The Effect Of Inventory Management In The Viability Of A
Company (A Case Study Of Steel And Nails Manufacturing Industry)
1
TABLE OF CONTENTS
TITLE PAGE
II
APPROVAL
III
DEDICATION
IV
ACKNOWLEDGEMENT
V
TABLE OF CONTENTS
VI
LIST OF ILLUSTRATIONS/TABLES
CHAPTER ONE:
1.1
INTRODUCTION
1
1.2
THE STATEMENT OF THE PROBLEM
1
1.3
THE NEED FOR THE STUDY
3
1.4
THE PURPOSE OF THE STUDY
5
1.5
RESEARCH HYPOTHESIS
5
1.6
THE SCOPE OF THE STUDY
6
1.7
RESEARCH METHODOLOGY
6
1.8
LIMITATION OF THE STUDY
7
1.9
ORGANIZATION OF THE STUDY
8
2
1.10 OPERATIONAL DEFINITION OF TERMS
9
CHAPTER TWO:
2.0
INVENTORY CONTROL AND INVENTORY VALUATION12
2.1
NATURE OF INVENTORY
12
2.2
INVENTORY CONTROL
16
2.3
ACQUISITION AND ISSUE OF MATERIALS
40
2.4
BASIC INVENTORY CONTROL SYSTEMS
43
2.5
FACTORS THAT AFFECT INVENTORY CONTROL
SYSTEMS 49
2.6
INVENTORY CONTROL METHODS
2.7
INVENTORY VALUATION SYSTEMS
2.8
INVENTORY VALUATION METHODS
2.9
FACTORS AFFECTING INVENTORY VALUATION
DECISIONS
2.10 THE CONCEPT OF VIABILITY
49
53
57
60
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CHAPTER THREE
3.1
SELECTION OF DATA
62
3.2
COLLECTION OF DATA
64
3.3
TOOLS OF DATA ANALYSIS
66
3.4
RELIABILITY OF DATA
67
CHAPTER FOUR: DATA PRESENTATION ANALYSIS
4.1
DATA PRESENTATION AND ANALYSIS
68
4.2
HYPOTHESIS TESTING
86
CHAPTER FIVE:
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1
SUMMARY
100
5.2
CONCLUSION
101
5.3
RECOMMENDATION
102
BIBLIOGRAPHY
107
APPENDICES
109
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CHAPTER ONE
1.1
INTRODUCTION:
The viability of an organization ca be enhanced through an
effective and efficient management of material resources.
Inventory
control is a notable measure in managing material resources.
Management of resources covers every action taken from the procurement
of the resources to their disposal. Firms take certain measures towards
preventing their stocks from being in shortage, pilferage and waste some
of the measures are very effective while other are not.
In consideration of the scarcity raw materials, their exorbitant costs
of procurement and management in the present prevailing economic
condition, if is imperative for firms to do away with the rule of thumb’
approach of inventory control and adopt the scientific approach. It is on
the basis of this that the need for this study lies.
1.2
THE STATEMENT OF THE PROBLEM
The goal cot every business entity is to maximize wealth. Wealth
maximization is achieved when the interest of the shareholders are met.
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The interest of the shareholders can be met only when the business entity
makes profit. Profit is said to have been made when the total revenue
exceeds the total cost and expenses incurred.
Effect five inventory
controls are important factors in keeping the total cost of maintaining
inventories at a minimum and help to increase return on the investment.
Many organizations do not adequately control their inventory
making it possible for losses [through shortage of stock pilferage, waste of
materials etc.) to pas unnoticed. The stores department is often neglected
equivalent amount of (illiquid) cash.
Unplanned flaw of materials is determined to efficient operation.
Production stoppages resulting from stock out have innumerable negative
effects (costs).
They lead to loss of man-hour, disappointment of
customers and possible loss of goodwill.
Few manufacturing firms use scientific approach of inventory
control.
Many fall back on the rule of thumb.
This is reasonably
inaccurate. It leads in to over-stocking or under stocking over stocking
entails incurring high storage spaccs and stock loss
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On the other hand, under-stocking may result to panic buying and
diction delay and loss of sales revenue which gives rises to be of profit
and goodwill or even penalty payment where there is a conduct to
maintain regular supplies.
Stock losses could occur when inventories are not properly
accounted for. This may be due to type of inventory system used, the
method of valuation of unused of unsold inventories at the end of
valuation period and the managerial efficiency in adopting an acceptable
inventory. Control when most required.
This study will look in to the nature and external of solving their
problem.
1.3
THE NEED FOR THE STUDY,
Many companies are making looses while others are winding up.
These gives rises to the people through that, there is inability to manage
resources effectively in Nigeria.
This is because these things are
happening in the midst of abundant resources Ringin viewing as above
stated that prudent management for our financial, materials and human
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resources is more important now than ever before as the economy takes a
downturn. No wonder Hingren says that good inventory control helps
maximizing efficiency, minimize waste, with tensional errors and fraud
therefore, the reductional of wastetage is one of the must important
elements of inventory planning. When a business concern minimizes
waste. Unintentional errors. Fraud and maximizes efficiency, it makes
profile and unfenced the ‘yields profit, that is pays back the resources
employed in time and will too could be said to be viable. For viability of
any business there could be said to be profit. Profit is necessary for new
plants equipment, working capital and loan.
Also the willingness of
individuals to invest in a business is governed largely by the firms profit
history and profit potentials.
In many respects the welfare of all
employees of a business rest on the above that the need for a research into
the effect of inventory control on the viability at a company becomes
obvious.
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1.4
THE PURPOSE OF THE STUDY
The objective of the research is to appraise, the appreciation of
inventory control principle in business organization. It is also the purpose
of this to find out whether the method the companies are can be justified
on the basis of found accounting principles. The study will also find out,
if through the control and accruing benefits it any, the companies can be
said to be making profit.
1.5
RESEARCH HYPOTHESIS
I.
Ho:
The system of inventory control used by company is justified
on the basis of sound accounting principles.
Hi:
The system of inventory control used by the company is not
justified on the basis of sound accounting principles.
II.
Ho:
Effective inventory control enhances organizational liability.
Hi:
effective inventory control does not enhanced organizational
liability.
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1.6
THE SCOPE OF THE STUDY
A research on the effect of inventory control on the viability a
company is a very wide topic. In abid to keep the work within the
limited time available the research confirmed the study to the inventory
valuation methods in use in the companies and the effect of the method on
the viability of a company used as the case study. The findings can be
related to other
company and the recommendations applied to other
companies too.
1.7
RESEARCH MENTHODOLOGY
The information for this research was collected from the following
sources:
a)
Textbooks, magazines, Newspapers and other written work that
were extensively read to provide the secondary data.
b)
Interview: Many workers in the stores and accounts department
were interviewed to familiarize the student with necessary facts
for the research work.
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c)
Observation: At the companies the students made observations
of the inventory valuation and control prations of the companies
as they were being carried out with some explanations from the
relevant staff were necessary.
d)
Questionnaires:
These were directed to the workers of the
companies relevant sections and these provide large part of the
primary data for the research.
1.8
LIMITATION OF THE TSUDY
The study is limited to the examination of the effect of inventory
the study is limited to the examination of the effect of inventory control
the viability of a company. The analysis is based on these companies.
Standard poly plastic industries limited and fails and General steels
company limited.
I was constrained by many problems in conducting the research
paramount of these problems once.
Finance: A research of this nature is expected to cove a wider population
so as to be universally well represented by the samples. However, due to
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financial constraints, at is limited only to these selected firms. Despite the
fact that the researcher was prudent in the application of the limited
resources, the inadequacy has to cause some delay in going for relevant
data, final production and so on.
1.9
ORGANIZATION OF THE STUDY
This study is grouped into five inter-related chapters for
convenience and understanding of the research work.
Chapter one: This chapter contains an introduction to the study, statement
problem, the need for the study: the research hypothesis, the limitation
and scope of the study, the organization of the research study and
operational definition of terms.
Chapter two : This chapter reviews related literatures.
Hence, what
constitutes inventory are examined and the various valuation models
critically weighed. Method of inventory control is also critically looked
into.
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Chapter three :This shows the research methodology. It looked at the
methods and procedures of data selection, data collection research design
and tools data analysis.
Chapter Four : This handles statistical analysis of data. This is made up
of the analysis of response and test of hypothesis.
Chapter Five: This is a summary of findings, implication of findings,
recommendation and Conclusion.
1.10 OPERATIONAL DEFINITION OF TERMS
ANS METHOD: Stock control technique that divides material,
parts supplies and finished goods into sub-classification and uses different
control system for each classification.
GARRUING COST: Usually consists of a desired related return on the
investment in inventory and costs of storage space, breakage,
obsolescence, deterioration, insurance and personal property fax;
ECONOMIC ORDER QUANTITY (EOQ) Amount of inventory that
should ordered at one fine so that the associated annual const of inventory
can be minimized.
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FIRST IN FIRST OUT (FIFO) The inventory which is acquired earliest is
assumed to be first used, the inventory acquired later is assumed to be in
hand still.
INVENTORY : Inventory means a schedule of items hold at a particular
time for sale, production of goods and services or is in process of
production of goods and services (W.T.P) Inventory is called stock, hence
the two terms “stock’
LAST IN FIRST OUT: A lost flow assumption that the inventory
acquired earliest is still on hand; the inventory acquired latest is used first.
LEAD TIEST: Time internal between planning an order and receiving
inventory.
ORDERING COST : Clerical cost of preparing a purchase order or
production order and processing and receiving cost relating to the member
of order processed.
PERIODIC INVENTORY SYSTEM : System inventory the cost of good
sold is computed periodically by relating solely on the physicals counts
and not keeping day-to-day records of units hold or an hand.
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PERPECTUIAL – INVENTORY SYSTEM : A continuous record of
addition or reductions in materials, work in progress and cost of goods
and services sold on a day to day basis.
PROFITABILITY : A term used to measure the relationship of profit to
investment that generated the profit. It measured the effectiveness and
efficiency of a firms use of resources at its disposal.
RECORD POINT : Quantity level at which a new order should be placed.
SAFETY STOCK : Minimum or buffer inventory used as a cushion
against reasonable expected maximum usage.
STOCK OUT COST : Cost that include expensive spending loss of
contribution margins and loss of customers good will.
VABILITIES : Here it refers to profitability and growth.
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