 Ordnance Factories are basically manufacturing

units, though of late, certain new responsibilities

like marketing & export and research &
development have been added to it in order to
improve their capacity utilization and give better
products & services. Despite this, its basic
character which emanates from ‘one customer –
one producer’ relationship has not undergone
any substantial change. The new products are
designed and developed by DRDO and given to
the Ordnance Factories for establishing
production.
 The factories establish mass production of the
items through a development process, which is
generally divided in three stages viz.
a) Manufacture of a pilot batch
b) Establishment of batch production having
scope for further improvement in technique or
manufacturing methods and
c) Final establishment of manufacture by
standardization of technique and manufacturing
methods.
Once an item is established, the factories get
repeat order from Army via Ordnance Factory
Board which is discharged on annual basis. It is
imperative that the factories meet the annual
targets without fail in order to ensure defence
preparedness and simultaneously ensuring
optimum capacity utilization for producing goods
at minimum cost. This dictates the need to have
a sound and foolproof production planning &
control system in the organization which does
exist for a very long time..
 Any activity related to production entails expenditure
which is required to be budgeted, compiled, controlled
and finally allocated to the products for recovery through
sales. This implies the need of a financial and cost
accounting system which is available in he organization
commonly known as “Factory Accounting Rules”.
 In factory accounting, we talk about the Rules,
Procedures, Powers and the Cost Accounting
methodology related to each factor of production which
is so inextricably interwoven with PPC System that it
becomes difficult to give a separate identity to each one
of them. Therefore, there would be lot of cross –
references and mapping of PPC procedures on Factory
Accounting Rules and vice – versa.
 CUSTOMERS
 Indian Army is the prime customer of the organization.
Besides there are other customers also to whom the
organization is serving. They are classified in the
following categories for the purpose of receiving orders,
discharging their workload and monetary transactions:
A ARMY
B Navy, Air Force and Other Defence Departments
C Establishments under Ministry of Home Affairs
D Central Govt. & State Govt. Department
E Public Sector Undertakings
F Private Civil Indenters
G Employees of the Ordnance Factories
 ORDERS
The orders from the customers are received through one
of the following documents:
A INDENT (ARMY, Navy, Air Force MHA)
B Supplementary Work Order Drafts (SWODs)
(Small orders from the establishments under MoD)
C Purchase Order (CG/SG/PSUs/Pvt. Civil Indenters)
\ D Payment Service Requisitions from OF Employees
Indents and some of the SWODs are received at the
P&P Section of OFB while other orders are received at
the factory level.
 Indent
 The Services viz. Army, Navy & Air Force
conduct annual review of their requirements of
Arms and Ammunition sometimes in
September/October every year and place their
demand on OFB. The documents through which
the demands are placed are called Indents.
These indents, which emanate from their
respective Headquarters (Army : Director
General Ordnance Services (DGOS)), indicate
the Store, Quantity on Order, Anticipated Date of
Requirement (ADR), Unit Cost, Previous Source
of Supply, Inspecting Authority, Consignee etc.
 The Services are supposed to place demands
on OFB by 31st March every year covering their
entire requirements for the next years. Out of
this, the requirement for the first year is firm and
final. There is a provision for placing
Supplementary Demands for additional quantity
against an existing indent or
reduction/cancellation of an existing indent partly
or wholly through Reduction Demands. These
demands are further validated in the Target
Fixation Meetings held annually in the month of
January where the target for the ensuring year
are firmed up taking into consideration the
budgetary provisions of Army and the Price List
issued by OFB.
 Indent
 While placing order, and advance copy of the indent is
forwarded to OFB while three more copies are routed
through Authority Holding Sealed Particulars (AHSP)
who certify the correctness of technical
specifications/drawings and availability of paper
particulars. The indents received at OFB are scrutinized
by the P&P Section of OFB who give a registration
number, which incidentally happens to be the Extract
Number, and forward it to the concerned Production
Section of OFB for issue of Extract (discussed
subsequently). The Indent thus is the authority for OFB
to undertake manufacture of the Service Stores.
 Indent
 On receipt of an Indent. OFB has to indicate within a
period of 3 months whether it shall be possible to supply
to stores within the ADR. If it is not possible to supply
within the ADR. A revised date is given known as
probable data. Of completion (PDC). The Army Hqrs
must respond within 2 months and reconfirm for
acceptance of the revised date. The PDC of an indent is
generally decided mutually. In case the supplies are not
completed within the ADR/PDC, the Services are free to
cancel the order and the financial repercussion of the
same will have to be borne by DGOF. In case an indent
is cancelled within the ADR, the financial repercussion of
the same will have to be borne by the Services.
 Indent
Indents are also received from the Para
Military Organizations and the Central
Police Organizations under MHA. The
MHA indents are also treated on the
similar lines.
 SWODs
R&D Organizations and Proof
Establishments under MoD require certain
items in small quantities for which they
place SWODs on DGOF. These SWODs
have the same status as that of an indent
and are processed in the similar manner.
Sometimes the factories also receive the
SWODs directly for which they obtain ex-
post facto sanction of OFB.
 Purchase Order
 The Central Government Departments like
Railways, State Government Departments,
Public Sector Undertakings and Private
Civil Indenters can place their purchase
orders directly on the Ordnance Factories.
These orders are processed by the
Marketing Sections of the individual
factories under the provisions of the Civil
Trade Instructions.
 EXTRACTS

The primary objective of all ordnance

factories to produce defence stores
required by Army, navy, services. The
activity starts immediately on receipt of
demands in the form of Indents to OFB Or
OF. On the basis which OFB forwards
production order known as Extract.
 Extracts
Ordnance Factories are under the control
of OFB. In liaison with M of D O Fys gets
the order for the requirement of stores for
Army, Navy, Air Force etc.
O F B directs the Ordnance Factories to
manufacture the stores for Military by
placing Extract on the factory.
 Extract is the authority issued by OFB
to Ordnance Factory to undertake
manufacture of any item in the
concerned factory.
 Extracts are of 5 different classes, i.e.
Class I to Class V as described
below:
 Classes of Extract

Class Description
Class I Orders for Army, Navy, Air Force as per their
requirement for manufacture/repair of stores
Class II Payment Work Order from State Governments,
Railways, MES etc.
Class III Services rendered by one Ordnance Factory to
other Ordnance Factory (IFD)
Class IV For services internal to factories other than capital
service. This is also known as Supplementary
Work Order Draft (SWOD).
Class V For Capital services (e.g. Manufacture of
Machines for Stock)
INTER FACTORY DEMAND (IFD)
While executing an Extract of an end store, the finishing
factories some times require assistance of a sister
factory in the form of empties, explosives or raw
materials. This is obtained through an IFD on the
authority of the extracts issued by OFB. The IFD
becomes authority for a sister factory to undertake
manufacture of an item. The IFDs get the blanket
sanction of OFB and treated as a Class III Extract. Every
year a matrix of Class III Extract Numbers are issued by
OFB to cover the IFD transactions between two factories
which is required to be quoted by the demanding factory
while placing an IFD on the sister factory.
 CENTRAL DEMAND
When an extract for an end store is issued by OFB to the
finishing factory, it is expected that the stores would be
promptly delivered. But as mentioned above, the
finishing factory may have to take assistance of the
sister factory for which it will place an IFD. In some
cases, the sister factory on which the first IFD has been
placed may further place an IFD on the second factory.
Thus the factory which is required to deliver the raw
material or component first is last in the chain to get
information which delays the whole planning schedule. In
order to circumvent this delay, OFB issues a Central
Demand almost simultaneously with the issuance of the
Extract on the intermediate factory (with quantities
covering the requirements of extract) for the empties etc.
which has got the same status as that of an IFD floated
 CENTRAL DEMAND
between two factories. CD is thus the authority
simultaneously issued by OFB to intermediate factories
to undertake production of semi – finished jobs (empties)
which are required for executing the extract by the final
issuing/finishing factory to meet the demands of the
Services.
Generally, CDs are placed for major sub-assemblies or
components manufactured by Intermediate Factories
and issued to finishing factories. The list of such items
and the intermediate factories where these are required
to be manufactured is decided by OFB in advance. The
intermediate factories take up manufacture of
empties/major sub-assemblies immediately on receipt of
CDs.
Intimation regarding acceptance of
Extract
 After receiving the advance copy of
Extract, concerned factory will investigate
whether it can undertake this work in
addition to existing workload. Factory,
after investigation of material and
equipment position and scrutiny of
drawings, intimates OFB of its acceptance
of Extract for manufacture of the item with
probable date of completion (PDC).
 Then one copy of Extract is sent to the
concerned factory by OFB and 3 copies are sent
to AHSP (Authority Holding Stores Particulars)
generally Controller of Inspection.
 AHSP, after checking the nomenclature,
specifications, drawing and other necessary
particulars to guide for manufacturing of stores,
sends one copy duly vetted to Factory and one
copy to local Inspectorate and retains one copy
for itself. Depot indents are also are sent to
Factory through AHSP. IFDs are sent directly to
factories.
 Information contained in an Extract
The Extract will contain the following information:
 Name of the Factory
 Class of Extract
 Extract No.
 Date of commencement and completion of supply
 Nomenclature of stores
 Number or quantity on order
 Distribution
 One copy of this Extract is also sent to Local
Accounts Officer (LAO) directly by indenter or by
concerned factory on receipt of extract for costing
purpose.
 Entry in Extract Register
After receiving the Extract in the factory, it
is sent to Central Planning for recording
entry in the Extract Register. Thereafter it is
sent to the concerned planning group for
necessary actions. Planning Officer in
consultation with Production Officer decides
which Production Section will undertake the
job/operations involved. Works Office
allocates Work Order Number and Warrant
Number.
 Action by Planning Section
On receiving the Extract, Planning Section
initiates preparatory work and directs:
 Design Office to prepare operation layout,
design of tools, jigs, fixtures, cutters etc. as
required
 Rates & Estimates (R & E Section) to
prepare Labour and Material Estimates.
 MCO & PV to procure materials.
 Production Shop to undertake manufacture
of jigs & fixtures required.
 List of outstanding extracts
 At the end of the year, a list of all out-standing
extracts (including those outstanding from previous
years) will be prepared for each class of acts
showing the extract numbers and the quan­tities
outstanding as per production cards and the list will
be sent to the factory for check and return. In
factories where these lists are prepared by the
Management, the Accounts Office will check the
outstanding shown therein. Any discrepancies
should be settled at once. When an extract from the
out­ing list is completed, the remark "completed"
should be entered in the outstanding list.
 When an extract is altered or cancelled, necessary
note will be made on the extract as well as in the
register or the outstanding list as the case may be.
 List of outstanding extracts
 For budget purposes, the outstanding values of
all extracts under each class should be worked
out. This will be the amount which is required to
be spent in the next year i.e. any expenditure
already incurred should be excluded. This can
be done by pricing the outstanding quantities at
full standard rates and deducting there from the
value of unfinished semi manufacture, making
an allowance for any undue fluctuation that
might have occurred on account of excess cost
of tools or change in the material values or on
cost charges
 Cancellations of extracts
 Whenever, a demand or extract is can­celled,
credit will be taken for it in the year in which it is
cancelled irrespective of whether the cancella­
tion is effected in the year in which it was placed
or in a later year. On receipt of intimation that a
demand or extract has been cancelled, a report
will be sent to the OFB by the factory through
the Accounts Officer regarding the actual loss
sustained on account of commitments etc.
entered into before °receipt of the cancellation
order, in order that the factories budget may be
reimbursed to the extent necessary.
 Cancellations of extracts
 The term "actual loss" referred to in above para
will cover the- cost of labour employed and
material used in the manufacture of stores of
which further use cannot be made. It does not
include material purchased and taken into stock
for eventual use in complying with demands that
may be placed later for the same store or for a
store in the manu­facture of which similar
material is used.
 Cancellations of extracts
 When a Class I extract is cancelled, as much of the
expenditure as has already been incurred on it will be
transferred to some other warrants, if possible,
and any scraps or, components returned to store. The
balance of the expenditure should be transferred to
work order 06/00025/00. In the case of all other
extracts, such expenditure should be adjusted to
general indirect charges under orders of the C.C. of A
(Fys), but, where a Class III extract was issued in
satisfaction of some arsenal demand, the expenditure
should be transferred to work order 06/00025/00. In
the case of Class II extracts, a loss statement will be
necessary to write off the net loss under the sanction
of the competent financial authority
 Functions of AO
 Copies of all extracts as well as
amendments/alternations relating thereto
will be received in the Accounts Office
direct from the OFB or through the
Finance Division OFB, if they relate to
Army, Navy, A.F., M.E.S. or stock orders.
 Functions of AO
 In the case, where it may appear that the
issue of the extract is objectionable, the
Accounts Officer should expeditiously take
up the matter with the G.M. or the OFB
through the Chief Controller of Accounts
(Fys). The OFB will, if necessary, be
requested to instruct the factory not to
proceed with the extract, which has been
objected to until the objection has been
settled.
 Functions of AO
 A register of extracts (vide Sl. No. 17 of
Annexure `A' to Chapter 1X) will be maintained
in the Accounts Office to watch the receipt of all
extracts issued, the progress of completion of ex­
tracts with special reference to the P.D.C., if any,
mentioned in the extracts as well as to ensure
that the quantity ordered on the extract is not
exceeded - in actual manufacture.
 When extract is completed, the 'remark
"Completed" will be written against it in the
register. The information will be obtained from
the pro­duction cards.
 Action by Planning Section
 Planning Section is the Custodian of
Extracts and receipt, progressing, closure
and liquidation of the same falls exclusively
in their domain.
 Monitoring of Production and Issues and
monitoring of achievement in respect of the
Principal Items to be done by the Planning
Section which also monitors the Vale of
Production, Production in terms of SMH and
Monthly Capacity Utilisation w.r.t. the laid
down targets.
 R & E Section will prepare and send
Material Estimate to Planning for initiation
of procurement of material. Planning office
issues both Material Warrant and Labour
Warrant as per Estimates received from R
& E Section to the concerned Production
Shop's who will start manufacturing of the
item.
Rates & Estimates Section (RE)

 The Rates & Estimates Section of a factory is

considered as the custodian of estimates. They
are entrusted with the responsibility of
preparation of spot estimates and regular
estimates for production, both provisional and
standard, carrying out temporary and permanent
revision of estimates. This section issues indirect
Warrants, does Overhead Budgeting, Cost
Estimation and take stock of the Annual
Accounts of the factory.
 Preparation of Estimates
 Manufacture of any job is undertaken in the production
sections of a factory on the authority of Warrants. The
warrants authorize the sections to deploy men and
material in a particular sequence.
 In order to have predetermined control over the factors
of production. Estimates are prepared by the Rates &
Estimates Section.
 The estimates have two parts viz. (i) Labour Estimate
and (ii) Material Estimate which are/prepared on a
special form No. G.S. 48 (all estimates are now
computerized and printed on normal/preprinted
stationery).
 Preparation of Estimates
 The estimate has a header record which gives
the Component Description. End Product or
Component Code. Work Order Number, Drawing
& Specification details, Customer (Services) for
whom sanctioned, Section and the Quantity for
which it is valid.

 The Labour Estimate (Part – I) gives

chronological description of the operations to be
performed in a section with the following details.
Section, Operation No. Operation Class of
Labour / Man – Hours.
 Preparation of Estimates
 he Material Estimate (Part – II) lists out the
materials required for manufacture of the
end store with the following details :

 Description / Folio / UQ Quantity (incl.

unavoidable rejection allowance) / Source
of Supply / Rate / Value.
 Preparation of Estimates
 The basic documents required for preparation of an
estimate are the Component Drawings and Process
Schedule.

 The Component Drawings and process schedule to be

arranged by Design Office.

 As soon as an order is received, the availability of the

estimate is checked. If the estimate is not available being
a new item and the store is previously made by one of
the factories, a copy of the estimate can be obtained
form that factory to progress the work temporarily.
 Preparation of Estimates
 Such an estimate is, however, to the used only as rough
guide because –
 (a) The plant in the new Factory may be different from
that in the old Factory.
 (b) The sequence of operations and the labour rates
applicable to the various operations may differ from
those of the old factory.
 (c) The quantities to be made may differ greatly from the
quantities visualized when the old estimate was
prepared.
 (d) The original piecework rates may not be accurate
 Preparation of Estimates
 Preparatory Data: The basic data required by Rates and
Estimates Section for preparing the estimates are :

 (a) A list of the production groups in the various shops. The

number of groups are kept to the minimum necessary to
distinguish between different types of operation, e.g., autos,
capstans and turrets, lathes, shapers, planers etc.
Subgroups may be used as necessary, e.g., heavy presses
and light presses,fine, medium, and rough fitting etc. Each
production group is given a series number, preferably
factory wise and not a shop series.

 (b) The grade(s) of labour applicable to each production

group i.e. the type of skill required to operate the machines.
 Preparation of Estimates
 c) Data on feeds and speeds most suitable for
machining each material used in the factory. If
necessary, it is collected for each production
group and tye type of tool material applicable for
each speed is also recorded.
The speeds and feeds of machines are normally
taken from Maker’s Specifications. If the
estimating staff find that a machine cannot be
run at the maker’s specified speed, the matter is
reported to the Works Manager who decides
whether to have the speed altered or to fix timing
on existing speeds.
 Preparation of Estimates
 (d) Standard data sheets previously prepared as
necessary for the use of the Estimating Staff and
carefully checked by the senior staff before being placed
on record for use, which indicate the time required for
various type of operations.
Preparation of Operation Schedule : The preparation of
an operation schedule is an essential preliminary to Rate
Fixing. The responsibility for preparing this document is
allocated to the head of the Drawing Office in
conjunction with the Tool Design Office. An operation
schedule for a component contains the following
information :
 Preparation of Estimates
(i) Raw material to be used, including sizes,
(ii) Operations involved in a numbered sequence,
(iii) Production group number of each operation,
(iv) Tools, jigs or fixtures and gauges for each operation.

Division of machining rates: All machine rates are

divided into two portions, viz., a preparation allowance
and an operating time per piece. The total time allowed
for a job will therefore be preparation allowance +
(operating time x number of pieces finished). The
preparation allowance is, of course, to be paid only once
for each run of the job on a machine, irrespective of the
number of pieces in the run.
 Preparation of Estimates
 The elements entering into the make up of
preparation allowance are –

1.Taking instructions from supervisor. It must be

understood that materials is already at the
machine, and that the supervisor has obtained
the necessary drawing in advance.
2.Obtaining tools, jigs or fixtures and gauges.
3.Preparing machine and setting up tools.
4.Restoring machine to normal condition and
returning tools, etc. at the end of job.
 Preparation of Estimates
The factors comprising the operating time per piece are
(1) Securing and setting work in machine; (2) Cutting
time; (3) Changing tools as necessary and allowance for
Grinding, if this is not done centrally; (4) Starting out and
sizing (sometimes averaged as a percentage of cutting
time); (5) Gauging and (6) Allowance for rest and minor
breakdown of tools, machine or belt. This is normally
taken as 12.5% of the neat working time i.e. items
1,2,3,4 & 5. An allowance of 25% is added to the total
time for profit. In view of the percentage time allowed for
minor breakdowns, etc., there is no provision for
payment of idle time to piece workers during minor
breakdowns extending up to 1 hour per shift. The
exercise of both observation and judgement is necessary
in estimating the total time required for this rate as lot of
subjectivity is involved in deciding the rating or efficiency
of the operator.
 Preparation of Estimates
 Preparation and use of provisional rates –
Utilizing the data described in the forgoing
paragraphs, the Rate prepares a Rate
Form (I.A.F.O. 1881) which shows the
estimated time allowed for each operation.
This Rate is generally given sufficient trial
on day-work basis.
 Preparation of Estimates
 It would be a matter of interest to the reader that
prior to correlation of piecework rates with
reference to Vth CPC pay scales, piece-work
rates were calculated by multiplying the allowed
time (expressed in hours upto fourth place of
decimal) and hourly rate (expressed as Rs./hour
upto fourth place of decimal) and the final value
arrived were expressed correctly upto 2 places
of decimal. This is no more valid after 1.4.2000
and all the rates are now being expressed in
hours only correctly up to 4 places of decimal.
 Preparation of Estimates
 When manufacture of a component gets established on
day-work basis on the scheduled equipment at reasonable
level, a time study is done for the operations concerned,
and adjustments made as necessary to the estimated
timings. The revised rate forms for the operations, checked
and supported by detailed time study data, is approved by
the Works Manager of R&E Section. All new piece work
rates are marked and treated in all respects as “provision”
until they have been finalized.

 As mentioned earlier, the material estimates descend from

the Bill of Material and the Operation Schedule. As this
stage, material estimates are also reviewed and the
quantities provided in the initial estimates area also
changed as per experience.
 Preparation of Estimates
 Finalization of provisional rates by time study – It
is generally seen that the run of work should be
large enough to enable a time study man to
make adequate number of observations to prove
the rates. Under normal circumstances, the
process gets stabilized within a period of one
year. At this stage a series of time & motion
study is carried out and with necessary
amendments, the estimates are finalized. The
estimate is then frozen which is called a
Standard Estimate. A report on the
standardization of estimates is also sent to OFB.
 Preparation of Estimates
 A certain continuity of manufacture is necessary for the
operation of piecework rates. Diminution of value of
orders below the minimum on which piece-work rate is
based will cause failure of rates as the workmen will not
be able to complete the requisite quantities and earn the
intended profit. This will also be true if a person of lower
skill is employed against the higher skill job provided in
the estimates.
 However, if a person of higher skill is employed than was
originally intended, he will earn sufficient profit by
producing less number of components which would
result into reduction of productivity as well as escalation
of cost. Such employments, therefore, must be only
temporary expedient due to administrative necessity and
alternatives must be found out at the earliest opportunity.
 Preparation of Estimates
 Permanent Revision of Estimates – Even after
standardization of estimates, necessity arises for
carrying out amendments to the rates as well as quantity
of materials provided therein due to change in produces,
plant and machinery, plant layout etc. These
amendments are of permanent nature and carried out
through ‘Revision Forms’. These RFs pertaining to a
particular estimate are sequentially numbered and
approved by the Works Manager of R&E Section before
carrying out amendments. The FRs list out the previous
entry and the revised entry which is being incorporated.
 Rate Fixing
 Fixation of piece wok rates for a piece of
work/operation is only feasible if the work is
Measurable i.e. if a reasonable approximation of
the volume and nature of work involved can be
made. Accordingly, no piece work rates can
normally be fixed for indirect services, repair job
etc. All sundry jobs where the exact quantum
and nature of work is not susceptible of exact
determination should be carried out on day work.
 Rate Fixing
 In the case of non-recurring jobs, that is,
job for which the quantities are small and
further orders are not anticipated, no
standard rate form is obviously required
and as such piece work rate will be fixed
on the basis of estimates.
 Rate Fixing
 For fixation of piece Work rate, the work will be
split up into different operations and the trade
and grade of labour required, determined. Two
essential factors involving a rate is the hourly
rate of the operator and the time in hours
required to do the job. The time required can be
estima­ted on an ad hoc basis or may be fairly
calculated to clinically with reference to time
taken actually in respect of similar jobs, if any.
Recurring items of work should initially be
undertaken normally on, Work Basis.
 Rate Fixing
 Piece work rates can be fixed only after proper
time and motion study and wat­ching
performance for some period. The provi­sional
piece work rate will show (i) the work. split up
into operations together with the estimated time
required for each operation (ii) the c1ass or
grade of labour anticipated to be employed (iii)
the minimum rare of the grade of the employee
for each of these operations and (iv) the actual
amount of money in rupees for each of these
operations.
 Rate Fixing
 By proper time and motion study the aver­age
time taken to do the job/operation should be
determined on a data sheet by taking 8 to 10
readings through stop watch arrangements by
engaging different operations of the same trade
and grade on the average time, an allowance
up to 12½ per cent may be added for machine
break down tool, sharpening, fatigue etc. on the
total time inclusive of the allowance, another
25% allowance will be provided for incentive to
the worker. The time so arrived at will be taken
as the standard time.
 Rate Fixing
 The hourly rate of operator will be
minimum of the pay scale divided by 195
corrected upto four deci­mal places. The
piece work rate will be the product of
standard time and the hourly rate correct
upto four decimal places.
 Rate Fixing
 Piece work rates of operation or
Estimates/ rate Forms should be worked
out to four places of decimal but while
making payment of the mon­thly wages,
rounding off will be done to multiples of
nearest 5 paise in accordance with Rule
789. Cen­tral Treasury Rule Part I.
 Rate Fixing
 It must be made clear to the operators that
the rates are provisional and that they will
be finalised within 3 months of the
commencement of work at provisional
rate. The rates will be finalised as a result
of time study of various opera­tions
concerned.
 Rate Fixing
 Piece work rates, once fixed should not be
altered unless there is a change in method
of manu­facture or change due to
introduction of improved types of
machineries or any other very special
circumstances. As such, it should be
ascertained before finalising provisional
rates that they are neither tight nor slack
i.e. they are really fair to; the Government
and the workmen.
 Rate Fixing
 Whenever a new piece work rate is fixed or an
existing rate is revised by Management,
Accounts Office will see in post audit whether
the new or revised rate is financially equitable
with reference to data such as the rates of pay of
the work­man skill required, operation time
test/intervals and other allowances etc. which
will be furnished by the Management. The
Accounts Officer will not merely check the
arithmetical calculation but also scrutinize the
rate and scrutinise the rate and will have the
right to challenge the same form a financial point
of view
 Rate Fixing
 Any abnormal profit or loss should be subject to
scrutiny for ascertaining the real cause and it is
due to wrong fixation, revision will be advised
and looked for in audit. A register of profit and
loss of individual Piece or and gang work rates
will be maintained by the accounts Officer for the
purpose of watching the normal percentage of
profit or loss. No payment is made when the
profit exceeds 75%. The excess profit is booked
to indirect work order No 02/ 00127/00.
 Rate Fixing
 As rates for all operations and the quantum different
materials required for a job are after actual
establishment of the manufacture, on to labour rate
and/or material will not be vary under normal
circumstances. In exceptional circumstances only
addition may be necessary for covering some job of a
non-recurring nature such as bringing materials to the
correct size or shape or to rectify defective forgings or
castings or for similar jobs of a non-recurring nature.
The use off such non-recurring rate form should be res­
tricted to the absolute minimum and can be resor­ted
for special reasons to be recorded in for the scrutiny of
the Accounts Officer in audit:
 Types of Estimates
1. Standard Estimate
2. Spot Estimate
 Standard Estimates
 For all but small orders, which are unlikely
to be of a recurring nature, Standard
Estimates will be prepared detailing the
various operations necessary to produce
an article, the labour charges to be paid
for these operations and the quantity and
description of materials required and
standard recoveries of materials to be
returned to stores.
 When it is necessary to revise the
Standard Estimate the alterations will be
effected by means of Revision Forms.
After correcting the Standard Estimates
the revision forms will be filed with the
standard Estimates. For small orders
estimates are prepared on SWO Drafts. A
copy of the Standard Estimate as well as
the Revision Form will be supplied to the
Accounts Office for pricing.
 Spot Estimates
Spot Estimates instead of detailed
estimates will be prepared in respect of
small orders. The expression small orders
would cover an order, individual or bulked,
in which the estimated value of aggregate
direct labour charges (indirect labour
charges in respect of the job done on
indirect W.Os.) does not exceed a
specified limit.
 Pricing of estimates correct to two
places of decimal:
Standard Estimates will be prepared and
priced correct to two places of decimal.
This would not, however, apply to the
piece work or day work rates used for
pricing the labour or the ledger rates used
for pricing of the material. These will be
rounded to 4th place of decimal.
Concurrence of Accounts Officer
 Prior concurrence of Accounts Officer will
not be necessary in respect of Standard
Estimates, Revisions, S.W.O. Drafts and
Non-recurring rates.
 These documents, will, however, be
subject to post-audit by Accounts Officer
and necessary documents will be
furnished to AO for this purpose.
Inclusion of normal rejection in
Estimates

Normal rejections inherent in the manufacture

of an article should always be included in the
Standard Estimates.
The percentages of rejections are indicated
as `minimum' and 'maximum' percentage.
 Functions of AO
 On receipt of these estimates in Accounts Office
for pricing and post audit the 'Labour Section'
will verify the labour operations and rates with
reference to original sheets of piece work rates,
viz. data cards, operations sheets, rate forms
etc., as the case may be and levy the D.A. at
constant D.A percent­age of the Section.
Similarly, the material portion will also be verified
by the `Material Section'. There­after, this section
will price the materials with the latest monthly
average rate or in the absence, with estimates or
approximate rates.
 Functions of AO
 Finally, `Costing Section' will levy variable and
`fixed' overheads at the annual budgeted rate. A
summary of the value under `Labour' together
with appropriate levy of Dearness Allowance
percentage, materials, variable and fixed
overheads will be exhibited on the front page
showing the minimum and maximum rate of the
estimates with reference to minimum and maxi­
mum percentage of rejection. The estimates duly
priced and audited will then be returned to the
factory as required, one copy is being retained
for use in the `Accounts Office'.
 Repricing of Estimates
 All amendments to standard estimates, revisions
etc. should be posted in the estimates
immediately on receipt in the Accounts Office
and estimates repriced accordingly. All standard
esti­mates should be repriced once in six months.
In the case of standard estimates, pertaining to
inter­-factory demands, repricing may be
necessary more frequently and change
whenever there is any in the cost of materials or
percentages of overheads or in the D.A.
percentage etc. a repricing of the relevant
estimates should be immediately made so that
the issue vouchers may be priced as realistically
as possible.
 Repricing of Estimates
 The date on which the last re-pricing of a
standard estimate was carried out should
be shown in ink on the estimate supported
by the dated initial of the auditor
concerned.
 Price Fixation by R&E
 Every year during the month of November
pricing exercise performed by R&E section.
OFB gives circular to all the factory for
forwarding data for pricing all the principal
product for coming financial year.
 R&E section with the help of Planning section
consolidates ensuing years target and compile
data in respect of targetted items.
 Price Fixation by R&E
 Certain figures to be collected from AO
under their vetting viz earlier years actual
expenditure, etc.
 Earlier manual pricing booklet used to be
prepared by factory and sent it to OFB but
now both manual as well as computerized
data needs to be sent to OFB. OFB on
the basis of these data fixes the price of
products and intimate it to concern factory.
 Price Fixation by R&E
 Items other than principle item
manufactured by factory to be priced by
R&E section and to be sanctioned by GM.
 These issue price (fixed by OFB & by
Factory) sent to LAO for pricing the issue
voucher.
 Warrants
Issue, Control and Closing
 What is a warrant?

Warrant is an authority given to shops

concerned for undertaking the production
of items stated in the warrant.
 Categories of Warrants
Warrants are of two categories :-
1) Manufacture Warrant and
2) Material Warrant
It is the General Manager's authority to the
Shops to undertake work order on the
Factory. This is usually termed Work
Order Sheet in Clothing and Parachute
Factories.
 Manufacture Warrant
Manufacture Warrants are prepared as per
standard estimate for each item of work, which
contains the following information:
 Work Order Number, Warrant Number and
date
 Authority for work (i.e. Number of Extract, IFD,
Purchase Order etc.)
 Estimate Number
 Drawing Number
 Nomenclature of the article to be manufactured
 Name of the Shop, which is to undertake the
manufacture
 Labour Operations and their rates
 Material Warrant
 Material Warrant is a document indicating,
on the basis of the standard estimates, the
quantity of material required for a job on
the authority of which manufacturing
shops demand the materials required.
 It is usually termed the Work Order Sheet
in Clothing Factories.
 These warrants contain the same
information as in manufacturing warrants
except that in this case materials required
are detailed with quantities, instead of
labour operations.
Procedure for Issue of Warrants
 Warrants are issued by Warrant Office to
Shops based on requisitions received from
concerned Planning Group or Office.
Warrants are prepared on Computer and
details like Work Order Number, Warrant
Number, Quantity ordered, date of issue to
Sections and Estimate Number are
recorded in Warrant Register.
 Distribution of Material Warrant and
Manufacture Warrant is as under:
 1) Production Section – for drawing the
material from Store Section.
 2) Planning Office.
 3) QC Section.
 4) Accounts Office
 5) Retained in Warrant Office.
 Further Categorization of warrants
Warrants are further categorized as under
as per the type of production required.
 Production warrant
 Tool warrant
 Quarterly warrants
 Warrants for manufacture of sundry items
or maintenance components of machines
 Production Warrants
All warrants issued for manufacture of
components, assemblies and misc. jobs are
categorized as Production Warrants.
 Tool Warrants
Warrants issued for tooling required to
manufacture components and assemblies
of a particular item of production are
categorized as Tool warrants.
 Quarterly warrants
Quarterly warrants are prepared by different
sections and offices for drawal of stationery,
sundry items, etc. Material warrants are
prepared in triplicate indicating different
materials required against each type of work
order and forwarded to Warrant Office for
numbering. Original of the warrant document
is returned to the section concerned and the
2nd copy is forwarded to Accounts Office.
 Warrants for manufacture of sundry items

Requisitions for manufacture of sundry items

such as cupboards, wooden platforms, items
required for maintenance of machines etc. are
forwarded to R & E Section for preparation of
estimates. R & E section forwards the
requisition along with the estimate prepared
by it to Warrant Office for issue of warrants.
Warrants are prepared and recorded in
Warrant Register before issuing it to Shops.
 Numbering of warrants
 From the number shown on the
warrants the category of warrant can
be understood.

 Warrant Number has 11 digits. First

seven digits indicate the main warrant,
8th digit indicates the type of warrant
and last three digits are used to issue
sub-warrants.
 Numbering of Warrants
0017513 1 000

Used to
Main Warrant Number Type of Warrant
issue sub-warrants

Type Code :-
1 Production Warrant
2 Tool Warrant
0 Quarterly warrant, SWOD, Warrant for
sundry Items or maintenance components of
machines all issued under indirect work orders
Record keeping of warrants in
Sections
Each section has to record the details of
warrants issued to it in a register. As the
item against a warrant is taken up for
manufacture, details are recorded on
Material warrant and Manufacture
Warrants.
Details to be recorded are as follows:
 Material Warrants:
1) Numbers of Demand Notes for the
material drawn
2) Numbers of Return Note, if any material
has been returned.
 Manufacture Warrants:

1) Details of Piece work Cards for labour

booking claimed.
2) Material received,
3) Material dispatched to other sections or
Central Godown (CG)
4) Rejections as also details of I/Notes
raised by final section.
 Completion and Closing of
Warrants
 Duly completed warrants will be returned to
Warrant Office for closing and onward
transmission to Accounts. Warrants received
from each section will be scrutinized and kept
in Warrant Office. When all the sections
involved in a warrant have returned their
warrant duly completed, warrant will be kept
for closing in a separate folder. Warrants are
closed once in a month and forwarded to
Accounts. A monthly report of outstanding
warrants is prepared and forwarded to OFB
duly vetted by Accounts.
 System of issue of warrants
There are two systems of warrant issue. They are-
Except system and Sub-warrant system

Except system
 When separate warrants are issued for
components and sub-assemblies of a
particular assembly against 40 series of work
order, it is called issue of warrant under
Except System. Components are made and
kept in Central Godown and are drawn on
Assembly Warrants through demand notes.
This system is generally used for issue of
warrants where the order is for bulk quantity.
Sub-warrant system
 In this system there is only one warrant
number for Assembly and components of
assembly. Assembly will be given main
Warrant number component will be numbered
with a sub-warrant number as shown below:
 Main warrant number will be as00175131000
 Sub-warrant number will be as00175131001,
002 , 003 and so on
 This system is adopted where order quantity is
small and not of a repetitive nature. In this
system I/Note is prepared for Main Assembly
warrant only and I/Notes are not required to
be prepared for components.
 Duration of warrants
 Warrants should normally be issued on a
short-term basis, i.e. for such quantities as
could be produced within 3 months.
 In exceptional cases longer duration for
warrants may be allowed upto 6 months, but
such cases should be limited to the minimum.
 Extension to the life of warrants must, in no
case, be granted for more than once. The
manufacturing section concerned must
ensure closure of warrants within the
specified period.
 Rejections
 Rejections taking place in warrants are
recorded by each section on the back side of
the manufacturing warrant and replacement
orders are raised duly certified by Inspection
Section. When the warrants are completed
these replacement orders are forwarded to
Warrant Office along with warrants. In case of
sub-warrants these replacement orders are
forwarded to Warrant Office whenever
rejections take place since replacement
quantities are be authorized on the same
warrant for taking up the manufacture to
complete the main warrant.
 In case of Except system of warrants,
replacements are not authorized on same
warrant but the warrant is short closed.
Fresh warrants are issued to cover
rejections. [Replacement warrants are
Warrants on the authority of which work to
cover the manufacture of articles found
defective in the course of manufacture is
undertaken].
Unavoidable Rejection Percentage
(U.A.R.)
 Every estimate for manufacture of
components makes a provision for
rejections in terms of percentage (i.e. 5%,
10%, 15% etc.). If rejections against a
warrant are within the U.A.R. percentage
authorised in the estimates, rejections are
termed as normal rejections. If the
rejections against warrants are more than
the authorised percentage, then that
rejection is termed as abnormal rejection
and will have to be regularized as loss.
 Unavoidable Rejection
Percentage (U.A.R.)
Warrant Qty. Qty. Rejectio U.A.R. Rejectio Remar
No. ordere complete n % n ks
d d
 * Rejection is within UAR % allowed.
allowed
 ** Here 10 Nos. are rejected over and above the UAR % and so a loss statement is to be prepared for 10 Nos.

17513/1 400 360 40 10 40 *

17514/1 400 350 50 10 40 **
 Bad Material Rejections
 In case of Castings and Forgings, rejections during
the process of manufacture may take place due to
bad material (like blowholes, hard materials etc.). In
such cases, replacement orders will be raised duly
certified by Inspection and will be forwarded to Store
Section along with rejected materials. Store Section
will receive the material and sign the Replacement
Order. Stores Section will then raise Replacement
Orders on Trade Firms. Replacement free of cost will
have to be made by Trade Firms who have supplied
the material. A copy of replacement order raised by
Stores will be forwarded to PV Section and Warrant
Office. If trade Firm fails to replace material within
the specified time period, PV Section will recover the
cost of such materials from the pending bills of the
concerned firm.
 In case of materials supplied by sister
factories no such replacements are
received and factory has to adjust such
rejections against U.A.R. percentage
provided in the estimates.
 Civil Trade
 The policy of the Government is to utilise the
spares capacity available, after meeting service
demands for the manufacture of stores etc. for
sale to Civil Trade, other non-military
departments (including Central and State
Governments, Public Bodies, Municipalities,
Local Board and Other Semi-Government
institution and Foreign Governments).
Manufacture is undertaken against 80, 82, 83,
84 and 88 series of work orders. The OFB/GMs
are authorized to fix the quotation price without
prior concurrence of A..O. /C.C. of A (Fys).
 Civil Trade
 The Accounts Office prices and checks the
arithmetical accuracy of the estimates. He
ensures that orders issued by Governments are
not overlooked. Pricing of all materials other
than non-ferrous scrap is done with reference to
market or controlled rice. Minor difference
between ledger a market/controlled price may be
ignored and ledger rates may be adopted where
market rates are not available. Price of non­
ferrous scrap is fixed on the basis of the Value of
Grade I Scrap as given in "The Eastern Metal
Review". The prices of other scraps are
calculated on the basis of the percentage given
in the relevant orders.
 Civil Trade
 For Civil Trade Quotations (other than Export and Non-
Military Departments including Central, State Govt. etc.),
the minimum price will be direct labour plus Direct
Material plus as much of variable charges as the market
can bear. The amount of variable Charges to be levied is
left to the discretion of the OFB.
 The maximum price is the minimum price as referred to
above plus fixed charges plus appro­priate share of
preliminary expenses where applicable. The profit or loss
is calculated with reference to the total volume of civil
'Trade done by a factory in a year. Export prices are
fixed by Director (Export) Ministry of Defence in
consultation with IFA (DP).