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:

 Create wealth for the business

 Generate cash, and

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

and the resources invested

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

FINANCIAL PLANNING

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

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

employees and fund sales made on credit.

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

productive capacity of the business or to facilitate acquisitions.

1
 FINANCIAL CONTROL

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

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

 Are assets being used efficiently?

 Are the businesses assets secure?

 Does management act in the best interest of the shareholders and in accordance

with business rules?

FINANCIAL DECISION MAKING

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

dividends:

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

alternatives that can be considered. For example it is possible to raise funds from

selling new shares, borrowing from banks or taking credit from suppliers.

 A key financing decision is whether profits earned by the business should be

retained rather than distributed to shareholders via dividends. If dividends are too

high, the business may be starved of funding to reinvest in growing revenues and

profits.

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."

2
Controlling Cost via Responsibility Accounting-

To control cost these fundamentals should be observed-

 Fixing responsibility to control.

 Limiting the individuals control efforts to his controllable costs

 Reporting the performance of individual.

3
 CHAPTER-2

OBJECTIVES OF STUDY

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

and Objectives.

 To have a continuous improvement in Knowledge, Skill and Competence

(Managerial, Behavioral and Technical)

 To promote a Culture of Achievement and Excellence with emphasis on

Integrity, Credibility and Quality

 To maintain a motivated workforce through empowerment of Individual and

team building.

 To enhance Organizational Learning

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

 Profitability and improve the Quality of Work Life

4
 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

5
Sample Design: - Simple Random Sampling.

Findings:-

 In finance section, L1 i.e. lowest price is considered so that total cost of

production would be reduced and controlled.

 Method study is implemented during production process and the method which is

less time consuming and having less cost is accepted.

 Minimum inventory is kept in stores, so that there would be no wastage and cost

can be reduced.

 It is also implementing methods of 5S to control and maintain cost effectiveness.

 It has also implemented lean management and various tools like KAIZEN for

wastage removal so as to reduce the extra cost incurred.

Conclusion:-

HAL is one of the largest PSU under the department of defense production, GOI and is a

“NAVRATNA” company ranked 34th in the list of world’s top 100 defense companies. HAL

with its wide spectrum of expertise in design, development and manufacture of aircrafts,

helicopters, engines, accessories and avionics has emerged as major aeronautical complex in

Asia.

As herein, the projects and items need huge investments than any other organization and

confidential factor is also there too much extent but as much information is extracted shows

that cost control is being performed quite good that’s why it is in so much profit.

6
HINDUSTAN AERONAUTICS

LIMITED

7
 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.

8
 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 April 1941 as it believed this

to be a strategic imperative. Later in April 1942, it bought out the stakes of Walchand

Hirachand himself and other promoters so that it can act freely. The decision by United

Kingdom was primarily motivated to boost British military hardware supplies in Asia to

counter the increasing threat posed by Imperial Japan during Second World War. However,

the Mysore Kingdom refused to sell its stake in the company but yielded the management

control over to the British Government. Thus, within 2 years of establishment, it was

nationalized.

Hindustan Aeronautics Limited (HAL) came into existence on 1st October

[Link] was set up as an amalgamation of Hindustan Aircraft Limited along with

Aeronautics India Limited and Aircraft Manufacturing Depot located in Kanpur, India.

Hindustan Aeronautics Limited has it headquarter located at Bangalore, India. HAL is one of

the largest aerospace companies which are run by the Ministry of Defense. The principal

activities of HAL involve manufacturing aircraft, aerospace, navigation, and instruments for

9
communication purposes. Apart from these, few other activities performed by HAL are

Designing, manufacturing, and collecting aircraft, jet engines, helicopters, along with their

elements and spares. Hindustan Aircraft Limited which located at Bangalore was

incorporated by the industrialist the late Seth Walchand Hirachand December 1940. The

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

management department in 1942. HAL has 19Production Units and 9 Research and Design

Centers in 7 locations in India. The Company has an impressive product track record - 12

types of aircraft manufactured with in-house R & D and 14 types produced under license.

HAL has manufactured over 3550 aircraft, 3600 engines and overhauled over 8150 aircraft

and 27300 engines. HAL has been successful in numerous R & D programs developed for

both Defence and Civil Aviation sectors.

HAL has made substantial Progress in its current projects:

 Dhruv, which is Advanced Light Helicopter (ALH)

 Tejas - Light Combat Aircraft (LCA)

 Intermediate Jet Trainer (IJT)

 Various military and civil upgrades.

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

2002, in the very first year of its production, a unique achievement.

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

manufacture of structures for Satellite Launch Vehicles like.

 PSLV (Polar Satellite Launch Vehicle)

 GSLV (Geo-synchronous Satellite Launch Vehicle)

10
  IRS (Indian Remote Satellite)

 NSAT (Indian National Satellite)

HAL has formed the following Joint Ventures (JVs):

 BAeHAL Software Limited

 Indo-Russian Aviation Limited (IRAL)

 Snecma HAL Aerospace Pvt. Ltd.

 SAMTEL HAL Display System Limited

 HALBIT Avionics Pvt. Ltd.

 HAL-Edgewood Technologies Pvt. Ltd.

 INFOTECH HAL Ltd

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

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

participation are under consideration.

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

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

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

more than 30 countries, having demonstrated its quality and price competitiveness.

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

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

Fulfillment of Social Responsibilities.

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

Corporate Achievement in Quality and Efficiency at the International Summit

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

conjunction with the International Information and Marketing Centre (IIMC).

11
 HAL was presented the International - “ARCH OF EUROPE” Award in Gold

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

Innovation.

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

Sector Management; instituted by the Standing Conference of Public Enterprises

(SCOPE).The Company scaled new heights in the financial year 2006-07 with a

turnover of Rs.7, 783.61 Cores.

12
 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

 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.

13
  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.

 COST AND TIME CONSCIOUSNESS

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

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

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

 INNOVATION AND CREATIVITY

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

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

with a view to achieving excellence and competitiveness.

 TRUST AND TEAM SPIRIT

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

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

towards achieving organizational goals.

 RESPECT FOR THE INDIVIDUAL

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

individual growth and realization of everyone's full potential.

14
 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

15
 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

16
  Defense Research & Development Organization

 Govt. of Andhra Pradesh

 Govt. of Jammu & Kashmir

 Govt. of Karnataka

 Govt. of Maharashtra

 Govt. of Rajasthan

 Govt. of Uttar Pradesh

 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.

17
ORGANIZATION STRUCTURE

18
 ACHIEVEMENTS / AWARDS

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

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

Fulfillment of Social Responsibilities.

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

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

Corporate Achievement in Quality and Efficiency at the International Summit

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

conjunction with the International Information and Marketing Centre (IIMC).

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

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

Innovation.

 At the National level, HAL won the "GOLD TROPHY" for excellence in Public
Sector Management,  instituted by the Standing Conference of Public Enterprises .

19
 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

20
products are being produced and assembled under one roof, using totally diverse

technologies.

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

1269 indirect) and 582 officers. The division being a public sector organization has extended

a lot of statutory and non-statutory welfare facilities. The human relations and discipline

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

workmen are regulated through certified Standing Orders while in the case of officers are

taking care of by the Conduct Appeal and Discipline Rules. There are 7 registered Trade

Unions presently functioning in the Lucknow Division in which H.A.E.A (Hindustan

Aeronautics Employees Association) is the majority union and has been recognized by the

management along with these is one officer’s Association H.A.O.A (Hindustan Aeronautics

Employees Association) to represent the officers of HAL.

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

constructed and rest 2445 acres are used of township.

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.

21
1953-54 The first Hindustan Trainer (HT-II) had its maiden flight.

1956 HAL came under the public sector.

1960 Aircraft manufacturing depot was established at Kanpur.

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

factories at Nasik, Koraput and Hyderabad established.

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

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

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

aircraft.

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

22
 3. AC system control and protection unit

4. Fuel management system

5. Land management system

Gyro-Instruments 1. Direction Gyros

2. Gyro Horizons

3. Rate Gyros

4. Synctors

Hydraulics 1. Accumulators

2. Servo Jacks

3. Gear Pumps

4. Activators

5. Motors

6. Value

Ground Support 1. Ground Power Units

Equipment 2. Hydraulic Trolleys

3. Customs Built fuel/Hydraulic test rigs

Wheels & Brakes 1. Main Wheels

2. Nose Wheels

3. Carbon composite brake pads

Sensors and Switches [Link] content qualifying

Probes.

23
 2. Temptation Sensor + Switches

Conventional 1. Altimeters

2. Vertical Speed Indicators

3. Jet pipe temperature indicators

4. Engine RPM indicators

Electrical 1. D. C. Generators

2. Alternators

3. Transformers Rectifier Units

4. Integrated Drive Generator

Fuel System 1. Main Pumps

2. Heat Pumps

3. Fuel Control Units

4. Booster Pump

FUTURE PROSPECTS

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

September 2008 to the “Air Force of India”.

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

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

“Lakshay” etc.

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

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

24
  The company has also planned to start the projects like CAT (Combat Aircraft

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

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

25
 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:

“Research as a systematized effort to gains new knowledge”.

According to Clifford woody:-

“Research 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.

26
Place of the Research:-

The research was conducted in Finance departments in HAL Accessories Division Lucknow

RESEARCH DESIGN

 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.

 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.

 Descriptive method of research was chosen for it helps the collecting summarizing,

analyzing interpreting & presenting data with new ideas & in effective manner.

 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

 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.

27
  “A 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.

 SAMPLE DESIGN

 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.

 DETERMINING THE SAMPLE DESIGN

 All the items under consideration in any field of inquiry constitute a ‘universe’ or

‘population’.

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.

28
 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

29
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.

 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:-

 Website of HAL.

 Company monthly journals.

30
 Training manual on cost reduction provided by HAL.

 Accounting manual and Budget manual provided by HAL.

 Pricing policy of HAL.

CHAPTER-6

31
 ANALYSIS OF FINANCIAL MANAGEMENT

Classification by Nature:

32
 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.

33
 ii. Administrative cost- It is the indirect cost pertaining to the

administrative function which involves formulation of policies, directing

the organization and controlling the operations of an undertaking. This

cost is not related to any other functions like selling and distribution,

research and development etc.

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.

34
 vii. Conversion cost - It is the cost incurred for converting the raw material

into finished product. It comprises of direct labour cost, direct expenses

and factory overheads.

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

labour cost and direct expenses. The term ‘direct’ indicates that the

elements of cost are traceable to a particular unit of output.

Classification by Controllability:

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

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

business organization, heads of each responsibility centre are responsible

to control costs. Costs that they are able to control are called controllable

costs and include material, labour and direct expenses.

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

of the person heading the responsibility centre is called uncontrollable

cost. For e.g. all the allocated costs and the fixed costs.

Classification by Normality:

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:

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

cost. This cost is not relevant in decision making in the current period.

For e.g. In the case of a decision relating to the replacement of a machine,

the written down value of the existing machine is a sunk cost and hence

irrelevant to decision making.

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

be. It is based on past data adjusted to anticipated future changes.

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

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 charges for a machine specifically hired for a particular process, excise

duty, royalty.

Indirect Expenses - Expenses incurred other than direct expenses are

called indirect expenses. For e.g. Factory rent & insurance, power, general

repairs.

Overheads:

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

expenses. Functionally overheads can be classified as..

i. Production / Works overheads

ii. Administrative overheads

iii. Selling overheads

COST CONTROL

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

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

aims at accomplishing conformity between actual result and standards or budgets. Cost

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

 Creation of responsibility centre with defined authority and responsibility for

cost incurrence.

 Formulation of standards and budgets that incorporate objectives and goals to

be achieved.

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  Timely cost control reports (responsibility reporting) describing variance

between budgets and standards and actual performance.

 Formulation of corrective measures to eliminate and reduce unfavorable

variances

 A systematic and fair plan of motivation to encourage workers to accomplish

budgetary goals.

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

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

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

cost or better performance for the same cost.

Cost control process involves:

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.

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 3. Choose the cost to focus on first :

 Costs that may offer easy savings.

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

Systematic Cost Control:

1. Start from the business objective.

2. Establish standard costs for achieving your objectives.

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

than the standard cost, sometimes it may be lower.

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

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.

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  Use part-time employees instead of full time.

 Redesign processes to cut out activities that waste time.

 Make more use of technology.

[Link] 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.

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  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.

 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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 FLOWCHART FOR PROCUREMENT OF MATERIAL

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

ways-

1.     To minimize total cost.

2.     To maximize profit within specified 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-

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

 Determine acquisition lead time.

 Plan usage during the lead time.

 Establish quantity on hand.

 Place units on order.

 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.

ECONOMIC ORDER QUANTITY

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

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

holding or carrying the inventory is high because of high investment. If purchases are made

in small quantities, frequent orders with correspondingly high ordering cost will result.

Therefore we must balance between two factors-

1.     The cost of possessing (carrying) material.

2.     The cost of acquiring (ordering) material.

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

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

How to compute Economic Order Quantity:

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

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

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

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

quantity using the formula-

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

material × carrying cost percentage)

DETERMINING TIME TO ORDER:

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

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

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

1.     Time needed for delivery.

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 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.

STORES ORGANISATION

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Efficient storing after efficient purchasing is another important step in material control

system. Factors involved in establishing stores organization are-

a.     Location of stores: Location of store should be carefully planned so as to give

maximum efficiency. Following factors are important in deciding location of stores-

1.     Nature of material.

2.     Distance from user department.

3.     Size of unit.

4.     Spacing.

5.     Unit of material used.

6.     Security requirements.

 b.     Storage Layout: Storage layout should be carefully designed for saving of costs.

Material should be stored according to-

1.     Account number specifically given to different type of material.

2.     The frequency of their usage.

3.     The production area where item is used.

4.     Nature, size and shape of item.

Stores should maintain all documents like material requisition form, material procurement

form, stock ledger cards, bin cards etc.

LABOUR CONTROL

Effective control over labor is very important as it is very important part of total cost. The

following departments should contribute for labor control-

 Personnel Department.

 Time keeping Department.

 Payroll Department.

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  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.

DIFFERENCE BETWEEN COST REDUCTION AND COST CONTROL

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 Cost Control Cost Reduction
1. Concerned with adhering as closely as 1. Concerned with genuine cost savings.

possible to the set standards. existing costs, including standards, are

2. Standards are taken to be the desired challenged in an effort to reduce them.

state of efficiency. 2. Standards are regarded as yardsticks

3. Attempts to be guided by what is the which can be improved upon. They are

lowest cost for the conditions which viewed with suspicion.

prevail. 3. Recognizes that the operations of a

4. Is generally effective only when some company are dynamic in nature. For

form of standards can be set. 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 :

 Shareholder

 Expansion of the business

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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:

 Defective design of the product and its components.

 Wrong selection of raw material in terms of type or of quality.

 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

 Poor planning

 Poor manning

 Poor working methods

 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:

 Reducing the work content of jobs

 Providing adequate work

 Recognizing extra effort

 Worker working

OVERHEADS

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1. Overhead cost in almost every industry is excessive. This may be attributed to factors

like poor planning, poor inventory policy leading to excessive stocks of raw material,

finished goods, tools and spare parts, lack of standardization and poor organization.

2. Poor planning adds up unnecessary overhead expenses also in addition to direct

material and labor costs. It is regrettably true that management’s concern for

efficiency in manufacture often appears to be continued to the more obvious factors

like production methods, factory layout and operator efficiency, while other potential

sources of considerable savings go untapped.

3. The importance of stock control arises from the demand which investment in stocks

places upon the available liquid capital. It is of far greater significance from the point

of view of cost reduction by virtue of the fact that stocks can give rise to the following

sources of cost:

 Storage cost

 Handling cost

 Stock-taking and other clerical expenses

 Deterioration and its prevention

 Pilferage

 Insurance and stock room security

 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

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 channels of communication can make towards a reduction of costs is difficult to

measure.

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:

 Waste of material

 Waste of supplies

 Waste of machinery

 Waste of manpower

 Waste of money

 Waste of space

 Waste of customers

 Waste of ideas

Planning overhead cost control: There are six basic steps through which overhead cost can be

controlled:

 Establish company objectives and targets

 Develop detailed programmers

 Organize resources to meet the objectives

 Establish department standards of performance to match programmers

 Develop a system of budgets

 Report on performance

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In some organization a systematic approach is followed so that methods can be improved in

the department. It is a simple five step plan to:

a) Select the operation for improvement.

b) Get the facts by breaking down the operation into detailed steps.

c) Analyze the facts by questioning every step.

d) Develop a new and improved method.

e) Install the new met

Below mentioned are the points essential in the organization of cost reduction:

1. One person has to be responsible. That person must think constantly in terms of cost

reduction, and seize every opportunity to bring the subject to the attention of all

employees.

2. Top management must have interest, cooperation, consideration and a firm belief that

cost reduction is worthwhile and necessary. At the same time, they must have

patience because ideas create more ideas, and every idea does not produce the desired

result. But the more ideas there are, the more opportunity there is to get worthwhile

results.

3. A cost reduction programmed must encompass all employees- each person that is a

part of the organization.

4. All possible means must be used to make all employees cost conscious and cognizant

of the need for cost awareness.

5. There is no single way to fulfill the needs of obtaining cost reduction. It has to be a

combination of many ways.

6. It has to be a continuous operation. It cannot be started and stopped at will, but must

be worked on constantly. There must be constant effort to improve, and to think of

new methods.

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 7. Cost reduction ideas must always be “glamorized” in order to make them appear new

and different, and to increase and create greater interest on the part of the employees.

TOOLS AND TECHNIQUES OF COST REDUCTION

1. Value analysis: Value analysis is a technique applied to analyze all aspects of an

existing product to determine the minimum cost necessary for specific functional

requirement. It helps in improving quality of product. In HAL various methods are

implemented for value analysis. They are :

VOP (Value of production) = Total sales ± Changes in WIP / SIT

Value added = VOP – Raw material consumed

Capital employed = Working capital + Net block of fixed assets + Special tools

Working capital = Current assets – Current liabilities

SIT = Opening balance + Dispatch – Fitment

2. Work study: Work study includes calculation of standard costs and batch costs and

then prepares FPQ (Fixed price quotation) for fixing prices of every product.

3. Production planning: In HAL Lucknow, the main function is production of

accessories of aircrafts. For planning the production process production budget is

prepared in advance. This is done by planning department. For this planning

department meet with all divisions and ask for their production targets. All divisions

mutually agree to set their targets and to fulfill them. After that they sign MAS

(Mutually agreed schedule) for all IDTO’s (Inter divisional transaction orders).

After this planning department send this to budget department for production budget.

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4. Organization and method study: In HAL method study is implemented during

production process. Various methods for production of job are studied minutely and

the method which is least time consuming and having cost conciseness is accepted.

5. Operations study: In HAL process layout is prepared to study various operations

included in completion of a job. For this every employee got a job card, job docket

and job ticket in which standard time for completion of each and every operation is

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 :

 Zero defect

 Continuous improvement(Kaizen)

 Wastage removal(Lean management)

 Customer satisfaction

 Zero defect: Organization found that there are three main factors which cause defect

in the production:

a) Don’t have full knowledge of job.

b) Don’t have required resources for the work.

c) Don’t concentrate on the work.

For zero defects all these factors are removed. The organization quality policy is

producing “1st Time Correct “.

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  Continuous Improvement: Every employee of the organization should aim at

maintaining the continuous improvement in their work. They should aim to complete

their production and services with low time and cost and that too with good quality,

and to make their products and services of international level. Every employee is

aware of all possible improvements in his work area, so he should give suggestions to

the management for this improvement.

 Wastage Removal: Employee should aim to remove all those wastages that cause

cost increment like water, electricity, stationary etc. so as to make the organization

more economic. 

 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.

 Do the 5S.

 Create flow.

 Put in visual control.

 Job standardization.

 Reduction in set up time.

 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.

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 Value work is that customer is willing to pay for, and waste is adding cost but not the

value.

Continuous Improvement

There are 8 wastes which the organization should keep in mind-

 Over Production and Over Processing.

 Waiting.

 Transportation.

 Inventory.

 Motion.

 Defects.

 Untapped Resources.

 Misused Resources.

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 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

“ (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:

 Document through bank

 Cheque against delivery

 Advance payment

 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 -

 Letter of Credit

 Sight Draft.

 Advance Payment

 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:

 Total number of packages

 Total amount of duty paid

 Invoice value

 Freight

 Insurance

 Exchange rate

 Accessible value

RECEIVING CUM DISCREPANCY REPORT

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

organization. Pricing of RDR is done by two methods:

64
 1. If the payment is done in advance and goods received later, then the RDR is priced at

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

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

is done.

BILLS PAYABLE (SERVICES & CIVIL WORKS)

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

company. This sub-section is mainly responsible for-

a. Service contracts.

b. Job contracts.

c. Medical payment.

d. Advance payment.

e. Payment regarding construction of building etc.

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

  

FUNCTIONS:

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

 Adjustment and recovery of advances.

 Accounting and adjustment of earnest   money and security   deposits.

 Capitalization of buildings.

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

transportation, sanitation etc.

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

 Payment of miscellaneous advances, impress approved by competent authority. 

65
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  from 

each  other.

66
 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.

67
  

 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.

 Firms / forecast task given by the Air Force.

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

for  divisional  tasks.

 Repairs Maintenance Supply Order.

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

respect  of  the  following  activities.

 Development sales for customer financed projects.

 Suppliers and services rendered to civil customers.

 Suppliers against Repair Maintenance Supply Orders (RMSO).

68
 2) To  raise  debit  on  other  divisions  on  Stock  in  Trade (SIT)   in  respect  of 

parts  / accessories  supplied  for  fitments  in  Engines / Aircraft / Helicopters 

manufactured  by  them  for   supply  to  customers.

3) To  claim  payment  from  Account  Officer  Defense  Accounts  Department

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

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

sales  for  these  claims  and  created  claims  receivable.

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.

69
 2. CLAIMS / ACCOUNTS RECEIVABLE JOURNAL: All invoices raised in

respect of various services rendered / facilities provided are entered into this journal

and journal entries passed at the end of each month by debiting to claims / accounts

receivable account and crediting to the respective income account.

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

70
  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.

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

the company.

PROCEDURE (FINANCIAL VETTING)

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

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

as per delegation of power.

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

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

for further proceedings. These requisitions are broadly classified as under:

a. Non- Recurring items

b. Recurring items.

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

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

been formed for different approvals like different committee approves the proposals

which amounts up to Rs 5 lakhs, different committee is authorized for the amount above

then Rs 5 lakhs & so on. Approval is done by CM (IMM) , Manager(Maintenance) ,

Senior Manager (Maintenance) as the case may be . After the CM’S approval, it is

sent back to IMM & the IMM sends it back to the Finance section, including

specifications which shows that it is suitable or not. Finance Department approves P.O

FILES. Then further proceedings go on which includes rising of inquiry for tenders. Sealed

tenders are opened in front of concerned authority. There are fixed days for opening sealed

tenders-Friday and Tuesday. Amongst the sealed tenders L1 is selected , which

71
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:

MATERIAL ACCOUNTS SECTION

OBJECTIVES:

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

accounted properly.

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

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

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

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

ledger.

FUNCTIONS:

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

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

the purchases value-wise.

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

section.

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

return voucher.

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

statement monthly indicating:

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

72
  The cost of material issued to contractors and others.

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

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

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

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 ‘output’ statements

received from computer / data processing section:

1. Material issue analysis statement

2. Stock transfer / stock re-classification statement

3. Stock verification statement

4. Surplus / condemned stores statement

MATERIAL ISSUES ANALYSIS STATEMENT: The computer / data processing

section after processing all the material requisition/issue vouchers pertaining to the

month prints out the material issue analysis statements monthly indicating:

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

work orders and expense accounts.

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

73
 c) The cost of material transferred to other divisions.

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

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

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

inventory accounts.

STOCK VERIFICATION STATEMENT: The computer / data processing section

makes available the print out lists of stock verification notes, indicating stock verification

note number, material code number, overages or shortages of less than Rs 500/- and more

than Rs 500/- based on which necessary journal entries are issued after obtaining

clarifications from stores department, by debit / credit to stock adjustment / inventory

adjustment account and credit / debit to relevant inventory accounts.

SURPLUS / CONDEMNED STORES STATEMENT: Non moving / slow moving

material are reviewed by stores / production engineering department from the lists of non

moving / slow moving items furnished by the computer / data processing section.

Material not required for production or as “surplus” and referred to the ‘surplus

committee’ for review and declaring the same as surplus. 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.

74
 2. To determine the price realizable from the customer for the products manufactured /

repaired / overhauled / serviced / supplied by the division.

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

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

instruments.

75
  Of spares required for overhaul of aircrafts, engines, engines etc. and

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

 Of other equipment like foreign and costing.

 Repairs and Overhaul Activities

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

 Other equipments.

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

radars, accessories and instruments.

 Customer Finance.

 Company Finance.

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

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

essential for effective cost monitoring and cost control.

THE SYSTEM

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

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

HAL have also work order schemes suitable for component costing.

 BATCH COSTING

 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.

76
 Labor and material costs are booked on the batch work order/mass fabrication

order only.

 In this system the cost of all components, minor assemblies, sub assemblies,

etc. relating to an aircraft/engines/equipments in the complete batch is

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

fabrication work order by the number of units produced in the batch. To this is

added, the cost recorded on assembly line, erection and testing work order(s)

and sundry direct charges to arrive at the total cost of the

aircraft/engines/equipments.

 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

77
 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

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

78
exchange rates given every year by Air HQ for material and inflation indices for Man Hour

Rate. The FPQ’s approved for base year (1995-96) are escalated as per agreed parameters up

to 8 years (2003-04) and thereafter fresh base year cost verification is done by Air HQ by

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

accordingly material cost firmed up in 2004-05. Similarly labor efficiency and yield factor of

division are fixed at 79% and 76% respectively. The FPQs for overhaul/repair and price

catalogue for spares are approved by GOI.

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

lesser usage of material or completing the work by putting lesser Man Hours as standard man

hours so that labor cost per unit should be decreased which helps in improving the

profitability of the division.

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

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

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

negotiated by the customer.

MAN HOUR RATE:

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

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

Man hour rate is calculated as follows-

[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].  

79
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

80
 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).

81
DATA ANALYSIS

1-Calculation of percentage of Cash and Bank Balance to the Current Assets

(In Lakhs)

PARTICULAR 2007-2008 2008-2009

A. Cash and bank balance 19.98 11.95

(Rs)
B. Current Assets (Rs) 152518.97 260862.93

C. % of Cash and Bank 0.013 0.004

Balance to Current Assets

(A/B*100)

82
 PERCENTAGES

24%

2007-08
2008-09

76%

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.

83
2- Calculation of percentage of Account Receivable to the Current Assets.

PARTICULARS 2007-08 2008-09

A. Account receivable 5883.47 14655.86

B. Current assets 152518.97 260862.93
C.% of accounts receivable 3.85 5.61

to current assets (A/B*100)

(In Lakhs)

84
 6

3
PERCENTAGES
2

0
2007-08
2008-09

INTERPRETATION

The percentages of accounts receivable to current assets has been 3.85% in 2007-08 and

5.61% in 2008-09 respectively.

3-Calculation of Average Collection Period.

(In Lakhs)

PARTICULAR 2007-08 2008-09

A. Debtors 5883.47 14655.86

B. Sales 140816.78 140991.83

C. Average collection 16 days 38 days

period (A/B*360 days)

85
 30%

2007-08
2008-09

70%

INTERPRETATION

 The Average Collection Period (ACP) for the year 2007-08 & 2008-09 are 16 days

and 38 days.

 Normally 50-60 days is the lead-time for realizing the debtors for the enterprise like

HAL.

4- EXPORT OF THE LAST FOUR YEARS

(In Lakhs)

YEAR 2005-06 2006-07 2007-08 2008-09

EXPORT 170 145 140 140

86
 Export

33% 20%

2005-06
2006-07
2007-08
2007-08

27% 19%

INTERPRETATION:-

 Export for the year 2005-06 and 2006-07 is 33% and 27% respectively.

 Export for the year 2007-08 and 2007-09 is 20% and 20% respectively.

5- EXPENDITURE OF LAST 4 YEARS:

YEAR 2005-06 2006-07 2007-08 2008-09

EXPENDITURE 2570 2590 3870 3814

87
 (In Lakhs)

Expenditure
2570
3814

2005-06
2006-07
2007-08
2008-09

2590

3870

INTERPRETATION:-

 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.

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

88
 PERFORMANCE AT A GLANCE (RS IN CRORE)

6000

5000

4000
Profit before tax
3000 Value added
Sales
2000

1000

0
2002 2003 2004 2005 2006

INTERPRETATION:-

 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.

89
 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

60

50

40

30 2002
2003
20 2004
2005
10 2006

0
MATERIAL SALARIES & OTHER DEPRICIATION INTEREST PROFIT
-10 WAGES EXPENSE BEFORE TAX

-20

Interpretation:-

 Profit before tax in last five years is fluctuating between 12 to 16 crore respectively.

90
 DISTRIBUTION OF SURPLUS

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

600

500

400

300

200

100

0
2002 2003 2004 2005 2006

INTERPRETATION:-

 Income tax, dividend and retained earnings are continuously increasing for

the last five years.

 Interest are remain constant from the last five years.

91
 TOTAL SALES IN (CRORE)

2002 2774.81
2003 3120.42
2004 3799.78
2005 4533.8

2006 5341.5

6000

5000

4000

3000

2000

1000

0
2002 2003 2004 2005 2006

INTERPRETATION:-

92
  Sales are continuously increasing from the year 2002 to [Link] situation is

assume a very good stage for any company.

FINDINGS

In HAL cost reduction and cost control is done in following ways:

 In finance section, L1 i.e. lowest price is considered so that total cost of

production would be reduced and controlled.

 Quality is the strength of HAL. The company aims at best quality product at

lowest price. For this TQM is applied in whole organization so that cost would be

controlled.

 Method study is implemented during production process and the method which is

less time consuming and having less cost is accepted.

 As the rate of machine hour rate (MHR) is very high in HAL so the work is done

on contract basis i.e. outsourcing is done so that cost can be reduced and

controlled.

 Minimum inventory is kept in stores, so that there would be no wastage and cost

can be reduced.

 Efficiency of employees is approximately 100% due to which there is no wastage

and cost is reduced.

 It is also implementing methods of 5S to control and maintain cost effectiveness.

 It has also implemented lean management and various tools like KAIZEN for

wastage removal so as to reduce the extra cost incurred.

 It also aim at producing all accessories as first time correct and with Zero error so

that the cost incurred in rejection and rework processes can be controlled.

93
 CONCLUSION

HAL is one of the largest PSU under the department of defense production, GOI and is a

“NAVRATNA” company ranked 34th in the list of world’s top 100 defense companies. HAL

with its wide spectrum of expertise in design, development and manufacture of aircrafts,

helicopters, engines, accessories and avionics has emerged as major aeronautical complex in

Asia.

As herein, the projects and items need huge investments than any other organization and

confidential factor is also there too much extent but as much information is extracted shows

that cost control is being performed quite good that’s why it is in so much profit.

In the organization, cost of inventory as well as labor is controlled very well by implementing

ABC analysis but there is also some scope for cost reduction by reducing number of casuals

to reduce labor cost and by implementing EOQ (Economic Order Quantity) technique to

control material cost.

Although for the organization’s betterment its executives are working hard and trying to

serve in the best possible manner with their colleagues and they all are very qualified and

experienced so organization must extract optimum from them.

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 CHAPTER-7
SUGGESTIONS

 There should be facility of intranet so fax and such other things must be done

through it that can reduce time and money.

 For attendance finger print system should be adopted so that actual person’s

attendance can be mentioned.

 The time delay between rising of purchase order and preparation of RDR should

be reduced.

 Wages to direct workers should be given through piece rate system.

 Efficiency of indirect workers should be measured so that slackness can be sorted

out.

 Employees should be included in brainstorming and also should be given liberty

and non-monetary incentives as appreciation.

 Officers should be promoted only on the basis of performance and not on the basis

of number of years worked.

 Workers who have talent and compatible with office grade but restricted to work

only at non-supervisory position, the policy should be such so that grade

promotion could be possible.

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 Profit calculation by project cell for project evaluation is different from costing

section. In this way project evaluation is not proper. So it must frame its cost-

benefit evaluation and focus on only licensing fee and other DRE and framing of

analysis should be done as per actual recoverable profit percentage.

 The company should give some stipend to Industry guide for summer training due

to which they will take more interest in providing guidance.

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 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

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Primary data in the form of questionnaire has not been collected .

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:

[Link]

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