IOM Notes

Management
Management is the process through which people are mobilized to achieve designated goals.
Importance of management
1) Management helps in increasing the effectiveness and efficiency and thereby productivity of the enterprise as well as the individual worker. 2) Management helps in development of full human potential. 3) Management helps in raising the worker morale. 4) Management helps in building mutual trust. 5) Management helps developing teamwork. 6) Management helps in providing a stable livelihood for all employees. 7) Management helps in constantly and forever improving the system of production and service.
Characteristics of Management
1) Management applies to any kind of organization. 2) Management applies to managers at all organizational levels. 3) The aim of all managers is the same: to be productive. 4) Managing as a practice is an art in which practitioners apply the underlying theory and science in light of situations. 5) Management attempts to create a desirable future, keeping the past and present in mind. 6) There are various approaches to management.
Contributions of Various Scholars Towards the Development of Management Theory

Frederick W. Taylor Frederick W. Taylor (1856 1915) known as founder of scientific management rested his philosophy on four basic principles: 1. 2. Develop a science for each element of a mans work, which replaces the old rule of thumb method. Scientifically select and then train, teach, and develop the work man, where as in the past he chose his own work and trained himself as best as he could. 3. Heartily cooperate with the men so as to ensure all of the work being done is in accordance with the principles of science, which has been developed. 4. There is an almost equal division of the work and responsibility between management and workmen. The management takes over all work for which they are better fitted than the workmen, while in the past almost all of the work and the greater part of the responsibility were thrown upon the men. Taylor believed that management and labour had a common interest in increasing productivity and the success of these principles required a complete mental revolution on the part of management and labour. Taylor stressed the importance of time and motion study to increase efficiency of men and machines. He introduced a wage incentive plan known as differential rate system, which involves payment of higher wages to more efficient workers.
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Henry L Gantt Henry L Gantt (1861-1919) worked with Taylor on several projects and was his close associate. He improved upon Taylors differential piece rate system and came up with a new idea. Every worker who finished a days assigned workload would win a 50% bonus. The supervisor would also earn a bonus for each worker who reached the daily standard, plus an extra bonus if all the workers reached it. supervisors to train their workers to do a better job. Gantt also devised a charting system for production scheduling, now known as Gantt chart. The Gantt chart is still in use today. It also formed the basis for two charting devices which were developed to assist in planning, managing and controlling complex organizations: the Critical path Method (CPM) and Program Evaluation and Review Technique (PERT). The Gilbreths Frank B and Lillian M Gilbreth (1868-1924 and 1878-1972) made their contribution to the scientific management movement as a husband and wife team. They did a lot of research in order to improve work methods and thus to discover one best way of accomplishing a task. Their main field of interest was fatigue and motion studies and focused on ways of promoting the individual workers welfare. To them, the ultimate aim of scientific management was to help workers reach their full potential as human beings. In their conception, motion and fatigue were intertwined every motion that was eliminated reduced fatigue. Using motion picture cameras, they tried to find the most economical ways of doing jobs. They concluded that fatigue could be considerably reduced by lightening the load, spacing the work and by introducing rest periods. Henri Fayol Henri Fayol (1841-1925) is known as the Father of principles of management. Fayol believed and prescribed fourteen principles that would aid in setting up and managing organizations. These principles are listed below. 1. Division of work Work must be divided into tasks, sub-tasks and still smaller units till specialization is achieved. 2. Authority and responsibility A relationship must be established between the responsibility and the authority a manager exercises. If a subordinate is given responsibility, he should also be given authority to go with it. 3. Discipline This principle deals with the sanction of rewards for good work or meeting standards and punishment for poor work or failure to meet standards. 4. Unity of Command Each employee must receive instructions from only one person. Fayol believed that when an employee reported to more than one manager, conflicts in instructions and confusion of authority would result. 5. Unity of direction Tasks must be regrouped by departmentalization under one head whose major responsibility is coordinating activities. This would motivate the
6. Subordination to general interest This principle is based on the idea that the whole is greater than the sum of its parts. General interest supercedes the interests of individuals. 7. Remuneration
Lecture Notes on Industrial Organization and Management College of Engineering, Kallooppara
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Compensation for work done should be fair to both employees and employers. 8. Centralization Decreasing the role of subordinates in decision-making is centralization; increasing their role is decentralization. An optimal balance between centralization and decentralization exists for each situation. This balance must be determined by taking the managers capabilities into consideration. 9. Scalar chain This refers to a graded chain of managers from ultimate authority at the top to lowest ranks, resulting in hierarchical levels. This principle also states that authority and responsibility should flow in a direct line vertically from top to bottom. 10. Order This principle emphasizes the importance of arranging and organizing human and physical resources logically and neatly. 11. Equity Managers should be both friendly and fair to their subordinates. 12. Stability In order to provide stability of an organization, long-term commitments must be encouraged. 13. Initiative Employees must be encouraged to think through and implement a plan of action. 14. Unity of effort Coordination and unity are important to achieve the goals of an organization. To achieve unity and coordination communication is essential.
Functions of Management
The managerial functions provide a useful framework for organizing management knowledge. Managerial functions can be basically grouped under planning, organizing, motivating, controlling, coordinating and decision-making.
Planning
Plans give the organization its objectives and set up the best procedures for reaching them. Plans made by toplevel management may cover periods as long as five or ten years. On the other hand, the middle and lower level managers focus on short-range and day-to-day plans. The elements included in the planning function are: 1) The policies that will help to achieve objectives. 2) The programmes that a manager will carry out. 3) The time schedules that a manager will have to meet. 4) The budgetary considerations that will be involved. All the above elements are equally important and interact with all other elements.
Organizing
Organizing is the process of arranging and allocating work, authority, and resources among an organizations members so that they can achieve organizations goals. Some authors include staffing function as a part of organization function. Staffing involves filling, and keeping filled, the positions in the organization structure. The elements included in organizing function are: 1) Grouping of activities necessary to accomplish organizations goals in the light of the human and material resources available and the best way, under the circumstances, of using them. 2) Delegating to the head of each group the authority necessary to perform the activities.
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3) Establishing relationships that will provide each with the necessary information. 4) Scrutinizing the relationships between various units and the effect of operation of these units on each other. Organizing is a never-ending process. All types of organizations are in a continual state of being reorganized. When goals and programmes are redirected, activities also change.
Motivating
Motivation is a human psychological characteristic. It pertains to various drives, desires, needs, wishes and other forces. Motivation is not easy to achieve and what a manager can try to do is to create a working climate in which all members may contribute to the limits of their ability. The key elements in such a work situation and its effect on the employee are known to be: 1) The degree to which the employee feels his goals and those of the organization are similar. 2) The employees relationships with his coworkers and especially with his supervisor. 3) The way in which his job helps him meet his needs for present income and future security and does so in a manner that seems fair. 4) The extend to which it enables him to feel adequate to his tasks and to gain a sense of accomplishment for jobs well done. Motivational function provides a great deal of challenge to a manager. He must have the ability to identify the needs of his subordinates and the methods and techniques to satisfy those needs. Motivation is a continuous process as new needs and expectations emerge.
Controlling
Controlling is the process of ensuring that actual activities conform to plan activities. Through the controlling function, the manager can keep the organization on the right track before it deviates too far from its goals. The controlling function involves: 1) Establishing standards of performance. 2) Measuring actual performance. 3) Comparing actual performance to the established standards. 4) Taking corrective action if deviations are detected. For the control to be effective, a system of communications or reports is required to inform the manager of the facts on which to base measurements, comparisons and corrective action. A great deal of the managers time is involved in controlling.
Coordinating
Coordination is the process of integration of the activities of separate departments of an organization to accomplish organizational goals. Coordination is needed both up and down the organization structure and laterally as well. It can also occur among people working at different organizations. The extent of coordination depends on the nature of activities performed and the type of organization structure. Some authors consider coordinating as a part of organizing function as organizing involves a great deal of coordinating effort.
Decision-making
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Decision-making is the process of identifying and selecting a course of action from among alternatives. Decision-making is an important part of every managers job and it requires all the skill and judgment a manager accumulates over the years. The manager constantly seeks to make correct decisions involving the use of the various types of resources at his disposal to attain the various objectives. A manger decides on the utilization of men, materials and machines to achieve such goals as quality, low cost, quick delivery, safety and so on.
Organization
Organization is a pattern of relationships among the individuals working together for a common goal.
Types of Organization
A few commonly known forms of organization structures or types of organization are: (1) Line organization (2) Functional organization (3) Line and staff organization
Line Organization
Line structure is historically the oldest type, and all other kinds of structures are modifications of line structures. Direct vertical authority characterizes line organization structure responsibility relationships which connect jobs and positions at each level with those above and below it. A simplified line organization structure is shown in the following figure. General manager
Works manager
Superintendent 1
Superintendent 2
Foreman
Foreman
Foreman
Foreman
Workers
Workers
Workers
Workers
In this structure, the authority flows directly from the general manger to works manager to superintendent to foremen and from them to workers. Line organization is also called military or scalar organization Advantages of Line structure 1. 2. 3. 4. Simplicity and clarity Clear cut authority and responsibility Flexibility Strong discipline
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5. Capable of developing all round executives at higher levels of authority.
Disadvantages of Line structure 1. 2. 3. 4. 5. Neglects specialists. Lack of specialization may lead to wastage of materials as well as man and machine hours. Overloads a few important executives. Encourages dictatorial way of working. Limited to very small concerns.
Applications of Line Organization Line organization is suitable for small concerns and for automatic and continuous process industries such as paper, sugar, cement, textile, etc.
Functional Organization
F. W. Taylor is the originator of functional organization. In functional organization, instead of one foreman as in the case of a line organization, there are eight functional foremen; four of them located on the shop floor and the remaining four in the office. Each functional foreman will be a specialist in an activity. Following figure shows the Taylors functional organization. General manager
Works manager
Superintendent (Office)
Superintendent (Shop)
Route clerk
Instruction clerk
Time & cost clerk
Disciplinarian
Speed boss
Gang boss
Repair boss
Inspection boss
WORKERS OR OPERATORS
Taylor suggested simultaneous instructions to workers by eight functional experts or specialists and they are: 1. 2. 3. Route clerk who issues work-orders and routes the job. Instruction clerk who prepares job instructions for the workers Time and Cost Clerk who is responsible for keeping records about the time spent by workers in completion of jobs and calculation of wages and other related costs. 4. 5. Disciplinarian who keeps personal records of the workers and handles cases of insubordination. Gang boss who is in charge of the preparation of all work up to the time the work piece is set in the machine. 6. Speed boss who ensures that proper tools are being used and optimum speeds are being employed. He sees that the worker unnecessarily does not take excess time.
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7. Repair boss who is responsible for repairs and maintenance of equipment and machinery.
8. Inspector or inspection boss who is responsible for the quality of the product.
Advantages of Functional Organization 1) Makes possible to have uniform policies systems and procedures throughout the organization. 2) Makes use of specialists to give expert advice to workers. 3) Reduces the wastage of materials, man and machine hours. 4) Improved quality off work. Disadvantages of Functional Organization 1) Creates dual accountability and weakens the unity of command. 2) Makes industrial relationships more complex. 3) All round executives cannot be developed. 4) Workers not given an opportunity to show their creativity. 5) Poor discipline. Applications of Functional Organization Applications are virtually nil. But in modified form the same is used in some most modern and advanced concerns.
Line and Staff Organization

Line and staff organization is a development of the line organization. In this type of structure, special executives known as staff are employed to assist the line executives and they perform functions such as planning, design, quality control, research, etc. Following figure shows a line and staff organization.
Manager sales Manager accounting

General manager
Legal advisor
Safety officer Design engineer
Works manager
Industrial engineer Stores officer
Superintendent 1
Superintendent 2
Foreman
Foreman
Foreman
Foreman
Workers
Workers Line relationship
Workers
Workers Staff relationship
The line executives have supervisory authority and control over the work of their subordinates, whereas the staff executives do not have any authority to direct the lower level managers or workers. The nature of the
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staff relationship is advisory and the function of staff executives is to investigate, research and give advice to line managers. Advantages of Line and staff organization 1) Specialization benefits of staff can be profitably utilized to have standard operations. 2) Line executives are relieved of some of their workloads and are thus able to concentrate on other important matters. 3) Less wastage of material and labour. 4) Improved product quality. 5) Quick decisions and actions are possible.
Disadvantages of Line and staff organization 1) Staff may blame the line managers for all failures, but take credit for all successes. 2) Paper work may be increased very much (because staff men are fond of paper work). 3) Staff men may dominate over the lower the lower-level line managers. 4) Increased product cost because of high salaries of staff executives. 5) Too much staff activity may complicate a line executives job of leadership and control. Applications of Line and staff organization Line and staff organization is suitable for medium and large industries.
Span of Management Control

Span of management control (frequently shortened to span of control or span of management) refers to the number of people a manager can effectively supervise. Choosing an appropriate span of management control for an organizational hierarchy is important for two reasons. First, the span can affect what happens to work relationships in one particular department. Too wide a span may mean that managers are over extended and subordinates receiving too little guidance. When this happens, subordinates may start thinking that they are too remote from the point of control and may become careless. Too narrow span, on the other hand, is inefficient because managers are under utilized. Second, the span can affect the speed of decision making in situations where multiple levels in the organizational hierarchy are involved. A narrow span of management results in many organizational levels and a long chain of command slows decision-making. In contrast, wide spans results in few organizational levels. Advantages of Narrow Spans 1) Close supervision. 2) Close control. 3) Little or no sub-ordinate training required.
Disadvantages of Narrow Spans 1) Managers under utilized. 2) High costs due to many levels of management. 3) Excessive distance between lowest level and top level. 4) Slow decision-making.
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5) Superiors tend to get too involved in sub-ordinates work. Advantages of Wide Spans 1) Quick decision-making. 2) Superiors are forced to delegate. 3) Low costs due to few levels of management. Disadvantages of Wide Spans 1) Managers are over extended. 2) Requires exceptional quality of managers. 3) Tendency of over loaded superiors to become decision bottlenecks. Note: There is no definite number of people a manager can effectively supervise; the number depends on several underlying factors. These include nature of work and capability of managers and sub-ordinates, the degree of sub-ordinate training required and possessed, the clarity of authority delegated, the clarity of objectives, plans and policies, the effectiveness of communication techniques and the type of organization.
Authority and Responsibility

Authority means right to command and power to act. It is merely the discretion conferred on people to use their judgment to make decisions and issue instructions. Everybody in the organization, from top level down wards possesses some authority to secure cooperation from sub-ordinates. Responsibility means accountability. It is the obligation towards the job. People often seek authority, but fear responsibility.
Delegation
Delegation is the assignment of formal authority and responsibility to another person for carrying specific activities. The delegation of authority by managers to employees is necessary for efficient functioning of any organization because no manager can personally accomplish or completely supervise all of what happens at an organization. The following are guidelines for effective delegation: 1) Tasks should be assigned in terms of results expected from a position. 2) There should be parity of authority and responsibility. 3) There should be well-defined clarification of limits of authority. 4) Command, orders or guidance should always flow to a sub-ordinate from one delegating superior.
5) There should be open communication between sub-ordinate and delegating superior. Decentralization and Centralization
Decentralization is the tendency to disperse formal authority. Centralization, on the other hand, is the concentration of authority. In a relatively decentralized organization, considerable authority and accountability are passed down the organizational hierarchy. In a relatively centralized organization, considerable authority and accountability remain at the top of the hierarchy.
Advantages of Decentralization 1) Unburdening of top managers. 2) Better decision-making. 3) Better training, morale, and initiative at lower levels.
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4) Promotes development of general managers. 5) Facilitates product diversification. 6) More flexibility.
Disadvantages of Decentralization 1) Makes it more difficult to have a uniform policy. 2) Extensive decentralization may lead to loss of control. 3) Complexity of co-ordination of organizational units. 4) Can be limited by the availability of qualified managers. 5) Decentralization usually entails bringing in additional staff. 6) More expensive.
Management Information Systems (MIS)

Management information system (MIS) is a combination of human and computer based method of supplying accurate and timely information to the management for decision making and to carry out the managerial functions effectively.
Need for MIS

1) Information flow is a must for economic and effective control of inventory, production cost, scheduling, management decisions, etc. 2) Reduces uncertainty in decision-making. This is essential for survival of an organization in the present day situation.
Business
Business may be defined as an activity in which different persons exchange something of value, whether goods or service, for mutual gain or profit.
Forms of business Organizations

The organizational pattern of the firms on the basis of their ownership can be classified as follows: 1) Private sector a) Single ownership b) Partnership c) Joint stock companies (i) Private limited companies (ii) Public limited companies d) Co-operative organizations 2) Public sector a) Departmental organizations b) Public corporations c) Government companies 3) Joint sector
Private sector
Private sector organization, as the name indicates, are exclusively owned by private individuals. The efficiency of the private sector organizations is usually very high compared to organizations from any other sector. The important forms of the private sector organizations are:
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1) Single ownership 2) Partnership 3) Joint stock companies 4) Cooperate organization
Single Ownership
Single ownership is a form of business organization, which is owned and controlled by a single individual. Also known as sole proprietorship, it is the oldest and simplest form of business organization. In this form of organization, an individual introduces his own capital, uses his own skill and intelligence in the management of its affairs and is solely responsible for the results of its operation. The sole proprietor may have any number of persons working for him but they will be just paid employees or friends and relatives having no share in the ownership of the business. The sole proprietor enjoys full benefit in terms of profit earned by the business. However, he will be personally liable for all kinds of risks attached to his business. His liabilities will be unlimited. Advantages of Single ownership 1) Ease of formation and dissolution. 2) Direct relationship between effort and reward serves as a powerful incentive to the proprietor to manage the concern efficiently. 3) Ease of coordination. 4) Promptness in decision-making. 5) Flexibility in management. 6) Secrecy of the affairs of business can be maintained. 7) Freedom from government regulations. Disadvantages of Single Ownership 1) The amount of capital that can be invested is limited, therefore, rendering it unsuitable for modern business. 2) All the qualities required for success in business are rarely found in a single person. 3) The liability of the sole proprietor will be unlimited. 4) Uncertainty of duration as the firm may cease to exist with the death of the proprietor.
Partnership
Indian partnership act defines partnership as the relation between persons who have agreed to share profits of a business carried on by all or any of them acting for all. The sharing of profits is the basis for defining partnership. The contribution of the partners in running the business need not be same. The minimum number of partners is two and the upper limit is ten for banking business and twenty for general business as per the Indian Companies act. The partnership is created by mutual consent and voluntary agreement. Registration of a business under partnership is essential under shops and establishment act in order to take legal help in enforcing the terms of agreement on the partners. Every partner has an unlimited liability in respect of the firms debt and limitation of the liability through mutual agreement is not possible legally under partnership. There is a category of partnership, which is prevalent in western countries known as limited partnership. In this case there are two classes of partners special and general. The liability of special (or limited) partners is limited to the extent of his investment, and that of general partners is unlimited. In a limited
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partnership there must be at least one general partner whose liability is unlimited. In India the law does not recognize this type of partnership. There are many types of partners depending upon their specific role in business. There are active partners who bring in capital and take active interest in the conduct of the business. There are sleeping partners who bring in capital but do not take active interest in the conduct of the business. Such partners after
contributing their share of capital wake up only either to share the profits or to liquidate the business. There are nominal partners who lend their reputed name for the companys reputation without contributing any capital or without any active interest in the conduct of the business. Legally, however, such partners are equally
responsible for the liabilities of the firm. There are secret partners who bring in capital and take part in the conduct of the business but no where their names appear. There are minor partners who are below eighteen years of age and associated with the business. Such partners have limited liability. Advantages of Partnership 1) Ease of formation as there are very little legal formalities. 2) Larger financial resources as compared to single ownership. 3) Balanced judgment as the partners possesses various sorts of talent, expertise and experience. 4) Adequate credit availability because of unlimited liabilities of the partners. 5) Flexibility of operation. 6) Secrecy in business. 7) Losses, if any, are shared by the partners. Disadvantages of Partnership 1) Unlimited liabilities of each partner. 2) All partners suffer because of the wrong steps taken by any of the partners. 3) Uncertain life as partnership may dissolve by death or insolvency of a partner. 4) Lack of public confidence as the affairs of the business are kept secret and the accounts is not published. 5) Non-transferability or restricted transferability of the partners interest in the business.
Joint Stock Company

The joint-stock company is the most important form of business organization. It is a voluntary association of individuals for profit, having a capital divided into transferable shares of different values. A joint stock company is a legal entity with a perpetual succession. The capital is raised by selling shares of different values and these shares are transferable. Persons who purchase the shares are called shareholders and these shareholders elect the managing body known as board of directors. The board of directors is responsible for policymaking, important financial and technical decisions and efficient working of the company. In this form of organization liability of the shareholder is limited to the amount of shares held by him and he is free from the responsibility of the debts and claims of the company beyond the value of shares. Because of this advantage all sections of the people are encouraged to contribute for the company. The shares of a joins-stock company are transferable. The Joint stock companies are of two main kinds: private limited company and public limited company.
13 Private Limited Company

A private limited company can be formed by a minimum of two persons and the maximum number of membership is limited to fifty. Transfer of shares is limited to members only and general public cannot be invited to subscribe the shares. Normally the members of a private limited company are friends and relatives. A private limited company need not make the prospectus, accounts and other particulars open to public. The members only are entitled to receive a copy of the balance sheet and profit loss accounts yearly along with the auditors report. The government also does not interfere on the working of the company. A private limited company, while conferring the advantage of limited liability, allows a business to be privately owned and managed.
Public Limited Company

A public limited company is one whose membership is open to general public. The minimum number of shareholders required to from such a company is seven, but there is no upper limit. The public limited companies can advertise to offer its share to general public through a prospectus and there is no restriction on the transfer of shares. These companies are subjected to greater degree of legal control. This control is necessary to protect the interest of the shareholders and the members of the public. The affairs of the public limited company should be made open to public by publishing in leading newspapers. Advantages of Joint Stock Companies 1) Availability of large capital. 2) Limited liability. 3) Not affected by the death or retirement. 4) Risk of loss is divided among the shareholders. 5) Ease of expansion. 6) Services of specialists can be obtained. 7) Cheaper and better production because of large-scale production with the use of modern technology, which the company can afford. Disadvantages of Joint-Stock Companies 1) Lack of personal interest on the part of the salaried manager can lead to inefficiency and waste. 2) Board of directors and managers who have intimate knowledge of the financial position of the company may purchase or sell the shares accordingly for their personal profits. 3) Requires a great deal of legal formalities to be observed. 4) Difficult to maintain secrecy. 5) Few shareholders having greater number of shares may secure control over the company 6) Slow decision-making.
Cooperative Organization or Cooperative Society

A cooperative society is a form of organization where people associate voluntarily and on the basis of equality for the furtherance of their common economic interest. Consumers cooperative societies, cooperative credit societies, cooperative farming societies and cooperative housing societies are some examples of this type of organizations. The primary motive of a cooperative society is to provide maximum service to its members and not to make profits. This does not, however, mean that a co-operative does not work for profit at all. There are several societies engaged in business activities, which earn reasonably good profits while providing service to their
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members as well as to non-members. Whatever is the profit, it will be partly distributed as bonus to its members. A cooperative society raises its capital from its members in the form of share capital and a fixed rate of return is paid on the capital subscribed by each members. The shares of a cooperative are not transferable. The management of a cooperative is run by a managing committee elected by members on the basis of one member one vote irrespective of the number of shares held by members. The general body of members decides the broad policy framework and guidelines, which the managing committee is required to follow. A cooperative society is required to be registered under the cooperative societies act. It has a perpetual succession, which is not affected by entry or exit of members. Advantages of the Cooperative Society 1) Democratic management. 2) Limited liability. 3) The life of a cooperative society is not affected by the death or insolvency of a member. 4) Ease of coordination because of the cooperation among the members of the society. 5) Monetary help can be secured from government. 6) Helps development of moral character. Disadvantages of the Cooperative Society 1) Limitation of capital. 2) Excessive government regulation. 3) Lack of secrecy. 4) Insufficient motivation. 5) Inefficiency of management as the members generally lacks technical knowledge and may not be competent enough.
Public Sector
Public sector companies are established by the government to produce and supply goods and services required by the society. Public sector prevents the economic unbalance in the nation. It also serves as a means to obstruct the monopolistic tendencies. The important forms of public sector organizations are: 1) Departmental organizations 2) Public corporations 3) Government companies Public sectors are accountable in terms of their results to parliament and state legislature.
Departmental Organizations
Departmental organizations are organized like any other government departments. A top executive appointed by the ministry concerned will manage the organization. Defense industries, etc. are examples of this type of organization. In certain organizations cooperation from several ministries may be required and in such cases a board or committee of representatives from the ministries concerned will manage the organization. Chambal Control Board, All India Handloom Board, etc. are examples of organizations managed by inter-departmental committee or board. The Posts and Telegraphs, railways,
Public Corporations
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A public corporation is usually established by a special act of the parliament or state legislature with internal autonomy. Special statue also prescribes its management pattern, powers, duties and jurisdiction. Though the total capital is provided by the government, they have separate entity and enjoy independence in matters related to appointment, promotions etc. Public service rather than profit maximization becomes the main aim of such corporations. The industrial finance corporation, the Life Insurance Corporation, etc are examples of public corporations.
Government Companies
A government company, according to the Indian companies act, 1956, is any company in which not less than 51% of the share capital is owned by the Central Government or by any state government or governments, or partly by the Central government and partly by one or more state governments. It is organized in the form of a joint stock company. Hindustan machine tools ltd., Hindustan Aircrafts Ltd., Hindustan shipyard Ltd., etc are examples of this type which are owned by the government and also be joint stock companies. These companies are managed by elected board of directors. In its day-to-day working it is free from government interference. However, bureau of public enterprises can issue guidance and directions. Advantages of Public Sector 1) Helps for the betterment of the community and for the welfare of the people. 2) Facilities like power, transport, credit, and insurance, etc are easily made available to public sector units. 3) Because of the government control economical and social objectives can easily be achieved. 4) Provides better working conditions to the employees and cheaper and better products and services to the customers. 5) Encourages industrial growth of under-developed regions in the country 6) Provides employment opportunities to all sections of the people. 7) Prevents monopolistic tendencies and paves the way for equitable distribution of wealth among different sections of the community Disadvantages of Public Sector 1) Because of bureaucratic control generally timely decisions are not taken. 2) Lack of initiative among workers because promotions are seniority based rather than merit based. 3) Too much of interference by the political leaders and government in the internal affairs of public sector units. 4) Misuse of excessive freedom (compared to private concerns) cannot be ruled out. 5) Inadequate accountability. 6) Government officials prefer to work according to certain rules and regulations and therefore lesser flexibility. 7) Incompetent persons may occupy high levels.
Joint Sector
The concept of joint-sector implies the participation of both the government and the private sector in the share capital and general management of the business. It combines the best aspects of both private sector and public sector organizations and aims at achieving the task of social justice through efficient use of resources. Joint sector firms can be a pure Indian firm or an Indian firm with foreign collaboration. In the former case the share capital by the government, private investor and the investing public including financial institutions
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should be in the ratio 26:25:49 and in the latter case the contribution of the government, private investor, foreign collaborator and the investing public including financial institutions should be in the ratio 25:20:20:35. In either case the government and financial institutions can own not more than 50% of the equity together, and a single private investor is not allowed to hold more than 25% of the paid-up capital without the permission of the government of India. Advantages of Joint Sector 1) Helps to foster the industrial development with social justice. 2) Checks business malpractices. 3) Antidose to monopoly and concentration of economic power. 4) Combines the best aspects of both private sector and public sector organizations. 5) Makes nationalization unnecessary. Limitations of Joint Sector 1) Lack of confidence between two sectors. 2) Managerial autonomy making the owners passive in business. 3) Inadequate accountability.
Shares
The capital of a company will be divided into units called shares. The holders of shares in a public company are entitled to transfer their shares in the manner prescribed by the articles of the company. There may be different classes of shares with different rights, but all enjoying limited liability.
Types of Shares
A public company is entitled to issued two classes of shares. Viz. preference shares and Equity or Ordinary shares.
1. Preference Shares
Preference shares, as the name implies have some preferential rights over other types of shares. E.g., dividend is first paid on Preference shares and then on ordinary shares. Preference shares are entitled to a fixed dividend out of the profit. Preference shares may be further classified as : a) Cumulative Preference Shares: They are entitled to a fixed annual dividend. If this full dividend cannot be paid in any year (because of less profits to company), the rest or deficit can be paid out of future profits. b) Non Cumulative preference shares: They are entitled to a fixed annual dividend, but the share holders cannot ask for arrears from future profits if any year the company fails to make enough profits to pay fixed dividends for the year. c) Participating preference shares: In addition to the fixed dividend, preference share holders may sometimes have a right to participate in surplus profits of the company if provided by the Articles. Such preference shares. d) Redeemable Preference Shares: Ordinarily, the share capital of a company is not refunded except at the time of winding up. But under section 80 of the companies act, Companies are given power, subject to their articles, to issue a type of shares called Redeemable Preference Shares which are liable to be redeemed or returned after the expiry of a stipulated period whether the company is to be wound up or not.
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These are shares having no special rights. The holders of equity shares participate in the profits available after all preferential rights have been fully satisfied. They are not entitled to any fixed dividend and hence their income varies from year to year. i.e., Ordinary share holders may get very high rewards in one prosperous year of increased business and no dividend if the business encounters a difficult period.
Debentures
A debenture is an instrument issued under the seal of the company acknowledging its debt to the holder. A public company may issue debentures when it wants to borrow money for extending its business without increasing its share capital. A debenture-holder differs from a share holder in various ways. A share holder is a part-owner of the company; a debenture-holder is merely a loan creditor. A share holder gets a share in the profits, called dividend, calculated on the capital invested by him; a debenture- holder receives interest on the money lent by him (Interest is paid whether the company runs in profit or loss). In the event of winding up of the company the debenture-holders are paid first. While the share holders get their dues after paying all the liabilities of the company.
Classes of Debentures
Debentures may be of different types depending upon the terms and conditions of their issue: a) Secured and Unsecured Debentures: Secured debentures are those which are issued with a specific charge on the property or assets of the company. They may be called mortgage debentures in the sense that the assets of the company remain mortgaged with the debenture holders. But there is not such security in the case of unsecured or naked debentures. A holder of an unsecured debenture is merely an ordinary creditor. b) Redeemable and Irredeemable Debentures: Redeemable debentures are those which are repayable on or after a fixed date. The entire issue is either paid off in one installment, or by stages, drawings number of debentures by lot. In the case of irredeemable debentures, however, no such provision is made as to their redemption. But the company may redeem then whenever it is in a position to do so. Otherwise they are irredeemable except in the event of a winding up or some serious default on the part of the company. c) Bearer and Registered debentures : Debentures fall into two broad categories on the basis of their transferability. The debentures which are transferable by simple delivery are called bearer debentures. Registered debentures are those which are registered in the books of the company. They cannot be transferred by simple delivery; every transfer must be registered with the company as in the case of shares.
Break Even Analysis (for a single product)

Any production activity consists of fixed cost F in the form of land, building, equipment etc. which is totally independent of volume of production. This cost is always accompanied with a variable cost which roughly varies in a direct proportion with Q (production level) and total cost is sum of these 2 components. The breakeven point corresponds to the production level at which the firm neither incurs a loss not enjoy a profit. At break-even point, Total cost = Revenue
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F + VQbep = PQbep = > Qbep = F / (P V) units Always efforts must be made to keep the break-even production level as low as possible and this can be achieved by 3 methods, namely (i) reducing fixed cost, F (ii) increasing selling price, P (iii) decreasing the variable cost, V.
Revenue, R=PQ
cost Bep Fixed Cost, F
Total Cost=F+VQ F = fixed cost V = variable cost per unit Q = level of production in units P = selling price of each unit R = revenue = PQ
QBep Quantity, Q
Fixed Costs Land Building Administrative cost Staff salaries Insurance
Variable Costs Material Cost Labour cost Spare parts cost Depreciation
Problem : The following data pertains to XYZ company. Fixed cost for the year 1995 - `96 = 800000 Rs. Variable cost per unit = 40 Rs. Selling price of each unit = 200 Rs. a) Find the break even point b) If the likely sales turnover for the next budget period is 1600000 Rs. Calculate the estimated profit. c) If the profit target of Rs. 600000 has been budgeted, compute the sales turnover required. Solution: a) Qbep = F/ (P V) = 800000 / (200 40) = 5000 units. Break-even point in terms of units is 5000 units and in terms of Rs. is 5000 x 200 = 1000000 Rs. b) Sales turn over (or revenue) = PQ = 1600000 Rs. => Q = 1600000 / 200 = 8000 units. Total cost = Fixed cost + variable cost = 800000 + 40 x 8000 = 1120000 Rs.
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Therefore, profit = 1600000 1120000 = 480000 Rs. c) Profit = Revenue expenses = PQ (F + VQ) => Profit = Q (P V) F = > Q = (Profit + F) / (P V) = 1400000 / 160 = 8750 units Therefore sales turnover = 8750 x selling price / unit = 8750 x 200 = 1750000 Rs. Problem : A company has an installed capacity to produce 20,000 units of a certain product. The fixed cost is Rs. 15 lakhs and the variable cost is Rs. 100 per unit. What should be the selling price if it is to break-even at 50 % capacity? What is the maximum profit that can be earned in a year? What will be the profit at 90 % capacity utilization? Hint : (i) Taking F = 15 lakhs, V = Rs. 100 and Qbep = 10000 units. calculate P. (ii) Using the calculated value of P, F = 15 lakhs, V = Rs. 100 and Q = 20000 units, calculate the maximum profit. (iii) Repeat the step (ii) by taking Q = 18,000 units in place of 20000 and calculate the profit.
Project Report or Feasibility Report

A project report or feasibility report is a written account of various activities to be undertaken by a firm and their technical, financial, commercial and social viabilities. The preparation of such a statement serves three important objectives: (i) (ii) It facilitates planning of business by setting guidelines for future action. It helps in procuring finance from various financial institutions and banks which ask for such detailed information before giving any assistance. (iii) It provides a frame work for the presentation of the information regarding business, required by the Government for granting licenses, etc. A project report, in order to be useful, should contain the following information. (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) A brief description of the project as introduction. Details of product and process. Details of market potential and location of industry. Requirements of plant and machinery, raw material, power, water and other inputs. Requirements of personnel. Estimation of Capital cost and working capital requirements. Nature of effluents and disposal. Analysis of profitability for the entire project. Implementation schedule.
(ix)
Technical and Economic Feasibility

The primary task of a lending institution before granting a term loan is to assure itself that the anticipated rise in the income of the borrowing unit would materialize, thus providing the necessary funds for repaying the loans according to the terms and conditions. The two main aspects of appraisal are: (i) technical feasibility and (ii) economic feasibility.
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Technical Feasibility
The examination of this aspect requires a detailed assessment of the goods and services needed for the project land, housing, transportation, raw materials, supplies, fuel, power, water, etc. The financial institution has to satisfy itself that these requirements are available. Where they are not domestically available and have to be imported. Conditions in the foreign market as well as government policy at home in terms of foreign exchange call for a review. The location of the project is highly relevant to its technical feasibility and hence special attention is paid to this feature. In fact, the accessibility to the various resources has meaning only with reference to location. Another important feature of technical feasibility relates to the type of technology to be adopted foe the project. In case new technical processes are adopted from abroad, attention is paid to the differences in conditions. The dangers of hasty adoption of new techniques are quite substantial in an
underdeveloped country. It is, therefore, desirable for lending institutions to make use of the services of technical personnel.
Economic Feasibility
This aspect relates to the determination of the extent of demand of the new product (of the new unit). Possible future changes in the volume and pattern of supply and demand will have to be estimated in order to assess the long term prospects of the industry as well as earning capacity of the unit. Projection or forecasting of demand is a complicated matter though of vital importance. In fact, the demand for a product is affected by a variety of factors and estimations of demand can never be wholly accurate or absolutely reliable; they can at best be considered as approximations.
Production Planning and Control

The highest efficiency in production is obtained by manufacturing the required quantity of product, of
the required quality, at the required time by the best and cheapest method. To attain this target, management employs production planning and control, the tool that coordinates all manufacturing activities. Production planning and control may be defined as the direction and coordination of the firms material and physical facilities toward attainment of pre-specified production goals, in the most efficient available way. In its capacity as the brain and the central nervous system of the production program, production planning and control is responsible for having available every part and assembly at the right time at the right place, in order to ascertain progress of operations according to predetermined time and place schedule. The functions of production, planning and control can be classified as follows: Forecasting Estimation of type, quantity and quality of the future work. Order writing Giving authority to one or more persons to undertake a particular job. Product design collection of information regarding specifications, bill of materials, drawings, etc. Process planning and Routing Finding the most economical process of doing a work and deciding how and where the work should be done. Material control It involves determining the requirements and control of materials. Tool control It involves determining the requirements and control of tools used. Loading Assignment of work to manpower, machinery, etc.
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Scheduling It is the time phase of loading and determines when and in what sequence the work will be carried out. It fixes the starting as well as the finishing time for the job. Dispatching It is the transition from planning to action phase. In this phase the worker is ordered to start the actual work. Progress reporting (i) Data regarding the job progress is collected. (ii) It is compared with the preset level of performance. Expediting Taking action if the progress reporting indicates a deviation of the plan from the originally set targets. Replanning Replanning of the whole affair becomes essential, in case expediting fails to bring the deviated plan to its actual path
I. Planning Phase
Prior planning
Active planning
Forecasting
Order writing
Product design
Process planning & routing
Material control
Tool Loading control
Scheduling
II. Action phase (Dispatching) III. Control phase
Progress reporting (data processing)
Corrective action
Expediting
Replanning
Gantt charts
These were developed by Henry L Gantt about half a century ago. Their purpose is to provide an immediate comparison between schedule and reality and this is achieved simply by marking on the schedule the actual progress of the work. There are several variations of Gantt charts, which can be adjusted to the specific circumstances prevailing in the plant.
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Item
Machine No. CX3.
Jan 1
- -
--
Cutting
Drilling DK1
A Gantt chart is illustrated in the above figure. It shows a sequence of production operations on the left hand side. Machines are identified by their code letters and numbers. Light bars show the scheduled starting and completion time of each operation by dates indicated at the top of the chart. Heavy bar lines indicate the status of progress on operations. Basic Production Processes The basic production processes may be classified as: 1. 2. 3. Continuous or mass production. Similar process or batch production. Job shop or Job-order production
Continuous or Mass Production Process. Mass production means the production of items on large scale, employing very specialized machines and processes. Examples of continuous or mass production processes are : a) Automobile manufacturing
b) Refining c) Toy manufacturing
d) Glass manufacturing The characteristics which distinguish this process are as follows: 1) The work performed is highly standardized. 2) The quantity of work performed or product produced is large. 3) The type of equipment used to perform the work is specially designed for that particular purpose. 4) Machinery is laid as per the sequence of production. 5) The materials handling equipment is usually built in to provide a smooth flow of work. 6) The in-process inventory is usually small in relation to output. 7) The workers skill is relatively low. In most activities only semi-skilled workers are required. 8) Supervision is relatively easy. 9) Job instructions are usually given only at the outset of the new job and few instructions are required thereafter. 10) The unit cost of the service or product produced is relatively low. 11) The initial planning must be extremely detailed and complete. 12) The overall production cycle time is greatly reduced. 13) Generally a higher equipment investment is required. 14) There is a small degree of flexibility.
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Similar Process or Batch Production In this method of operation, the work being performed is similar in nature from order to order, but not identical. Examples of activities of this type are: a) Shipping and receiving.
b) Packaging and packing in a mail-order house. c) Clothing manufacturing
d) Book printing e) Medical clinics.
The characteristics which distinguish the similar process are as follows: 1) Process and product planning is done for every batch. 2) The equipment is laid out by the type of end product. 3) The end-product inventory is relatively low. 4) Articles are manufactured in batches as per the specific order procured. 5) The cycle time is relatively short. 6) The materials handling equipment may be both mobile and permanent installation conveyor. 7) The product or end result of the work is highly standardized. 8) Relatively few job instructions are required because of the similarity of the work. 9) Control of the process is relatively easy because of the repetitiveness. 10) The balancing of the workload is relatively difficult because the work is laid out according to the end product of the work. Job Order Production The job order (job shop or intermittent) production is characterized by a wide diversity of end products. Examples of this type of activity are: a) Machine tool manufacturing
b) General Engineering c) Aircraft manufacturing
The characteristics which distinguish the job order, job shop or intermittent type of process are as follows: 1) The product or end result of the activity is non standard. 2) The order or work unit quantity is generally small. 3) The equipment, if any, is usually of the general purpose type. This permits its use for any job that comes through the activity. The objective of this is to obtain greater utilization of the equipment. 4) The equipment is usually arranged according to the type of work that is performed and not according to the sequence of operations on specific products. 5) Materials handling equipment is of the mobile type which can be used in many locations. 6) In-process inventory is relatively high. 7) A much higher levels of worker skill is required. 8) Supervision is generally difficult. 9) Product design is time consuming 10) Control of the work is relatively complex because every job must be individually controlled. 11) The cycle time to complete an order is relatively long. 12) Balancing the workload is relatively easier.
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13) The unit cost for the product or work produced is relatively high. 14) High degree of control is essential.
Inventory Control (Material Control)

Inventory is money kept in the store room in the form of raw material, in-process material and finished goods. Most of the production activities are engaged in modifying the material to create an end product. Since the material is the fundamental component of most activities it is extremely necessary for the production control system to provide planning and control of material so that right material (a good quality one) is available in right quantity at the right time. There are three major classes of inventory, namely 1) Raw materials and purchased spare parts. 2) In-process material which means semi finished goods. 3) Finished goods which are lying in stock room waiting for dispatch. Although inventory is an idle resource (money blocking) it is a must for smooth running of the organization. Material management basically deals with the following two problems: (i) (ii) The amount of material to be ordered (order quantity) When the material is to be ordered (ordering point).
Economic Order Quantity (EOQ)

The economic order quantity is the size of an inventory order which minimizes the inventory cost. The inventory cost is the sum of procurement cost and carrying cost. To determine EOQ two extreme views are encountered: (i) Order for very large lots (Produce in very large lots) to minimize the procurement cost (to minimize set up cost). (ii) Order for every small lots (produce in very small lots) to minimize the investment on stock (storage cost or carrying cost).
Cmin Total Cost Carrying Cost
Cost Procurement Cost EOQ Order Quantity
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The variation of procurement cost and carrying cost with order quantity is shown in the above figure and from the graph it can be seen that the condition for economical order quantity (EOQ), which minimizes the total inventory cost is: Procurement cost = Carrying cost. Purchasing Model with No Shortage Assumptions: 1) Fixed demand rate ( fixed production rate) 2) Instantaneous replacement (Lead time = 0) 3) No shortage is permitted.
q Average inventory=q/2 t t t t t
Let, C3 = procurement cost / order. (setup cost / order) r = demand rate in units / year. C1 = carrying cost / unit / year. (C1 is generally expressed as a fraction of cost of unit) q = quantity of units ordered at time t. Note: One year is considered as the unit time. No. of orders placed in a year = r / q. procurement cost / year = ( r / q ) C3 Total carrying cost / year = ( q / 2) C1 Inventory cost/ year, C = procurement cost / year + carrying cost / year = ( r / q ) C3 + ( q / 2) C1 To minimize C, dC / dq = 0. => - r (C3 / q2 ) + C1 / 2 = 0 2 C3 r / C1 - - - - (1)
=> q =
= EOQ
Substituting the value of EOQ in eq.(1) we get the minimum inventory cost as : Cmin = 2 C1C3 r Problem :
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A manufacturer has to supply his customers with 600 units of his products per year. Shortages are not allowed and the storage cost amounts to Rs. 0.60 / unit / year. The setup cost per run Rs. 80. Find the optimum run size, its number and the minimum yearly cost of inventory. Solution: C1 = Rs. 0.6/ unit/ year C3 = Rs. 80 / setup. r = 600 units / year. optimum run size = EOQ = 2 C3 r / C1 = 400 units. t = q / r = 400 / 600 = 2 / 3 year = 8 months minimum inventory cost = Cmin = 2 C1C3 r = Rs. 240 / year. The manufacturer has to produce 400 units of his products once in 8 months and the minimum inventory cost works out to be Rs. 240 / year. Problem: The storage cost of an item is Re.1 / month and the setup cost is 25 Rs. / run. If the production is instantaneous and the demand is 200 units / month find the optimum size of the batch and the best time for replenishment of inventory. Solution: C1 = Re. 1 / month C3 = Rs. 25 / run r = 200 units / month EOQ = 2 C3 r / C1 = 100 units
t = q / r = 100 / 200 = month = 15 days Minimum inventory cost = Cmin = 2 C1C3 r = Rs. 100 / month
The industry should replenish the inventory once in 15 days and the minimum inventory cost works out to be Rs. 100 / month. The optimum size of the batch is 100 units. Problem: You have to supply your customer with 100 units of a product every Monday. You obtain the product from a local supplier at Rs. 60 / unit. The cost of ordering and transporting is Rs. 150 per order. The cost of carrying inventory is estimated at 15 % per year of the cost of the product carried. Find the lot size that will minimize the cost of the system and determine the total cost that you incur per week. Solution: C 1 = 15 % of the cost of the product / year. = 0.15 x 60 = Rs. 9 / unit / year = Rs. 9 / 52 / unit / week C3 = Rs. 150 / order r = 100 / week Optimum lot size = EOQ = 2 C3 r / C1 = 416 units Minimum inventory cost = Cmin = 2 C1C3 r = Rs. 72 / week
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Total cost = inventory cost + demand rate x cost of the product / unit = 72 + 100 x 60 = Rs. 6072 / week. Problem: Calculate EOQ from the following data: Annual demand = 1600 units Cost of materials / unit = Rs. 40 /Cost of placing and receiving an order = Rs. 50 Annual carrying cost of inventory = 10 % of inventory value. Hint: Here r = 1600 units / year. C1 = 0.1 x 40 Rs./ unit / year C3 = Rs. 50 Formula for EOQ = 2 C3 r / C1
.
Production Model With No Shortage
Inventory
Rate of growing (k-r) Rate of consumption r
t1 t
t2 t
Time
The assumptions are the same as of the previous model except that replacement rate (manufacturing rate) is finite and is greater than the demand rate. Here each production cycle time t consists of 2 parts t1 and t2 where t1 is the period during which the stock is growing up at a rate of (k-r) items / unit time and t2 is the period during which there is no production but there is only a constant demand at the rate of r. Let Q be the stock available at the end of time t1 which is expected to be consumed during the remaining period t2 at the demand rate r and q be the quantity produced during the time period t1. Cost of inventory = (Q / 2) C1 + (r / q) C3 - - - - (1) As the quantity produced during the production period t1 is q and the quantity which is consumed during the same period t1 is rt1 , the remaining quantity which is stored during time t1 is given by Q = q rt1. Also from the above figure, k r = Q / t1 = > t1 = Q / (k - r) - - - - (3) Substituting the expression for t1 from eq. (3) in eq. (2) we get, Q = q - ( Q r ) / (k r) - - - - (2)
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Q = q (k r) / k - - - - (4) Substituting the expression for Q from eq. (4) in eq. (1) we get the cost of inventory as C = q C1 (k - r) / 2 k + r C3 / q To minimize C, dC / dq = 0 => (k r) C1 / 2 k - C3 r / q 2 = 0 => q= 2 k C3 r / (k r) C1 = EOQ. - - - - - (5)
Substituting the value of EOQ in Eq.(5) we get the minimum inventory cost Cmin = 2 C1 C3 r ( 1 r / k)
Problem: The demand for an item in a company is 18,000 per year and the company can produce the item at the rate of 3000 per month. The cost of one set up is Rs. 500 and the holding cost of one unit per month is 15Ps. Determine (i) the optimum manufacturing quantity (ii) the inventory cost per year (iii) the total annual cost. The cost of the item per unit is Rs.2. Solution: r = 18000 per year k = (3000 x 12 ) per year C1 = (015 x 12) per unit per year C3 = Rs. 500 per setup. EOQ = optimum manufacturing quantity = 2 k C3 r / (k r) C1 = 4470 units Minimum inventory cost = Cmin = 2 C1 C3 r ( 1 r / k)
= Rs. 4024 Total annual cost = 18000 x 2 + 4024 = Rs. 40026
Problem: A contractor has to supply 10000 bearing per day to an automobile manufacturer. He finds that when he starts a production run, he can produce 25000 bearing per day. The cost of holding a bearing in stock for 1 year is 20ps. And setup cost of production run is Rs. 180. Find the optimum production run size, assuming number of working days per year as 300. Hint: Here r = 10000 x 300 bearings / year k = 25000 x 300 bearing / year C1 = Rs. 0.2 / bearing / year C3 = Rs. 180 / run Use the same formula as used in the above problem.
Stores Management
Stores management takes care 1. 2. that the required material is never out of stock; to purchase materials on the principle of economic order quantity, so that the associated costs can be minimized. 3. to protect stores against damage, theft, etc.
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Types of stores
Stores can be of two types, namely Decentralized and Centralized Stores. In decentralized stores system, each section of the industry (e.g. foundry, machine shop, forging, etc.) has separate store attached with it, whereas in centralized stores system, the main store located centrally fulfills the needs for each and every department. Advantages of Centralization of Stores Better supervision and control It requires less personnel to manage and thus involves reduced related costs. Better layout of stores Minimum stores can be maintained Better security arrangements can be made
Advantages of Decentralization of Stores Reduced material handling and the associated cost. Convenient for very department to draw materials,. Less chances of production stoppages owing to easy and prompt availability of materials.
Bin Cards
A bin is an open-mouth container made of steel or wood. A bin card is a card attached to each bin or rack or shelf, used for storing materials and the like. The Bin Card shows details of quantities of each types of material received, issued and on hand each day. The store-keeper maintains bin cards up to date. A bin card is not considered as an accounting record; it simply informs store-keeper of the quantities of each item on hand. Bin cards may be in duplicates. One card is attached to the bin containing materials. The duplicate card remains with the store-keeper, on his table for ready reference. Bin card helps the store-keeper to know about the details of the stock of materials. When the quantity reaches a minimum value, he can place orders or requisitions for fresh supply of materials. Bin card may also have the following details: (a) The maximum and minimum quantity of each material to be carried out. (b) Normal quantity of each material to be ordered. (c) Ordering Level of the material. Bin cards may be in duplicates. One card is attached to the bin containing materials. The duplicate card remains with the store-keeper, on his table for ready reference. Bin card helps the store-keeper to know about the details of the stock of materials. When the quantity reaches a minimum value, he can place orders or requisitions for fresh supply of materials. Bin card may also have the following details: (c) The maximum and minimum quantity of each material to be carried out. (d) Normal quantity of each material to be ordered. (c) Ordering Level of the material.
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Following figure shows a BIN (or STOCK) CARD.
BIN CARD Bin No. .. Material . Code No. Stores Ledger Folio .. Date Quantity received Maximum Quantity . Ordering Level Minimum Quantity . Quantity issued Balance Remarks
Bin cards may be in duplicates. One card is attached to the bin containing materials. The duplicate card remains with the store-keeper, on his table for ready reference. Bin card helps the store-keeper to know about the details of the stock of materials. When the quantity reaches a minimum value, he can place orders or requisitions for fresh supply of materials. Bin card may also have the following details: (e) The maximum and minimum quantity of each material to be carried out. (f) Normal quantity of each material to be ordered. (d) Ordering Level of the material. Note: Stores Ledger is identical with Bin Card except that money values are shown
Human Resources Management (HRM)

Human Resources Management or Personnel Management is the management function that deals with recruitment, placement, training and development of organization members.
Objectives of Human Resources Management

The following are the duties and responsibilities or objectives of Human Resources Management. 1. 2. 3. 4. 5. 6. 7. 8. To make correct selection of employees and to fit right person in the job. To give opportunity for the maximum employee development. To achieve effective utilization of employees. To improve welfare of the employees. To maintain desirable working relations between employer and employees. To satisfy employees with good income, power, prestige etc. To ensure promotions to higher posts are given on merits and seniority. To preserve goodwill, morale and reputation of the organization.
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Functions of Human Resources Management

The following are the functions of human resources management. a) Procurement
b) Development c) Compensation
d) Integration and e) Maintenance.
a) Procurement This refers to the hiring of personnel the right people, in the right place, at right time. This functions deals with Man power planning Recruitment and selection Merit rating Promotions, Transfers, Demotions and Separations. b) Development This refers to the education and training of personnel. This gives opportunity to acquire the knowledge and skills. c) Compensation This deals with wage systems, monetary incentives and terms of employment. This function involves: Job Evaluation Profit sharing Gratuity Wages and rewards Pension Group Insurance.
d) Integration This is concerned with reconciliation of individual and organization goals. It deals with Handling of Grievances Negotiation with labour unions. Collective bargaining etc.
e) Maintenance This aims at maintaining good working conditions and favorable attitudes towards organization. It deals with Maintaining employees health Maintaining employees safety Maintaining satisfactory personal contacts and employees relationship. Maintaining employees welfare activities.
Recruitment and Selection

Recruitment is concerned with developing a pool of job candidates in line with the human resource plan. Candidates are usually located through newspaper and professional journal advertisements, employment agencies, word of mouth and visits to college and University Campuses.
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Selection is the mutual process whereby the organization decides whether or not to make a job offer and the candidate decides whether or not to accept it.
Steps in Selection Process

PROCEDURES 1. Completed job application 2. Initial screening interview 3. Testing PURPOSES Indicates applicants desired position; provides information for interviews Provides a quick evaluation of applicants suitability Measures applicants job skills and the ability to learn on the job. Checks truthfulness of applicants resume or application form Finds out more about the applicant as an individual Ensures effective performance by applicant; protects other employees against diseases, establishes health record on applicant; protects firm against unjust workers compensation claims. Fills a job vacancy or position ACTIONS AND TRENDS Requests only information that predicts success in the job Asks questions on experience, salary expectation, willingness to relocate etc. May include computer testing software, handwriting analysis, mental and physical ability. Calls the applicants previous supervisor (with permission) and confirms information from applicant. Conducted by the manager to whom the applicant will report. Often performed by companys medical order.
4. Background investigation 5. In-depth selection interview 6. Physical examination
7. Job offer
Offers a salary plus benefit package.
The standard hiring sequence is the seven-step procedure described in the above table. In practice, however, the actual selection process varies with different organizations and between levels ion the same organization.
Workers or Operators Training

Training enables a new employee to acquire necessary knowledge and skill to do the job effectively and the most common types of training given to workers are: on the job training methods, including job rotation, in which the employee, over a period of time, works on a series of jobs, there by learning a broad variety of skills; internship in which job training is combined with related class room instructions and apprenticeship in which the employee is trained under the guidance of a highly skilled co-worker. Off the job training takes place outside the workplace but attempts to simulate actual working conditions. This type of training includes vestibule training in which employees train on the actual equipment and in a realistic job setting but in a room different from the one in which they will be working. The object is to avoid the on the job pressures that might interfere with the learning process. In behaviorally experienced training, activities such as simulation exercises, business games and problem-centered cases are employed so that the trainee can learn the behavior appropriate for the job through role playing. Off the job training may focus on the classroom with seminars, lectures and films or it may involve computer-assisted instruction (CAI), which can both reduce the time needed for training and provide more help for individual trainees.
Management Development
Management development is a systematic, integrated and planned approach to improving the overall effectiveness of managers in their present positions and to prepare them for greater responsibility when they are
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promoted. Management development programs enable the managers to cope with new demands, new problems and new challenges.
Approaches to management Development: on-thejob methods

On-the-job methods enable the trainees to learn as they contribute to the aims of the enterprise. There are four major formal on-the-job development methods. 1. Coaching Coaching is the training of an employee by his of her immediate supervisor and is by far the most effective management development technique. Effective coaches will develop the strengths and potentials of
subordinates and help them overcome their weakness. 2. Job Rotation Job rotation involves shifting managers from position to position so that they can broaden the knowledge. 3. Creation of Assistant-to Positions Assistant-to positions are frequently created to enable the trainees to work under experienced managers who can give special attention to the developmental needs of trainees. 4. Planned work Activities Trainees are given important work assignments to develop their experience and ability. Trainees may be asked to head a task force or participate in an important committee meeting. Such experiences help them to
understand how organizations operate and also improve their human relations skill. Approaches to Management Development: Off-the-job Methods Off-the-job development techniques remove individuals from the stresses and ongoing demands of the workplace, enabling them to focus fully on the learning experience. There are three common off-the-job development methods: 1. Classroom Instructions In this approach specialists from inside or outside the organization teach trainees a particular subject. Classroom instruction is often supplemented with business games and experimental exercises. 2. University Management Programs Besides offering undergraduate and graduate degrees in business administration many universities now conduct management development programs. These programs may range in length from a week to three months or more. Some universities also have full graduate curriculum or even programs custom-designed for the needs of individual companies. developments. 3. Planned Readings Another approach to development is planned reading of relevant and current management literature. The training department may aid a manger by providing a list of valuable books. development. This is essentially a selfThese university programs expose managers to theories, principles and new
Industrial Psychology
Industrial psychology is the study of men at work as individuals and in groups and of the relationship between individuals and groups. It is obvious that while enterprise objectives may differ somewhat in various organizations, the individuals involved also have needs and objectives that are especially important to them. Through the function
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of leading, managers help people see that they can satisfy their own needs and utilize their potential and at the same time contribute to the aims of an enterprise. Managers thus require an understanding of the roles assumed by people, the individuality of people and the personalities of people. Behavioral Models In order to understand the complexity of people, writers on management have developed several models. Managers, whether they consciously know it or not, have in mind a model of individual and
organizational behavior that is based on assumptions about people. These assumptions and their related theories influence managerial behavior.
Mc Gregors Theory X and Theory Y

One of the views about the nature of the people has been expressed in two sets of assumptions developed by Douglas Mc Gregor and commonly known as Theory X and Theory Y. Managing , Mc Gregor suggested, must start with the basic question of how managers see themselves in relation to others. This view point requires some thought on the perception of human nature. Theory X and Theory Y are two sets of assumptions about the nature of people. Mc Gregor chose these terms because he wanted neutral terminology without any connotation of being good or bad.
Theory X assumptions.
The traditional assumptions about the nature of people, according to Mc Gregor, are included in Theory X as follows: 1. Average human beings have an inherent dislike of work and will avoid it if they can. 2. Because of this human characteristic of disliking work, most people must be coerced, controlled, directed and threatened with punishment to get them to put forth adequate effort toward the achievement of organizational objectives. 3. Average human beings prefer to be directed, wish to avoid responsibility, have relatively little ambition and want security above all
Theory Y assumptions
The assumptions under theory Y are seen by Mc Gregor as follows: 1. The expenditure of physical effort and mental effort in work is as natural as play or rest. 2. External control and the threat of punishment are not the only means for producing effort toward
organizational objectives. People will exercise self direction and self-control in the service of objectives to which they are committed. 3. The degree of commitment to objectives is in proportion to the size of the rewards associated with their achievement. 4. Average human beings learn, under proper conditions, not only to accept responsibility but also to seek it. 5. The capacity to exercise a relatively high degree of imagination, ingenuity and creativity in the solution of organizational problems is widely, not narrowly, distributed in the population. 6. Under the conditions of modern industrial life, the intellectual potentialities of the average human being are only partially utilized. These two sets of assumptions obviously are fundamentally different. Theory X is pessimistic, static and rigid. Control is primarily external, that is, imposed on the subordinate by the superior. In contrast, theory Y is optimistic, dynamic and flexible with an emphasis on self-direction and the integration of individual needs
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with organizational demands. There is little doubt that each set of assumptions will affect the way managers carry out their managerial functions and activities.
Maslows Hierarchy of Needs Theory

One of the most widely mentioned theories of motivation is the hierarchy of needs theory put forth by psychologist Abraham Maslow. Maslow postulated that people would work to satisfy needs, but in a
hierarchical order of importance, with each lower-level need to be satisfied before working to satisfy a higherlevel need. The basic needs in an ascending order of importance are as follows: 1. Physiological needs, i.e., food, shelter, basic survival. In an industrial economy this translates into minimum subsistence earning. 2. Safety needs, i.e., to remain employed at a subsistence level, once it is achieved. 3. 4. 4. Social needs, i.e., to belong to a group and be accepted. Ego needs, i.e., self-respect and the respect from others. Self fulfillment needs, i.e., creativity and self-expression.
Health, Safety, and Welfare

Such general matters as occupational health and accident prevention regulations and services; special regulations for hazardous occupations such as mining, construction, and dock work; and provisions concerning such health and safety risks as poisons, dangerous machinery, dust, noise, vibration , and radiation constitute the health, safety, and welfare category of labor law. The efforts of organized safety movements and the progress of occupational medicine have produced comprehensive occupational health and accident prevention services and regulations no longer limited to a few specially acute risks but covering the full range of dangers arising from modern industrial processes. Major developments include increased concern with wide spread use of chemicals and increasing provision for welfare facilities related to employment, including feeding, rest, recreation, and transport facilities.
Marketing management and its functions

Marketing Management is the analysis, planning, implementation and control of programes designed to bring about desired exchanges with target markets for the purpose of achieving objectives of the organization. The broad functions of marketing management consist of the following: 1) 2) 3) 4) 5) 6) 7) 8) Marketing Research Sales Forecasting Advertising Sales Promotion Selling Handling of enquiries and orders from customers Packaging and Servicing.
Marketing Research:
Marketing research is the systematic, objective and exhaustive search for and study of the facts relevant to any problems in the field of marketing.
Market Research Techniques

a) Desk Research : The data is collected from the information published by the company or outside sources. E.g., government agencies, trade associations etc. Desk research is done on:
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(i) Sales analysis i.e., past sales, fluctuations, sales and promotional expenditures, economics of order size, etc. (ii) Correlation studies, concerned with finding the relationship between two or more variables, e.g. number of new cars produced and the number of car batteries sold. etc. (iii) Ratios, such as stock-turn (the relationship between sales and stocks), profit per rupee invested (earnings / capital) etc. b) Postal Questionnaire : Carefully prepared questionnaires (short, specific and statistical or open minded) are posted to a selected sample of respondents for collecting specific data from them. c) Telephone Interviews : Telephone interviews are conducted at a personal level with a selected sample or people for collecting their views. d) Personal Interviews : Personal interviews are conducted on a simple question and answer basis. Such interviews are found to give best results. e) Observational Method : The marketing research personnel silently observes others and collects the desired information. e.g., by standing outside or in a Wine shop, the brands more frequently purchased can be found out. f) Statistical Methods : Statistical methods make use of large pre collected data and logically conclude the market investigations.
Sales Forecasting
Forecasting is essentially the art of anticipating what buyers are likely to do under a given set of conditions. The following are the different methods of sales forecasting. a) Historic estimate : This technique makes use of the assumption that what happened in the past will happen in future. For example, if a concern has sold 5000 blankets in winter last year, it will be able to sell the same quantity in winter this year also. Historic estimate is useful if the activity is affected by pattern of seasonality. Historic estimate is not scientifically valid and thus it is not an accurate method; the total sales forecast provided by this method should be modified by other techniques. b) Sales force estimate : This technique is based upon the principle that the persons in contact with the market know best about the future market trends. Individual salesmen make sales estimates of their territories and submit it with the District Sales manager who analyzes it, modifies it and sends the same to Factory Sales Manager. Factory Sales Manager in consultation with other related factory executives formulates the final estimate of sales. c) Trend Line Technique : Trend Line Technique is employed when there is an appreciable amount of historical data. This technique involves plotting historical data between activity indicator (say past sales) on Y-axis and time on X-axis. A single best fitting line (using statistical technique and as shown in the following figure) is drawn and projected to show sales estimate for the future.
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50
Sales in millions of dollars Regression Line
Year number
d) Market Survey : This technique finds application when a concern introduces a new product in the
market and is interested to estimate its sales forecast. For a new product, naturally, no historic or past data regarding sales will be available. This technique may be very informal, utilizing the sales force to feel out the potential customers in order to establish the extent of the market or it may be a systematically conducted survey using special mathematical tools. Generally, the new product is introduced in a relatively small critical trial area, market reaction is noted and the nation wide total sales is projected from these results. Correlation Technique: This technique makes use of cause-and-effect relationship between sales and some other phenomena that are related to sales. This technique is employed when an organization finds that the sale of its product has a remarkable relationship with the sales of a leading product of another organization e.g., sales of an automobile replacement batteries is correlated with the sale of new cars, or number of clutch plates sold is correlated with the number of trucks produced. Prior Knowledge : This is made use of by ancillary units which are more or less a part of the large organization. The large organization informs each ancillary unit how many component parts to make. g) Judgmental Techniques : These involve (i) Opinions of consumers and customers: Questionnaires related to buying the product may be send to a selected group of consumers and customers who have already purchased the product. The
information thus received can be very useful in estimating product performance and its probable demand in future. (ii) Retail and Wholesale dealers can provide some insight into the pace of current and future sales. (iii) The opinion of area sales managers can also be quite useful.
Advertising
In practice, product design is a result of some sort of compromise between infinite variety on one hand and the designers concept of the ideal design on the other. In order to try selling this compromise to potential customers, management resorts to an advertising campaign the policy of which is dependent on the characteristics of the compromised design and on how far it conforms or differs from, the expressed desires of the market to which such a campaign is directed. Generally, the main objective of advertising is to expand the market, this being achieved by: Providing general information about the existence of the product.
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Providing technical information about its functional characteristics or utilitarian purposes. Drawing the customers attention to those attributes of the product which he wants. Winning undecided customers by exhibiting possible attractions (such as color, design, novelty and price) that may persuade him to prefer the product to one offered by competitors. Creating demand among a passive population of customers. Educating the customer, or telling him what he should want. Apart from these direct techniques, management may have some additional aims such as increasing the prestige of the firm as a whole, banking on the popularity of one product to strengthen or introduce another or to publicize one aspect of the firms activity for the purpose of raising money or deviating attention from other activities and so on. Once the design features of a product have been ascertained, appropriate advertising methods can be selected.
Sales Promotion
All the activities that go into the development of sales or those that are intended to raise the demand level for a product very quickly can be grouped under the title sales promotion. The whole idea behind sales promotion is to bring the name of product and that of the manufacturer constantly before wholesalers, retailers and the consumers in order to stimulate the interest in the product. Methods of Sales Promotion. Sales promotion can be achieved by resorting to the following: (i) Consumer Promotion: Persuading consumers to buy; these include samples, money refund offers, prices-off, trading stamps, contest and competitions, etc. (ii) Trade Promotion: Giving incentives to distributors and others to hold stocks of company products. These incentives include special discounts, one or two free units per bulk container, dealer competitions etc. (iii) Sales Force Promotion: Offering bonuses, contests etc. for the salesmen. (iv) Good Public Relations: Developing goodwill among general public and boosting sales. Every proposed business policy should first be analyzed in terms of its effect upon the company image. (v) Display: Displays at the point of sale, using posters, banners, placards and leaflets, to attract the customers attention to the product. (vi) Good Customer Relations: Good customer relations are basically the result of their past transactions with the company. Speedy handling of complaint, assistance in emergencies, abiding by announced policies, etc. all develop good customer relations and increase future sale of company products. (vii) Product exhibitions, demonstrations, and conferences. (viii) Latest product styling and appealing product packaging catch the eye of the consumer and develop sales volume.
Budget and Budgetary Control

Budgets are formal quantitative statements of the resources set aside for carrying out planned activities over given periods of time. As such, they are widely used means for planning and controlling activities at every level of the organization. There are a number of reasons for their wide range. First, budgets are stated in monetary terms, which are easily used as a common denominator for a wide variety of organizational activities hiring and training personnel, purchasing equipment, manufacturing, advertising and selling. Second, the monetary aspects of budgets means that they can directly convey
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information on a key organizational resource capital and on a key organizational goal profit. They are, therefore, heavily favored by profit-oriented companies. Third, budgets establish clear and unambiguous standards of performance for a set time period usually a year. At stated intervals during that time period, actual performance will be compared directly with the budget. Deviations can be detected quickly and acted upon. In addition to being a major control device, budgets are one of the major means of co-coordinating the activities of the organization. The interaction between managers and subordinates that takes place during the budget development process will help define and integrate the activities of the organization members.
Types of Budgets
Organization Budgets can be classified as follows:
Organization Budgets
Operating Budgets
Financial Budgets
Expense Budgets Revenue Budgets
Profit Budgets
Engineered Discretionary Cost Budgets Cost Budgets.

Operating Budget : Budget indicating the goods and services the organization expects to consume in a budget period. Financial Budget : Budget detailing the money expected to be spent during the budget period and indicating its sources. Expense Budget : Budget explaining where money was applied. Engineered Cost Budget : Type of expense budget that describes material and labour cost of each item produced, including estimated overhead costs. Discretionary Cost Budget : Type of expense budget that is used for departments in which output cannot be accurately measured. Revenue Budget : Budget for projected sales revenue, used to measure marketing and sales effectiveness. Profit Budget or Master Budget : Budget combining expense and revenue budgets in one unit.
Allocation of Overheads
Manufacturing Costs or Operating Costs are equal to the direct production costs + fixed charges + plant overhead costs and the overhead cost refers to any costs not specifically or directly associated with the production of identifiable goods or services. Therefore in order to calculate the total cost of the product it is necessary to assign the overhead to the product.
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If an industry is making only one product, a uniform charge for overhead may be possible. But if a number of different products are being manufactured, an equitable base must be sought out to charge each product with a fair and reasonable share of the overhead cost, so that the total cost of each unit may be calculated. The following are the different methods for the allocation of overheads : A) Direct Material Cost Method Overhead for an item = Factory overhead x Direct material cost of the item concerned Total Direct material cost B) Direct Material Cost Method Overhead for an item = Factory overhead x Direct labour cost of the item concerned Total Direct labour cost C) Prime Cost Method Overhead for an item = Factory overhead x Prime Cost of the item concerned Total Prime Cost Note: Prime cost = direct material cost + direct labour cost D) Labour Hour Rate Method Overhead for an item = Rate per hr of direct labour x Labour hours associated with the item concerned Rate per hour of direct labour = Factory overhead / total direct labour hours. E) Machine Hour rate Method Overhead for an item = Factory overhead x Machine hour associated with the concerned item Total Machine Hours
F) Production Unit Method Overhead associated with a production order = Factory overhead x No. of units produced as per the production order Total production in terms of units. Problem : A company produces two items A and B and the details are as given below: Item A B No. produced / year 20000 15000 Material Cost / unit (Rs.) 200 350 Labour cost/ unit (Rs.) 100 150
The companys overhead per year is Rs. 5000000. Allocate the overhead and find the total cost per unit for A and B using the following methods. (i) Proportional to material cost
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(ii) Proportional to labour cost (iii) Proportional to Material and Labour cost Solution : (i) Overhead for item A based on material cost = (5000000) x ( 200 x 20000) / (200 x 20000 + 350 x 15000) = 2162162.1 Rs. Overhead for item A per unit = 2162162.1 / 20000 = 108.10 Rs. Total cost osf item A per unit = Material = 200 + 100 + 108.1 = 408.1 Rs. cost + Labour cost + Overhead cost
Overhead for item B based on material cost = (5000000) x ( 350 x 15000) / (200 x 20000 + 350 x 15000) = 2837837.8 Rs. Overhead for item B per unit = 2837837.8 / 15000 = 189.189 Rs. Total cost of item B per unit = Material = 350 + 150 + 189.189 = 689.189 Rs. cost + Labour cost + Overhead cost
Part (ii) and Part (iii) of the above question can be done on similar lines.
Problem: A fabrication and assembly shop had its total overheads of Rs. 10000. It used direct material worth Rs. 10000 and paid Rs. 15000 as direct labour charges. Calculate the percentage overhead. If one product has its prime cost as Rs. 5000 determine the overheads or on cost related to it.
Solution : Overhead for the item = Factory overhead x Prime cost for the item concerned Total Prime cost In the above equation, factory overhead / total prime cost is called as the percentage overhead. Therefore, the percentage overhead
prime cost of the item will give the overhead for the item.
Total Prime cost = 10,000 + 15000 = 25000 Rs. Therefore percentage overhead = 10000 / 25000 = 0.4 or 40 % Overhead for the product concerned = 1000 x 5000 / 25000 = 2000 Rs. Problem : A fitting and assembly shop had its factory overheads of Rs. 12000 and the production for the period in terms of direct labour was 24000 hours. If a particular job takes 20 labour hours, calculate the overhead applied. Solution: Overhead applied = 12000 x 20 / 24000 = 10 Rs. Problem : A particular machine shop had its factory overheads of Rs. 16200 and has 10 lathes, 2 shapers and 3 milling machines. All these machines were operated for a period of 1000 hrs. Calculate the machine hour rate for lathes.
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Overhead for the item = Factory overhead x Machine hr. associated with the concerned item Machine Hours Here, factory overhead / machine hours is called as the machine hour rate and therefore, machine hour rates for lathes = 16200 / (10 x 1000) = Rs. 1.62 Problem : The estimated overhead costs of a factory making transistors is Rs. 8000 in a particular period and the number of transistors produced during this period is 400. calculate the overhead rate per transistor. If a particular production order require 100 such transistors. Determine the factory overhead to be applied to this production order. Solution : Overhead for the production order = 8000 x 100 / 400 = Rs. 2000. No. of transistors in the production order = 100. Therefore, overhead rate per transistor = 2000 / 100 = 20 Rs.
Book-keeping and Accounting

Book-keeping is the making of routine records, individually and in groups, of financial transactions according to a set of rules. Accounting is the summarization of the recorded information and analyzing and interpreting it for the use of the concerned parties to aid them in decision making. Book-keeping is only a preliminary aspect of accounting.
Systems of Accounting
Two systems of accounting are in common use. They are: 1. 2. The single entry system The double entry system.
Every transaction is between two persons or two concerns. Every transaction, thus, affects two accounts. Single entry system records only one side of the transaction and hence it does not provide complete information about a transaction. This system of book-keeping is not generally used. Double entry system records both the sides of the transaction and thus provides complete information of the business transaction. i.e., it is based on the dual aspect concept. The double entry system of accounting is more scientific and is compulsory for joint stock companies in India.
The Journal
The Journal is a chronological record of business transactions. The first record of a transaction is made in this book. It is book of first or original entry in which transactions are recorded one after another, in the order in which they occur, showing: (1) date for each; (2) account and amount to be debited; (3) account and amount to be credited; (4) and an explanation (if necessary). The function of a journal is to provide a permanent and complete record, arranged in chronological order for future reference, of all business transactions of a firm. Every page of a journal is numbered for future reference. There are many different forms of journals. However, the following form is in common use.
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Journal Page No: Date Particulars Ledger Folio (L.F.) Debit Amount (Rs.) Credit Amount (Rs.)
Note: The Ledger folio (L.F.) column in the Journal is intended to write the page (folio) number of the ledger where the particular account is opened.
Types of Accounts
Accounts can be of three types, namely: 1. 2. 3. Real Accounts Personal Accounts Nominal Accounts
Real accounts are accounts of assets or properties. Personal accounts are accounts in the names of persons, firms or companies. Nominal accounts relate to : (a) Expenses such as wages, salaries, rent, commission paid, etc. (b) and Gains such as interest received, commission, etc.
Rules for Debit and Credit

1. 2. 3. In the case of real accounts, debit what comes in and credit what goes out. In the case of personal accounts, debit the receiver and credit the giver. In the case of nominal accounts debit expenses or losses and credit gains or profits.
Ledger
A group of accounts is known as a ledger. After the transactions have been recorded in the Journal, the accounts are prepared in this book. Ledger contains the same information (as given in journal) but properly arranged according to each person / firm it is related to. The ledger, therefore, is a derived or secondary record.
Form of an Account
Usually an account takes the following form: Account Title Dr. Date Particulars To. . . . .. . ,, ,, (Debit side) Journal Folio (J.F.) Amount (Rs,) Date Particulars By . . . . . . . . ,, ,, (Credit side)
Cr. Page No: Journal Amount Folio (J.F.) (Rs,)
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The account contains two identical halves. The left side of an account is known as the debit side and is for debit entries. The right side of an account is known as the credit side and is for credit entries.
The process of transferring Journal entries to the ledger is known as posting. The journal entry consists of two parts, debit and credit. One account is said to be debited and the other account is said to be credited. For eg., when cash is received from a customer, cash account is debited and customers account is credited in the Journal. In the ledger, an entry is made on the debit side of the cash account and a corresponding entry is made on the credit side of the particular customers account.
Problem: Journalize and post the following transactions: 1996 January 1 - Mr. X started business by investing an amount of Rs. 5000. January 8 - Purchased goods worth Rs. 1000. January10 - Paid commission - Rs. 50. January15 - Sold grinding machine for Rs. 500. January16 - Paid Rs. 2000 to bank. January21 - Received commission - Rs. 100 from Mr. B January31 - Paid office rent Rs. 200. Journal Date Particulars Ledger Folio (L.F.) 1 2 Debit Amount (Rs.) 5000 5000 Goods A/c . . . . . . . Dr. To Cash A/c Commission A/c . . Dr. To Cash A/c Cash A/c . . . . . . . Dr. To Goods A/c Bank A/c . . . . . . . Dr. To Cash A/c Mr. B. . . . . . . . . . Dr. To Commission A/c Rent A/c . . . .. . . . ..Dr. To Cash A/c 3 1 1000 1000 50 10 4 1 500 500 1 3 5 1 2000 2000 16 100 100 6 4 7 1 8850 8850 200 200 50 Page No:1 Credit Amount (Rs.)
1996 Jan 1
Cash A/c . . . . . . . . Dr. To Mr. X, Capital A/c
15
21
31
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Ledger Cash Account Dr. Date 1996 Jan 1 Jan 15 Particulars To Mr. X, Capital ,, Goods Journal Folio (J. F.) 1 1 Amount (Rs,) 5000 500 Date 1996 Jan 8 Jan10 Jan16 Jan31 Particulars Cr. Page No:1 Journal Amount Folio (J. F.) (Rs,) 1 1 1 1 1000 50 2000 200 2250
By Goods ,, Commission ,, Bank ,, Rent ,, Balance
5500
5500
Note :The difference between the two sides of an account is known as an account balance. If the debit entries in an account exceed the credit entries, the account has a debit balance. If the credits exceeds the debits, the account has a credit balance. For e.g., in the above cash account, the total of credits equals 1000 + 50 + 2000 + 200 = 3250, and the total of debits equals 5000 + 500 = 5500. This means the account has a debit balance of 5500 3250 = 2250 and the debit balance is entered on the credit side of the account as indicated above so that the two sides are balanced. Similarly, if an account has a credit balance it will be entered on the debit side. Ledger Mr. X, Capital Account Dr. Date Particulars To Balance Journal Folio (J. F.) Amount (Rs,) 5000 Date 1996 Jan1 Particulars By Cash Cr. Page No:2 Journal Amount Folio (J. F.) (Rs,) 1 5000
5000
5000
Ledger Goods Account Dr. Date 1996 Jan 8 Particulars To cash Journal Folio (J. F.) 1 Amount (Rs,) 1000 Date 1996 Jan15 Particulars By cash ,, Balance Cr. Page No:3 Journal Amount Folio (J. F.) (Rs,) 1 500 500
1000
1000
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Ledger Commission Account Dr. Date 1996 Jan10 Particulars To cash ,, Balance Journal Folio (J. F.) 1 Amount (Rs,) 50 50 Date 1996 Jan21 Particulars By Mr. B Cr. Page No:4 Journal Amount Folio (J. F.) (Rs,) 1 100
100 Ledger Bank Account Dr. Date 1996 Jan16 Particulars To cash Journal Folio (J. F.) 1 Amount (Rs,) 2000 Date 1996 Jan21 Particulars By Balance
100
Cr. Page No:5 Journal Amount Folio (J. F.) (Rs,) 2000
2000
2000
Ledger Mr. B Dr. Date 1996 Jan21 Particulars To commission Journal Folio (J. F.) 1 Amount (Rs,) 100 Date Particulars By Balance Cr. Page No:6 Journal Amount Folio (J. F.) (Rs,) 100
100
100
Ledger Rent Account Dr. Date 1996 Jan31 Particulars To Cash Journal Folio (J. F.) 1 Amount (Rs,) 200 Date Particulars By Balance Cr. Page No:7 Journal Amount Folio (J. F.) (Rs,) 200
200
200
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Trial Balance
If no book-keeping errors are made the total of the debit balances and credit balances in the ledger will be equal. A list of ledger account balances prepared for proving the equality of debits and credits in the ledger on a certain date is called a Trial Balance. The trial balance of the above transactions will be as follows: Trial Balance, January 31, 1996 Account Cash Capital Goods Commission Bank Mr. B Rent Debit balances (Rs.) 2250 500 2000 100 200 Credit balances (Rs.) 5000 50 -
Total
5050
5050
Cash Book
The cash book is the most important subsidiary book in any business concern. It is used to record cash transactions. A transaction in which cash is received or in which cash is paid is known as a cash transaction. When cash is received cash account is debited and when cash is paid cash account is credited in the journal. The other account involved is either debited or credited as the case may be. But it is not necessary to generalize each cash transactions when a cash book is maintained. All cash transactions are first entered in the cash book. The cash book has two sides, a receipt side or debit side and a payment side or credit side. All receipts of cash are entered on the debit side, while all payments of cash are entered on the credit side. The usual form of a simple cash book is given below. CASH BOOK Dr. Date Particulars Receipt No. L.F. Amount (Rs.) Date Particulars Voucher No. L.F. Cr. Amount (Rs.)
(Receipts)
(Payments)
It can be seen that the cash book is simply a cash account. When a cash book is maintained, a separate cash account need not be opened in the ledger. The cash book may be balanced just as any other ledger account. The balance represents cash in hand which should tally with the actual cash with the cashier. Thus the cash book
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serves two purposes. It is a subsidiary book, a book of original entry. It is also a principal book or a book of final entry as it serves the purpose of a ledger account as regards cash.
Bank Reconciliation Statement

A bank reconciliation statement is a statement prepared by a business having a bank account to reconcile or agree the bank balance as shown by the cash book with that shown by the Pass Book. The Bank Pass book is a record of the depositors transactions with the bank as rendered by the latter. The balance shown by the Pass Book on any date should, therefore agree with the balance arrived at the depositors cash book. But this seldom happens. In other words, there is quite often a difference between the bank balance per the cash book and the bank balance as per the Pass book. To understand the causes of this difference, one should realize that (i) (ii) The entries in the Pass Book are made by the banker; and The entries in the Cash Book are made by the depositor.
The Causes of Difference The difference may sometimes be due to a wrong entry made by the bankers clerk or the depositors cashier. But even when there is no such mistake either in the Pass Book or either in the Cash Book, the two balances still might differ for the following reasons: 1. 2. 3. 4. 5. Problem: On December 31, 1991, the Cash Book of a trader shows the bank balance to be Rs. 5000. The cheques sent to bank but not collected and credited amounted to Rs. 790, whereas three cheques for Rs. 300, Rs. 150, and Rs. 200 respectively issued to suppliers were not presented for p[payment toll 31st January, next year. The Pass Book showed that the bank has charged Rs. 12 as its remuneration for collecting outstation cheques and has allowed interest Rs. 10. Prepare a bank reconciliation statement as at Dec. 31, 1991. Solution: Bank Reconciliation statement as at Dec 31, 1991. Rs. Bank balance as shown by the cash book Add cheques issued but not presented to date ,, ,, Bank interest credited in the Pass Book but not entered in the Cash Book. 650 Rs. 5000 Cheques issued but not cashed. Cheques paid in but not credited. Cheques credited but dishonoured. Interest credited in the Pass Book. Bank charges debited in the Pass Book.
10
660 5660
Less cheques sent to bank but not credited in the Pass Book ,, ,, Bank charges debited in the Pass Book Bank balance as shown by the Pass Book
790 12 802 4858
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Problem: On December 31, 1991, the Pass Book of a trader shows the bank balance to be Rs. 4858. The cheques sent to bank but not collected and credited amounted to Rs. 790, whereas three cheques for Rs. 300, Rs. 150, and Rs. 200 respectively issued to suppliers were not presented for p[payment toll 31st January, next year. The Pass Book showed that the bank has charged Rs. 12 as its remuneration for collecting outstation cheques and has allowed interest Rs. 10. Prepare a bank reconciliation statement as at Dec. 31, 1991. Solution: Bank Reconciliation statement as at Dec 31, 1991. Rs. Bank balance as shown by the pass book Add cheques sent to bank but not credited in the Pass Book ,, ,, Bank charges debited in the Pass Book 790 Rs. 4858
12
802 5660
Less cheques issued but not presented to date ,, ,, Bank interest credited in the Pass Book but not entered in the Cash Book.
650
10
660
Bank balance as shown by the Cash Book
5000
Note :
When the given balance represents an overdraft, the adjustments should be made in the opposite
direction.
Financial Statements
Financial statement refers to the monetary analysis of the flow of goods and services to, within, and from the organization. There are two basic financial statements connected with any organization, namely: (a) balance sheet and (b) income statement or trading and profit and loss account. Balance sheet The balance sheet describes the company in terms of its assets, liabilities, and net worth as at the date of its preparation and the accounting equation defining the balance sheet is : Assets Liabilities = Net worth Assets are things owned by the company and it may range from money in hand to the good will value of its name in the market place. The two classes of assets distinguishable are current assets and fixed assets. Current assets represent the short-lived working capital of the company that can be converted into cash approximately within a year. Fixed assets generally have long life and if it is to be converted into cash there must be some major change in the business.
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Liabilities are the obligations to the company and they are also made up of two groups, namely current liabilities and fixed liabilities. Current liabilities are generally payable in a year and only long terms debts that are due in ten years or more can be considered as fixed liabilities. The companys net worth is the residual value remaining after total liabilities have been subtracted from total assets. Income statement While the balance sheet describes a companys financial condition at a given point in time, the income statement summarizes the companys performance over a given interval of time and is defined by the accounting equation: Revenue Expenses = Profit (or Loss) The income statement consists of two parts, namely: (1) the trading account, which shows the gross profit (or loss), and (2) the profit and loss account that shows the net profit (or loss). In a trading account, opening stock, net purchases (i.e., purchases minus returns outward), and direct expenses (i.e., wages and carriage inwards) are entered on the debit side, and the credit side consists of net sales (i.e., sales minus returns inward), and the closing stock. A credit balance will imply a gross profit for the company and a debit balance will imply a gross loss. Profit and loss account is usually prepared as a continuation of trading account, and all other expenses and revenues that are associated with the business and are not shown in the trading account will be taken care of by this account. A credit balance will imply a net profit for the company and a debit balance will imply net loss.
Problem: From the following Trial Balance prepare Trading and Profit and Loss Account for the year ended 31.12.1996 and Balance Sheet as on 31.12.1996 Dr.(Rs.) Drawings Plant Sundry debtors Purchases Sales returns Wages Cash in Hand Cash at bank Salaries Repairs Rent Opening stock Bills receivable Total 10000 60000 40000 80000 4000 15000 1000 6000 11000 4000 4500 20000 15000 270500 Capital Sundry creditors Sales Purchase returns Cr. (Rs.) 81000 45000 140000 4500
270500
The closing stock was valued at Rs. 28,000.
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Solution: TRADING AND PROFIT AND LOSS ACCOUNT for the year ended 31-12-1996. Rs. Rs. Cr. To opening stock 20000 By sales 140000 ,, ,, Purchases 80000 Less returns 4000 136000 Less returns 4500 75500 ,, ,, Closing stock 28000 ,, ,, Wages 15000 ,, ,, Gross profit (c/d) 53500 Total 164000 164000 To salaries ,, ,, Repairs ,, ,, Rent ,, ,, Net profit Total 11000 4000 4500 34000 53500 By Gross profit (b/d) 53500
53500
LIABILITIES Sundry creditors
NET WORTH Capital : 81000 Less drawings : 10000 Net Profit (added) Total
BALANCE SHEET as on 31-12-1996 Rs. ASSETS 45000 Cash in hand Cash at bank Bills receivable Sundry debtors Closing stock 71000 Plant 34000 150000
Rs. 1000 6000 15000 40000 28000 60000
150000
Problem: From the following Trial Balance prepare Trading and Profit and Loss Account for the year ended 31.12.1996 and Balance Sheet as on 31.12.1996 Dr.(Rs.) Drawings Plant Sundry debtors Purchases Sales returns Wages Cash in Hand Cash at bank Salaries Repairs Rent Opening stock Bills receivable Total 10000 60000 40000 80000 4000 15000 1000 6000 11000 4000 4500 20000 15000 270500 Capital Sundry creditors Sales Purchase returns Cr. (Rs.) 81000 45000 140000 4500
270500
The following adjustments are to be made: 1. Wages outstanding Rs. 600 2. Rent paid in advance Rs. 500 3. Depreciate plant by 10 % p.a. 4. Closing stock was valued at Rs. 28000
52
Solution : TRADING AND PROFIT AND LOSS ACCOUNT for the year ended 31-12-1996. Dr. Rs. Rs. To opening stock 20000 By sales 140000 ,, ,, Purchases 80000 Less returns 4000 136000 Less returns 4500 75500 ,, ,, Closing stock 28000 ,, ,, Wages 15000 Add o/s wages 600 15600 ,, ,, Gross profit (c/d) 52900 Total 164000 164000 To salaries ,, ,, Repairs ,, ,, Rent 4500 Less advance 500 ,, ,, Depreciation ,, ,, Net profit Total 11000 4000 4000 6000 27900 52900 BALANCE SHEET as on 31-12-1996 LIABILITIES Sundry creditors Wages outstanding Rs. 45000 600 ASSETS Cash in hand Cash at bank Bills receivable Rent advance Sundry debtors Closing stock Plant 60000 Less depreciation 6000 Rs. 1000 6000 15000 500 40000 28000 54000 144500 By Gross profit (b/d) 52900 Cr.
52900
71000 27900 144500
Problem : The following Trial Balance was extracted from the books of a trader on Dec. 31, 1980. You are requested to prepare his Trading and Profit and loss account for the year ended on that date and the balance sheet as on that date. Dr. (Rs.) Cr.(Rs.) Capital 35000 Purchases and Sales 44500 65000 Stock (Jan 1, 1980) 26000 Returns Outwards 600 Returns Inwards 1000 Salaries 4750 Trade expenses 2050 Carriage 500 Bad debts 230 Discount account (balance) 350 Sundry debtors 35750 Sundry creditors 19600 Insurance 220 Fixtures and Fittings 1850 Motor Vans 2500 Rent, Rates and Taxes 3550 Bank Overdraft 3950 Drawings 1450 Cash in hand 150 124500 124500
53
The value of stock on hand on Dec 31, 1980 was Rs. 17,950. Solution: TRADING AND PROFIT AND LOSS ACCOUNT for the year ended 31-12-1980. To opening stock 26000 By sales 65000 ,, ,, Purchases 44500 Less returns 1000 64000 Less returns 600 43900 ,, ,, Closing stock 17950 ,, ,, Carriage 500 ,, ,, Gross profit (c/d) 11550 Total 81950 81950 To salaries ,, ,, Trade expenses ,, ,, Bad debts ,, ,, Insurance ,, ,, Rent, Rates and Taxes ,, ,, Net profit Total 4750 2050 230 220 3550 1100 11900 By Gross profit (b/d) ,, ,, Discount A/c (balance) 11550 350
11900
BALANCE SHEET as on 31-12-1980 LIABILITIES Sundry creditors Bank overdraft Rs. 19600 3950 ASSETS Cash in hand Sundry debtors Closing stock Fixtures and fittings Motor vans Rs. 150 35750 17950 1850 2500
34650 1100 58200 58200
Problem : State where the following items will appear. Put T for trading account, P for profit and loss account and B for balance sheet. (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) Opening stock Good will Purchases Return outwards Return inwards Sales Carriage outwards Carriage inwards Interest on investment Interest paid Bank overdraft Plant and machinery Cash at Bank
54
(xiv) (xv) (xvi) (xvii) (xviii) (xix) (xx) Salaries and wages Sundry creditors Wages Sundry debtors Land and building Cash in hand Discount received
Solution: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xiv) (xv) (xvi) (xvii) (xviii) (xix) (xx) opening stock Good will Purchases Return outwards Return inwards Sales Carriage outwards Carriage inwards Interest on investment Interest paid Bank overdraft Plant and machinery Cash at Bank Salaries and wages Sundry creditors Wages Sundry debtors Land and building Cash in hand Discount received (T) (B) (T) (T) (T) (T) (P) (T) (P) (P) (B) (B) (B) (P) (B) (T) (B) (B) (B) (P)

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Management

Contributions of Various Scholars Towards the Development of Management Theory

Lecture Notes on Industrial Organization and Management College of Engineering, Kallooppara

Lecture Notes on Industrial Organization and Management College of Engineering, Kallooppara

Time & cost clerk

Lecture Notes on Industrial Organization and Management College of Engineering, Kallooppara

Line and Staff Organization

Manager sales Manager accounting

Safety officer Design engineer

Industrial engineer Stores officer

Workers Line relationship

Workers Staff relationship

Lecture Notes on Industrial Organization and Management College of Engineering, Kallooppara

Span of Management Control

Authority and Responsibility

Lecture Notes on Industrial Organization and Management College of Engineering, Kallooppara

Management Information Systems (MIS)

Need for MIS

Forms of business Organizations

Lecture Notes on Industrial Organization and Management College of Engineering, Kallooppara

Lecture Notes on Industrial Organization and Management College of Engineering, Kallooppara

Joint Stock Company

Lecture Notes on Industrial Organization and Management College of Engineering, Kallooppara

13 Private Limited Company

Public Limited Company

Cooperative Organization or Cooperative Society

Lecture Notes on Industrial Organization and Management College of Engineering, Kallooppara

Lecture Notes on Industrial Organization and Management College of Engineering, Kallooppara

Lecture Notes on Industrial Organization and Management College of Engineering, Kallooppara

17 2. Equity or Ordinary Shares

Break Even Analysis (for a single product)

cost Bep Fixed Cost, F

Fixed Costs Land Building Administrative cost Staff salaries Insurance

Project Report or Feasibility Report

Technical and Economic Feasibility

Lecture Notes on Industrial Organization and Management College of Engineering, Kallooppara

Production Planning and Control

Lecture Notes on Industrial Organization and Management College of Engineering, Kallooppara

Process planning & routing

Tool Loading control

II. Action phase (Dispatching) III. Control phase

Progress reporting (data processing)

Lecture Notes on Industrial Organization and Management College of Engineering, Kallooppara

Machine No. CX3.

b) Refining c) Toy manufacturing

Lecture Notes on Industrial Organization and Management College of Engineering, Kallooppara

b) Packaging and packing in a mail-order house. c) Clothing manufacturing

d) Book printing e) Medical clinics.

b) General Engineering c) Aircraft manufacturing

Inventory Control (Material Control)

Economic Order Quantity (EOQ)

Cmin Total Cost Carrying Cost

Cost Procurement Cost EOQ Order Quantity

Lecture Notes on Industrial Organization and Management College of Engineering, Kallooppara

Lecture Notes on Industrial Organization and Management College of Engineering, Kallooppara

Lecture Notes on Industrial Organization and Management College of Engineering, Kallooppara

Production Model With No Shortage

Lecture Notes on Industrial Organization and Management College of Engineering, Kallooppara

= Rs. 4024 Total annual cost = 18000 x 2 + 4024 = Rs. 40026