53
Closing Stock 70.56 318.65 232.2 329.08

TOTAL 16475.63 22170.98 3273.02 19.86

Staff Expenses 986.77 997.8 11.03 1.12
Administrative Expenses 134.06 99.75 (35.00) (26.10)
Selling & Distribution Expenses 358.74 69.41 23.99
289.33
Interest & bank Charges 18.25 15.58 (2.67) (14.63)
Technical Input Services 12.35 (33.48) (45.83) (371.09)
Depreciation 60.00 133.30 73.3 122.17

TOTAL 1500.76 1571.00 70.24 4.68

Other Income 61.48 67.72 6.24 10.15
Interest on Deposits & Advances 20.35 (3.83) (15.83)
24.18

TOTAL 85.66 88.07 2.41 2.81

Net Profit/ Loss 31.32 117.00 85.68 273.53



The graph shows that the estimate of sales and purchase is very less
compared to the budgeted amount. The same can be shown using a pie-chart
which shows the variances in the various particulars.

4.5 ANALYSIS OF VARIOUS ITEMS ESTIMATED IN
THE BUDGET

• OPENING STOCK

BUDGETED YR. ACTUAL YR.
VARIANCE
TOTAL TOTAL % OF
VARIANCE
PARTICULARS (Rs in lakhs)
(Rs in lakhs) (Rs in lakhs)

TOTAL OPENING STOCK 50.45 155.14 104.69 207.51



INTERPRETATION

The chart above shows the budgeted and actual results with regard to stock
of milk and various milk products at the beginning of the year. The budgeted figures
were Rs 50.45 lakhs and the actual expenditure incurred was Rs 155.14 lakhs. Thus,
there is a variance of Rs 104.69 lakhs.

The stock at the beginning of the year depends on the closing stock at the
end of previous year. The closing stock at the end of 2007-08 was Rs 155.14 lakhs
which, therfore, became the opening stock of the year 2008-09.

• PURCHASE AND MATERIAL CONSUMPTION

BUDGETED ACTUAL
VARIANCE % OF
YR.TOTAL YR.TOTAL
VARIANCE

Purchases & Material
14167.26 18810.83 4643.57 32.78
Consumption



INTERPRETATION

The chart above shows the budgeted and actual results with regard to the
purchases and material consumption. The budgeted figures were Rs 14167.26 lakhs
and the actual expenditure incurred was Rs 18810.83 lakhs. Thus, the variance is Rs
4643.57 lakhs which is highly inconsistent.

This variance is mainly due to high purchase of milk and milk products
made during the year. The Union accepts the entire quantity of milk which it
procurs from the various societies at different rates depending on the profitabality of
the Union, and the purachses varies substantially from the budgeted amount every
year.

• PROCUREMENT TRANSPORT EXPENSES

BUDGETED ACTUAL
VARIANCE % OF
YR.TOTAL YR.TOTAL
VARIANCE

Procurement
372.97 637.48 264.51 70.92
Transportation Expenses



INTERPRETATION

procurement transportation cost . The budgeted figures were Rs 372.97 lakhs and
the actual expenditure incurred was Rs 637.48 lakhs. Thus, the variance of Rs
264.51 lakhs is an adverse variance .

This variance is due to the addition of various routes from which the diary
procurs milk. The number of societies from which milk is obtained as increased and
an increase in number of sources would obviously increase the tranportation cost of
procuring the raw milk.

• PROCESSING & MANUFACTURING EXPENSES

BUDGETED ACTUAL
VARIANCE % OF
YR.TOTAL YR.TOTAL
VARIANCE

Processing &
438.54 931.05 492.51 112.31
Manufacturing Expenses



INTERPRETATION

process manufacturing expenses . The budgeted figures were Rs 438.54 lakhs and
the actual expenditure incurred was Rs 931.05 lakhs. Thus, the variance is Rs
492.51 lakhs which is quite high.

The devation in the process manufacturing expenses is mainly due to the
variation in the conversion cost which shows a difference of Rs 174.68 lakhs. The
conversion cost mainly depends on the milk procured by Hassan Milk Producers’
Union Society. Whenever the milk procured is in excess, there would be no market
for milk. In such case, excess milk is sent to inter-diary and then after it’s sent for
conversion to butter, SMP. As we have seen that the procurement of milk was very
high during the year, the conversion cost has also varied considerably which in turn
is the main cause for the process manufacturing process to deviate.

• SALES

BUDGETED ACTUAL
VARIANCE % OF
YR.TOTAL YR.TOTAL
VARIANCE

Sales 16405.07 21852.33 5447.26 33.20



INTERPRETATION

The chart above shows the budgeted and actual results with regard to the sales
generated during the year. The budgeted figures were Rs 16405.07 lakhs and the
actual expenditure incurred was Rs 21852.33 lakhs. Thus, the variance of Rs
5447.26 lakhs is highly a favourable variance.

Sales is the main source of revenue for any organisation. Thus, the higher sales
it is the better for the organisation. The higher variance in it has a positive impact.
However it becomes necessary to analyse the causes for it.

The deviation in sales is mainly on account of sales to inter dairies and other
states which has varied considerably. This is again due to high procurement during
the year. The excess of milk has been sold to various other diaries which have been
a major source of income. Also ghee has a very good demand in the local market
near Hassan due to which the sales of loose and sachet ghee is much more than
anticipated.

• CLOSING STOCK

BUDGETED ACTUAL
VARIANCE % OF
YR.TOTAL YR.TOTAL
VARIANCE

Closing Stock 70.56 318.65 248.09 351.60



INTERPRETATION

closing stock at the end of the year. The budgeted figures were Rs 70.56 lakhs and
the actual amount has increased by Rs 248.09 akhs. Thus, the actual closing stock at
the end of the financial year 2008-09 was Rs 318.65 lakhs.

Closing stock depends on the sales generarted, production during the year
and also the opening stock.

Opening Stock + Production = Sales + Closing Stock

Closing Stock = Opening Stock + Production - Sales

As there is a variance in the opening stock, purchase and production and also in
the sales made during the year, the closing stock is bound to show variations from
the anticipated figures. The closing stock of this year becomes the actual opening
stock for next year.

• STAFF EXPENSES

BUDGETED ACTUAL
VARIANCE % OF
YR.TOTAL YR.TOTAL
VARIANCE

Staff Expenses 986.77 997.8 11.03 1.12



INTERPRETATION

staff expenses incurred during the year. The budgeted figures were Rs 986.77 lakhs
and the actual expenses was Rs 997.8 lakhs. Thereby, there is an adverse variance
of Rs 11.03 lakhs.

The various expenses under this head show minor deviations from the
budgeted figures. The major variance was in Leave Encashment Insurance Premium
paid during the year. The deviation was due to the additional premium paid by the
union during the year. The amount received at the time of maturity is used to pay
the employees at the time of their retirement for the leave not availed by them
during their service in the union.

• ADMINISTRATIVE EXPENSES

BUDGETED ACTUAL VARIANCE % OF
VARIANCE
PARTICULARS YR.TOTAL YR.TOTAL (Rs in lakhs)




Administrative Expenses 134.06 99.75 (35.00) (26.10)

INTERPRETATION

office and administrative expenses incurred during the year. The budgeted figures
were Rs 134.06 lakhs and the actual expenditure incurred was Rs 99.06 lakhs. Thus,
the actual expenditure is less than the budgeted amount by Rs 35 lakhs thereby
making it a favourable variance in total.

• SELLING AND DISTRIBUTION EXPENSES

BUDGETED YR. ACTUAL YR.
VARIANCE
TOTAL TOTAL % OF
VARIANCE

Selling & Distribution
289.33 358.74 69.41 23.99
Expenses



INTERPRETATION

selling and distribution expenses. The budgeted figures were Rs 289.33 lakhs and
the actual amount is Rs 358.74 lakhs. Thus, there is an adverse variance of Rs 69.41
lakhs.

The major deviation was in the tanker charges incurred in the selling and
distribution expenses for the year. The tanker charges had been much more than
budgted because the sale of milk and milk products to the various inter diaries have
increased. With the increase in the sales, the cost to transport the products also
increased.



• INTEREST AND BANK CHARGES

BUDGETED YR. ACTUAL YR. VARIANCE % OF
TOTAL TOTAL VARIANCE
(Rs in lakhs) (Rs n lakhs)

Interest & bank Charges 18.25 15.58 (2.67) (14.63)

INTERPRETATION

The column chart above shows the budgeted and actual results with regard
to the expenses on interest and bank charges. The budgeted figures were Rs 18.25
lakhs whereas the actual amount incurred during the year is Rs 15.58 lakhs. Thus,
there is a favouable variance of Rs 2.67 lakhs due to the reduction in expense and
thereby increasing profit in total.

The Union proposed to borrow loan from the bank at the beginning of the
financial year and thus interest calculations were done for the entire 12 months of
the year. However, the loan was borrowed mid-year and thus, the amount of
interest paid was less than the budgeted figure. This caused a favourable variance in
this head.


A study on budgetory control system conducted at hassan co operative milk producers societies ltd.

A study on budgetory control system conducted at hassan co operative milk producers societies ltd.

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A study on budgetory control system conducted at hassan co operative milk producers societies ltd.