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CHAPTER-1
INTRODUCTION TO THE TOPIC
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:
y Create wealth for the business
y Generate cash, and
y 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.
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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:
y Are assets being used efficiently?
y Are the businesses assets secure?
y 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:
y 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.
y 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.
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."
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Controlling Cost via Responsibility Accounting-
To control cost these fundamentals should be observed-
y
Fixing responsibility to control.
y Limiting the individuals control efforts to his controllable costs
y Reporting the performance of individual.
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CHAPTER-2
OBJECTIVES OF STUDY
y To ensure availability of Total Quality People to meet the Organizational Goals
and Objectives.
y To have a continuous improvement in Knowledge, Skill and Competence
(Managerial, Behavioral and Technical)
y To promote a Culture of Achievement and Excellence with emphasis on
Integrity, Credibility and Quality
y To maintain a motivated workforce through empowerment of Individual and
team building.
y To enhance Organizational Learning
y To play a pivotal role directly and significantly to enhance Productivity,
y Profitability and improve the Quality of Work Life
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CHAPTER 3
LITERATURE REVIEW
Topic: - Analysis of Financial Management System of HAL, Lucknow.
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.
Research Methodology
Types of Research: - Descriptive research design for the final survey.
Source of Data: - Departmental Analysis, Journals
Sample Design: - Simple Random Sampling.
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Findings:-
y In finance section, L1 i.e. lowest price is considered so that total cost of
production would be reduced and controlled.
y Method study is implemented during production process and the method which is
less time consuming and having less cost is accepted.
y Minimum inventory is kept in stores, so that there would be no wastage and cost
can be reduced.
y
It is also implementing methods of 5S to control and maintain cost effectiveness.
y It has also implemented lean management and various tools like K AIZEN for
wastage removal so as to reduce the extra cost incurred.
Conclusion:-
HAL is one of the largest PSU under the department of defense production, GOI and is a
³NAVR ATNA´ 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.
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HINDUSTAN AERONAUTICS
LIMITED
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CHAPTER 4
COMPANY PROFILE
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,
and Lucknow. 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 Limited (HAL) 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 A pril 1941 as it believed this
to be a strategic imperative. Later in A pril 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 HindustanA
ircraftL
imited along withAeronautics 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
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communication purposes. A part 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 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:
y Dhruv, which is Advanced Light Helicopter (ALH)
y Tejas - Light Combat Aircraft (LCA)
y Intermediate Jet Trainer (IJT)
y 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.
y PSLV (Polar Satellite Launch Vehicle)
y GSLV (Geo-synchronous Satellite Launch Vehicle)
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y IRS (Indian Remote Satellite)
y NSAT (Indian National Satellite)
HAL has formed the following Joint Ventures (JVs):
y BAeHAL Software Limited
y Indo-Russian Aviation Limited (IR AL)
y Snecma HAL Aerospace Pvt. Ltd.
y SAMTEL HAL Display System Limited
y HALBIT Avionics Pvt. Ltd.
y
HAL-Edgewood Technologies Pvt. Ltd.
y INFOTECH HAL Ltd
A part 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.
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.
y HAL has won several International & National Awards for achievements in R&D,
Technology, Managerial Performance, Exports, Energy Conservation, Quality and
Fulfillment of Social Responsibilities.
y HAL was awarded the ³INTERNATIONAL GOLD MEDAL AWAR D´ 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).
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y HAL was presented the International - ³AR CH OF EUROPE´ Award in Gold
Category in recognition for its commitment to Quality, Leadership, Technology and
Innovation.
y 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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VISION OF THE COMPANY
"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
y 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.
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y COMMITMENT TO TOTAL QUALITY
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.
y 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.
y 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.
y 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.
y 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.
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AIRCRAFT
WESTERN ORIGIN
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.
CHEETAH
The Helicopter Division manufactures the versatile and multi-purpose Cheetah Helicopters
for Civil and Military applications both for Domestic and International customer
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CUSTOMERS OF THE COMPANY
INTERNATIONAL 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
DOMESTIC CUSTOMERS
Air India
Air Sahara
Airports Authority of India
Bharat Electronics
Border Security Force
Coal India
Defense Research & Development Organization
Govt. of Andhra Pradesh
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Govt. of Jammu & Kashmir
Govt. of Karnataka
Govt. of Maharashtra
Govt. of Rajasthan
Govt. of Uttar Pradesh
Indian Air force
EVOLUTION AND GROWTH OF THE COMPANYThe 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.
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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 ³NAVR ATNA´ category.
HAL was awarded the ³INTERNATIONAL GOLD MEDAL AWAR D´ 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 - ³AR CH 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 .
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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.10373 crores during the Financial Year 2008-09. The profit
of the Company (Profit before Tax) soared to Rs.2335 crores.
The highlights are given below:
(Rupees in Crores)
Particulars 2007-08 2008-09 Growth-Over
Sales 8625 10373 20.27%
VOP 8791 11811 34.35%
Profit before tax 2164 2335 7.90%
Profit after tax 1632 1740 6.62%
Gross Block 2255 2638 16.98%
INTRODUCTION OF 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.
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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 A ppeal 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.
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.
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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.
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.
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
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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
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Conventional 1. Altimeters
2. Vertical Speed Indicators
3. Jet pipe temperature indicators
4. Engine R PM 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
FUTURE PROSPECTS
y Company is planning to provide ³AJT´ (Advance Jet Trainer) named- ³HAWK ́ in
September 2008 to the ³Air Force of India´.
y The projects which are in line for future includes HJT (Hindustan Jet Trainer) named-
³KIR A N´, Sukhoi-30 named ³OJAS´, PTA (Pilotless Target Aircraft) named
³Lakshay´ etc.
y
The company has got permission to provideLCA
(L
ightC
ombatA
ircraft) named-³TEJAS´ to ³Indian Air Force´ up to 2010 with all facilities.
y 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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CHAPTER-5
RESEARCH METHODOLOGY
RESEARCH METHODOLOGY:-
The purpose of methodology is to describe the process involved is the research work. This
includes the overall research design, the data collection method sampling procedure, and the
field survey method & analysis procedures.
Definition of Research:-
According to Redman & Mory:
³Research as a systematized effort to gains new knowledge´.
According to Clifford woody:-
³Research comprises defining & redefining problems, formulating hypothesis or suggested
solution, collecting, organizing & evaluating data making deductions & reaching
conclusion to determine whether they fit the formulating hypothesis or not´.
OBJECTIVE OF RESEARCH:-
The purpose of research is to discover answer to question through the application of scientific
procedure. The main aim of research is to find out the truth which is hidden & which has not
been discovered as yet. Though each research study has its own specific purpose.
Nature of the Research:-
The Research was descriptive in nature.
Place of the Research:-
The research was conducted in Finance departments in HAL Accessories Division Lucknow
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RESEARCH DESIGN
y Research Design is a conceptual structure with research conducted. There is no
unique method, which can entirely eliminate the elements of under taking. But
Research methodology more than any other procedure can minimize the degree of
uncertainty, Thus it reduces the profit ability of making a wrong choice amongst
alternative causes of actions.
y This is particularly significant in the light of increasing competitions & growing
size, which makes the task of choosing the best course of action difficult for any
business enterprise. It is imperative that any type of organization in the present
information coupled with tools of analysis for making sound decisions which
involved minimum risk.
y Descriptive method of research was chosen for it helps the collecting summarizing,
analyzing interpreting & presenting data with new ideas & in effective manner.
y The goal of descriptive research is to gather secondary data & to study the nature of
problem & to suggest possible solution for problem/come up with new ideas.
SAMPLING PROCEDURE
y The sample is a part or small section selected from the population and the process
of such selection is known as sampling, the sampling theory is a study of
relationship that exist between the population and the sample drawn from the
population.
y ³A statistical sample is a miniature picture or cross section of the entire group from
which a sample is taken. The entire group from which a sample is chosen is known
as the population universe.
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y SAMPLE DESIGN
y It is definite plan for obtaining a sample from a population. The process of sampling
involves selecting o sample, collecting all relevant information and finally drawing
conclusion about the population from which the sample has been drawn.
y DETERMINING THE SAMPLE DESIGN
y All the items under consideration in any field of inquiry constitute a µuniverse¶ or
µpopulation¶.
STEPS IN SAMPLE DESIGN
While developing a sampling design the researcher must pay attention to the following
points.
Type of universe.
Sampling unit.
Source list.
Size of sample.
Parameters of interest.
Budgetary constraint.
Sampling procedure.
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TYPES OF SAMPLE DESIGN
The various method of sampling can be grouped under two broad heads:
1) Probability sampling.
2) Non probability sampling.
Probability sampling method is those in which every item in the universe has a known
chance or probability of being chosen for the sample. This implies that the selection of
sample item is independent of the person making the study.i.e. The sampling operation is
controlled.
Non Probability sampling methods are those which do not provide every item in the
universe with a known chance of being included in the sample. The selection process is at
least partially subjective.
Probability sampling method is divided into two parts-
1) Simple or unrestricted random sampling.
2) Restricted random sampling.
a) Stratified sampling.
b) Systematic sampling.
c) Cluster or Multi Stage sampling.
Non Probability sampling method is divided into three parts-
1) Judgment sampling.
2) Convenience sampling.
3) Quota sampling.
DATA
Raw fact and figures about any phenomenon or pre exist fact which is related to the
population, sample or any other thing.
Two types of data have been collected for analysis.
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Primary data
Secondary data
PRIMARY DATA
It has been collected with the help of structured non-disguised questionnaire which were
personally administered to respondent. Both closed and open ended questions were used to
get the designed information. Questionnaires were designed for both consumers and retailers.
Important scales and ranking methods were used for collecting the primary data.
SECONDARY DATA
Data which are not originally collected but are obtained from published or unpublished
sources are known as secondary data.
MY DATA TYPE: I am selecting secondary data for the purpose of survey of Hindustan
Aeronautics Limited Lucknow Accessories Division.
DATA COLLECTION
The collection of data is secondary sources.
Secondary Data:-
y Website of HAL.
y Company monthly journals.
y Training manual on cost reduction provided by HAL.
y Accounting manual and Budget manual provided by HAL.
y Pricing policy of HAL.
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CH TER
ANAL NANCIAL ANAGE ENT
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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.
Classification 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.
iv. Classification by Element: The cost is classified into (a) Direct Cost,
and (b) Indirect Cost according to elements, viz, Materials and Labour.
Classification 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
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cost is not related to any other functions like selling and distribution,
research and development etc.
iii. Selling cost - Selling cost represents the indirect cost which isincurredfor
(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 expensesand factory overheads.
viii. Prime cost - Prime cost is the aggregate of direct material cost, direct
labour cost and direct expenses. The term µdirect¶ indicates that the
elements of cost are traceable to a particular unit of output.
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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:
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:
y 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.
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y Estimated cost -It is an approximate assessment of what the cost will be.
It is based on past data adjusted to anticipated future changes.
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.
Other Expenses Cost
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:
y Creation of responsibility centre with defined authority and responsibility for
cost incurrence.
y Formulation of standards and budgets that incorporate objectives and goals to
be achieved.
y Timely cost control reports (responsibility reporting) describing variance
between budgets and standards and actual performance.
y Formulation of corrective measures to eliminate and reduce unfavorable
variances
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y A systematic and fair plan of motivation to encourage workers to accomplish
budgetary goals.
y 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:
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.
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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.
5. Periodically review.
Easy Savings:
1. Checking supplier invoices may reveal overcharging (e.g. double billing, missing
discounts).
2. Eliminate unnecessary costs :
Get rid of overcapacity.
Cut out blatant waste.
Scrap useless processes.
3. Crack down excessive costs.
4. 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.
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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.
2. 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.
3. Review the Finances :
Finance fixed requirements using loans, instead of overdrafts.
Cut back on working capital through JIT (Just in Time) purchasing and better
credit control to suppliers.
Effective Cost Control:
Low rejection ± trained person, tooling and healthy environment.
Full utilization of efficiency.
Effective environment.
Stores situated in nearby area, to reduce excess time wasted in taken tools from the
stores.
Maintenance workers as well as supervisors should be available nearby.
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CRI and quality control members must come to the shop to check and encourage
employees.
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-
Procedure for material procurement and use.
Material costing methods.
Cost of material in inventory at the end of a period.
Costing procedure for scrap, spoiled goods and defective work.
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FL CHAR T FOR PR OCUR E ENT OF MATERIAL
Invent pl nning and cont ol met od should have one goal that might be expressed in t o
ways-
1. To minimi e total cost.
2. To maximi e prof it within specif ied time and resource allocations.
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Material Requirement Planning:
To plan manufacturing requirements, every stock item or class of items should be analyzed
periodically to-
y Forecast demand for next month, quarter, or year.
y Determine acquisition lead time.
y Plan usage during the lead time.
y Establish quantity on hand.
y Place units on order.
y 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-
The cost of holding or carrying. 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.
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ECONOMIC ORDER QUANTITY
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-
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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 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.
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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 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:
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.
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DIFFERENCE BETWEEN COST REDUCTION AND COST CONTROL
Cost Control Cost Reduction
1. 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
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 :
y Shareholder
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y Expansion of the business
3. 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.
4. Competition from within the economy affects the price that can be charged. If too
high, products will not sell.
5. 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.
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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.
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:
y Defective design of the product and its components.
y Wrong selection of raw material in terms of type or of quality.
y 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
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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%.
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
y Poor planning
y Poor manning
y Poor working methods
y 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:
y Reducing the work content of jobs
y Providing adequate work
y Recognizing extra effort
y 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.
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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:
y Storage cost
y Handling cost
y Stock-taking and other clerical expenses
y Deterioration and its prevention
y Pilferage
y
Insurance and stock room security
y Obsolescence
4. 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.
5. 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.
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6. 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:
y Waste of material
y Waste of supplies
y Waste of machinery
y Waste of manpower
y Waste of money
y Waste of space
y Waste of customers
y Waste of ideas
Planning overhead cost control: There are six basic steps through which overhead cost can be
controlled:
y Establish company objectives and targets
y Develop detailed programmers
y Organize resources to meet the objectives
y Establish department standards of performance to match programmers
y Develop a system of budgets
y
Report on performanceIn 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.
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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 ³glamorized´ in order to make them appear new
and different, and to increase and create greater interest on the part of the employees.
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TOOLS AND TECHNIQUES OF COST REDUCTION
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 H AL 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.V
arious methods for production of job are studied minutely andthe 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 :
y Zero defect
y Continuous improvement(Kaizen)
y Wastage removal(Lean management)
y 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 ³1st Time Correct ³.
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.
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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.
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.
Lean Tools:
Waste elimination.
y Do the 5S.
y Create flow.
y Put in visual control.
y Job standardization.
y Reduction in set up time.
y Continuous Improvement.
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
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There are 8 wastes which the organization should keep in mind-
y Over Production and Over Processing.
y Waiting.
y Transportation.
y Inventory.
y Motion.
y Defects.
y Untapped Resources.
y Misused Resources.
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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, bill 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 of 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.
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PROCEDURE:
P.O is sent by the Purchase Department after the approval.´ Material Procurement Committe
³ (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.
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:
y Document through bank
y Cheque against delivery
y Advance payment
y 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.
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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.
FLOW OF WORK:
All P.O / Contracts received are entered in the registers before opening of
separate file for each P.O.
All the Contractual payments in respect of Royalty , License fee and Technical
Assistance fees are made as per the License / Collaboration agreement.
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.
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.
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Foreign suppliers are paid by any of the following methods as stipulated in
the P.O./License agreement/contracts -
y Letter of Credit
y Sight Draft.
y Advance Payment
y 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:
y Total number of packages
y Total amount of duty paid
y Invoice value
y Freight
y Insurance
y Exchange rate
y Accessible value
RECEIVING CUM DISCREPANCY REPORT
R DR (Receiving cum discrepancy report) is prepared at the time of receiving of goods within
organization. Pricing of R DR is done by two methods:
1. If the payment is done in advance and goods received later, then the R DR is priced at
the value of exchange rate of the last day of the previous month.
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2. If payment is done on the same day then the R DR 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.
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FLOW OF WORK:
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.
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.
In case of job contracts payments are made to casual employees of the
company. Three categories are made and rate of these categories differ fromeach other.
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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 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.
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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
The following documents shall be produced in support of the
invoices .
Initial advances are recovered on the basis of customers order.
y Firms / forecast task given by the Air Force.
y Chief Resident Inspector ( CRI) coordinated Inter Divisional Task Orders ( IDTO)
for divisional tasks.
y Repairs Maintenance Supply Order.
1) To prepare and render invoices to Non- Indian Air Force customers in
respect of the following activities.
y Development sales for customer financed projects.
y Suppliers and services rendered to civil customers.
y 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.
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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.
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.
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
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and journal entries passed at the end of each month by debiting to claims / accounts
receivable account and crediting to the respective income account.
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 the funds are available in the approved capital and performance budget
so as to cover the relevant proposals.
4. 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:
Capital expenditure
Revenue expenditure
Purchase of materials / stores / tools and other services
Manpower requirements
Waiver of dues / write off of losses
Cases involving relaxation of rules etc. as per delegation of powers
Sale, lease, alienation or disposal of company¶s assets
Contracts entered into with suppliers / collaborators / sub contractors.
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. A pproval 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:
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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 ³surplus ´ 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 R DR 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 R DR 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:
y The cost of material drawn against various job orders, expense accounts etc.
y The cost of material issued to contractors and others.
y The cost of tools issued to various tool cribs from main tool stores.
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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.
5. 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.
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 µoutput¶ 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.
d) The cost of tools issued to various tool cribs from main tool stores.
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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 ³surplus´ and referred to the µsurplus
committee¶ for review and declaring the same as surplus. 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.
COST ACCOUNTS SECTION
OBJECTIVES:
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.
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FUNCTIONS:
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.
To accumulate the labor and overheads content of each activity project-wise based on
evaluated LTB generated by EDP from work orders / time dockets.
To review work orders on which no material / labor cost has been recorded and
finding out the reasons for the same.
To ensure that the valuation of WIP has been done correctly keeping in view the
percentage of completion of the job.
To keep track of SIT transactions with different divisions.
To keep record of all IDTO received and issued.
To send debit advices to other divisions for items dispatched against IDTO received
from them.
To accept the debit raised by other divisions for items received by the division in
respect of requirements raised by us through IDTO.
COSTING SYSTEM
In Hal Division the work carried out in following categories-
Manufacturing and Assembling Operations
y Of aircrafts, aero-engines, avionics, ground radars, accessories and
instruments.
y Of spares required for overhaul of aircrafts, engines, engines etc. and
DR DL for supply to IAF against RMS order, navy, army etc.
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y Of other equipment like foreign and costing.
Repairs and Overhaul Activities
y Aircraft, engines, avionics, ground radars, accessories and instruments.
y Other equipments.
Design and Development Activities of aircrafts, aero-engines, avionics, ground
radars, accessories and instruments.
y Customer Finance.
y 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.
BATCH COSTING
y 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.
y In this system the cost of all components, minor assemblies, sub assemblies,
etc. relating to an aircraft/engines/equipments in the complete batch is
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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.
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.
STANDARD COSTING
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.
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
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labor hours will be valued by applying yearly Man Hour Rate (MHR) applicable to
the division
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 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
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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
arenegotiated 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-
[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].
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FORMULA:
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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ANALYSIS OF DATA
After the data have been collected, the researcher turns to the task of analyzing them. The
analysis of data requires a number of closely related operations such as establishment of
categories, the application of these categories to raw data through coding, tabulation and then
drawing statistical inferences. Coding operations usually done at this stage through which
these categories of data are transformed into symbols that may be tabulated and counted.
Editing is the procedure that improves the quality of the data for coding. With coding the
stage is ready for tabulation. Tabulation is a part of the technical procedure that improves the
quality of the data is put in the form tables.
Analysis work after tabulation is generally based of the computation of various percentages,
coefficients, etc., by applying various well defined statistical formulas. In the process of
analysis, relationships of differences supporting or conflicting with original or new
hypothesis should be subject to tests of significance to determine with validity data can to
include any conclusion(s).
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DATA ANAL IS
1-Calculation of percentage of Cash and Bank Balance to the Current Assets
(In Lakhs)
PAR TICULAR
2007-2008 2008-2009
A. Cash and bank balance
(R s)
19.98 11.95
B. Current Assets (R s) 152518.97 260862.93
C. % of Cash and Bank
Balance to Current Assets
(A/B*100)
0.013 0.004
76%
24%
PERCENTAGES
2007-08
2008-09
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INTERPREATATION
By analyzing the statements, it is observed that 0.013, 0.004 of current assets were held as
cash in hand and cash at bank during the years 2007-2008, 2008-2009respectively. The cash
management in HAL is centralized and managed by the corporate office.
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2- Calculation of percentage of Account R eceivable to the Current Assets.
(In Lakhs)
INTERPR ETATION
The percentages of accounts receivable to current assets has been 3.85% in 2007-08 and
5.61% in 2008-09 respectively.
0
1
2
3
5
¡
200¢ -08
2008-09
PERCENTAGES
PAR TICULARS 2007-08 2008-09
A. Account receivable 5883.47 14655.86
B. Current assets 152518.97 260862.93
C.% of accounts receivable
to current assets (A/B*100)
3.85 5.61
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3-Calculation of Average Collection Per iod.
(In Lakhs)
PAR TICULAR 2007-08 2008-09
A. Debtors 5883.47 14655.86
B. Sales 140816.78 140991.83
C. Average collection
per iod (A/B*360 days)
16 days 38 days
INTERPR ETATION
y The Average Collection Per iod (ACP) for the year 2007-08 & 2008-09 are 16 days
and 38 days.
y Normally 50-60 days is the lead-time for reali ing the debtors for the enterpr ise like
HAL.
30%
£ 0%¤ 00¥ -08
¤ 008-09
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4- E POR T OF THE LAST FOUR YEARS
(In L
YEAR 2005-06 2006-07 2007-08 2008-09
EXPOR T 170 145 140 140
INTERPR ETATION:-
Expor t for the year 2005-06 and 2006-07 is 33% and 27% respectively.
Expor t for the year 2007-08 and 2007-09 is 20% and 20% respectively.
20%
20%
27%
33%
Export
2005-0¦
200 ¦ -07
2007-08
2007-08
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5- EXPE NDITUR E OF LAST 4 YEAR S:
(In L
INTERPR ETATION:-
Expenditure for the last 2005-06 and 2006-07 is 2570 and 2590 in lakhs respectively.
Expenditure for the last 2007-08 and 2008-09 is 3870 and 3814 in lakhs respectively.
2570
2590
3870
38§ 4
Expenditure
2005-0 ̈
200© -07
2007-0
200 -09
YEAR 2005-06 2006-07 2007-08 2008-09
E PENDITUR E 2570 2590 3870 3814
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PERFORMANCE AT GLANCE
2002 2003 2004 2005 2006
Profit before tax 373.48 433.37 599.42 757.53 1126.29
Value added 1707.6 1870.33 2082.78 2298.38 2603.13
Sales 2774.8 3120.42 3799.78 4533.8 5341.5
INTER PRETATION:-
Total sales are continuously increasing in last five years from 2774.8crore to 5341.5
crore. Profit before tax continuously increasing in the last five years from 373.48 to 1126.29
crore.
PERFORMANCEAT AGLANCE (RS IN CRORE)
0
1000
2000
3000
4000
5000
6000
2002 2003 2004 2005 2006
Profit before tax
Value added
Sales
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BREAK UP OF VALUE OF PRODUCTION
2002 2003 2004 2005 2006
MATERIAL 43 46 45 54 56
SALARIES &
WAGES 24 22 21 17 14
OTHER EXPENSE 28 28 23 28 18
DEPRICIATION 1 1 2 1 1
INTEREST -9 -9 -7 -5 -8
PROFIT BEFORE
TAX 13 12 16 15 14
Interpretation:-
Profit before tax in last five years is fluctuating between 12 to 16 crore respectively.
-20
-10
0
10
20
30
40
50
60
MATERIAL SALARIES &
WAGES
OTHER
EXPENSE
DEPRICIATION INTEREST PROFIT
BEFORE TAX
2002
2003
2004
2005
2006
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0
100
200
300
400
500
600
2002 2003 2004 2005 2006
INCOME TAX
DIVIDEND INCLUDING TAX
INTEREST
RETAINED EARNINGS
DISTRIBUTION OF SURPLUS
INTER PRETATION:-
Income tax, dividend and retained earnings are continuously increasing for the last
five years.
Interest are remain constant from the last five years.
2002 2003 2004 2005 2006
INCOME TAX 28 43 184 256 355
DIVIDEND INCLUDING
TAX 68 87 92 113 228
INTEREST 57 58 43 42 48
RETAINED EARNINGS 275 301 317 387 542
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0
1000
2000
3000
4000
5000
6000
2002 2003 2004 2005 2006
Series2
TOTAL SALES IN (CRORE)
INTER PRETATION:-
Sales are continuously increasing from the year 2002 to 2006.that situation is assume
a very good stage for any company.
2002 2774.81
2003 3120.42
2004 3799.78
2005 4533.8
2006 5341.5
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FINDINGS
In HAL cost reduction and cost control is done in following ways:
y In finance section, L1 i.e. lowest price is considered so that total cost of
production would be reduced and controlled.
y 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.
y Method study is implemented during production process and the method which is
less time consuming and having less cost is accepted.
y 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.
y Minimum inventory is kept in stores, so that there would be no wastage and cost
can be reduced.
y Efficiency of employees is approximately 100% due to which there is no wastage
and cost is reduced.
y It is also implementing methods of 5S to control and maintain cost effectiveness.
y It has also implemented lean management and various tools like K AIZEN for
wastage removal so as to reduce the extra cost incurred.
y 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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CONCLUSION HAL is one of the largest PSU under the department of defense production, GOI and is a
³NAVR ATNA´ 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.
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CHAPTER-7
SUGGESTIONS
y There should be facility of intranet so fax and such other things must be done
through it that can reduce time and money.
y For attendance finger print system should be adopted so that actual person¶s
attendance can be mentioned.
y The time delay between rising of purchase order and preparation of R DR should
be reduced.
y Wages to direct workers should be given through piece rate system.
y Efficiency of indirect workers should be measured so that slackness can be sorted
out.
y Employees should be included in brainstorming and also should be given liberty
and non-monetary incentives as appreciation.
y Officers should be promoted only on the basis of performance and not on the basis
of number of years worked.
y 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.
y 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.
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y 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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LIMITATIONS
The Bar graphs, balance sheet, Income statement, Profit and loss Accounts used in
this report are not sufficient enough to reveal the correct and the Accurate Financial
position so as to explain the Financial Management system of the Organization
because they do not show the complete datas, but upto a large extent it has been tried
to collect the best possible figures in order to bring out the objective of the research
report .
Lack of support from the management in providing the data
Correct figures were not available .
No proper updated records were there .
Field work was not allowed .
Members were not too helping in providing the information.
Questionaires were not allowed to be taken inside the organization, therefore the
Primary data in the form of questionnaire has not been collected .
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BIBLIOGRAPHY
During the preparation of project I took the help of various sources which are as follows:
Books:
Jawaharlal ± Cost accounting
Journals:
Accounting manual
Budget manual
Training manual on cost reduction
Company monthly journals
Internet:
www.hal-india.com