project final 2nd sem

Faculty of Business ManagementIntegral University

Kursi Road, Dasauli, Lucknow: 226026.

GUIDE CERTIFICATE

This is to certify that Abid Rizvi, student of M.B.A. 2nd Year, 3rd semester with Roll number

0900122008 has prepared this project on the topic “FINANCE MANAGEMENT, COST

REDUCTION & COST CONTROL” under my supervision and guidance.

The behavior of the student during the preparation of this project was found to be highly

appreciable and satisfactory.

I wish him all the best for his future.

(Dr. M. S. Khan)

Head OF Department of Business Management

Integral University

Lucknow: 226026

Abid Rizvi0900122008

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PREFACE

Finance as a subject of study, has received wide-spread support from both academic and business

segment people.

The topic “FINANCE MANAGEMENT, COST REDUCTION & COST CONTROL” in

HAL was selected as to understand the financial need and importance with special reference to

HAL ACCESSORIES DIVISION LUCKNOW.

As the cost control refers to the administration of all the analysis of cost control ratios and

sources and application of funds and the company by studying, interpreting various financial

statements using various techniques such as comparative statements analysis etc.

Even efforts have been made to collect the relevant information about the topic. The present

study about “FINANCE MANAGEMENT, COST REDUCTION & COST CONTROL” in

HAL Accessories Division, Lucknow it based on my six weeks project study in FINANCE AND

ACCOUNT DEPARTMENT in HAL.

This training gives me an opportunity to make a study and analysis the system adopted by the

organization. It enables me to build the practical knowledge acquired during the class study with

practical training received during my project.


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ACKNOWLEDGEMENT

This is to express my heartiest gratitude towards all those who helped and inspired me to

complete my project report.

I feel immense pleasure in submitting my summer training project report.

I am highly thankful to my H.O.D Dr.M.S.Khan for his support and encouragement that he

provided me during the tenure of the project.

I am also thankful to my supervisor Mr.Z.A.Rizvi(Cost Manager, HAL)

for his kind and constant support and guidance.

At the end I would like to mention about the constant motivation and help that I received

from my family, teachers, friends and batch mates for completing my project report.

Abid RizviMBA 2nd yearIntegral University


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EXECUETIVE SUMMARY

Topic: - Finance Management, Cost Reduction and Cost Control.

Objective:-

1. COST REDUCTION AND CONTROL:

To have full coverage of finance control by following various budgets i.e. capital budget,

revenue budget (manpower budget, purchase budget, welfare budget, maintenance budget,

ways and means etc) and making all efforts to reduce the cost from each element of cost by

curtailing the expenditure estimated in the budget to a reasonable cost, so as to reduce the

cost and increase the profitability of the organization.

2. FINDING VARIOUS METHODS FOR IMPLEMENTATION :

To find out various methods like EOQ (Economic Order Quantity), ABC analysis etc which

are implemented by the organization to control cost under various heads.


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PROFILE OF THE COMPANY

HINDUSTAN AERONAUTICS LIMITED


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GENERALPROFILE

Hindustan Aeronautics Limited (HAL) based in Bangalore, India, is one of Asia’s largest

aerospace companies. Under the management of the Indian Ministry of Defence, this public

sector company is mainly involved in aerospace industry, which includes manufacturing and

assembling aircraft, navigation and related communication equipment, as well as operating

airports. HAL built the first military aircraft in South Asia and is currently involved in the

design, fabrication and assembly of aircraft, jet engines, helicopters and their components and

spares. It has several facilities throughout India including Nasik, Korwa, Kanpur, Koraput,

Lucknow, and Hyderabad. The German engineer Kurt Tank designed the HF-24 Marut fighter-

bomber, the first fighter aircraft made in India.


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HISTORY OF THE COMPANY

Hindustan Aeronautics has a long history of collaboration with several other international and

domestic aerospace agencies such as the Airbus Industries, Boeing, Sukhoi Aviation

Corporation, Israel Aircraft Industries, RSK MiG, BAESystems, Rolls-Royce plc, Dassault

Aviation, Dornier Flugzeugwerke, Aeronautical Development Agency and Indian Space

Research Organization.

HAL was established as Hindustan Aircraft in Bangalore in 1940 by Walchand Hirachand to

produce military aircraft for the Royal Indian Air Force. The initiative was actively encouraged

by the Kingdom of Mysore, especially by the Diwan, Sir Mirza Ismail. The British Government

bought a one-third stake in the company by April 1941 as it believed this to be a strategic

imperative. Later in April 1942, it bought out the stakes of Walchand Hirachand himself and

other promoters so that it can act freely. The decision by United Kingdom was primarily

motivated to boost British military hardware supplies in Asia to counter the increasing threat

posed by Imperial Japan during Second World War. However, the Mysore Kingdom refused to

sell its stake in the company but yielded the management control over to the British Government.

Thus, within 2 years of establishment, it was nationalized.

Hindustan Aeronautics Limited (HAL) came into existence on 1st October 1964.HAL was set up

as an amalgamation of Hindustan Aircraft Limited along with Aeronautics India Limited and

Aircraft Manufacturing Depot located in Kanpur, India. Hindustan Aeronautics Limited has it

headquarter located at Bangalore, India. HAL is one of the largest aerospace companies which

are run by the Ministry of Defense. The principal activities of HAL involve manufacturing

aircraft, aerospace, navigation, and instruments for communication purposes. Apart from these,

few other activities performed by HAL are Designing,

manufacturing, and collecting aircraft, jet engines, helicopters, along

with their elements and spares. Hindustan Aircraft Limited which

located at Bangalore was incorporated by the industrialist the late

Seth Walchand Hirachand December 1940. The Government of

India became a stakeholder of the company in 1941 and seized the

management department in 1942. HAL has 19Production Units and

9 Research and Design Centers in 7 locations in India. The Company has an


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impressive product track record - 12 types of aircraft manufactured with in-house R & D and 14

types produced under license. HAL has manufactured over 3550 aircraft, 3600 engines and

overhauled over 8150 aircraft and 27300 engines. HAL has been successful in numerous R & D

programs developed for both Defence and Civil Aviation sectors. HAL has made substantial

Progress in its current projects:

Dhruv, which is Advanced Light Helicopter (ALH)

Tejas - Light Combat Aircraft (LCA)

Intermediate Jet Trainer (IJT)

Various military and civil upgrades.

Dhruv was delivered to the Indian Army, Navy, Air Force and the Coast Guard in March 2002,

in the very first year of its production, a unique achievement.

HAL has played a significant role for India's space programs by participating in the manufacture

of structures for Satellite Launch Vehicles like.

PSLV (Polar Satellite Launch Vehicle)

GSLV (Geo-synchronous Satellite Launch Vehicle)

IRS (Indian Remote Satellite)

NSAT (Indian National Satellite)

HAL has formed the following Joint Ventures (JVs):

BAeHAL Software Limited

Indo-Russian Aviation Limited (IRAL)

Snecma HAL Aerospace Pvt. Ltd.

SAMTEL HAL Display System Limited

HALBIT Avionics Pvt. Ltd.

HAL-Edgewood Technologies Pvt. Ltd.

INFOTECH HAL Ltd

Apart from these seven, other major diversification projects are Industrial Marine Gas Turbine

and Airport Services. Several Co-production and Joint Ventures with international participation

are under consideration.


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Hal’s supplies / services are mainly to Indian Defence Services, Coast Guards and Border

Security Forces. Transport Aircraft and Helicopters have also been supplied to Airlines as well

as State Governments of India. The Company has also achieved foothold in export in more than

30 countries, having demonstrated its quality and price competitiveness.

HAL has won several International & National Awards for achievements in R&D,

Technology, Managerial Performance, Exports, Energy Conservation, Quality and

Fulfillment of Social Responsibilities.

HAL was awarded the “INTERNATIONAL GOLD MEDAL AWARD” for Corporate

Achievement in Quality and Efficiency at the International Summit (Global Rating

Leaders 2003), London, UK by M/s Global Rating and UK in conjunction with the

International Information and Marketing Centre (IIMC).

HAL was presented the International - “ARCH OF EUROPE” Award in Gold Category

in recognition for its commitment to Quality, Leadership, Technology and Innovation.

At the National level, HAL won the "GOLD TROPHY" for excellence in Public Sector

Management; instituted by the Standing Conference of Public Enterprises (SCOPE).The

Company scaled new heights in the financial year 2006-07 with a turnover of Rs.7,

783.61 Cores.


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PRODUCTS OF HAL

PRODUCTS IN CURRENT MANUFACTURING RANGE


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SU 30 MKI

Twin-seater, Multi-role, Long range Fighter /

Bomber / Air Superiority Aircraft.

MIG-27 MSingle-seater Tactical Fighter / Bomber withVariable sweep wings.

MIG-21 VARIANTSSingle-seater Front line Tactical Interceptor/

Fighter Aircraft.

AIRCRAFT WESTERN ORIGIN


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JAGUAR INTERNATIONAL

HAL commenced production of Jaguar International - deep penetration strike and battlefield

tactical Support Aircraft in 1979 under license from British Aerospace, including the engine,

accessories and avionics. Jaguar aircraft is

designed with 7 hard points (4 under wing, 2

overawing and 1 under fuselage) capable of

carrying a huge load of several of weapons in

different combinations to meet the Customers’

needs.

DHRUV (ADVANCED LIGHT HELICOPTER)

With a proven track record and established technology for manufacture of helicopters and its

components, the Helicopter Division commenced series production of Dhruv (Advanced Light

Helicopter) in 2000 - 2001. The ALH is a multi-role,

multi-mission helicopter in 5.5 ton class, fully

designed and developed by HAL. Built to FAR

29specifications, Dhruv is designed to meet the

requirement of both military and civil operators.

CHETAK

The Helicopter Division manufactures the versatile and multi-purpose Chetek Helicopters for

Civil and Military applications both for Domestic and International customers

.

OBJECTIVES OF HAL


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To ensure availability of Total Quality People to meet the Organizational Goals and

Objectives.

To have a continuous improvement in Knowledge, Skill and Competence (Managerial,

Behavioral and Technical)

To promote a Culture of Achievement and Excellence with emphasis on Integrity,

Credibility and Quality

To maintain a motivated workforce through empowerment of Individual and team

building.

To enhance Organizational Learning

To play a pivotal role directly and significantly to enhance Productivity,

Profitability and improve the Quality of Work Life

VISION OF THE COMPANY


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"To make HAL a dynamic, vibrant, value-based learning organization with human resources

exceptionally skilled, highly motivated and committed to meet the current and future challenges.

This will be driven by core values of the Company fully embedded in the culture of the

Organization".

MISSION OF THE COMPANY

Enable all those working for HAL to give their best to ensure their all-round growth as well as

that of the organization. To become a globally competitive aerospace industry while working as

an instrument for achieving self-reliance in design, manufacture and maintenance of aerospace

Defence equipment and diversifying to related areas, managing the business on commercial lines

in a climate of growing professional competence. "To become a globally competitive aerospace

industry while working as an instrument for achieving self-reliance in design, manufacture and

maintenance of aerospace Defense equipment and diversifying to related areas, managing the

business on commercial lines in a climate of growing professional competence ".

VALUES OF THE COMPANY

CUSTOMER SATISFACTION

We are dedicated to building a relationship with our customers where we become partners in

fulfilling their mission. We strive to understand our customers ' needs and to deliver products

and services that fulfill and exceed all their requirements.

COMMITMENT TO TOTAL QUALITY


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We are committed to continuous improvement of all our activities. We will supply products and

services that conform to highest standards of design, manufacture, reliability, maintainability and

fitness for use as desired by our customers.

COST AND TIME CONSCIOUSNESS

We believe that our success depends on our ability to continually reduce the cost and shorten the

delivery period of our products and services. We will achieve this by eliminating waste in all

activities and continuously improving all processes in every area of our work.

INNOVATION AND CREATIVITY

We believe in striving for improvement in every activity involved in our business by pursuing

and encouraging risk-taking, experimentation and learning at all levels within the company with

a view to achieving excellence and competitiveness.

TRUST AND TEAM SPIRIT

We believe in achieving harmony in work life through mutual trust, transparency, co-operation,

and a sense of belonging. We will strive for building empowered teams to work towards

achieving organizational goals.

RESPECT FOR THE INDIVIDUAL

We value our people. We will treat each other with dignity and respect and strive for individual

growth and realization of everyone's full potential.

INTERNATIONAL AND DOMESTIC DEALS


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INTERNATIONAL DEALS

The US$10 billion fifth-generation fighter jet program with the Sukhoi

Corporation of Russia.

US$1 billion contract to manufacture aircraft parts for Boeing.

Multi-role transport aircraft project with Ilyushin of Russi US$600 million.

120 RD-33MK turbofan engines to be manufactured for MiG-29K by HAL for US$250

million.

Contract to manufacture 1,000 TPE331 aircraft engines for Honeywell worth

US$200,000 each (estimates put total value of deal at US$200 million).

US$120 million deal to manufacture Dornier 228 for RUAG of Switzerland.

Manufacture of aircraft parts for Airbus Industries worth US$150 million.

US$100 million contract to export composite materials to Israel Aircraft Industries.

US$65 million joint-research facility with Honeywell and planned production of Garrett

TPE331 engines.

US$50.7 million contract to supply Advanced Light Helicopter to Ecuadorian Air Force

[11] HAL will also open a maintained base in the country.

US$30 million contract to supply avionics for Malaysian Su-30MKM.

US$20 million contract to supply ambulance version of HAL Dhruv to Peru.

Contract of 3 HAL Dhruv helicopters to Turkey in a deal worth US$20 million.

Supply of HAL Dhruv helicopters to Mauritius' National Police in a deal worth US$7

million.

Unmanned helicopter development project with Israel Aircraft Industries.

DOMESTIC DEALS

180 Sukhoi Su-30MKI being manufactured at HAL's facilities in Nasik and Bangalore.

The total contract, which also involves Russia's Sukhoi Aerospace, is worth US$3.2

billion.


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200 HAL Light Combat Helicopters for Indian Air Force and 500 HAL Dhruv

helicopters worth US$5.83 billion.

US$900 million aerospace hub in Andhra Pradesh.

US$57 million upgrade of SEPECAT Jaguar fleet of the Indian Air Force.

US$55 million fighter training school in Bangalore in collaboration with Canada's CAE.

64 MiG-29s to be upgraded by HAL and Russia's MiG Corporation in program worth

US$960 million. Licensed production of 82 BAe Hawk132.


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CUSTOMERS OF THE COMPANY

International Customers Domestic Customers

Airbus Industries, France APPH Bolton, UK BAE Systems, UK Chilton, UK Coast Guard, Mauritius Corporate Air, Philippines Cosmic Air, Nepal Dassault Aviation, France Dowty Aerospace Hydraulics,

UK EADS, France ELTA, Israel Gorkha Airlines, Nepal Hampson, UK Honeywell International, USA Island Aviation Services,

Maldives Israel Aircraft Industries, Israel Messier Dowty Ltd., UK Mitsubishi Heavy Industries,

Japan MOOG, USA Namibian Air Force, Namibia Peruvian Air Force , Peru Rolls Royce Plc, UK Royal Air Force, Oman Royal Malaysian Air Force,

Malaysia Royal Nepal Army, Nepal Royal Thai Air Force, Thailand

Air India Air Sahara Airports Authority of India Bharat Electronics Border Security Force Coal India Defense Research & Development

Organization Govt. of Andhra Pradesh Govt. of Jammu & Kashmir Govt. of Karnataka Govt. of Maharashtra Govt. of Rajasthan Govt. of Uttar Pradesh Govt. of West Bengal Indian Air force Indian Airlines Indian Army Indian Coast Guard Indian Navy Indian Space Research Organization Jet Airways Kudremukh Iron ore Company ltd. NALCO Oil & Natural Gas Corporation Ltd. Ordnance Factories Reliance Industries United Breweries


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EVOLUTION AND GROWTH OF THE COMPANY

The Company's steady organizational growth over the years with consolidation and enlargement

of its operational base by creating sophisticated facilities for manufacture of aircraft / helicopters,

aero engines, accessories and avionics is illustrated below.

ORGANIZATION STRUCTURE


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ACHIEVEMENTS / AWARDS

HAL has won several International & National Awards for achievements in R&D, Technology,

Managerial Performance, Exports, Energy Conservation, Quality and Fulfillment of Social

Responsibilities.

HAL is the only one PSU which has been included in “NAVRATNA” category.

HAL was awarded the “INTERNATIONAL GOLD MEDAL AWARD” for

Corporate Achievement in Quality and Efficiency at the International Summit (Global

Rating Leaders 2003), London, UK by M/s Global Rating and UK in conjunction

with the International Information and Marketing Centre(IIMC)

HAL was presented the International - “ARCH OF EUROPE” Award in Gold

Category in recognition for its commitment to Quality, Leadership, Technology and

Innovation.

At the National level, HAL won the "GOLD TROPHY" for excellence in Public

Sector Management, instituted by the Standing Conference of Public Enterprises

(SCOPE)


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SERVICES


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FINANCIAL HIGHLIGHTS OF HINDUSTAN AERONAUTICS LTD

Hindustan Aeronautics Limited (HAL) has cruised past the Rs.10, 000 crore mark for the first time with a sales turnover of Rs.10260 crores during the Financial Year 2008-09. The profit of the Company (Profit before Tax) soared to Rs.2260 crores.

The highlights are given below:

(Rupees in Crores)

Particulars 2007-08 2008-09 Growth-over

Sales 8625 10260 18.96%

VOP 8791 11162 26.97%

Profit before tax 2164 2260 4.44%

Profit after tax 1632 1559 -4.47%

Gross Block 2255 2661 18.00%


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HAL ACCESSORIES DIVISION LUCKNOW

HAL Lucknow Division was established in 1973. The Division was setup with the objective of

supplying six types of systems equipment of Kiran and Marut aircrafts. But now is holds a

peculiar position in the company’s setup practically, all other divisions are dependant for supply

of accessories from Lucknow Division. A mind boggling range of about 550 different products

are being produced and assembled under one roof, using totally diverse technologies.

The Division has also built up design and development capability and indigenously developed

electrical, hydraulic and other items which are manufactures for use in aircraft as well as for

fighting vehicles.

At present division has 3207 employees out of which 2625 are workmen (1356 direct and 1269

indirect) and 582 officers. The division being a public sector organization has extended a lot of

statutory and non-statutory welfare facilities. The human relations and discipline matters are

regulated in the division through well-defined system. Service matters of workmen are regulated

through certified Standing Orders while in the case of officers are taking care of by the Conduct

Appeal and Discipline Rules. There are 7 registered Trade Unions presently functioning in the

Lucknow Division in which H.A.E.A (Hindustan Aeronautics Employees Association) is the

majority union and has been recognized by the management along with these is one officer’s

Association H.A.O.A (Hindustan Aeronautics Employees Association) to represent the officers

of HAL.

HAL Lucknow Division is having 293 acres land area. In 48 acres factory premises is

constructed and rest 2445 acres are used of township.


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HAL AT A GLANCE

1940 Hindustan Aircraft Ltd. Was set up by Late. Sri Walchand Hirachand in

association with then Govt. of Mysore, as a Private Ltd. Company.

1941-42 First product Harlow Trainer and curliest hawk Aircraft handed over to Govt. of

India Company was handed over United States Air Force.

1942-45 HAL repaired over 1000 different varieties of aircraft and 3800 piston engines.

1945 Govt. of India took over the management of HAL again after the world war.

1948-49 First Percival prentice aircraft assembled.

1951 The control of HAL was shifted from ministry of industries to Ministry of

Defence.

1953-54 The first Hindustan Trainer (HT-II) had its maiden flight.

1956 HAL came under the public sector.

1960 Aircraft manufacturing depot was established at Kanpur.

1662 Aeronautics India Ltd was formed to manufacture MIG-21 Aircraft Three

factories at Nasik, Koraput and Hyderabad established.

1964 HAL was dissolved and its assets were merged with Aeronautics India Ltd and

the company by the name of Hindustan Aeronautics Limited was formed.

1969 An agreement with USSR was reached for the license production of MIG-21

aircraft.


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1970 Helicopter Division was established to manufacture helicopters.

1973 Lucknow Division established to manufacture, instruments and accessories.

1979 Agreement with British Aerospace for manufacturing Jaguar Aircraft.

1982 Agreement with USSR for license production of MIG-27M aircraft.

1983 Korwa Division of HAL formed.

1990 Design and development of Light Combat Aircraft (LCA).

1991 Development of Advance Light Helicopter (ALH).

1993 Certification of ISO-9001.

1998 IMGT, a new division established at Bangalore.

2000 Certification of ISO-14001.

2003 License permitted by Russia for manufacturing of SU-30 Aircraft.


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PRODUCTS OF LUCKNOW DIVISION

Electronics 1.State investment

2.DC system control and Production unit

3. AC system control and protection unit

4. Fuel management system

5. Land management system

Gyro-Instruments 1. Direction Gyros

2. Gyro Horizons

3. Rate Gyros

4. Synctors

Hydraulics 1. Accumulators

2. Servo Jacks

3. Gear Pumps

4. Activators

5. Motors

6. Value

Ground Support 1. Ground Power Units

Equipment 2. Hydraulic Trolleys

3. Customs Built fuel/Hydraulic test rigs

Wheels & Brakes 1. Main Wheels

2. Nose Wheels

3. Carbon composite brake pads

Sensors and Switches 1.Capacitancetypefuel content qualifying

Probes.2. Temptation Sensor + Switches

Conventional 1. Altimeters


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2. Vertical Speed Indicators

3. Jet pipe temperature indicators

4. Engine RPM indicators

Electrical 1. D. C. Generators

2. Alternators

3. Transformers Rectifier Units

4. Integrated Drive Generator

Fuel System 1. Main Pumps

2. Heat Pumps

3. Fuel Control Units

4. Booster Pump

Environment Control 1. Cold Air Units

System 2. Ventures

3. Water Extractors

4. Valves

Precision 1. All ranges NC Machines up to 5 Axis

Manufacturing 2. Precision Conventional machine

Capabilities


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FUTURE PROSPECTS

Company is planning to provide “AJT” (Advance Jet Trainer) named- “HAWK” in

September 2008 to the “Air Force of India”.

The projects which are in line for future includes HJT (Hindustan Jet Trainer) named-

“KIRAN”, Sukhoi-30 named “OJAS”, PTA (Pilotless Target Aircraft) named “Lakshay”

etc.

The company has got permission to provide LCA (Light Combat Aircraft) named-

“TEJAS” to “Indian Air Force” up to 2010 with all facilities.

The company has also planned to start the projects like CAT (Combat Aircraft Trainer),

LCH (Light Combat Helicopter) and MLH (Medium Light Helicopter).


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TRADE UNIONS IN HAL LUCKNOW DIVISION

1. HAEA Hindustan Aeronautics Employees Association (Recognized)

2. HALU Hindustan Aeronautics Limited Employees Union

3. HARSS Hindustan Aeronautics Rastriya Sharam Sansthan

4. HADEA Hindustan Aeronautics Diploma Engineers Association

5. HAPKS Hindustan Aeronautics Prashikshit Karamachari Sangh


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DEPARTMENTAL ANALYSIS

VARIOUS SECTIONS OF FINANCE AND ACCOUNTS DEPARTMENT IN HAL


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BILLS PAYABLE SECTION

Objectives: Meeting organizations liability is the task of this section. It is responsible for payment of

suppliers and service providers as per terms and conditions of the P.O. It also ensures

timely payment to different parties so that the suppliers and services to the division are

ensured uninterruptedly in furthering the organization's objectives. It

also ensures proper accounting as per the requirements from the corporate office. This section

also ensures that the statutory deductions like TDS etc. are made from the bills of service

providers and deposited timely with the appropriate authority. This section has three

segregations, which perform their function independently. These sub-sections are as under:

Bills Payable (Indigenous)

Bills Payable (Foreign)

Bills Payable (Service and Civil works)

BILLS PAYABLE (INDIGENOUS)

Here in this section , bills related to the Indian suppliers are paid off. It is not concerned

with any kind of foreign remittance. The job of this section starts after receipts of

information of any type from commercial

or Purchase or Purchase Department It maintains the proper accounts in relation to the work

performed by this section. It also deals with the payment of miscellaneous advances.

Procedure:

P.O is sent by the Purchase Department after the approval.” Material Procurement Committee

'' (MPC) approves it. Then P.O is sent to bills section which shows the details of the material

required. Vendor is consulted for the purchase the details of the material required. Vendor is

consulted for the purchase of the material. The vendor sends their quotation for supply of the

material. Then the concerned authorities select the best quotation. There after order is placed.

Invoice is sent in case of payment through bank and these invoices are matched with the P.O and

then payment is made to the concerned party.


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Invoices consist of the name of consignee , manufacturing code number , Challan

number , Customer number , date and time of invoice, date and time of removal of

goods , product code , description and specification of goods , type , total quantity of

goods , rate , unit, assessable value , packing and forwarding charges ( P&F) ,rate of duty,

duty paid , mode of transport , freight, insurance, tax rate , sales rate etc.

Inland vendors for suppliers / services are paid by one of the following procedures:

a) Document through bank

b) Cheque against delivery

c) Advance payment

d) Open account

BILLS PAYABLE (FOREIGN)

Bills payable foreign deals with the payment of foreign suppliers as stipulated in the purchase

order. This sub-section performs its function separately from the other sub-sections of this

department.

Functions:

1) Payment and accounting of:

Advance to suppliers as per the terms and conditions of purchase order.

License fees, royalty etc as per the license agreement with the foreign collaborator.

Custom duty, freight bills.

Final bills.

2) Opening of Letters of Credit on the advice of I.M.M Department and liaison with Banks

for Foreign Exchange release and payment on maturity date.

3) Maintenance of commitment registers for budgetary purpose.

4) Pricing of R.D.R(Receiving cum discrepancy report) with P.O. (Purchase order) rates and

loading of custom duty , freight and insurance charges.


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5) Priced R.D.R are sent to materials accounts section/ E.D.P for punching in batch mode

for the processing of materials ledger.

Flow of work:

All P.O / Contracts received are entered in the registers before opening of

separate file for each P.O.

All the L.C opened in favor of Foreign suppliers as per the terms of P.O are

entered in Registers to record the particulars about their extension, revalidation

and utilization . On maturity of the L.C the Bank Adjustment voucher is prepared

on the basis of bank advice and sent to the cash section for adjustment. Particular of

payments are noted in relevant P.O.

Where the Purchase terms provide for " Documents through Bank" the Bills

Payable section after checking the documents with the P.O passes the invoices

and issues Letter of Authority to the Bank for arranging payment.

All the Contractual payments in respect of Royalty , License fee and Technical

Assistance fees are made as per the License / Collaboration agreement.

Bills of Entry received from the IMM Department are entered in the register to

record value of the goods assessed , amount of duty paid to ensure that the

duty levied is correct and the amount of duty paid is loaded to the inventory

accounts correctly.

After receipt of goods the stores department send the R.D.R to the foreign bills

for pricing and making necessary accounting.

Pending the pricing of the R.D.R , the payments made to foreign vendors, through

letter of credit / sight draft are put temporarily in goods in transit account.


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In respect of material dispatched by the vendor against P.O raised by H.A.L

the liability is provided in the company's books of accounts if payments have not

been made for such supplies.

Follow-up with IMM department is done for timely release of RDR so as to clear the

G.I.T .

Foreign suppliers are paid by any of the following methods as stipulated in the

P.O./License agreement/contracts -

a) Letter of Credit

b) Sight Draft.

c) Advance Payment

d) Direct Payment.

Bills of entry

It is a document filled by custom officers for giving custom clearance to the goods

received from foreign countries. Bills of entry are received by the agents before receiving

of goods. It includes:

1. Total number of packages

2. Total amount of duty paid

3. Invoice value

4. Freight

5. Insurance

6. Exchange rate

7. Accessible value

RECEIVING CUM DISCREPANCY REPORT:

RDR (Receiving cum discrepancy report) is prepared at the time of receiving of goods within

organization. Pricing of RDR is done by two methods:


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1. If the payment is done in advance and goods received later, then the RDR is priced at the

value of exchange rate of the last day of the previous month.

2. If payment is done on the same day then the RDR is priced at value at which payment is

done.

BILLS PAYABLE (SERVICES & CIVIL WORKS)

Bills payable section deal with the preparation of bills of services and civil works in the

company. This sub-section is mainly responsible for-

a. Service contracts.

b. Job contracts.

c. Medical payment.

d. Advance payment.

e. Payment regarding construction of building etc.

Accounting related to all these are also done by the section.

Functions:

Payment and accounting of advances, running bills to contractors and final bills.

Adjustment and recovery of advances.

Accounting and adjustment of earnest money and security deposits.

Capitalization of buildings.

Payment of all services bills e.g. Telephone, electricity, water, canteen, transportation,

sanitation etc.

Payment to all consultants e.g. Architects, Advocates, Part time doctors etc.

Payment of miscellaneous advances, impress approved by competent authority.

Payment to all casual employees recruited on "job-contract" basis.

Flow of work:


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In case of running bills the works accounts section links the bill, submitted by

Contractors duly certified by Engineers-In-Charge, with the contract / acceptance

letter ,work order etc and arranges payment after deducting Income tax, balance

security deposit and other advances if any and retaining the prescribed percentage

of the bill towards retention money no deduction is to be made on this account.

Final bills submitted by the contractor is checked with the measurement book and

the gross amount payable is determined. The amount settled against running bills ,

advances if any , penalty for delay in completion of work , recovery towards

consumption of material , T.D.S etc is deducted from the gross amount payable.

Advances to contractors are given as per the acceptance letter given to the

contractor which are recovered with interest by way of deduction from on account

payment bills in suitable percentage in relation to the progress of work so as to

recover all sums advanced by the time 80% of the contracts are completed.

Material advances to the extent of 75% of the value of materials brought by

contractors and lying at the site are given on certification of the Engineer-in-

charge and are recovered from running / final bills.

Payments of bills for services e.g electricity, water etc received from plant

maintenance department / concerned user duly verified by them and approved by

the competent authority are made. Payments in respect of other services received

by the company is made after it is duly approved by the competent authority.

In case of job contracts payments are made to casual employees of the

company. Three categories are made and rate of these categories differ from each

other.

BILLS RECEIVABLE

This section is responsible mainly for the preparation and submission of invoices etc.

HAL regular customer is IAF , which accounts for round 85% share in total


38

sales of the organization and rest are mainly Navy, Army, ADA and others. This section

ensures that dues from customers in respect of goods supplied and services rendered are

recovered timely as per the fixed price quotation / price catalogue proved by the Ministry

of Defense. It has also to act as liaison with custom department , Sales tax authority and

others . Proper accounting is done as per the instructions provided by the Corporate

Office.

Objectives:

1) To ensure that the dues from the customers in respect of the goods supplied and

service rendered are recovered timely as per the fixed price quotation / price catalogue

approved by the ministry in acceptance with the government issued by the Ministry of

Defense dated 24th August 1995.

2) To ensure that the invoices relating to the advances , stage payment, final delivery

are raised timely in order to have smooth cash flow position.

3) To ensure that proper accounting is done as per the statute and accounting

instructions laid down by the Corporate Office.

4) To ensure that all statutory payments e.g sales tax, excise duty , custom duty is

recovered from the customers and is deposited timely with appropriate

authority.

Functions:

1) Preparation and rendering of invoices to Indian Air Force (IAF) in respect of the

following activities with the guidelines laid down in the government letter dated 30th

Sept, 1997.

a) Manufacturing activity

b) Repairs and overhaul

c) Supply of spares against RMSO

d) Deferred revenue expenditure


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The following documents shall be produced in support of the

invoices

a) Initial advances are recovered on the basis of customers order.

Firms / forecast task given by the Air Force.

Chief Resident Inspector ( CRI) coordinated Inter Divisional Task Orders ( IDTO)

for divisional tasks.

Repairs Maintenance Supply Order.

b) Subsequent stages / final payments are claimed on the basis of dispatch advice,

Acknowledgement received Air Force in Form Q423, Inspection Note certified by the

Chief Resident Inspector about the progress of the work done.

In respect of the repairs and overhaul work the payment is strictly regulated based upon

the nature of the work carried out e.g. Functional test, Defect investigation and Zero hours

servicing, Repair and overhaul.

1) To prepare and render invoices to Non- Indian Air Force customers in respect

of the following activities.

Development sales for customer financed projects.

Suppliers and services rendered to civil customers.

Suppliers against Repair Maintenance Supply Orders (RMSO).

2) To raise debit on other divisions on Stock in Trade (SIT) in respect of parts /

accessories supplied for fitments in Engines / Aircraft / Helicopters manufactured by

them for supply to customers.

3) To claim payment from Account Officer Defense Accounts Department

(AODAD) on the basis of fitment details received from those divisions.

4) To submit invoices for reimbursement of royalty from Air Force and set up

sales for these claims and created claims receivable.


40

5) To follow up with AODAD and other customers for collecting the payments

against the invoices raised.

6) To provide details to budget section for compilation of sales budget on the

basis of sales order, firm / forecast task , IDTO for budget estimates, revised

estimates.

7) To collect Sales Tax from the customers and deposit the same.

8) To compile Sales Tax from returns and submit the same to Integrated Material

Management ( IMM) department for onwards submission to sales tax authorities

for assessment.

ACCOUNTING PROCEDURE

Accounting for the sale of aircraft / engine / equipment etc. manufactured / repaired and

overhauled and for services rendered, is done through the following accounting journals:

1. Sales Journal : Separate journals are maintained for the following activities:

a) Manufacture of aircraft / engine / equipment

b) Overhaul of aircraft / engine / equipment and overhaul of ratable.

c) Manufacture and supply of spares for overhaul against RMS orders.

d) Miscellaneous

These journals are posted from the final invoices / Performa invoice raised on dispatch or

delivery. At the end of each month, these sales journals are totaled and sales are set up by

debiting to respective sundry debtors / advances account.

2. Claims / Accounts receivable journal: All invoices raised in respect of various

services rendered / facilities provided are entered into this journal and journal entries

passed at the end of each month by debiting to claims / accounts receivable account and

crediting to the respective income account.


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FINANCE SECTION

Objectives:

1. To ensure that the financial discipline is maintained in the division.

2. To ensure that all expenditure is incurred with due regard to principles of financial

propriety.

3. To ensure that financial proposals are routed to the competent authority as per

delegation / sub-delegation of powers so as to ensure compliance of the provisions of the

Companies Act, the Memorandum and Articles of Association of the company and the

relevant rules and regulations of the company and the guidelines issued by the company.

4. To ensure that the funds are available in the approved capital and performance budget so

as to cover the relevant proposals.

5. To submit MIS reports to corporate office monthly.

Functions:

1. To scrutinize and give financial concurrence as per delegation of power for each proposal

involving:

a. Capital expenditure

b. Revenue expenditure

c. Purchase of materials / stores / tools and other services

d. Manpower requirements

e. Waiver of dues / write off of losses

f. Cases involving relaxation of rules etc. as per delegation of powers

g. Sale, lease, alienation or disposal of company’s assets

h. Contracts entered into with suppliers / collaborators / sub contractors.

i. Award of contract in respect of civil / electrical works / other works / plant orders

j. Project reports

2. Certification for availability of funds with reference to capital and performance budgets

and appropriation of funds.


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3. Fixation of rent and rates of recovery in respect of services / supplies / disposals by the

company.

PROCEDURE (FINANCIAL VETTING)

Finance section plays a major role in accounts department. It can be termed as centre point of

activities, because this section clears all the files for proceedings by the concerned authorities as

per delegation of power.

First of all material purchase requisition is sent by the purchase department, it is request for

procurement of material which is sent to store and the store sends this file to finance section for

further proceedings. These requisitions are broadly classified as under:

a. Non- Recurring items

b. Recurring items.

Concerned authorities in the section approve the file. Committee members as per the amount

mentioned in the files, do approval of the files. Different Committees have been formed

for different approvals like different committee approves the proposals which amounts up

to Rs 5 lakhs, different committee is authorized for the amount above then Rs 5 lakhs &

so on. Approval is done by CM (IMM) , Manager(Maintenance) , Senior Manager

(Maintenance) as the case may be . After the CM’S approval, it is sent back to IMM &

the IMM sends it back to the Finance section, including specifications which shows that

it is suitable or not. Finance Department approves P.O FILES. Then further proceedings go on

which includes rising of inquiry for tenders. Sealed tenders are opened in front of concerned

authority. There are fixed days for opening sealed tenders-Friday and Tuesday. Amongst the

sealed tenders L1 is selected , which represents the lower amount amongst all tenders. In

spite of considering lowest amount other factors are also taken into due consideration

subject to the companies policies. Thereafter further proceedings take place:


43

PAYROLL SECTION

As the name shows, this section is concerned with salary, wages, incentives & correspondence

with Time Office. It also takes into consideration subsidies granted and providing motivational

benefits.

Objective:

To formulate salaries and wages of all employees as per terms of employment.

To regulate payment of welfare facilities extended by the management e.g. L.T.C,

medical, interest subsidiary, school fees etc

Payment and recovery of various natures of advances such as Travel advances, LTC

advances, conveyance advance and timely adjustment thereof.

To ensure timely remittance of amounts recovered from employees to various agencies

like LIC, UPICA, and HDFC etc.

To ensure proper accounting is done as per the requirement of the statute and corporate

office guidelines.

To adhere to the provisions laid down in the personnel Manual relevant to the above

functions.

To ensure that all –statutory deductions e.g. TDS, PF etc are made from the salaries of

the employees and deposited timely with the appropriate authority.

Function:


44

Based on the appointment /transfer notification from personnel department, individual

files are opened in the payroll section to record the particulars of the employees such as

grade/group date of appointment/transfer, department code, P.B.No., scale of pay etc.

The payroll records is updated from time to time entering therein increment drawn,

promotion, transfers.

The master data in respect to all officers/employees is sent to computer department in

respect of basic pay, DA, HRA, CCA etc and this data is updated every month depending

upon the cheque.

The deduction to be made is fed to the computer department by means of deduction

statement. Computer department in turn prints out the deduction statement. In the form of

check lists by 25th of every month. Payroll section corrects the same with reference to the

various documents and recovery registers and sends it back to compute department for

final adoption by 26th827th of the month.

The computer department prints the payroll in duplicate in which one copy is maintained

in the payroll section for record purpose and the original copy is distributed to the

employee concerned.

DISBURSEMENT OF SALARY 7 WAGES Payment of salary to officers is made

through Bank based on the payroll received from the computer department. In cases of

non supervisory personnel the payment is made by cash by various groups except few

cases where the payment is made through P.N.B Bank HAL branch. Cash is drawn two

days in advance i.e. last day of month and filled in the envelopes are kept in safe custody

in cash office for disbursement on 1st of next month.

REMITTANCE OF RECOVERIEES various recoveries made from employees in respect

of LIC premium, HDFC Loan, Income Tax etc are remitted to the various agencies within

the stipulated date by means of cheque.


45

PAYMENT OF ADVANCES AND ADJUSTMENT thereof and reimbursement in of

expenses various type of advance such as car/scooter advance, contingency advance,

TA/DA etc are paid and adjusted / recovered as per the rule of the company. Also

reimbursement of expenses limes medical, school fee, conveyance etc. Is made as per the

rules of the company.

ACCOUNTING PROCEDURES Monthly payroll journal entry is made both for

supervisory and non- supervisory personnel and sent to book keeping section for

adoption.

To make payments made to persons from the division, proper accounting is done to

ensure that necessary advice is raise to the concerned division.

To monitor the controllable expenditure e.g. medical expense , conveyance expenses, etc.

on monthly basis an to ensure it does not exceed the budget provided for it.


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PAY ROLL FORMAT

HAL SERIAL NO.DATE

PAY SLIP FOR THE MONTH OF ________________

Name Net PayDeptt. / EMP No. FPF No.Designation Bank A/c No.Grade Bank NameDA – 30 % Basic Branch AddressBasic Pay

EARNING

Code Description Current Previous

Basic Pay - -DA - -HRA - -Conv. Allow - -Incentive Amt - -MAGA Allow -- -WASH. Allow - -Basic ARR - -DA. ARR - -HRA Arrears - -

Total Earning - -


47

DEDUCTIONS

Code Description Current Previous

PF - -Income Tax - -GSLI - -HAOA - -VPF - -Sports Club - -PF Arrear - -HAOC - -DRF - -

Total Deduction - -

Net Pay – Rs.______-___

In Words.______________________________


Salary Day Current PreviousHRA Day

Leave Opening Earned Availed BalanceCLVL

48

Attendence Leave Details

BOOK KEEPING SECITON

After the completion of a task or in its due course there is need to maintain an accounting

record which is duly fulfilled by passing on a journal entry in almost every finance &

accounting section with some exception. After its proper jormalization, a bunch of

journal vouchers are forwarded to Book-keeping section for consolidation. So theirs

sections responsible for proper maintenance of accounts of the company as per

requirements of the status.

Objectives:

To complete the accounts of the company are prepared as per the requirement of

the statute/corporate office guidelines.

To assess the performance of the company in financial terms such as sales,

debtors, profit, value of production, value-added etc.

To furnish data/information in respect of income Tax Assessment done at

Corporate Office.

To get the accounts of the company audited by the Internal, statutory &

Government auditors as prescribed by law.

Functions:

Journal entries originated by the various sections of Finance and Accounts

department are sent to book keeping section. These entries are serially numbered and

punched into the computer and thereby posted to the General ledger.


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Preparation of Trial Balance, profit and loss A/c and Balance sheet. Accounts are

computerized are drawn for every quarter as on 30th June, 30th sept, 31st Dec and Final

Accounts as on31st March of each Financial year.

Maintenance of Fixed Assets Register and depreciation schedule.

1) For all capital items purchases, RDR are furnished by the bills payable section

like wise details of assets like building etc. capitalized are also furnished by

civil works section to the book keeping section. The maintenance of assets

ledger is computerizing din which the details like data of purchase, nature of

item, P.O.No, location of asset etc are recorded.

2) Depreciation on capital assets is calculated as per the policy of the company

and is reckoned accordingly as per operating expense of the division.

Inter Divisional Transaction are accounted through control account adjustment

advices which are reconciled twice in a year at the clearing house.

Physical verification of fixed assets is done as per the guidelines of cooperate

office.

To provide support to other sections of accounts in their reconciliation and control

functions.

Registers And Documents:

Since the maintenance of accounts is computerize although it maintains vouchers

which are handwritten. It ha sits own program for consolidation purpose. The

documents are-

FAD

Trial Balance, P&L Account and Balance Sheet

Fixed assets registers

Deposit register


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Control advice account register

General register

Division control accounts

BUDGET SECTION

For its effective operation, management must know what are its resources, what it wants to

achieve, whether operation are going in accordance with the plan set & such other things which

are to be considered. So for this purpose it is also required that plans must be said down into

verifiable terms i.e. quantitative terms and for that necessary guidelines with target period for

achievement are to be set. This formal structure is called Budget. In this manner a Budget can be

defined as-

“It is a financial statement of plans laid done prior to the period of its implementation during

which it has to be followed based on management’s policy and prepared for specified objectives

achievement.”

In this way, a budget serves as the guiding path for the prosperity of an organisation. The

movements must be accordingly done so that optimum result can be obtained with less effort.

The following are the guidelines of budget section-:

The period of budget is April to March. The budget is prepared in three

part:

1) Current Year- Revised Estimates

2) Budget Year- Budgeted Estimates

3) Forecast Year- Forecast Estimates

To ensure that capital facility must be made available in time to suit the production requirement.

The proposal under each subhead is classified under three categories- P&M, Civil

works and others.


51

Sales Budget and cash flow after approval of the board are broken into monthly budgets.

There are many types of budget prepared but it has bifurcated under two major heads as under-

CAPITAL BUDGET PERFORMANCE BUDGET

CAPITAL BUDGET PERFORMANCE BUDGE

1. New Projects2.Existing Project

3.Improvemetn & Rationalization4. Replacement

5.Welfare Budget6.Design & Development

7. Computers

1.Order Status2.Production Budget

3.Sales Budget4.Purchase Budget

5.Foreing Exchange6.Manpower Budget7.Training Budget

8.Profit and loss Budget9.Welfare Budget

10.Overheads Budget11.Ways & means Budget12.Projected Balance Sheet

“A capital expenditure is that which helps to increase the production and revenue expenditure

is that which helps of consumption in production process.”

CAPITAL BUDGET- It is the most important budget that involves huge funds & is prepared

for long term investment. This budget is related to the capital item i.e. items which are to be used for

long period for the betterment of the organization for many tasks accomplishment. Such as

investments in plant and machinery, building, roads, vehicles, etc.

In this way it is a long term budget. It is a base for all activities. It involves huge capital outlays

projects and long term commitments. It affects decisions over a period of year. It involves large

risks and uncertainties. Thus, its preparation is handed over to senior and experienced executives.

It serves following purposes-:

Helps to evaluate capital expenditure proposal.

Helps to formulate other organizational budget.


52

Helps to consider the best proposals according to which priority can be fixed.

Helps to control capital expenditure i.e. utilization in effective manner.

Helps a systematic procedure for appraising profitability performance of the company.

Generally top executives of the coorporate and operational level take initiation for proposals of

capital expenditure as per requirement. It is generally concerned department and project in

charge who feel its need. Here in capital budget is laid down under following heads-

New projects

Existing project

Improvements and rationalization

Replacement

Welfare

Design & Development

Information & Technology

The requirement and allocation of capital expenditure is raised for above stated purpose. It has

been further explained In “Capital Budgeting Head”.

PERFORMANCE BUDGET –This budget is also termed as Revenue budget but due to

misconception which might be taken by other it is named as performance budget. This budget

can be recognized as the type of budget related to different fields which directly and indirectly

affect profitability. Its benefits are realized generally at short period of time but some exceptional

cases are there e.g. sales budget, DRE, manpower budget etc. This type of budget contains

different types of budgets which are explained below-

o ORDER STATUS- This budget is related to the purchase order pending to be ordered.

When a particular item is due to be purchased and for that purchase requisition is

raised by the concerned department and for that after selecting bid, purchase order

is raised. So these orders status is recognized under this budget. Generally there is

also relaxation where in financial approval need not to be taken which is fro

capital item upto Rs. 20000/ and revenue item upto Rs. 50,000.


53

o PURCHASE BUDGET- This budget is prepared to calculate expected purchases to be

made and also payments due. These types of budgets are prepared after the

information/ data submitted by bills payable, purchase department and finance

department.

o SALES BUDGET- This budget is prepared after the information supplied by customer

service department and bills receivable section which is ultimately responsible for

dispatching for receipt of sales order and raising work order and communicating

bill receivable for raising invoices respectively. So in this way expected sale is

prepared. Actual these both budgets i.e. purchase and sales are interred related as

one affects automatically other’s need. Generally it is calculated on the basis of

sales order.

o PRODUCTION BUDGET-As we cans understand what this budget stands for. It takes

into consideration the production to be done in the budget period. For its

preparation mainly production department on the basis of work order received,

and furnish the data to budget section. It is also concerned with keeping sufficient

inventory requirement. Production budget s generally calculated as.

Budgeted sales + desired closing inventory of finished goods – Opening inventory of finished

goods.

So in this way, it is totally based on sales budget and desired inventory levels. It also shows

unit wise cost. By keeping balance between sales budget and production budget, idle capacity

can be avoided. It is a basis for preparation of material, labour and factory overhead budget.

It also takes into consideration the cost of carrying out production plans and programs. Here

in scientific management has also to play a significant role.


54

MANPOWER BUDGET -This budget is prepared out of the requirement for direct and

indirect work force, to carry out budget plan. Human Resource Department with the help

of other department judges its position. It takes into consideration the new appointments,

their forecasted grade/ scales, retirement. As contingency exists too much under this

budget due to deaths, accident and sudden resihnation so every time there is exceed in

expenditure from the budgeted figure. So in this case adjustments are made time to time.

It also calculates recruitment and selection expenditure.

FOREIGN EXCHANE BUDGET-Basically it is a part of purchase budget but it

specifically takes in to consideration the foreign purchases i.e. import. In this way, it has

to calculate according to the foreign currency payment. As its rate is not fixed so in this

way, every time there is plus-minus. Mainly two types of imports are mentioned i.e.

Russian and western (UK. France. Etc).

TRAINNING BUDGET- As we all can understand that such as organization always

need to be get aware with new technologies, its implementation and operation so that its

position can be maintained. Thus, different types of seminars, group discussions, tests are

held. For this, personnel are also sent to abroad for better learning. This formation

according to need is collected from different department and consolidated in well- framed

manner and submitted to budget section.

WELFARE BUDGET- There are various facilities which are provided to employees of

HAL as well as to their families such as medical, canteen, transport, education,

maintenance of clubs & grounds, etc. So in this way, there are two items under it.

a) Capital item which is dealt in capital budget.

b) Revenue item which is dealt in this budget.

There are some facilities that are availed by only employees so accordingly classification is

done.

Significance For Organization:


55

It is a tool in the hands of management t establishes goals, objectives and targets of the

organisation and to measure performance against the stated targets. It sets out a path to walk over

to achieve goals accordingly by taking care against probable hurdles. As this section is related to

almost whole organization s its responsibility increases as for performing policies.

BUDETARY CONTROL

As their is wide difference between budgeting and budgetary control. But it is often used

unchangeably as a system o managerial control. But budgetary control has this phenomenon as it

implies the use of a comprehensive system of budgeting to as management in carrying out its

function like planning, coordination and control. It is a system which uses budgets for planning

and controlling different activities of business. The same concept applies to this organisation as

its main concentration on budget and its approach, emphasizes management to derive useful

information and use accordingly. But in this phenomenon there is need to check the activities

time to time by way of” variance analysis” by accepting it as standard figure. In this way, budget

section serves its purpose by fulfilling these objectives-

Helping in forming plans.

Helping in communication plan to concerned personnel.

Co-ordination all activities of the organisations as to facilitate its working and success.

Motivating employee to actively participate in decision making process and achieving goals by

fulfillment of duties.

Controlling mainly by through discussions, passing on reports, reviewing budgets, taking into

consideration different types of contingencies etc

Helps to define the results to be expected.

It can be termed as a type o budget follow up, which is performed to watch that whether funds

has been used properly an accordingly improvement is done. In this way by this type o system it

provides base for future budgets lying.


56

This function is serving in HAL and organization is giving emphasis by active participation of

corporate executives. Their review, discussions and repot collection fulfilling the purpose well.


57

MATERIAL ACCOUNTS SECTION

Objectives:

1. To ensure that all the receipts and issues of materials from stores are recorded and

accounted properly.

2. To ensure that all non-moving / slow moving materials are identified as “surplus” by

IMM and a suitable redundancy provision is made against them and are disposed off.

3. To ensure that bin card balances are reconciled with the material ledger balances in

coordination with IMM and the balances of material ledgers tallies with the general

ledger.

Functions:

1. To send the priced RDR received from bills payable section to EDP for punching in the

batch mode and thus all the receipts are recorded and control is exercised over all the

purchases value-wise.

2. To generate exception list for missing RDR and getting it resolved with bills payable

section.

3. All the materials drawn excess when returned are credited to stores through stores return

voucher.

4. The EDP after processing of all MR / issue vouchers prints the material issue analysis

statement monthly indicating:

a) The cost of material drawn against various job orders, expense accounts etc.

b) The cost of material issued to contractors and others.

c) The cost of tools issued to various tool cribs from main tool stores.

Based on the above statements accounting for issue of material is done by debit to

WIP / expense / contractors account and credit to relevant inventory accounts.

2. On the basis of list of material / transfers reclassification indicating the material code

number / quantity and value, necessary journal entries are passed by debit / credit to

relevant inventory accounts.


58

3. On the basis of stock verification sheets indicating stock verification note number,

material code number, shortages / overages, necessary journal entries are passed after

obtaining clarifications from stores department by debit / credit to stock adjustment

account credit / debit to relevant inventory accounts after taking approval of CFA

wherever required for adjustments / write off of stores.

4. A list of material not moved for over 5 years is given by EDP which is reviewed by stores

/ concerned programming department. Materials not required for production or for other

purposes are identified and suitable action is taken by IMM for finding their usage in

other divisions or is auctioned.

5. Redundancy provision is made in the books of accounts at the rate of 100% for non

moving inventory and for closed projects as special provision on the basis of list given by

EDP. Further a normal provision at 1.5% is made on the balance inventory.

Accounting Procedure

Accounting of the receipts of material by various classes and issues thereof to various work order

and expense accounts is done based on the following ‘output’ statements received from computer

/ data processing section:

1. Material issue analysis statement

2. Stock transfer / stock re-classification statement

3. Stock verification statement

4. Surplus / condemned stores statement

Material issues analysis statement: The computer / data processing section after processing

all the material requisition/issue vouchers pertaining to the month prints out the material issue

analysis statements monthly indicating:

a) The cost of materials (including material overhead expenditure) drawn against various

work orders and expense accounts.

b) The cost of material issued to contractors and others.

c) The cost of material transferred to other divisions.


59

d) The cost of tools issued to various tool cribs from main tool stores.

Based on the above statements, accounting for issue of material is done by debit to

WIP/Expenses/Division/Contractors accounts concerned and credit to the relevant inventory

accounts.

Stock verification statement: The computer / data processing section makes available the print

out lists of stock verification notes, indicating stock verification note number, material code

number, overages or shortages of less than Rs 500/- and more than Rs 500/- based on which

necessary journal entries are issued after obtaining clarifications from stores department, by debit

/ credit to stock adjustment / inventory adjustment account and credit / debit to relevant

inventory accounts.

Surplus / condemned stores statement: Non moving / slow moving material are reviewed by

stores / production engineering department from the lists of non moving / slow moving items

furnished by the computer / data processing section. Material not required for production or as

“surplus” and referred to the ‘surplus committee’ for review and declaring the same as surplus.

The surplus materials when so declared are transferred to the salvage stores for disposal.

Likewise materials held in stores and condemned due to expiry shelf-life deterioration etc., are

also transferred to salvage stores for disposal. Based on the disposal orders received in the

material accounts section, duly approved by the competent authority, the value of the material

transferred to salvage is debited to the redundancy provision account where available, otherwise

charged off to profit and loss account by credit to respective inventory accounts.


60

COST ACCOUNTS SECTIONObjectives:

1. To establish a costing system in line with the activities and the product range of the

division.

2. To determine the price realizable from the customer for the products manufactured /

repaired / overhauled / serviced / supplied by the division.

Functions:

1. To determine the rate of absorption / recovery of labor and other overheads for

recovering labor cost on the different jobs undertaken i.e. MHR computation.

2. To accumulate the labor and overheads content of each activity project-wise based on

evaluated LTB generated by EDP from work orders / time dockets.

3. To keep track of different jobs completed and jobs lying incomplete in different stages

over a reasonable period of time and to coordinate with concerned production controllers

for justification for jobs lying unfinished beyond a reasonable period of time and to

ensure their early disposition.

4. To review work orders on which no material / labor cost has been recorded and finding

out the reasons for the same.

5. To get the WIP statement as on 31st March from EDP for all manufacturing components,

sub-assembly WIP, assembly WIP for physical verification by the concerned production

shops.

6. To ensure that the valuation of WIP has been done correctly keeping in view the

percentage of completion of the job.

7. To keep track of SIT transactions with different divisions.

8. To keep record of all IDTO received and issued.

9. To send debit advices to other divisions for items dispatched against IDTO received from

them.

10. To accept the debit raised by other divisions for items received by the division in respect

of requirements raised by us through IDTO.


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COSTING SYSTEMIn Hal Division the work carried out in following categories-

Manufacturing and Assembling Operations

Of aircrafts, aero-engines, avionics, ground radars, accessories and

instruments.

Of spares required for overhaul of aircrafts, engines, engines etc. and DRDL

for supply to IAF against RMS order, navy, army etc.

Of other equipment like foreign and costing.

Repairs and Overhaul Activities

Aircraft, engines, avionics, ground radars, accessories and instruments.

Other equipments.

Design and Development Activities of aircrafts, aero-engines, avionics, ground radars,

accessories and instruments.

Customer Finance.

Company Finance.

Though HAL manufacturing don't come in the range of products under cost audit and cost.

Accounting records rules formed by the GOI, a fully fledged cost accounting system is essential

for effective cost monitoring and cost control.

THE SYSTEM

The system of cost accounting followed in HAL is "Batch Costing" which is a variation of job

costing and is mainly designed to suit the work carried out in HAL. Some divisions of HAL have

also work order schemes suitable for component costing.

a. Batch Costing

1. In the batch costing system, all the components, minor assemblies, etc. required

for a batch of aircraft /engines/equipments are manufactured on batch order/mass

fabrication orders. Though job cards/job tickets are issued for manufacturing of

individual components, cost is not recorded separately. Labor and material costs are

booked on the batch work order/mass fabrication order only.

2. The components after manufactured are carried out to production store and drawn

for assembling on the next assembly line immediately .The items are held in


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quantitative inventory, the cost being held in WIP. Individual work order are issued for

assembly, erection and testing. The cost of bought out items drawn at the stages of

assembly and erection is booked to these orders.

3. In this system the cost of all components, minor assemblies, sub assemblies, etc.

relating to an aircraft/engines/equipments in the complete batch is determined by

dividing the total cost recorded on the batch work order/mass fabrication work order by

the number of units produced in the batch. To this is added, the cost recorded on

assembly line, erection and testing work order(s) and sundry direct charges to arrive at

the total cost of the aircraft/engines/equipments.

b. Job Costing

This system of costing is followed in the case of repairs and overhaul of aircraft, engines,

equipments etc. and for manufacture of spares against RMSO spare for HAL held IAF

store and miscellaneous jobs.

In this system individual work is issued for overhaul of each

aircraft/engine/equipment and for manufacture of spare items .Labor and material cost is

collected on the individual work orders and the total cost of each item is ascertained.

c. Component Costing

In the component costing system, an individual work order/job ticket is issued for each

component against which labor and overheads expended and cost of material drawn are

recorded and the total cost is ascertained.

In this system the requirement of component for manufacturing of component, overhaul

and spares programs as a whole is determined and work orders/ job cards/ job tickets are

issued for manufacture of each of component in the economical batch quantities. The

batch quantities of aircrafts/ engines etc. are not relevant but the batch quantity of each

component is important. The components after manufacture are credited at cost to

production stores and drawn for assembly when required. Thus the items are held in

priced inventory. The cost of minor assemblies, sub assemblies, major assemblies can be

built from the cost of components issued to such assembly jobs.

d. Standard Costing


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Standard costing is a technique to control cost. Here costs should be first extended to

manufacturing projects including fabrication of detailed components, sub assemblies,

major assemblies and final assemblies.

It can be extended for periodical overhaul of major products like airframe,

engines, avionics, wheel assembly and high value rotable, where work schedule are

available. Standards for labor and material should be fixed for deriving variance under

each category for control.

e. Labor Standards

The present standard time for each component, equipment, assembly allotted in time

docket in the division is taken as parameter for fixing standard labor hours. These labor

hours will be valued by applying yearly Man Hour Rate (MHR) applicable to the division

f. Material Standards

The material requirements as per the bill of material shall be the basis of determination of

the standard for marginal cost. The costing of material shall be done on the basis of

weighted average rate of respective material prevailing at the time of issue of work order.

However in respect of USSR material where itemized prices are not available, the price

standards shall be adopted based on technical estimates.

For the purpose of comparison and analysis of cost, monthly statements should be

prepared in regard to-

1. Standard Man Hours (allowed man hours where SMH are not available)

v/s actual hours booked against each work order.

2. Labor costs as per the standard and as per actual.

3. Material cost as per standard and as per actual.

g. Marginal Costing

With a view to increase the utilization of the available facilities and manpower and to

obtain some contribution towards the company's fixed overhead expenses, marginal

costing techniques are adopted in the pricing the supply and services.

Jobs may be undertaken at prices lower than the cost of sales at full man hour rate,

provided the price is not less than the prime cost of jobs. The prime cost shall comprise of


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all expenditures directly incurred on the execution of jobs and production process like

direct material cost, cost of tooling, labor cost (including wages to direct workers).

PRICING POLICY FOLLOWED IN HAL

Prior to implementation of revised pricing policy i.e. 1995, payment to HAL was regulated as per

FCQ (Fixed Cost Quotation) of cost plus system. Under FCQ system HAL has no incentive to

bring efficiency in material usage or labor utilization since the entire cost incurred was getting

paid by IAF.

In 1995, government implemented FPQ (Fixed Price Quotation) system, in

which the prices of products and services are fixed by Directorate of Financial Planning, Air HQ

at base year. The base year prices are escalated at agreed escalation percentage and exchange

rates given every year by Air HQ for material and inflation indices for Man Hour Rate. The

FPQ’s approved for base year (1995-96) are escalated as per agreed parameters up to 8 years

(2003-04) and thereafter fresh base year cost verification is done by Air HQ by considering the

actual usage of material for overhaul/repair items in the last 3 years and accordingly material

cost firmed up in 2004-05. Similarly labor efficiency and yield factor of division are fixed at

79% and 76% respectively. The FPQs for overhaul/repair and price catalogue for spares are

approved by GOI.

Due to FPQ system HAL has find scope in bringing cost reduction in the form of lesser usage of

material or completing the work by putting lesser Man Hours as standard man hours so that labor

cost per unit should be decreased which helps in improving the profitability of the division.

At present the FPQ is applicable for repair & overhaul and supply of spares only and for

payment of manufacturing programmed e. g. Su-30, Dornier, LCA, IJT, Hawk etc are fixed as

per contract price agreed between HAL and air force and prices offered by HAL are negotiated

by the customer.

MAN HOUR RATE:

Man hour rate is defined as the rate of total expenses that the factory bears on direct labor during

production process of 1 hour. It is used as a basis for calculation of labor cost.

Man hour rate is calculated as follows-


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[Divisional expenses on salaries and other payments made including cost of facilities provided to

staff plus all the overheads e.g. power, fuel, and other expenses incurred by the division]

Divided by [the number of net available hours of direct worker including over time hours].

Net available hours= (No of direct worker X 7.5 hrs per day X 25 days X 12 months) X

(agreed yield percentage + OT hours).

Yield = Actual output in terms of SMH (Standard Man Hours) i.e. LTB hours

Percentage Total input hours


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PROJECT PROFILE


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Financial Management

Financial Management can be defined as:-

The management of the finances of a business/organization in order to achieve financial

objectives

Taking a business as the most common structure, the key objectives of financial management

would be to:

• Create wealth for the business

• Generate cash, and

• Provide a return on investment keeping in mind the risks that the business is taking and the

resources invested

There are three primary elements to the process of financial management:

FINANCIAL PLANNING

Management need to ensure that sufficient funding is available to meet the needs of the

business. In the short term, funding may be needed to invest in equipment and stocks, pay

employees and fund sales made on credit.

In the medium and long term, funding may be needed for significant additions to the

productive capacity of the business or to facilitate acquisitions.

FINANCIAL CONTROL

Financial control is a critically important activity to help the business ensure that said

business is meeting its goals. Financial control addresses questions such as:

• Are assets being used efficiently?

• Are the businesses assets secure?


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•Does management act in the best interest of the shareholders and in accordance with

business rules?

FINANCIAL DECISION MAKING

The primary aspects of financial decision making relate to investment, financing and

dividends:

• Investments must be financed in some way; however there are always financing alternatives

that can be considered. For example it is possible to raise funds from selling new shares,

borrowing from banks or taking credit from suppliers.

• A key financing decision is whether profits earned by the business should be retained rather

than distributed to shareholders via dividends. If dividends are too high, the business may be

starved of funding to reinvest in growing revenues and profits.


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COST MANAGEMENT (CONTROL AND REDUCTION)

COST CONCEPT

The term "cost" is synonymously used for the term "expense", which refers to sacrifice.

According to Committee of cost concepts-"Cost is foregoing, measured in monetary terms,

incurred or potentially to be incurred to achieve a specific objective."

Controlling Cost via Responsibility Accounting-

To control cost these fundamentals should be observed-

Fixing responsibility to control.

Limiting the individuals control efforts to his controllable costs

Reporting the performance of individual.


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CLASSIFICATION OF COSTS


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Classification by Nature:

i. Direct cost - Direct cost is that cost which can be identified with a cost centre or a

cost unit. For e.g. cost of direct materials, cost of direct labour.

ii. Indirect cost - Cost which cannot be identified with a particular cost centre or

cost unit is called indirect costs. For e.g. wages paid to indirect labour.

Cla ssification By Behavior:

i. Fixed cost - Fixed cost is that cost which remains constant at all levels of

production. For e.g. rent, insurance.

ii. Variable cost - The cost which varies with the level of production is called

variable cost i.e., it increases on increase in production volume and vice-versa.

For e.g. cost of materials, cost of labour.

iii. Semi-variable cost - This cost is partly fixed and partly variable in relation to the

output. For e.g. telephone bill, electricity bill.

C lassification by Element:

The cost is classified into (a) Direct Cost, and (b) Indirect Cost according to elements, viz,

Materials, Labour and Expenses

Cl assification by Function:

i. Production cost - It is the cost of the entire process of production. In other words

it is nothing but the cost of manufacture which is incurred up to the stage of

primary packing of the product.

ii. Administrative cost- It is the indirect cost pertaining to the administrative

function which involves formulation of policies, directing the organization and

controlling the operations of an undertaking. This cost is not related to any other

functions like selling and distribution, research and development etc.


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iii. Selling cost - Selling cost represents the indirect cost which is incurred for

(a) seeking to create and stimulate demand

(b) securing orders.

iv. Distribution cost - It is the cost of the sequence of operations which begins with

making the packed product available for dispatch and ends with making the

reconditioned returned empty package, if any available, for re-use.

v. R&D cost - "Research Cost" and "Development cost" are two different types of

costs. Research cost is the cost of researching for new products, methods and

applications. Development cost is the cost of the process which begins with the

implementation of the decision to produce the new product or apply the new

method and ends with the commencement of formal production of that product or

by that method.

vi. Pre-production cost - It is that part of the development cost which is incurred for

the purpose of a trial run, before the commencement of formal production.

vii. Conversion cost - It is the cost incurred for converting the raw material into

finished product. It comprises of direct labour cost, direct expenses and factory

overheads.

viii. Prime cost - Prime cost is the aggregate of direct material cost, direct labour cost

and direct expenses. The term ‘direct’ indicates that the elements of cost are

traceable to a particular unit of output.

Classification By Controllability:

i. Controllable cost - The cost, which can be influenced by the action of a specified

person in an organization, is known as controllable cost. In a business

organization, heads of each responsibility centre are responsible to control costs.

Costs that they are able to control are called controllable costs and include

material, labour and direct expenses.

ii. Uncontrollable cost - The cost which cannot be influenced by the action of the

person heading the responsibility centre is called uncontrollable cost. For e.g. all

the allocated costs and the fixed costs.

Classification by Normality:


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i. Normal cost - It is the cost which is normally incurred at a given level of output,

under the conditions in which that level of output is normally attained. Normal

cost is charged to the respective product / process.

ii. Abnormal cost – It is the cost which is not normally incurred at a given level of

output in the conditions in which that level of output is normally attained.

Classification by Time when Computed:

Sunk cost -Historical cost which is incurred in the past is known as sunk cost.

This cost is not relevant in decision making in the current period. For e.g. In the

case of a decision relating to the replacement of a machine, the written down

value of the existing machine is a sunk cost and hence irrelevant to decision

making.

Estimated cost - It is an approximate assessment of what the cost will be. It is

based on past data adjusted to anticipated future changes.


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ELEMENTS OF COST

The following diagram depicts the various elements of cost:


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Material Cost:

Direct Materials - Materials which are present in the finished product or can be identified in the

finished product are called direct materials. For e.g. Coconuts in case of coconut oil or wood in a

wooden cupboard.

Indirect Materials - Indirect materials are those materials which do not normally form part of

the finished products or which cannot be directly traced to the finished product. For e.g. Stores,

oil, grease, cotton wool etc.

Labour Cost:

Direct Labour - Labour which can be attributed wholly to a particular product, process or job is

called direct labour. It is the labour utilized in converting raw materials into finished products.

For e.g. Labour employed in the crushing department of an oil mill.

Indirect Labour - Labour which cannot be identified with a particular product, process or job is

called indirect labour. Indirect labour cost is apportioned to cost units or cost centres. For e.g.

Maintenance workers.

Expenses:

Direct Expenses - Expenses incurred (except direct materials and direct labour) specifically for

a product, process or job is known as direct expenses. They are also called "chargeable

expenses". For e.g. Hiring charges for a machine specifically hired for a particular process,

excise duty, royalty.


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Indirect Expenses - Expenses incurred other than direct expenses are called indirect expenses.

For e.g. Factory rent & insurance, power, general repairs.

Overheads:

Overheads is the sum total of indirect materials, indirect labour and indirect expenses.

Functionally overheads can be classified as..

i. Production / Works overheads

ii. Administrative overheads

iii. Selling overheads

COST CONTROL

Cost control can be defined as comparative analysis of actual costs with appropriate standards or

budgets to facilitate performance evaluation and formulation of corrective measures. It aims at

accomplishing conformity between actual result and standards or budgets. Cost control is

keeping expenditures within prescribed limit. Cost control has following features:

Creation of responsibility centre with defined authority and responsibility for cost incurrence.

Formulation of standards and budgets that incorporate objectives and goals to be achieved.

Timely cost control reports (responsibility reporting) describing variance between budgets and

standards and actual performance.

Formulation of corrective measures to eliminate and reduce unfavorable variances.

A systematic and fair plan of motivation to encourage workers to accomplish budgetary goals.

Follow-up to ensure that corrective measures are being effectively applied.

Cost control does not necessarily mean reducing the cost but its aim is to have the maximum

utility of the cost incurred. Thus its main objective is the performance of same job at a lower cost

or better performance for the same cost.

Cost control process involves:


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a) Setting targets and standards.

b) Ascertaining actual performance.

c) Comparing actual performance with targets.

d) Investigating the variances.

e) Taking corrective action.

In cost control, costs are optimized before they are incurred.

For cost control we should:

1. Identify major cost centre – production, sales, financing, administration and research and

development.

2. Identify major type of include – staff cost, raw material and supplies, utility bills for

energy and water, capital expenditure etc.

3. Choose the cost to focus on first :

Costs that may offer easy savings.

Large costs that you may be able to change in short term.

Systematic Cost Control:

1. Start from the business objective.

2. Establish standard costs for achieving your objectives.

3. Establish realistic budgeted cost based on the actual experience. It should be higher than

the standard cost, sometimes it may be lower.

4. Record actual cost and compare them with the standard and budgeted cost.

Costs that are higher than the budgeted cost indicate opportunities to reduce cost

in short term.

2. Periodically review.

Easy Savings:

1. Checking supplier invoices may reveal overcharging (e.g. double billing, missing

discounts).


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2. Eliminate unnecessary costs :

Get rid of overcapacity.

Cut out blatant waste.

Scrap useless processes.

2. Crack down excessive costs.

3. Root out inefficiency.

Opportunities:

1. Reduce your payroll cost :

Outsource non-core activities.

Use part-time employees instead of full time.

Redesign processes to cut out activities that waste time.

Make more use of technology.

2. Improve your purchasing :

Switch to cheaper supplier or negotiate for price reductions or higher discount for

early payments.

Agree long-term contracts or guarantee minimum annual purchase volumes in

return for lower prices.

Built personal relationship with supplier to encourage preferential treatment.

Simplify purchasing procedure to reduce your cost and those of your suppliers.

Form strategic buying alliance in businesses in your area or trade to buy large

volume.

3. Find ways to make production more efficient :

Trim back product range and increase production runs.

Use standard components to lower design, purchasing and manufacturing cost.

Change processes to minimize wastage of raw material and energy.

Improve quality control to cut rejection rates and reworking costs.

4. Review the Finances :

Finance fixed requirements using loans, instead of overdrafts.


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Cut back on working capital through JIT (Just in Time) purchasing and better

credit control to suppliers.

Effective Cost Control:

1. Low rejection – trained person, tooling and healthy environment.

2. Full utilization of efficiency.

3. Effective environment.

4. Stores situated in nearby area, to reduce excess time wasted in taken tools from the

stores.

5. Maintenance workers as well as supervisors should be available nearby.

6. CRI and quality control members must come to the shop to check and encourage

employees.

7. Extra facilities must be provided (e.g. medical, ATM, canteen etc.).

Methods of Cost Control:

Cost control involves control of material as well as labor overheads.

Material control Methods:

Material management includes-

a. Procedure for material procurement and use.

b. Material costing methods.

c. Cost of material in inventory at the end of a period.

d. Costing procedure for scrap, spoiled goods and defective work.


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FLOWCHART FOR PROCUREMENT OF MATERIAL


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Inventory planning and control method should have one goal that might be expressed in two

ways-


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1. To minimize total cost.

2. To maximize profit within specified time and resource allocations.

Material Requirement Planning:

To plan manufacturing requirements, every stock item or class of items should be analyzed

periodically to-

a. Forecast demand for next month, quarter, or year.

b. Determine acquisition lead time.

c. Plan usage during the lead time.

d. Establish quantity on hand.

e. Place units on order.

f. Determine reserve or safety stock requirements.

Material planning deals with two fundamental factors-

1. The quantity to purchase.

2. The time to purchase-or simply how much and when to buy.

Determination of how much and when to buy involves two conflicting type of

costs-

a. The cost of holding or carrying.

b. The cost of inadequate carrying.

Cost of holding or carrying Cost of inadequate carrying

Interest or investigation of working capital. Extra purchasing, handling and transportation costs.

Taxes and insurance. High price (small order quantity).

Warehousing and storage. Frequent stock outs causing disruption

Handling. of production schedule, overtime and

Deterioration and shrinkage of stocks. Extra setup time.Obsolescence of stocks. Lost sales and loss of customer.

ECONOMIC ORDER QUANTITY


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Economic order quantity is the amount of inventory to be ordered in one time for the purpose of

minimizing annual inventory costs. If the company buys in large quantity, the cost of holding or

carrying the inventory is high because of high investment. If purchases are made in small

quantities, frequent orders with correspondingly high ordering cost will result. Therefore we

must balance between two factors-

1. The cost of possessing (carrying) material.

2. The cost of acquiring (ordering) material.

Buying in larger quantities may decrease the unit cost of acquisition, but this saving may be

more than offset by the cost of carrying material in stock for longer period of time.

How to compute Economic Order Quantity:

However there are tabular and graphic methods for determining economic order quantity but

they are very lengthy, hence companies use order-point calculations to calculate economic order

quantities. With information such as quantity required, unit price, inventory carrying cost, and

cost per order, differential calculus makes it possible to compute economic order quantity using

the formula-

Economic order quantity = √ (2 × Annual required units × Cost per order) ⁄ (Cost per unit of

material × carrying cost percentage)

DETERMINING TIME TO ORDER:

The economic order formula answers quite satisfactory the quantity problem of inventory

control. However, the time to order is also important.

The problem of when to order is controlled by three factors-

1. Time needed for delivery.

2. Rate of inventory usage.

3. Safety stock.

Determining order point would be relatively simple if lead time- the interval between

placing an order and having the material on the factory floor ready for production – and the

usage pattern for a given item were definitely predictable. For most stock items there is a


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variation in either or both of these factors. The theory behind this safety stock calculation is

that you will have just enough inventories in stock if two "catastrophic" events happen

simultaneously:

1. Your supplier's lead time slips to the longest it's ever been with that supplier; and

2. On those days that your supplier is late, your company uses the most inventories it has

ever used.

The Safety Stock Level (SSL) can be calculated using following formula-

Maximum SSL = MHDU x (MHLT - ALT)

Whereas,

SSL=Safety Stock Level.

MHDU = Maximum historical daily usage.

MHLT = Maximum historical lead time.

ALT = Average lead time.

STORES ORGANISATION


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Efficient storing after efficient purchasing is another important step in material control system.

Factors involved in establishing stores organization are-

a. Location of stores: Location of store should be carefully planned so as to give

maximum efficiency. Following factors are important in deciding location of stores-

1. Nature of material.

2. Distance from user department.

3. Size of unit.

4. Spacing.

5. Unit of material used.

6. Security requirements.

b. Storage Layout: Storage layout should be carefully designed for saving of costs.

Material should be stored according to-

1. Account number specifically given to different type of material.

2. The frequency of their usage.

3. The production area where item is used.

4. Nature, size and shape of item.

Stores should maintain all documents like material requisition form, material procurement form,

stock ledger cards, bin cards etc.

LABOUR CONTROL

Effective control over labor is very important as it is very important part of total cost. The

following departments should contribute for labor control-

Personnel Department.

Time keeping Department.

Payroll Department.

Cost Accounting Department.

The main function of personnel department is to provide efficient labor force. Personnel manager

is responsible to maintain sufficient manpower so that there will be no surplus as well


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as deficit of efficient manpower. For this employees record card is maintained which is known as

punch card with every employee’s PB (Permanent batch) number.

Time keeping department prepare record for time spent by each employee for labor costing and

control process. Various documents used by department include clock card for attendance record,

job ticket, job docket, job card etc.

Payroll department is an intermediate function between time keeping and cost analysis

department. It can control labor cost by maintaining sufficient wage system.

Cost accounting department helps in implementing incentive wage plans, efficiency plan, bonus

plan, budgeted expenditure plans to control cost at all overheads.

COST REDUCTION

Cost reduction embraces:


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1. Unit cost reduction by expenditure reduction in respect of a given volume of output ;

and / or

2. Unit cost reduction by the increase in productivity (i.e. an increase in output, yield, or

rate of output for a given expenditure).

In other words, cost reduction is the process whereby permanent savings are made without any

reduction in the quality and / or usefulness of the products.

Difference between cost reduction and cost control:

Cost Control Cost Reduction1. Concerned with adhering as closely

as possible to the set standards.

2. Standards are taken to be the

desired state of efficiency.

3. Attempts to be guided by what is

the lowest cost for the conditions

which prevail.

4. Is generally effective only when

some form of standards can be set.

1. Concerned with genuine cost

savings. Existing costs, including

standards, are challenged in an

effort to reduce them.

2. Standards are regarded as yardsticks

which can be improved upon. They

are viewed with suspicion.

3. Recognizes that the operations of a

company are dynamic in nature. For

this reason changes in costs are

expected.

4. Can be effective for all types of

conditions. It is not limited to where

standard costing can apply.

IMPORTANCE OF COST REDUCTION


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1. Without cost reduction a business is unlikely to survive. Once costs are saved they should

be controlled at the new level until some method of reducing them still further is found.

2. A business has to deal with two aspects – cost incurred and revenue received. The

difference between the two is profit out of which the following must be satisfied :

Shareholder

Expansion of the business

2. In addition, there is the question of dealing with pay claims which increase costs and

reduce profits unless prices are increased. Finally, there is the satisfaction of the

consumer.

3. Competition from within the economy affects the price that can be charged. If too high,

products will not sell.

4. Cost reduction of a permanent nature, without any reduction in quality or usefulness, is

the only solution which is unlikely to have adverse effects. In effect, cost reduction is

profit earning: by reducing the cost side of the cost / revenue equation it is possible to

increase the profit.

AREAS OF COST REDUCTION

1. The real success of a business depends primarily on the efficient use of those basic cost

elements: by basic costs are meant the man-hours of labor, kilowatt hours of electric

energy, weights of raw material, etc., per unit of production of goods and services.

2. The first basic cost reduction should be the elimination of waste all along the line from

source to ultimate consumption or use.

3. Not only are materials wasted, but countless man-hours are lost for a variety of reasons.

Among these are poor personnel relations and failure to make the most of the individual

employee’s talents, training and inclination, inefficient management and dispute between

labor and management, accidents and illness, failure to plan and execute the job properly

the first time and bureaucracy and pressure groups.

4. In addition to raw material and man-hour losses, excessive use of utilities frequently

occurs. In fact it is exceptional to find an industrial plant where a reduction of utilities

consumed per unit of production cannot be made.


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5. There are many ways in which industrial engineering know-how and procedures can be

applied to basic cost reduction.

MATERIAL COST REDUCTION

In a manufacturing industry, material takes a major share (50 to 70%) of the cost. Hence there is

maximum scope for cost reduction in this area. For example:

1. In a rubber works, manufacturing caps for penicillin vials, the rejection for various

reasons was found to be as much as 38%. Hence the direct material cost of this product

for this factory is 60% higher than what it ought to be.

2. A manufacturer of electronic equipment in Bombay found by investigation that he could

obtain an 18.8% saving in the component cost of unitized Gamma Ray Spectrometer by

eliminating a few of the components and substituting cheaper ones for others without

affecting the quality of the instrument.

The above example show that the direct material cost is to a great extent enhanced by:

i. Defective design of the product and its components.

ii. Wrong selection of raw material in terms of type or of quality.

iii. Poor manufacturing methods leading to excessive scrap and rejection.

LABOR COST REDUCTION

1. Even though material cost reduction was presented as the most potential area for cost

reduction due to being a major part of the cost in manufacturing industries, labor cost

control has received more attention due to its easiness to handle. Another reason for its

receiving favorable consideration from management and consultants is the extent to

which reduction is possible. While material cost could be reduced from 60% to 50% or

even 40%, labor cost with mechanization can be almost brought down to 5% to 10%.


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2. Direct labor cost normally shown on the cost sheet includes true labor cost (payment for

the time booked) which cannot be reduced and a major portion of costs added due to

various factors, such as

i. Poor planning

ii. Poor manning

iii. Poor working methods

iv. Lack of motivation

3. The solution to a reduction of labor cost lies in the elimination of the factors enumerated

before as leading to poor utilization of manpower. To summarize, labor productivity can

be enhanced and labor cost consequently reduced by:

i. Reducing the work content of jobs

ii. Providing adequate work

iii. Recognizing extra effort

iv. Worker working

OVERHEADS

1. Overhead cost in almost every industry is excessive. This may be attributed to factors like

poor planning, poor inventory policy leading to excessive stocks of raw material, finished

goods, tools and spare parts, lack of standardization and poor organization.

2. Poor planning adds up unnecessary overhead expenses also in addition to direct material

and labor costs. It is regrettably true that management’s concern for efficiency in

manufacture often appears to be continued to the more obvious factors like production

methods, factory layout and operator efficiency, while other potential sources of

considerable savings go untapped.

3. The importance of stock control arises from the demand which investment in stocks

places upon the available liquid capital. It is of far greater significance from the point of

view of cost reduction by virtue of the fact that stocks can give rise to the following

sources of cost:

i. Storage cost


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ii. Handling cost

iii. Stock-taking and other clerical expenses

iv. Deterioration and its prevention

v. Pilferage

vi. Insurance and stock room security

vii. Obsolescence

2. The effects upon costs and the general manufacturing efficiency of a wide diversity of

products, components, equipment and methods are sufficiently important to warrant

special consideration of this factor.

3. The wheels of industry turn to the orders of many persons having various degrees of

authority and the contribution that a properly defined chain of responsibility and channels

of communication can make towards a reduction of costs is difficult to measure.

4. Finally, cost reduction and control is a continuous process, and a programmed once

commenced should be coordinated and controlled, lest the benefits achieved by improved

performance may easily be dissipated.

Waste can be made in following forms:

1. Waste of material

2. Waste of supplies

3. Waste of machinery

4. Waste of manpower

5. Waste of money

6. Waste of space

7. Waste of customers

8. Waste of ideas

Planning overhead cost control: There are six basic steps through which overhead cost can be

controlled:

1. Establish company objectives and targets

2. Develop detailed programmers


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3. Organize resources to meet the objectives

4. Establish department standards of performance to match programmers

5. Develop a system of budgets

6. Report on performance

In some organization a systematic approach is followed so that methods can be improved in the

department. It is a simple five step plan to:

a) Select the operation for improvement.

b) Get the facts by breaking down the operation into detailed steps.

c) Analyze the facts by questioning every step.

d) Develop a new and improved method.

e) Install the new met

Below mentioned are the points essential in the organization of cost reduction:

1. One person has to be responsible. That person must think constantly in terms of cost

reduction, and seize every opportunity to bring the subject to the attention of all

employees.

2. Top management must have interest, cooperation, consideration and a firm belief that

cost reduction is worthwhile and necessary. At the same time, they must have patience

because ideas create more ideas, and every idea does not produce the desired result. But

the more ideas there are, the more opportunity there is to get worthwhile results.

3. A cost reduction programmed must encompass all employees- each person that is a part

of the organization.

4. All possible means must be used to make all employees cost conscious and cognizant of

the need for cost awareness.

5. There is no single way to fulfill the needs of obtaining cost reduction. It has to be a

combination of many ways.

6. It has to be a continuous operation. It cannot be started and stopped at will, but must be

worked on constantly. There must be constant effort to improve, and to think of new

methods.

7. Cost reduction ideas must always be “glamorized” in order to make them appear new and

different, and to increase and create greater interest on the part of the employees.

Tools and Techniques of Cost Reduction


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1. Value analysis : Value analysis is a technique applied to analyze all aspects of an

existing product to determine the minimum cost necessary for specific functional

requirement. It helps in improving quality of product. In HAL various methods are

implemented for value analysis. They are :

VOP (Value of production) = Total sales ± Changes in WIP / SIT

Value added = VOP – Raw material consumed

Capital employed = Working capital + Net block of fixed assets + Special tools

Working capital = Current assets – Current liabilities

SIT = Opening balance + Dispatch – Fitment

2. Work study : Work study includes calculation of standard costs and batch costs and

then prepares FPQ (Fixed price quotation) for fixing prices of every product.

3. Production planning : In HAL Lucknow, the main function is production of

accessories of aircrafts. For planning the production process production budget is

prepared in advance. This is done by planning department. For this planning department

meet with all divisions and ask for their production targets. All divisions mutually agree

to set their targets and to fulfill them. After that they sign MAS (Mutually agreed

schedule) for all IDTO’s (Inter divisional transaction orders).

After this planning department send this to budget department for production budget.

4. Organization and method study : In HAL method study is implemented during

production process. Various methods for production of job are studied minutely and the

method which is least time consuming and having cost conciseness is accepted.

5. Operations study : In HAL process layout is prepared to study various operations

included in completion of a job. For this every employee got a job card, job docket and

job ticket in which standard time for completion of each and every operation is


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fixed and it is inspected periodically, so that standard time should be maintained at

relevant cost so that cost and time should be controlled.

6. Quality control : Quality is the strength of HAL. The company aim at best quality

product. For this TQM is applied in whole organization. The objectives of TQM are :

i. Zero defect

ii. Continuous improvement(Kaizen)

iii. Wastage removal(Lean management)

iv. Customer satisfaction

Zero defect: Organization found that there are three main factors which cause defect in

the production:

a) Don’t have full knowledge of job.

b) Don’t have required resources for the work.

c) Don’t concentrate on the work.

For zero defects all these factors are removed. The organization quality policy is producing

“1st Time Correct “.

Continuous Improvement: Every employee of the organization should aim at

maintaining the continuous improvement in their work. They should aim to complete

their production and services with low time and cost and that too with good quality, and

to make their products and services of international level. Every employee is aware of all

possible improvements in his work area, so he should give suggestions to the

management for this improvement.

Wastage Removal: Employee should aim to remove all those wastages that cause cost

increment like water, electricity, stationary etc. so as to make the organization more

economic.


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Customer Satisfaction: The basis of every organization is their customers, whether

internal or external. The organization should find their customer's requirements and to

fulfill them without any defect, at low cost and to deliver them within time limit.

2. Standardization : In HAL standards are fixed for time consumption as well as for cost

incurred. For time standards the standard time is fixed for every process of job and for

cost standards standard cost and FPQ are defined in advance to control time and cost.

3. Simplification : In HAL for this purpose lean management is applied for all

production processes.

"Lean is a term to describe a system that produces-

1. What customer wants?

2. When they want it? with minimum wastages.

The historic approach of the organization was- PRICE=COST + PROFIT

But in present scenario it changed to- PROFIT= PRICE – COST.

Lean Tools:

Waste elimination.

Do the 5S.

Create flow.

Put in visual control.

Job standardization.

Reduction in set up time.

Continuous Improvement.

What Is 5S?1. Sort.

2. Simplify.

3. Shine

4. Standardize.

5. Self Discipline.


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KAIZEN:

Achieving continuous improvement in performance by identification and elimination of all

wastage relentlessly. Present capacity includes value work as well as wastes. Value work is that

customer is willing to pay for, and waste is adding cost but not the value.

Continuous Improvement.

There are 8 wastes which the organization should keep in mind-

Over Production and Over Processing.

Waiting.

Transportation.

Inventory.

Motion.

Defects.

Untapped Resources.

Misused Resources.


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Research Methodology:-

Types of Research: - Descriptive research design for the final survey.

Source of Data: -

Primary Data:-

The primary data has been collected through questionnaire, personal interview and

departmental analysis.

Secondary Data:-

Website of HAL.

Company monthly journals.

Training manual on cost reduction provided by HAL.

Accounting manual and Budget manual provided by HAL.

Pricing policy of HAL.

Sample Design: - Probability sampling design.

Sample Size: - 10 people.

Recommendation:-

There should be facility of intranet so fax and such other things must be done through it that

can reduce time and money.

For attendance finger print system should be adopted so that actual person’s attendance can

be mentioned.

The time delay between rising of purchase order and preparation of RDR should be reduced.

Wages to direct workers should be given through piece rate system.

Efficiency of indirect workers should be measured so that slackness can be sorted out.


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TOOLS AND TECHNIQUES OF DATA ANALYSIS

DATA ANALYSIS

1. The introduction of an online website for any company of today’s world is a boon. Cause

growth and expansion will be a promising factor as the internet makes the world a

smaller place to do business. This was introduced in the year in the year 2000 by HAL.

Table showing the improvement of the division on introduction of a website:

Feedback Percentage

Management level Yes 97%

Labor level No 3%

Bar graph showing the improvement of the division on introduction of the website:

ANALYSIS: 97% of the workers / employees are aware that the website has helped the division

to improve in its company’s dealings and has helped the company to progress in the new

economy of today’s world.


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INFERENCES: The remaining 3% are those workers who are at the lowest cadre of work who

do not have sufficient knowledge about the website of the organization.

2. The knowledge about the website should be fair among the people who work in the

organization to conclude that the workers are aware as to where the company is heading

to in the 21st century. HAL being a premier defense industry in the field of aviation has to

always keep up with the other nations and therefore adopt new technology.

Table showing the awareness level of the web by the workers in the organization:

Response / Levels Management level Labor level

Aware / Yes 98% 87%

Not aware / No 2% 13%

ANALYSIS: Most of the workers in the organization are aware about the website at both levels

and know how it has improved the division, as the customers get to know more about the

division’s products and services worldwide which improves the profitability and also helps the

division to understand its customer’s background to enhance the business.


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INFERENCES: Only around 2% at management level and 13% at labor level are not aware of

the website as they have poor knowledge and belong to the lowest cadre.

3. Website of the company helps the customers to keep in touch with the company through

the e-mail provided by the websites for various divisions. This helps the customers,

clients and vendors to have a continuous touch with the company.

Table representing the customers who respond to the website:

Customers Percentage

Defense customers 85%

Foreign customers 45%

Corporate customers 6%

Civil customers 5%

ANALYSIS: The major customers of HAL are the defense customers such as the Indian Air

force, Indian Army, Indian Navy, Coast Guard and Boarder Security who often contact with the

company over the net.


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INFERENCES: A very small percentage of the remaining customers such as the corporate

customers and civil customers including international customers contact with the company

through net.

4. The main intension of putting up a website by any company is to get prospective

customers and induce them to make contract with the company. It is the same for HAL

accessories division too, so that the customers can have a continuous touch with the

company.

Table representing the number of customers who respond voluntarily to the website:

Options Response in percentage

Most of them 30%

All 40%

Few 90%

Very few 70%


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ANALYSIS: From the above graph we can see that only few of the customers respond to the

website voluntarily. As most of the customers contact the company through other means.

INFERENCES: We see that almost all customers somehow come into contact with the

company for some enquiry, doubt or clarification but since HAL is defense oriented, so mostly

the customers are from defense.

5. The main objective of any company is to get enough customers to place an order or

contract with the company, although few of the customers come into contact with the

company through the net not all might be willing to place an order or make contract with

the company. The table below shows the number of customers who placed order with the

company:

Table showing customers who placed order through net:

Customers who contact Percentage


State government 20%


Civil customers 3%


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ANALYSIS: From the above data we can conclude that most of the customers who placed order

with the company through net are the defense customers in comparison to others.

INFERENCES: The customers belonging to the other group such as the civil and corporate

customers are very limited, therefore the company focus more on the defense customers such as

Indian Air Force, Indian Navy, and Indian Army etc.

6. In today’s economy we see that not only multinational companies are trying to globalize but

public sectors are also trying to globalize. And the best way to achieve this is by obtaining many

international customers. The table below shows the number of international customers the

division is able to get through the net:

Table representing international customers over the web:

Customers In percentage

Many 10%

Few 20%

Very few 5%


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ANALYSIS: Few international customers are interested in making contact with the company.

From this we can conclude that HAL has opportunities of expansion in international market.

INFERENCES: When international customers and corporate come into contact, the company

gets help in improving the technology for production.

6. Today’s business have made the “Customer the King” and have decided to give the

customers what they want through customization and customerization. The table below

shows the number of customers who seek such benefits:

Table representing importance of customization to customers:

Feedback Response

Very important 90%

Important 80%

To some extent 50%

Not important 5%


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ANALYSIS: Since engines are one of the most advanced machines that help in the flying of air

vehicles and customers always seek sophistication in their engines. Therefore most of them seek

customization.

INFERENCES: Mostly the defense customers have an in-depth knowledge and thus seek

sophistication in the aircrafts. As the world is getting more advanced thus customization

becomes more important but it is not much in the case of civil or corporate customers.

7. Sales are a very important aspect for any company and to achieve maximum sales is a

goal of all companies. HAL is one of the leading manufacturers of engines and its

accessories. The table below shows how HAL is able to get a sufficient amount of sales

after the internet came into existence:

Table showing the sales of the division for the past 4 years:

Years Sales (in crores)

2001-2002 338.14


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2002-2003 328.5

2003-2004 415.14

2004-2005 424.15

ANALYSIS: From the above graph we can see that the sales of the company have been

increasing moderately in the past two years which is mainly because of the use of web.

INFERENCES: Since the web was introduced in the division only in the year 2000 and the

division have taken time to make complete use of it in the recent years. Therefore we can expect

sales to increase in the future.

8. Profit of any company determines its growth, expansion and development in all

directions. Therefore it is an important factor for public sector also such as HAL which is

a nonprofit organization. The table below shows the profit of HAL in past years:

Table showing the profits of the division for last 4 years:

Years Profit (in crores)

2001-2002 46.5


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2002-2003 65.9

2003-2004 62.55

2004-2005 51.66

ANALYSIS: As HAL is a nonprofit organization, so we can see that profits in each year are

fluctuating. Therefore we cannot interpret whether internet will help the company in making

more profits or not.

INFERENCES: As mentioned earlier most of its customers are defense customers and

international customers who contact through net and a very few of them are civil and corporate

customers.

9. In order to grow it is necessary for every company that it must be able to find new

customers through new means and mode. As technology has grown to such an extent that

the world is no longer a huge place to trade. With the use of internet it is possible for all

companies to find new prospective customers.

Table showing new prospective customers over net:

Customers Percentage

Civil customers 10%


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State government 20%


ANALYSIS: From the above diagram we can conclude that the new customers made by the

company in each segment are very less. As it is basically a defense oriented company, so almost

all the defense customers have dealings with the company.

INFERENCES: Although the company has limited range of new customers but it has scope to

get customers at international level also.

10. Customer relation is very important today. It is more effective only through the World

Wide Web and although it has so many plus points but there are certain drawbacks in it.

The table below shows the drawbacks in CRM over the web:

Table showing reasons for drawbacks in CRM over web:


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Reasons for drawbacks Percentage of effect

Delay in reply 20%

Negligence 30%

Failure of system 40%

Other means 10%

ANALYSIS: Most of the reasons for the drawback of CRM are due to system failure and it can

be taken care of by providing for backup systems and better management in replying to

customers.

INFERENCES: CRM is gaining its importance in the current scenario and if more importance

is given it will prove more successful for the organization.


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FINDINGS, SUGGESTIONS AND CONCLUSION

FINDINGS

In HAL cost reduction and cost control is done in following ways:

In finance section, L1 i.e. lowest price is considered so that total cost of production

would be reduced and controlled.

Quality is the strength of HAL. The company aims at best quality product at lowest

price. For this TQM is applied in whole organization so that cost would be controlled.

In HAL standards are fixed for time consumption and also for cost incurred. For time

standards, the standard time is fixed for every process of job and for cost standards,

standard cost and fixed price quotation (FPQ) are defined in advance to control time

and cost.

It also implements the technique of classification and codification for cost reduction

and control. Under this technique, all the jobs are classified into different categories

and are codified, due to which we can identify that the job belongs to which batch.

Process layout is used for the study of various operations included in completion of

job. Due to which standard time for completion of operation is fixed and inspected

periodically, so that cost and time can be reduced and controlled.

Method study is implemented during production process and the method which is less

time consuming and having less cost is accepted.

In costing section, component costing is used for calculating the cost of each

component. By applying this method the total cost can be reduced and controlled.


111

As the rate of machine hour rate (MHR) is very high in HAL so the work is done on

contract basis i.e. outsourcing is done so that cost can be reduced and controlled.

Minimum inventory is kept in stores, so that there would be no wastage and cost can

be reduced.

Efficiency of employees is approximately 100% due to which there is no wastage and

cost is reduced.

It is also implementing methods of 5S to control and maintain cost effectiveness.

It has also implemented lean management and various tools like KAIZEN for wastage

removal so as to reduce the extra cost incurred.

It also aim at producing all accessories as first time correct and with Zero error so that

the cost incurred in rejection and rework processes can be controlled.


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SUGGESTIONS

There should be facility of intranet so fax and such other things must be done through

it that can reduce time and money.

For attendance finger print system should be adopted so that actual person’s

attendance can be mentioned.

The time delay between rising of purchase order and preparation of RDR should be

reduced.

Wages to direct workers should be given through piece rate system.

Efficiency of indirect workers should be measured so that slackness can be sorted out.

Employees should be included in brainstorming and also should be given liberty and

non-monetary incentives as appreciation.

Officers should be promoted only on the basis of performance and not on the basis of

number of years worked.

Workers who have talent and compatible with office grade but restricted to work only

at non-supervisory position, the policy should be such so that grade promotion could

be possible.

Profit calculation by project cell for project evaluation is different from costing

section. In this way project evaluation is not proper. So it must frame its cost-benefit

evaluation and focus on only licensing fee and other DRE and framing of analysis

should be done as per actual recoverable profit percentage.

The company should give some stipend to Industry guide for summer training due to

which they will take more interest in providing guidance.


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CONCLUSION

HAL is one of the largest PSU under the department of defense production, GOI and is a

“NAVRATNA” company ranked 34th in the list of world’s top 100 defense companies. HAL

with its wide spectrum of expertise in design, development and manufacture of aircrafts,

helicopters, engines, accessories and avionics has emerged as major aeronautical complex in

Asia.

As herein, the projects and items need huge investments than any other organization and

confidential factor is also there too much extent but as much information is extracted shows that

cost control is being performed quite good that’s why it is in so much profit.

In the organization, cost of inventory as well as labor is controlled very well by implementing

ABC analysis but there is also some scope for cost reduction by reducing number of casuals to

reduce labor cost and by implementing EOQ (Economic Order Quantity) technique to control

material cost.

Although for the organization’s betterment its executives are working hard and trying to serve in

the best possible manner with their colleagues and they all are very qualified and experienced so

organization must extract optimum from them.

ANNEXURE


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Questionnaire:

Name:

Designation:

Section / Department:

1. Describe the major activities being carried out at the accessories division?

2. Batch costing and job costing is carried out for which of these activities?

3. Is there a component costing system in existence?

4. On what basis is the production work undertaken?

5. What is your comment on the present budgeting system?

6. Describe the procedure of processing the cost ledger?

7. Describe the current practice followed in calculating the cost for various departments?

8. Describe the steps taken to improve the international relationship with foreign companies

like Turbomeca and Rolls-Royce?

9. Is the current computer system capable of tracing the work flow?

10. Describe the work order structure?

11. How are the work order issued?

BIBLIOGRAPHY


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During the preparation of project I took the help of various sources which are as follows:

Books:

M.L. Agarwal- Cost accunting

Jawaharlal – Cost accounting

Journals:

Accounting manual

Budget manual

Training manual on cost reduction

Company monthly journals

Internet:

www.hal-india.com

www.wikipedia.org


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http://www.hal-india.com/

project final 2nd sem

Documents

cost reduction cost

element of cost

reasonable cost

topic finance management

coverage of finance

abid rizvi mba

acknowledgement abid

hindustan aircraft