Inventory Valuation Management And Control In Manufacturing Organisation
Effective inventory valuation management and control in manufacturing organizations is essential for optimizing operations and maximizing profitability. By implementing robust systems and procedures, companies can ensure accurate assessment of inventory levels, minimize carrying costs, and enhance decision-making processes. Utilizing advanced technologies such as inventory management software, barcode systems, and automated tracking mechanisms enables real-time monitoring and efficient inventory control. Moreover, employing just-in-time (JIT) and lean inventory principles streamlines processes, reduces excess inventory, and mitigates the risk of stockouts. Through strategic analysis of demand patterns, supplier performance, and market trends, organizations can optimize inventory levels, minimize obsolescence, and improve cash flow. Additionally, fostering collaboration between supply chain partners and implementing stringent quality control measures further enhances inventory management practices, fostering competitiveness and sustainability in the dynamic manufacturing landscape.
The need for holding inventories is invented in any business organization. The space of the inventory will be properly controlled so that the object of carrying or maintaining adequate inventory lauds at minimum cost can be realized.
The study therefore, examined the system of stock valuation, controlled and management in Emenite Limited. Considering the nature of the study and the company, a lot of data were generated from questionnaire administration and proposal interview conducted on staff of the industry.
Based on the method of data collection, the researcher found out that the system of inventory control is adequate in design and effective in operation as regards the determination of stock levels, which could be attributed to the use of scientific method in determining the quantity and time to order.
The researcher strongly believe that proper and accurate recording of the bin cards, thee use of scientific method in stock level.
Title page
Approval page
Dedication
Acknowledgement
Abstract
Table of contents
CHAPTER ONE
1.1 Background of the study
1.2 Statement of problems
1.3 Purpose of the study
1.4 Scope of the study
1.5 Research questions
1.6 Research hypothesis
1.7 Significance of the study\
1.8 Limitation of the study
1.9 Definition of terms
CHAPTER TWO
LITERATURE REVIEW
2.1 Purchasing procedure
2.2 Receipt of material
2.3 Accounting Treatment
2.4 Stores Routine
2.5 Inventory Control
2.6 Stock cost
2.7 Inventory control Terminology
2.8 Types control system
2.9 Method of valuing material
CHAPTER THREE
3.1 Research Design
3.2 Area of study
3.3 Population of study
3.4 Sample and sampling procedure
3.5 Instruments of Data collection
3.6 Validation of the instrument
3.7 Reliability of the instrument
3.8 Method of Data collection
3.9 Method of Data Analysis
CHAPTER FOUR
4.1 Presentation and Analysis of Data
4.2 Testing of hypothesis
4.3 Summary of Result
CHAPTER FIVE
5.1 Discussion of Result/Findings
5.2 Conclusions
5.3 Implications of Research Findings
5.4 Recommendations
5.5 Suggestions for further Research
References
Bibliography
Appendages/Appendages
INTRODUCTION
1.1 BACKGROUND OF STUDY
Inventory valuation, management and control is the system designed by the management of a firm to control its investment in stock.
This is found to be in existence in Emenite limited Emene, which produces roofing sheets and hard boards for ceiling. The system involves the recording and monitoring of stock levels, knowing when to place orders and how many orders to be placed. Effective, efficient and economic inventory helps to check the following costs:-
1. Carrying cost which include interest on capital invested in stock
2. Storage charged
3. Store staffing
4. Material handling cost
5. Transportation cost
Since management needs information on inventory as a guide to decision making, inventory handling should not be placed on the basis of trial and error.
Material control is an act of -management, which ensures the provision of the required quantity of inventories of the required quantity at the required time. With the minimum amount of capital tied up. It embraces stock control procedure, placing of purchasing, receiving, inspecting, storing requirement and issuing of stocks.
It is an important and difficult task, inventories are necessary in order to satisfy ever yawing need of customers and smooth running of an organisation, most organisation invest in large number of inventory items, irrespective of the system of storage adopted there must be place for everything are everything in it’s place for the stock weeping system to operate efficiently.
Floor space is very expensive and must be used to the best advantage. It is therefore necessary to build warehouse for storing materials and provide things for feasible, bins racks and shelves must be provided.
1.2 STATEMENT OF PROBLEMS
Problems of stock valuation its management and control exist in almost all firms except service oriented organizations. The problems arise form the fact that most organizations (mainly manufacturing companies) based their stock control on huma
n judgment approach rather than applying modern scientific models like recorder levels which removes entirely all elements of bias in determine stock levels, lead time provision, Economic order quantity (EOQ) and other relevant inventory models are conspicuously ignored.
The relative degree of weakness of the internal control system with respect ot stock, leaves much to be desired especially in the management and the control aspect of most firms.
Furthermore, indiscriminate placing of orders bulk over above the economic order quantity (EOG) increase holding costs.
The total of the invoice price of the inventory plus other incidental cost associated with ordering and holding cost give the value of the inventory. Streamlining these costs and proper valuation of inventories is the problem. This study is expected to solve for Emenite limited.
1.3 PURPOSE OF THE STUDY
This research is conducted to enable companies with trading and manufacturing orientation to see the effective models e.g minimum stock level, re-order level, maximum stock level, economic order quantity (EOQ) etc of inventory control and effect they have folded or wounded up because of carefree attitude towards stock control.
It is not an overstatement to say that material cost in all organisation constitute a considerable percentage of production. Cost of such stores administration in relation to stock control should not be neglected since such stocks represent an equivalent amount invested.
Moreover, great reliance should not be placed on the accuracy of the costing records if conditions under which such inventories are kept and not under strict control. Hence proper storage conditions must be maintained in other to minimize inventory losses through pilferage, damage, deterioration and careless handlings. It goes without change that for a cost accounting system to be fully effective, there must be properly designed system of re-ordering materials from the time order is placed till the materials issued to production or sold. Where stated case is absent, excess stock of some items is likely to occur consequent unnecessary tying up of capital.
On a more general basis, the overall purpose of the research is as itemized below:
i. To evaluate the system of material control with respect to stock.
ii. To ascertain how Emenite Limited determines her re-order point and achieve safety of stock.
iii. To ascertain as to whether the costs incurred in maintaining the inventory and the opportunities available.
iv. To ascertain the modern inventory control techniques (if any) which the company uses during this period of economic recession (SAP)
v. To determine whether sales forecast can be made with relative degree of certaninty.
vi. To determine a better approach to inventory valuation, recording and control.
Above all, to offer useful suggestion on how management can make decisions and problems associated with inventories.
The research hypothesis is made to test the reality and correctness of the questions contained in inventory valuation, management and control in manufacturing organizations. The research questions can only be corrected when they have tested and proved to be corrected.
This work is designed to test the following hypothesis:-
Ho: The Company does not use scientific method of inventory like buffer levels maximum stock level etc.
Hi: The company uses scientific method of inventory like buffer level, maximum stock level etc.
Ho: There is no proper security covering handling and storage of stocks.
Hi: There is proper security covering handling and storage of stocks
Ho: there is no procedure for receiving materials ordered.
Hi: There is procedure for receiving materials ordered
Ho: There are no purposes of inventory control in Emenite Enugu.
Hi: There are purposes of inventory control in Emenite, Enugu.
1.4 SCOPE OF THE STUDY
This research has to do with an industrial sector known as Emenite limited Enugu. It relates the activities and operations of the company.
The research is mainly concerned with the following:-
1. To investigate and find out if the company keeps appropriate internal control system in relation to inventory.
2. To Investigate into the purpose of inventory control
3. To ascertain if the method of stock valuation can affect the company’s profit and loss and balance sheets.
4. To investigate and find out if the company uses the scientific model of inventory control like the buffer level, maximum stock level and economic order quantity (EOQ) etc.
5. To ascertain there are proper security covering handling and storage of stocker.
It is strongly believed that the result, findings and recommendations pertaining this case study will apply to all other related companies in Nigeria. That means any information divulges out of the specific scope should not be in any way regarded as unnecessary, provided it serve as an avenue of enlightening other related companies.
1.5 RESEARCH QUESTIONS
a. Does the company uses scientific method of inventory like buffer level, maximum stock level?
b. Is there proper security covering materials and storage of stocks?
c. Are there procedures for receiving materials ordered?
d. Are there purpose of inventory control in Emenite, Enugu?
1.6 RESEARCH HYPOTHESIS
On the research.
1. LACK OF RELATED LITERATURE
The research was able to go through some of the related literature, but the works are so out dated and are basically more of theory then practical. Hence, the researcher was unable to finalize works than can be used to match the practical demands of the research study.
Like the system of functions of stock controlling unit of the stock department of an organisation cannot be found in any text.
2. ATTITUDE OF RESPONDENTS
The knowledgeable respondents who are mainly top managers of the very few companies the research visited are not always available and if available are not easily accessible to provide the necessary information required. In addition, some who are ever accessible, deem the information too secret to be divulged probably for fear of selling their strategies to competitors.
3. INADEQUATE FINANCE
The research faced a lot of financial constraints due mainly to the fact that the continuous fall in the value of the Naira has made the budgeted sum for the research work so insufficient that is affected the extent of data collection, all the places mapped out to be visited were not covered due to inadequate finance.
4. TIME CONSTRAINTS
The fact that the study had to be undertaking along side with normal lectures the effort of the researcher, more often then not the researcher had to ignore some lecturers in other to meet up with appointments in connection with the study.
In spite of the above-mentioned constraints, the researcher still was able to carry out on objective study to arrive at a logical conclusions.
1.7 SIGNIFICANCE OF THE STUDY
Inventory control in modern business period, such as a month quarterly, semi-annually and annually. Inventories compromise a significant portion of the assets of many companies, hence, the valuation and presentation inventories have a considerable effect in the determination and presentation of the financial position and the result operations of those enterprises.
The study makes it crystal clear why it is necessary for companies and individuals to control their inventories such reason as to minimize carrying, regulate the quantities of stock on hand etc.
Also, by this study an opportunity is created for existing and spective businessmen, employers and employees to benefit form the modern inventory control techniques.
Finally, to any user of this research, the readers, it will improve a reat part, their theoretical and practical knowledge about inventory valuation, control and management.
1.8 LIMITATIONS OF THE STUDY
This research work faces a number of problems which includes; financial problem attitude of respondents, time constraint and lack of high cost of printing materials, lack of related literature.
The above constraints are hereunder explained to show the influence of each.
1.10 DEFINITION OF TERMS
1. INVENTORY:- It is stock of products the company deals on or manufacturers and components that makes up the product.
2. CONTORL:- This is the act of selling performance (expected) and monitoring actual performance against standard”.
The primary concern in the management of stock control must be to provide the right goods in the right condition at the right price in right place at the right time.
3. INVENTORY CONTROL:- The regulation of quantities of materials o hand in such a way as to ensure current needs which avoiding excess reserves, stock, the calculation being based on the rate of issues and time necessary for replenishment.
4. SAFETY STOCK:- This is the quantity of stock added to the expected demand (quantity) during the lead time to take care of fluctuations in demand and lead time variations.
5. CARRYING COST:- This is the cost of inventory storage handling and insurance together with required rate of return in invested inventory. This cost includes floor-space, racks, bins, security quid’s, maintenance etc.
6. ORDERING COST:- These are entire cost of acquiring materials stock. . Generally their are costs which are incurred in requisitioning purchase ordering, transportation, receiving, inspecting and storing.
7. STORE PRECORDS CARDS:- These are cards for each item in the stock and they show names of products, quantities received, issued, balance and prices.
8. BASE STOCK:- It is the minimum quantity of raw materials or other goods, without which they the company cannot operate their plaints or conduct their operations. It is at times treated as being fixed assets, which is under constant renewal by charged to revenue.
Inventory valuation, management, and control are critical aspects of running a successful manufacturing organization. Properly managing and controlling inventory ensures that a company has the right amount of raw materials, work-in-progress, and finished goods to meet customer demands while minimizing costs and maximizing efficiency. Here’s a comprehensive overview of these processes:
1. Inventory Valuation: Inventory valuation refers to determining the worth of inventory items held by a manufacturing organization. Accurate valuation is essential for financial reporting and decision-making. There are several methods for valuing inventory:
- FIFO (First-In, First-Out): This method assumes that the first items purchased or produced are the first to be sold or used. It closely reflects the actual flow of goods but can be complex to manage, especially in larger organizations.
- LIFO (Last-In, First-Out): LIFO assumes that the most recently purchased or produced items are the first to be sold or used. While this method can have tax benefits, it may not represent the actual flow of goods and can lead to valuation mismatches during inflation.
- Weighted Average Cost: This method calculates the average cost of all units of inventory, incorporating both new and old purchases. It provides a balance between FIFO and LIFO but can be influenced by extreme costs.
- Specific Identification: This method assigns a specific cost to each individual item in inventory. It’s often used for unique or high-value items but can be challenging to implement for large quantities of similar items.
2. Inventory Management: Effective inventory management involves optimizing the levels of raw materials, work-in-progress, and finished goods to avoid stockouts (running out of items) or overstocking (holding excessive inventory). Key strategies include:
- Demand Forecasting: Accurate forecasting helps estimate future demand, allowing the organization to plan production and procurement accordingly.
- Reorder Point (ROP) and Safety Stock: ROP indicates when to reorder items to avoid stockouts, while safety stock acts as a buffer against unexpected demand fluctuations or supplier delays.
- Economic Order Quantity (EOQ): EOQ calculates the optimal order quantity that minimizes total inventory costs, including ordering costs and carrying costs.
- Just-In-Time (JIT) Inventory: JIT aims to minimize inventory levels by synchronizing production with demand, reducing waste, and lowering holding costs. This strategy requires efficient supply chains and tight production control.
- ABC Analysis: Classifies items based on their value and usage, helping prioritize management efforts. “A” items are high-value and high-usage, “B” items are moderate, and “C” items are low-value and low-usage.
3. Inventory Control: Inventory control involves maintaining the right levels of inventory and ensuring that inventory-related processes are efficient and accurate. Key elements include:
- Cycle Counting: Regular physical counts of subsets of inventory items to identify discrepancies and maintain accuracy.
- Barcode and RFID Technology: These technologies enhance tracking accuracy, streamline data entry, and reduce errors.
- Inventory Turnover: This metric measures how many times inventory is sold or used within a specific period. A high turnover rate suggests efficient inventory management.
- Supplier Relationship Management: Building strong relationships with suppliers can lead to better lead times, pricing, and collaboration in managing inventory.
- Technology and Software: Inventory management software and enterprise resource planning (ERP) systems automate and streamline inventory processes, providing real-time visibility into stock levels, orders, and demand trends.
In a manufacturing organization, effective inventory valuation, management, and control contribute to improved customer service, reduced carrying costs, better financial reporting, and increased overall operational efficiency. It’s important to tailor these processes to the organization’s specific industry, product type, and market conditions for optimal results.