Finance Project on Mehmood Textile Mills Ltd

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INTRODUCTION

Due to the changing environment in the world that world is becoming a global village due to this competition is very intense in the world market and no country can complete in the world market or cannot make progress without the development of industry. Rapid progress can only be made with the development of industry. Since 1947 to up till now Pakistan has made progress in every industry especially in the textile industry.

Pakistan is an agricultural country so, the textile industry of Pakistan has supported the economy of Pakistan and Mahmood Textile Mill has its own contribution in this field. MTM is working under the Mahmood Group of industries and it was established in 1970. Since its establishment it is progressing gradually.

Three spinning units of Mahmood Textile Mills Ltd. Are situated at Multan road in Moza sunaki near Chinab River Muzaffar Garh. One spinning and weaving unit is situated at D.G.Khan road Muzaffar Garh. Now MTM have installed their own power plant having capacity of 9.2 MW with the investment of 66.806 Millions. MTM is involved in the manufacturing of yarn and cloth. About 80-85% of the total production they exporting.

They have there own ginning factories and farms from which they best good quality of cotton and produce better quality products.

MTM consists of five units. Four units are meant for spinning and one is for weaving. Unit No.1 installed with 13872 spindles in q970-71 and the name of the brand, which produced by this unit, is engine brand. Unit No.2 established in 1984 with 12486 spindles.

The name of the yarn brand is Zaitoon, which is producing in this unit. Third spinning unit installed with 15360 spindles in 1989-1990 having a brand name of palm. Fourth spinning unit established in 1992 with 20400 spindles. Brand name of the yarn producing in this unit is cotton king. During the November 1997 2592 spindles were dismented and now total no of spindles in four unit is 59520.The Management make the expansion decision in 2000 to increase the spindles 5760, so total no of spindles in 2000 is 65280.

They have won a special merit trophy for export performance in 1989-90, 1990-91, 1993-94,1994-95,1995-96 and 1996-97.

Weaving unit established in 1991 and has 98 Sulzer Ruti shuttle less looms. And 5 Sulzer Ruti are established in 1998. So total No. Of Sulzer Ruti shuttle less looms is 103 in weaving unit. They are producing Grey cloth in this unit and exported to Japan, Taiwan, USA, Europe, Korea and Hong Kong.

COMPANY INFORMATION

Board of Directors

Company Secretary

Auditors

Bankers

Registered Office

Mills

FINANCE DEPARTMENT AND ACCOUNTING SYSTEM

Finance controller MTM Amin Pal leads this. This department controls all the financial matters of the mills.

Function and Responsibilities of the Department

ACCOUNTING SYSTEM

There is a centralized computer system in the MTM. All the accounting is done in the head office of different units. This process starts from the preparation of vouchers. These vouchers are:

Cash Vouchers

The cashier prepares cash vouchers which payment or receipt of cash is involved.

Bank Vouchers

At the time of issuing cheques these vouchers are prepared and after the payment bank A/C is credited and part is Dr. the cheque is signed by the chief accountant, finance controller and the director.

Sales Vouchers

Bought Day Vouchers

DayBook or Journal Vouchers

These vouchers served daily for transferring account in which payments are not involved.

After every transaction voucher is prepared and then send to the chief accountant with all supporting material and chief accountant checks these vouchers and send to the auditors for the internal auditing purpose and after this send to the director. If director has any inquiry then he can ask the relevant person. Then the recording of those transactions are made in the appropriate books of accounts.

Cash Book

Cash payment receipt vouchers are entered in this book on daily basis. Cash closing balance is calculated daily and checked by auditors.

Bank Book

This book is maintained to control all the bank accounts of the company. This book has different columns at the end of the month the total of these is posted in main ledger and the reconciliation is also made with the bank statement at the end of the month.

Bought Day Book

This book is maintained for the purchase of goods for each unit separately. Posting to supplier’s ledger is made from this book and the total of other purchases is posted in main ledger at the end of the month.

Day Book

Journal vouchers are entered on the daily basis in this book and the auditors check the entries of postings. At the end of the month these are posted in the General ledger control account.

Sales Day Book

This book is maintained for the sale bills and the posting is made to the customer ledger. This is posted to main ledger for control at the end of the month.

Ledgers

After recording the information in these books of accounts then it is posted to appropriate ledger accounts. The recording and the posting checked by the auditors. Then trial balances are prepared and if these trial balances are tallied then the income statement/profit and Loss Accounts and Balance Sheets are prepared.

Main Ledger or Control Ledger

From the main ledger/control ledger Balance Sheet is prepared. All the assets, liabilities, customers and suppliers record is maintained in this ledger. At the end of the month trial balance is prepared to check the accuracy of the account by seeing the Dr. & Cr. Balance of the Trial Balance.

Profit & Loss Ledger

For each unit separate Profit & Loss ledger is prepared to check the profitability of each production unit. In this ledger all account regarding the income and expenses are recorded. These are:

Expenses

Charges

Customer’s Ledger

Posting in customer ledger is made from cashbook, daybook, and bank book and sales book to maintain the customer’s record. Customers balances are worked out, prepare receivable and submitted to the directors.

Suppliers Ledger

This ledger is mean only for the purchasing of goods and the entries in this ledger is made from cashbook, daybook, bankbook and bought book day book. Goods received are credited in account of suppliers and payment made is debited in account of supplies. If supplies are more than 25,0000 than 3.5% income tax is deducted at the time of payment.

Second type of ledger is maintained for which the company hires the services. Company deducts income tax form the professionals, contractors & commission agents at the following rates:

Personal Ledger

This ledger is prepared to record all the data relating to the personal account of the company’s employees. At the end of each month trial balances are prepared & see the employee personal data regarding the leaves, loans & advances etc.

WAGES AND PAYROLL SECTION

Payroll system deals with the expenses of the employee on work in an organization. Preparing a payroll requires collecting employee work hours, converting hours to gross earnings & computing allowances & deductions & then net pay. In addition to accounting activities a payroll system commonly performs activities that might be viewed as personal operations such as sick leaves & vacations etc.

In MTM system is computerized a payroll management system. So all the data about the employees & their payrolls is recorded in the computer.

Preparation of Salary Sheet

In MTM Muzaffar Garh workers perform their duties in three shifts which are called shift A, B, & C. Period of each shift is of eight hours. As there are three shifts so three salary sheets one for each shift are prepared. Salary sheets that are prepared in the head office are of the following types:

Shift salary sheet.

Timekeeper is responsible for the record of attendance & leave of all the workers. Time officer sent the Haazri register /attendance sheet with related information to the head office. From the first date to 10^th date of the Month Salary sheets are prepared. Wages are calculated according to the category of worker & decided rates.

In the wages sheet serial no., workman no., social security no., weekly rest, name of the worker, father name, date of first appointment, nature of work, rate of pay, monthly record of the daily attendance of each worker, sex, age no. Days the worker attended, allowances, gross wage payable, deduction & actual wage paid are mentioned.

Allowances

In MTM allowances are paid to worker for their contribution towards the organization’s objectives. Following are the types of allowances that are given to the workers.

Cost of Living Allowance (C.L.A)

Cost of living allowance is given to the workers according to the rules & regulations of the Govt. whenever Govt. increases the cost of living allowance this additional C.L.A. is also given to the workers. Cost of living allowance is provided according to the basic salary of the worker.

Attendance Allowance

Attendance allowance is also given to the worker for their contribution to organization objective. Attendance allowance is given to the worker if he has worked full days of the month. If the worker does not work full days of the month then this allowance is not provided to the worker by the organization.

House Rent

House rent is given to workers of this organization. 10% of the basic pay is given as a house rent to the employees of the organization.

Dearness Allowance

To compensate the workers dearness allowance is given to the workers of MTM. Dearness allowance is calculated according to the formula i.e.

Where wage earned is calculated by dividing the basic pay by total days of the month & then multiplying by the no. Of days the worker attended in a month.

One Time Allowance

If an employee achieve production targets or show good efficiency he will be rewarded by one time allowance.

Badli Allowance

This badli allowance is given if a subordinate works in place of his boss for some days when the boss is on leave. It is calculated as

Conveyance & Medical Allowance.

This allowance is also given according to the basic pay. Indexation 18% of basic pays C.O.L.A.

Deductions

As there are some allowances with are given to the workers of the MTM to compensate them similarly there are some deductions from the wages of the workers.

Fine

When worker misconduct during his jobs the labour officer or the assistant labour officer may fine him. Similarly when guilt is proved against the worker he may be fined. There is no limit of fine but it is according tot he nature of the guilt & the capacity of the worker. Then this fine is deducted from the salary of the worker.

Advances & Loan

There is a facility of advance for the worker of MTM. Due to an emergency or any other reason when an employee apply for the advance, then this advance is issued by the labour officer & it is deducted from the salary of the worker.

Advance is given against the salary of the worker while, loan is given on the discretion of the management & return of the loan is made on monthly installment basis.

Income Tax

Income tax is deducted from the salary of the officer staff. Income tax is deducted according to the rule from those employees whose annual income is Rs.50, 000 or above, firstly it was Rs.40, 000.

Fair Price Shop

There is a facility for the worker to buy the things on credit from the fair price shop. At the end of the month all these bills are deducted from the salary of the worker.

Rent

A cot is provided to the workers of MTM for the purpose of rest & sleeping. There is a facility to pay the cost of the cot in four installments on monthly basis or a worker may pay the whole amount at once.

One Time Deduction

Its opposite of the badli allowance. If person is temporarily demoted then the difference of salary between the past & present job over the no. Of days worked is deducted.

STORE & SPARES SYSTEM

Inventory management system is very important system along with other computerized systems. The inventory system has these significant aspects:

These all facilities of the system help the organization for the quick operation & the best utilization of capital resources. The inventory carried in the store viewed as capital investment & this investment should be in such a manner that the items carried in the store should not bound the resources.

Store & Spare System at MTM is one of the main systems in process. This system makes sure the in time supply of spare parts & consumption items to the department of production unit. This system is logically & physical divided in two parts as much of this is done at mills while some work related to generation of purchase orders to suppliers & selection of supplier is done at the head office.

The most important factor of inventory system is its ability to forecast the necessary details. Forecasting uses reorder flags, maximum amount to be ordered, and economic order quantity & order frequency as its tools. Forecasting is the best way to insure the in time supply of spare parts & consumption items. Store & spare system at MTM works on these basic rules of inventory & statistics. The major responsibilities of this section are:

Stores

Mill has a policy to overhaul all the machinery of each department in a chain process so that no interruption in production work should occurs. For this purpose spinning units have two store rooms. One main store room is working in the Moza Sunaki Multan road Muzafar Garh spinning mills & second store room is working in 4^th spinning unit situated at D.G.Khan Road Muzaffar Garh, while weaving unit has it own separate store.

Store Room Division

In spinning

In Weaving

Store Issue Procedure

Whenever a department needed spare parts or any other thing from the store then the responsible person of the concerned department filled a store issue requisition & sent to the store room.

When completely filled store issue requisition is received to the store incharge. If the items are available in the store room then issued to the concerned department & document is kept in the store room & a entry is made in the consumption register after that this document send to the head office for the preparation of consumption reports.

If the said items are not completely available in the store room the quantity available is issued to the concerned department & the remaining quantity is rejected & at the same time a purchase demand document is prepared for the same item & sent to the head office. New requisition is prepared by the department when store in charge inform the department that the required item is available in the store alter the purchase of that item. The sample of that item with GRN & IGP sent to the department for the approval of the quality of that particular item. If the item is according to the said quality then sample is kept by the department & previously rejected store issue requisition quantity again forward to the store with approved good & inspection report & the required quantity of the consumption item is issued to the department.

Store Purchase Process

This store purchase process starts from the demand created by the department of the consumption items if the consumption items are available in the store then store incharge issued the required quantity to the department. If the quantity is not available in the store or it is less then the purchase demand document is prepared by the store incharge & send to the head office in the commercial department or purchase department which deals all kind of purchases.

Commercial Department

The G.M. of commercial department is responsible for making all sorts of purchases. This department deals with two sections.

Purchases are of two Kinds

The responsibility of getting main raw material (cotton) is with the director of the company. As the company has its own ginning factories therefore, most of its fulfilled through these factories, while the remaining raw material is purchased from outside.

Two methods are used for the purchase of items routine purchases & emergency purchases. If the item is not new & the department is agree with the price & quality of the item then the department sent order the current supplier for the purchase of that item.

In the case if the department is not with the agreement of the quality & price of the item then department call quotations from suppliers. From these price of the item then department call quotations from suppliers. From these quotations a comparative statement is prepared by the purchase incharge & G.M. checks these comparative statements & takes a decision about cash or credit purchases. These credit purchases are normally for the bulk quantities. The lowest price offered by the supplier is selected & approved by the director. In this way an item is purchased.

Emergency Process

If some item is short in store & some emergency need of that item arises then instead of routine process emergency process is adopted which is as under.

Purchase demand for the emergency required item is prepared & is send to commercial department at head office where purchase indent of that item is generated. Then on this purchase order purchase officer gave order to the party which last time supplies that item. This is normally done through the telephone. The said party supplies the item as early as possible & all the office work is done later same as in routine supplies.

Duties or Function Performed by this Department are as under

Inward Gate Pass

When items supplied by a party are received on gate then these items are checked according to the bills attached with supply & a documented is created manually called IGP at gate.

Daily Receipt Register Entry

After IGP an entry is made in the daily receipt register of the items or the record purposes.

Goods Receipt Note (GRN)

After this a GRN is prepared by the store incharge & it is also included inspection report. This GRN, IGP & sample of the item is sent to the concerned department for which purchase is being made for the approval or rejection of the quality of the particular item. The concerned person checks the quality of the item if it is up to the standard then the concerned person approve that item, sample is kept in the department & IGP & GRN are send back to the store with store issue requisition. On the store issue requisition required quantity of the items are issued to the department. Then store incharge send GRN & SIR to the head office before this G.M . Mill verified this GRN. GRN includes item receipts & their price. After proper costing supplier ledger is updated & the head office makes the payment to the supplier.

If the supplier payment exceeds from 25000 then according to the Govt. rules & regulations 3.5% income tax is deducted from their payment & this goes in the Govt. Revenue.

After this it is send for the entry in the computer to update the record of the particular item. SIR is also entered in the computer to update the record of the consumption of the item.

Outward Gate Pass

If the item is rejected by the concerned department then the outward gate pass of that item is prepared & it is send back to the supplier.

Purchase Journal

After the approval of the item from the concerned department & payment of that item from the head office entry of that is made in the purchase journal by the store incharge.

Consumption Register

When certain items are issued to the different departments then entry of that item is made in the consumption register.

Reports

Store & spare system at MTM prepare several types of reports that fulfill different system needs. List of these reports with their features is as under:

Party Ledger

This report list the party codes with their description. This report is printed when some new party is added or a party is canceled.

Store-wise Item Code Listing

This report prints the item codes department-wise. This report contains the description of code, sub code, group code, item code of their unit, bin location in the store & balance. This report is generated when some item to a department is added or deleted.

Monthly Consumption Report

This report is generated monthly to see the department item-wise consumption of the ending month. This report contains the department name, report for the month, S.No. Item code, description & quantity of the item issued during the month.

Outstanding Purchase Indents

This report is prepared for the purchase indents that are outstanding. This report helps management to make decision for item quantity in new purchase indents. It also notifies the incomplete indents. It contains main, sub, item code, item description, purchase indent no., quantity in purchase indent, required by, outstanding quantity & total outstanding quantity for more than one purchase indent outstanding.

Master File Listing

This report has the complete list of master file cost center-wise. It contains the cost center description, item code, item description & inventory control fields which are not used by store & spare system at MTM.

Item-wise Outstanding Purchase Order

This report prints the outstanding purchase orders item-wise. This report helps to know the quantity of each item outstanding to different parties.

Party-wise Outstanding Purchase Orders

This report prints the outstanding purchase orders party-wise. Thus report helps to know the quantity of different items outstanding to each party. This report also helps in determining the parties.

To-Date Consumption Report

This report shows the to date consumption of each item in current year. This report also shows the cost center of consuming department with SIR no., date, item code, item description, quantity issued & issue type.

Function of the Store

· Collection of the demands from the department & issue material from the store.

Objective of the Store.

EXPORT TRANSACTIONS

In the modern world all the countries of the world whether they are developing or under developed are pre occupied with the problem of selling the merchandise in the foreign countries, sometimes the Government machinery goes to such an extent

Of pressing to the businessmen that it says, “Either we should export or die”. The Govt. agencies provide all possible assistant to the businessmen for selling the goods overseas & carefully examine the figures of the monthly export transactions.

Export of goods & services is necessary because there is no country in the world, which produce all the goods, which it consumes. Trade between the two countries also arises because of economic advantage, which arise due to international specialization of labour. Trade, these days, therefore, is a two-way affair.

No country can hope to sell its goods abroad, unless it is also prepared to purchase goods in return. The businessmen who are engaged in the export transactions must export standard quality of the goods at normal prices so that they could compete easily in the world market. Export is never static. It is a dyanamic, restless & changing. The export enables the Govt. of the country to pay for the imports & achieve a balance of trade.

Export Documentation

There are a host of problems, which an exporter or an importer has to face in the overseas trade. Unless the overseas trade is properly documented. The exporter can’t receive payment & the importer can’t make it.

Letter of Credit

In the worlds of Frank Henius, “The letter of credit is a written instrument issued by the buyer’s bank, authorizing the seller, to draw in accordance with certain terms & stipulating in legal form that all such bills (drafts) will be honored. It sets forth under what terms & conditions the person in whose favour the letter has been opened may draw drafts against such credit at the same time guaranteeing the payment or acceptance of such drafts, if they comply with the letter’s terms.

According to Prithard, “The letter of credit is a commitment on the part of the buyer’s bank to pay or accept drafts drawn upon it provided such drafts don’t exceed a specified amount”.

The international chamber of commerce defines the documentary credit as “ any arrangement however named or described where by a bank (the issuing bank) acting at the request & in accordance with the instruction of a customer (the applicant to the credit) or is to make payment to or to the other of a third party (the beneficiary or is to pay accept or negotiate bill of exchange (draft) drawn by the beneficiary, or otherwise, such payment to be made or such draft to be paid accepted or negotiated by another bank against stipulated documents & compliance with stipulated terms & conditions.

Parties to a Letter of Credit

Types of Letter of Credit

Advantages of Letter of Credit

The exporter on the production of shipping documents to the advancing bank can obtain necessary finance. He has not to wait till money is received from the importer.

Through the letter of credit the exporter can establish his credit standing both on the importer & the buyer’s bank by proper delivery of the merchandise & the shipping documents.

The importer does not like to undertake an unwanted risk. He, by opening a L/C in favour of seller, is saved of the risk of making payments before the receipt of goods. The importer will make payment to a bank in his own country against delivery of shipping documents.

The L/C greatly facilitates overseas business & makes the payments of goods easy. The L/C also helps in importer & the exporter of merchandise to rely on the credit standing of each other.

The importer has not to send the yellow metal to the exporter. The importer pays for the goods received in the currency of his own country & the exporter is also paid by the advancing bank in the currency of his own country.

The export L/C establishes legal right of getting payment of the goods exported in the foreign country.

Commercial Invoice

Commercial invoice is a business document, which is prepared by the seller of the goods & is handed over to the customer & the full information about:

Description of goods.

There is no standard form for a commercial invoice. But the contents must comply with the regulation of importing country. The main purpose of the commercial invoice is to check whether the appropriate goods have been shipped & that there unit price; total price marking on the packet is consistent with those mentioned in other documents. Commercial invoice issued in sets of five or six & is printed on papers of different colors.

Certificate of Origin

The Chamber of Commerce certifying that the goods, which have been exported, have entirely or largely been manufactured in the country sated on the certificate usually issues the certificate of origin.

A certificate of origin is a signed statement providing evidence of the origin of goods. These are of ten required by the authorities in the importing countries in order to satisfy themselves that the goods originates from a country which imports are permitted or to support a claim for the professional import duty.

Packing List

This list is required to supplement the commercial invoice when numerous units of the same product are being shipped. It is also needed when the quantites, weight or contents of the individual units in a shipment vary. This list enable the receiver of the shipment of check the shipment & the exporter evolve his own packing list. It also helps the custom offices to inspect the goods. There is no specific form prescribed for the packing list, but it normally contains:

A Bill of Lading

A bill of lading as described by H.B.Sheldon is a “ a document issued & signed by, or by the authority of, daily received on the board & undertaking received to the consignee or the like order & condition as received to the consignee or to his order or assigns provided that the freight & any other charges specified in the bill of lading have been duly paid.”

In other words, a bill of lading is a receipt issued by the carrier for the goods received & also a transportation contract to deliver the goods to a specified person provided the freight & other charges are paid.

A bill of lading is a very important document of export. It serves the following three purpose:

The exporter in prescribed form prepares a bill of lading. They obtained such form from shipping company or from their agents. There is no standard from for the bill of lading. But generally it contains:

A bill of lading is different from Bill of Exchange. In case of a Bill of Exchange, a drawer directs an unconditional order in writing to a drawer, directing him to pay on demand or a some future time a sum of money to order or to Bearer. A Bill of Exchange is a negotiable instrument & is considered a symbol of money. A bill of lading, on the other hand, is the right to claim goods transported by the carrier. It is released to the drawee upon the discharge of its obligation. A bill of lading in favour of a particular person can’t be negotiated unless the word order or ‘bearer’ is written on it whereas a bill of exchange us negotiable in favour of a particular person even without the addition of such words as ‘order’ or ‘bearer’.

The similarity between the two, however is that they can be transferred by delivery or endorsement.

A Bill of Exchange.

A bill of exchange or a draft is an important instrument for effecting payment in international trade. The English Bills of Exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at fixed or determinable future time, a certain sum in money to or to the order of a certain person or to bearer. There are three parties involved in the bill of exchange.

The drawer is the person who orders payment (creditor). The drawee is the person who is ordered to pay (debtor) & the payee is the person to whom payment is ordered to be made. There are six main types of bill of exchange, which are used in Trade. These are:

Documentary Bill of Exchange.

The following are the Conditions, which make bill of exchange a negotiable instrument.

Importance

Bill of exchange plays a very important role in the national as well as international economic transactions. Bill of exchange facilitates borrowing & minimizes boarding of funds. The businessmen can easily purchase goods by promising to pay specified sum at a determined future time. Before the maturity of bill, he can arrange to sell the goods in the market & the proceeds can be used for meeting the obligation. A Bill of Exchange is thus a self-liquidating credit. The Bill of Exchange, which is drawn either on an individual or a firm or a bank in an other country by the exporter (foreign bill of exchange) greatly, helps in making international payments. The exporters sell the foreign bills at the current role of exchange & receive the value of their exports in their own currency. Thus with the help of foreign bill of exchange the cost of transporting precious metals b/w the trading countries. A Bill of Exchange can get it discounted at the bank whenever he is in need of money for consumption or for commercial purposes. The banks regard the discounting of Bill of Exchange as a very useful investment. Whenever the commercial banks are in need of cash they get these bills of exchange rediscounted at the central bank.

Form “ E “

It is declaration to be furnished by exporter pursuant to section (21) of the foreign exchange regulation Act 1947. In it the exporter declares the amount goods, which are being exported by certifying with negotiation bank, who is the authorized dealer of State Bank of Pakistan? This form has two sections.

Section one contains:

The second section of this form is “The certificate of authorized dealer.” In which they certified that above mentioned exporter is bonafied businessman in Pakistan & he made arrangement with us for the realization of goods exports proceeds of the goods declared with in the four month from the date of shipment and we satisfied with the said arrangement. We are also satisfied ourselves about the bonafied of the importer and their credentials etc.

Certificate of Inspection

When the buyer to assure himself, as far as possible, about shipment of current goods in terms of quality, quantity etc. or for more valuable consignments. He can call for submission of a pre-shipment certificate. The letter of credit should stipulate.

Marks no. Of the packages, invoice number, letter of credit no. And name of carrying vessel is written for the reference or a linkage to the other documents.

Export Procedure

MTM is exporting yarn since the establishment of first spinning unit by MTM is in the business of grey cloth export since 1991-92 with the establishment of a weaving unit.

About 80 to 85% of the total production they are exporting to the Japan, China, USA etc. and the remaining 15 to 20% the sell in the local market.

Before export sale the export department obtained report about the products available for the export from the production department. After assessing the cost of goods, they set the export price by taking notice of demand and competition of the market. The use marginal exports pricing system because export pricing depends upon the demand, Competition and cost of goods. Than they contact with the persons who are interested in importing the goods through mail, agent abroad, fax telex etc.

If both the parties are agreed on rates. Terms and conditions of trade then the export department prepared the contract, which in mutually signed by the buyer the seller and indentor if any.

The import commission gets his commission from the buyer. Which is stipulated in the contract. The contract contains the following terms.

They make three copies of the contract for the reference of each party. This contract has no legal value but it is moral responsibility for the both buyer & seller to fulfill all the terms & conditions mentioned in the contract during the trade.

Next step is that the buyer submitted L/C application to his banks (the issuing bank). The issuing bank advises the credit to the beneficiary through its corresponding bank operating in our country. This notifying bank which accepts the draft under L/C then negotiate these documents with the export department.

It is mention in the L/C its up to seller to negotiate any one of country bank, who is dealing with trade.

After accepting the L/C its now the export department to fulfill all the terms & conditions of the L/C before its expired & shipped the goods before the last shipping date mention in the L/C.

If any change the export department wants in the L/C, then negotiation bank has no authority to change any term & condition of the L/C. However the buyer on the request of the export department asks the issuing bank & the bank authorities may change & all changes of the discrepancies of the L/C are in the account of the seller.

After accepting the L/C, the export department gives the last date of Shipment to he production department to manufacture the goods before the last date of shipment & packed & marked goods in the form mentioned in the L/C. When the production department informs them that goods are ready for the shipment then they prepared the shipping documents & send to their shipping agent which contains.

The shipping agent then arranges the container to load the goods & also arrange the vessel for the goods.

Then he paid the custom duty to the excise & custom land revenue & sends all the tested copies of,

The export department then send the copies of the commercial invoice, bill of exchange, packing list, bill of lading, form “ E “, L/C photo copies by electric mail or fax to the buyer, as mentioned in the L/C to send these copies in favour of the buyer after the shipment of the goods.

The export department then prepared the Banking Documents & sends the following documents to negotiate bank for negotiation,

The bank check the documents & sends them to the issuing bank, who proceeds the credit in favour of the seller account on the terms stipulated in L/C. The bank deducts their changes from the account of the seller.

The increase in export sales of Grey cloth in 1999 is mainly due to expansion of weaving unit and the ISO 9002 Certified, from M/s System 9000 (Pvt) Ltd. Karachi. Is a foreign Company with its Head Office in U.K? The training program0me started during January 1998 and after successful completion, certificate under ISO 9002 have been awarded on 05/10/1998, separately to MTM each unit consisting of four Spinning and One Weaving unit. And the MTM management organized to produce the Quality goods.

To complete the export demand, MTM increase the 5 no new Sulzer Ruti Shuttleless looms and now MTM has the 103 Sulzer Ruti Shuttless to complete the export Grey cloth demand. We hope that the export of MTM will increase more & MTM will enjoy the more profit in future.

IMPORT SECTION

The import section must be efficient in order to fulfill the required demand within the lead-time. In this section there is import incharge, assistant & typist who are working under the supervision of director.

Major items of imports

The management tries to import the latest machinery & their spare parts as much as possible. It helps in reducing the per unit cost, enhancing the productivity & improving the quality of the yarn. The demand for imported spare parts raised from production units & is sent to import section. The lead-time is usually six weeks. During this period the required items are provided to the concerned department. It is responsibility of the import section.

For this purpose the import officer consult with various parties through fax or telephone. Each foreign manufacturer of such spare parts for textile sector has appointed their agents in big cities such as Lahore, Karachi, Faisla Abad etc. They make contract with them. Comparison chart is prepared. The comparison chart has all the information about the agent, the quality of items, prices. If import officer any difficulties or problem then he consult with directors. After the preparation of comparison chart, reports are provided to the directors. Then for the approval of purchasing of these items the consultant is made with the CEO.

For the cotton the company has its own ginning factories, these ginning factories fulfilling the demand of the factories. Raw material other then cotton such as artificial bier etc. Are imported from Korea, Japan, Indonesia etc.

After the approval manufacturer send the invoice Performa to the importer. In invoice program these things are clearly mentioned i.e. name of exporter, consignee, country of origin of goods, country of destination, terms of delivery & payment, port of loading, port of destination, quality & quantity, king of packing, gross weight, volume & mean of transportation (airline, road, sea, etc.). After invoice is OK an L./C. is opened when material is shipped by the party. Then duties are paid by the management. They contract with the beneficiary bank when the material is shipped & proof the documents provided by his bank & payment is made to the importer.

COMPUTER SECTION

MTM started computer section in 1992. They are using mini computer system of NT-Server. Main system is kept in the computer room and they are using 10 terminals. This mini computer has 1 G.B of H.D. and 8 MB RAM.

Two terminals are used for the inventory management system. Four are for the financial system and one is kept in the computer room while the export system has not introduced due to some complications. They have experts for the maintenance and control of system and data.

The Director are fully aware about the problem of YK2 and have taken several measures to overcome this problem The Company’s Senior Finance and Computer staff along with consultants are working on YK2 assignment. It is expected that this work will be completed. And they control on the problem.

Hierarchy

MAHMOOD POWER GENERATION LTD.

Due to the energy crisis in the country, to meet the increasing demand of the energy & to run the functions of the whole firm smoothly, MTM has started a captive energy project with a name of Mahmood Power Generation & it is a matter of great pleasure for the Company that it has invested almost 100% sponsor stake amounting RS. 66.806 millions in Mahmood Power Generation Limited from self-guaranteed funds. Capacity of this captive energy project is 9.2 MW. This power Generation Plant will produce enough energy to run the whole mills machinery, which shut down due to load shedding & production process is delayed due to this energy break down. This huge investment will accrue following benefits to the company.

Uninterrupted supply of electricity will reduce the energy losses & wear tear expenditure. So it will improve quality of the products.

Power projects are totally exempted from all taxes, income tax as well as turnover tax under section 0d of the income tax ordinance. After receiving dividend from Mahmood Power Generation Company’s performance & profitability will improved.

PRODUCTION DEPARTMENT

There are four spinning units in Mahmood Textile Mills Ltd. And each unit is responsible of its production. Thus units consist of 62112, Spindles of production.

For better quality and most productive competition each unit is responsible for its production, demand, overhead and record separately.

Approximately 90 % of the yarn, which these units are producing, are of export quality and about 10% they are selling in the local market or use for cloth production in the weaving unit.

In order to maintain future promising prospects of the Company and to remain competitive in international market, balancing, modernization and expansion plans were taken into consideration by the Management. The plans were based on depth analytical study to enhance overall performance and profitability of the company. These decisions were part of the strategic vision of the management to bring the company to be a leading one in textile sector.

Additions of Machinery or RS. 11.00 (M) has been made in the year under report for laboratory equipment and for modernization of back process of one unit.

Expansion program of RS. 170.00 (M) under B.M.R is also in hand and will be completed next year. 5760 spindles making the total No will thus increase the production capacity of the mill. Of spindles to be 65280.

For the implementation of this heavy expansion program the management successfully procured financial facilities from different banks at confessional rate of mark up.

Before describing the manufacturing process of yarn, it is better to understand the common standard of yarn measuring.

Yarn Count

In the spinning process, there is always a fixed relation between the weight of the original quantity of fiber and length of the yarn produced from that amount of raw material. This relation determined buy the extent of the drawing process is designated by numbers, which are called the yarn count.

The standard for the yarn count of cotton is 01 pound of fiber drawn out to make 840 yards of yarn; the resultant thickness or size is known as count No.1 or Ne. 1. If the yarn is drawn out further, so that one pound makes twice 840 yards it is identified as Ne.2 or 2s. Thus Ne.2 yarn will be finer than Ne.1 . The yarn is size. Yarn counts up to the 20 Ne. are called coarse yarns; 20 to 60 are medium yarns; about 60 are fine yarn. Up to Ne 20. The count rises by single numbers. Only even numbers are used b/w 20 and 60 above Ne 60 the count rises by intervals of 5 until 100, after which an interval of 10 is used. In MTM they are producing normally 20s and 30s.

General manager for production controls of the production department under his supervision a technical manager / mill manager, foreman, assistant foreman, and fitter’s works in different section of the department. At least 1,000 employees are working in three shifts in four spinning mills.

Production Process

During the manufacturing operations raw cotton passes though the following sections to become yarn.

Mixing and Blow Room

When cotton is needed in blowroom demand note is prepared for the issuance of cotton. Thus the cotton in issued and send to mixing / blow room.

Cotton issued to blow room statement is prepared. A laboratory is established for each production unit which provides the necessary information about the use of cotton bales. In blow room these instructions and information are based on quality of moisture in the cotton and the length of the fiber. The cotton which is sent to B/R must have maximum level of moisture from 8% to 10%. Each bale has a weight of 170 Kilograms or 375 lbs, workers removed the compressed mass of raw fiber from the label and cotton is torn in to small pieces than mixed it manually and the tempreatures of B/R is kept high to eliminate the moisture.

Further in this section blending, opening and cleaning processes are performed respectively. Blending is necessary so as to obtain the uniformity of fiber quality; opening is necessary in order to loosen hard lumps of fiber and disentangle them; cleaning is required ot remove trash such as dirt, leaves , burrs and bay remaining seeds in order to prepare the fiber for spinning into yarn. These function are accomplished through a continiuos series of stages.

Mechanical bale pickers pluck thin even layers of the matted fiber form each of a predetermined number of bales in turn and deposit them into a hopper.

The fiber is mixed and passed through the opener, cylinders with protruding finers open up the lumps and free the trash and trash falls through a series of grid bars.

The output of B/R is a lap. The lap is cylindrical cotton roll. This machine is automatic i.e. The weight of the laps is fiexed and it is approximately 26 Kg and the length of the layers of the cotton is about 15 yards. When the cotton emerges from the opener it still contains small tufts with about two-third of the trash. Then it further sent to the card for further cleaning and fiber separation the waste comes from this process is called gutter.

Carding Section.

Input laps of cotton processing output sliver cane before the raw stock can be made removed. The fiber must be disentangled & they must be straight end. The remaining impurities must be removed, the fiber into a some what parallel lengthwise alignment. This is necessary for all staple bifers, otherwise, it would be impossible to produce fine yards from what is originally a tangled mass. The initial process of arranging the fibers in a parallel fashion is known as cording.

This word is done on a cording machine. This machine remove the remaining trash, disentangle the fibers & arranged it in a relatively parallel manner in the form of a thin web. This web is drawn through a funnel shopped device that molds it into a round soft ropes of cotton called card sliver.

Drawing Frame Section.

The breaker machines are used to prepare slivers. The eight plastic cones of slivers, which are prepared in cording section, are used on one breaker machine, which prepares single sliver of cotton by joining these eight slivers. This process of drawing or drafting eliminates irregularities in the thickness of different slivers that would cause too much variation, if the slivers were put singly.

The same process is adopted again but here the using eight can slivers are those which has prepared by the breaker machines are used & one again a single sliver is prepared by joining those eight slivers. It is done to eliminate little variance of thickness among them. In this way a sliver is prepared in carding section by using 64 slivers step by step. The canes are filled by the slivers & than these canes are reached in the simplex section.

Simplex Section

Sliver prepared in previous section is used in the process of preparation of bobbins in this section. The machines working here in simplex section twisted these slivers & enlarged through the process & rounded on the big bobbin & these bobbins are used in the ring section for the preparation of yarn.

Combing

When the fiber is intended for fine yarn the sliver is put through an additional straightening called combing. The combing process forms a comb sliver made of the longest fibers, which in turn produces a smoother & more over yarn. This operation eliminates as much as percent of the original card sliver. Thus almost one fourth of the raw cotton becomes waste & called comber nail. This is considered a high quality wastage, which has a demand & can be sold in local market. These prepared slivers are sent to the simplex section.

Ring Section

It is a very important section or you can say that it is a back bone of spinning unit in the ring section these bobbing are placed on the frames where further drawing out & twisting takes place & the yarn of different counts are produced on the different colors of the small bobbing.

Auto Cone Section

The small bobbing prepared in ring section is used in auto cone section to form the yarn in final shape. The six small bobbing of yarn are used at a line in a machine. The machine uses only one bobbin & rolls its thread in the form of a yarn cone when the yarn of one bobbin is finished than the auto cone machine selects the other bobbins automatically restart its function during this process if the thread in the bobbins breaks the machine search out the two ends of the thread from cone bobbin & surprisingly rejoin both the ends without making any knot the weights of the cones are fixed according to the requirements of clients.

Packing & labeling

Packing is the final & most important section of the production department, because the main purpose of packing is to provide the product to the customer in the best possible condition. At the same time, good packing ensure the convenience of buyers & transporter. A good packing also ensure the uniformity & consistency in the product sold in the market. It becomes advantageous to transport the product without damage if they are properly packed. Immediate & easy identification & recognition of product become possible if scientific methods of packing are used. In this section these cones are packed in the bags for local sale & in cartoons for export purposes.

The name of Consignee, description of products, handling instructions & gross & net weight marked on the packed with the help of stencil. The trademark & brand names are also placed on each cone packing & on the bag or cartoons, the packing of each count is also distinguished by specifying different colors.

WEAVING DEPARTMENT

Grey cloth is made according to the client’s requirements. The customer specified the demand on the written order & distinguished each item i.e. which count should be used for warp & weft, no of ends & Picks per inch & with of the cloth.

Warping Section

In this section there is parallel shape creel warping machine & the capacity of this creel machine is about 530-640 cones. Beams are prepared according to the specifications given by the buyer from these cones in this section.

Sizing Section

The most important thing in the weaving department is sizing. It is also called “Back Bone “ of the Weaving department. The purpose of the warp sizing is to apply a protective coating on the yarn to enable it to with stand the complex stresses to which it is subjected in the weaving machines.

Maize Starch

P.V.A.

Polyvinyl alcohol & other things are used in the sizing for the reduction of friction between the yarn.

Starch Lubrication

Drawing Section

In drawing the sized yarn pass through the reed frame. After passing yarn through reed frame the beam is transferred to the loom shed, which is ready to weave.

The drawing process is important for the designed cloth i.e. the yarn is passed in the reed frame according to the requirements of the design of the cloth.

Loom Sheds

In the loom sheds of the MTM there are 103 Sulzer Ruti projectiles shuttle less looms installed for the production of the Grey cloth. These looms are installed in two sheds:

Quality of Cloth = --------------------------------------------------------------------- Warp count * Weft Count.

Folding Section

This is also called quality control section i.e. quality of the Grey cloth is checked 7 controlled according the international; standard, the segments of this section areas follow:

Grading Segment

Grey cloth from the loom is transferred to this sub section & cloth is graded according to the Japanese standards. Grading of the cloth is made by seeing oil spots & faults with & lengthwise.

Mending Segment

In mending Sub section oil spots are eliminated with the chemical spray gun & curable faults are cure with the help of steel comb. Main faults of the Grey cloth are as follows:

Floats, Cracks, Oil Spots, Mispick, Double Pick, Tangled Warp, Hole or Tore, Kinks count variation, etc.

Checking Segment

After mending cloth is transferred to the checking section. Where cloth is rechecked & if the faults signifies by the grading department are removed then it is passed otherwise rejected.

Cutter Section

Then this cloth is sent to the cutter section & according to the demand of the customer that he wants 120 up, 110 up, 80 up, 40-79 cut 55 cut & so on.

PRODUCTS OF MTM

MTM is producing following cotton yarn products, mainly for the exports & some of them are produced for the domestic market on demand.

Yarn product range

Grey Cloth Product Range

MTM has 110 different qualities of the Grey cloth & they are producing according to the customer’s demand.

Interpretation of this above is that two threads will go from the upper side & one will go from the lower side at the time of production on looms similarly the others.

Band Names of MTM Yarn Products.

PRODUCTION ANALYSIS

Capacity & Actual Production

It is difficult to describe precisely the production capacity in spinning /weaving mills since it fluctuates widely depending on various factors such as count of yarn spun, spindle speed, twist, the width & construction of cloth woven etc. It also varies according to the pattern of production adopted in a particular year.

COSTING DEPARTMENT

It is very important in every business to find out the correct cost of the unit of the product, which is manufacturing in the factory. So costing is an important functioning area in any manufacturing concern.

In MTM various types of products are prepared i.e. yarn of different counts & no. Of qualities of Grey cloth etc. So it is very necessary to find out the actual cost of each unit of the products, so manufactured in production units.

Functions of Costing Department

Data Collection

The major function of the costing department is data collection i.e. collection of daily production reports from each of the production unit.

MIS Reports

Prepare different types of management information reports regarding the sale, excise, export etc. for higher management.

Input & Output Ratio

The third function of the costing department is to find out the input & output ratio.

Cost Controlling

The costing department helps in cost controlling i.e. they analyze the actual cost of the product by collecting production data & prepare suggestion report that where the cost is to control by which method we can reduce the cost of the product.

Guideline for Management.

Costing department also provide guideline in forecasting, decision making & pricing policies.

Stock Maintaining

Cost Evaluation

By using these above formulas, we can easily find out the cost of the yarn & Grey cloth. Firstly they were calculating the cost through manual system but now they are using computers for the calculation purposes. They are both Microsoft excel, these formulas quickly calculate the required results.

TESTING LABORATORY

Some tests are made for the quality control purpose in the laboratory & these tests are made through different machines.

This test is used to find out the correct yarn count & the variation in the counts.

Uster Tester 3

This test is used to find out the thick & thin places & nepses in the 1000 yards test of the thread.

Strength & Tenso Rapid Machine

Abrasion Tester

Viscose Tester

Moisture Tester

This test is used to measure the humidity in the cones used in the weaving section in the weft side.

LABOUR OFFICE

Labour office performs its function under the control of labour officer. One assistant labour officer & one senior clerk are working under the labour officer.

Main Responsibilities of Labour office

Labour officer is responsible for the recruitment of the worker. First of all requisition for worker is received from the different departments. Then applications are received from the workers for the job. Primary selection of worker is made on the basis of past experience of the applicant. After the primary selection worker join his job on trial basis. Six days are required for the completion of his trial. If the worker shows the positive result then the head of the department in which department he is working on trial basis selects him. Then final selection is made & the labour officer issues appointment letter. Record clerk maintains the record of the employee. In this record information such as name, workman no., basic pay, department, shift & nature of the job are mentioned.

The top management & directors fill the post executive & senior executive. During the interview the candidates are judged either they are suitable for this jobber or not. If this candidate pass his interview then he is selected for this job. Then appointment letter is issued. The executive & senior executive post is filled from outside as well as inside the organization by virtue of promotion & transfer of employee from other department Salary, allowances & other benefits are discussed by the management then the personal file is prepared & kept by the record clerk for future reference.

Other Functions & Responsibilities of the Labour Office

Labour office is responsible for the performance of the following functions & responsibilities.

Charge Sheet & Inquiries

When a worker shows misconduct then the labour officer or the assistant labour officer may dismiss from the job due to misbehavior. Similarly a labour officer may fine the worker of on the basis of misconduct. These punishments are given according to the “ Law of industrial & Commercial Employment”.

Social Security Benefits

Social security department of Pakistan has opened different dispensaries in different factories & at district & division level. All the factories are bound to contribute some amount toward social security dispensaries for handling the medical aid according to the social security rules.

There is a dispensary in the MTM which give the medicines to the patient of this organization. One doctor & his assistant are performing their duties in this dispensary.

Education

As Education is the right of every person. So every factory is bound to make contribution for the education of the children of the worker of the factory to gave this right. In the month of March applications are invited from the workers of MTM. After the verification of the head of the school the stipend are given to the children according to the class. Every year the organization paid the amount on education regularly.

Group Insurance

The benefit of insurance is also provided to the workers of this organization. This contract has been made with the State Life Insurance Corporation. Company paid every year to the State Life Insurance Corporation.

Gratuity to Workers

This facility & benefit of gratuity is also provided to worker according to the Labour Law. When permanent employee leave the organization. This gratuity is given according to the rules & regulations, which are mentions in the Labour Law.

Other Facilities given To the Workers

The Company takes keen interest in giving the facilities to its employees. Following are the benefits & facilities, which are given by the company to the workers.

Residential Accommodation

Officer colony serving the purpose of housing facility to the officers of the organization. Similarly workers are accommodate in the worker quarters. Approximately 500-600 employees are living in this colony & worker quarters. Facilities like light & water are provided freely.

Canteens

The facility of the canteen is provided to workers. There are five canteens each canteen for one unit. These canteens are opened 24 hours to cover the three shifts of the mill. These canteens are run on “ no profit & no loss “. There are also two private hotels outside the mill where food is provided at very low prices.

Free Dispensary

There is a dispensary in the MTM near the outer gate of the mill, where the medicines are given freely to the workers on showing the employee card. There is a one doctor & assistant to do this job.

Sports

Health has its own in the life of Human Being. Good health can be maintained by the good exercise. For this purpose sports grounds are available for Football, Hockey, Kabadi, VolleyBall & Cricket in the mill.

Leaves

Leaves are also given in the MTM according to rules & regulations. In this Company leave without pay can be taken at any time. Sick leaves, Privilege leaves & Casual leaves are granted to staff & worker. The detail of these leaves are given below:

TIME OFFICE

Time office is performed under the direct control of assistant Labour officer. One head timekeeper & a clerk are working there in the time office. There are junior timekeeper in each unit for shift A, B, C. Time Office is one of the most important offices of the organization.

Functions & Responsibilities of Time Office

The time office keeps the proper record of presence & absence. This is the main function of this office.

Time card is issued to the worker by the above-mentioned office. When the shift start these time cards are deposited in the time office & timekeeper mark the presence or absence on the time card as well as on the salary sheet/haazri register. Leaves are also mentioned on this haazri register.

There is also a separate leave register for recording different types of leaves such as sick leave, social security leave, leave without pay & casual leave. These leaves are recorded in this account of concerned worker date wise.

Time office maintains the cot register. Company provides the cots to the employees & they payback the amount of those cots on the basis of month wise installments.

Daily attendance report for general shift, prepared by the timekeeper of the time office. The time office also prepares similarly daily attendance report shift wise & summary of attendance report. On the summary attendance report attendance of shift A, B, C & General shift are mentioned. This report is signed by time keeper & head timekeeper & sent to labour officer. After signed by the labour officer & the mill manager this report is kept in the time office.

Time office is responsible for the maintenance of the over time register. From this register overtime is calculated & given to the worker on the next day.

SECURITY OFFICE

Security is the basic necessity for the safety of plants & other assets of the organization. To meet with the mishaps, MTM established an well-organized security system.

The retired army officer controls the security office. All the employees of this office are hired form retired army personnel. Incharge of the security office (security officer) arrange all functions performed by the office as mentioned below.

Objective of the Security Office

As MTM performs their production program in shifts, so the security office also performs its duty in shifts.

In every shift one security inspector controlled all the security functions with a team of more than thirty security guards. Functions performed by the security office are as follows:

Entry Control Barrier at Gate

At the main gate the security guards performed their duties & checked the entry of private persons & company employees. Checking the employee pass makes the employee’s entry. For the private person entry is prohibited in the mill area but for the guests, vehicles of raw material & finished goods entry is made through proper channel. Every thing, which is entering in the mill, is entered in the “ Amad “ register & every thing, which is going out form the mill, is entered in the “ Nikkas “ register.

1- For Guests

Security guards received every guest at the main gate & inform to assistant security officer ( A. S. O ) , Asked the guest about whom he want to meet & inform the concern person if the concerned person wants to meet his guest in his office, A.S.O. issued him gate pass / visiting pass with the entry of visitor name, address, date, time & name of the concerned person whom he want to meet. The security guard guides him about the office of the concerned person. After visiting the gate pass is collected from the guest & entry of the time of departure is made on the register.

2- For Material Vehicles

All the material vehicles are checked at the main gate. After checking security officer issue “ Inward gate pass “. Three copies of inward gate pass are prepared, two copies are sending to with the material vehicle to receipt room & one is left in the security office record. Form the two copies, which are sent to the receipt room after verification one copy is returned to security office.

After unloading the material the vehicles are also checked & issued “ Out Ward Gate Pass”

3- Entry Control Barrier at Technical Gate

Second entry control barrier is established at the technical gates. Every entry in the technical area is checked & after checking the inward gate pass entry is made.