INVENTORY CONTROL AND MANAGEMENT IN A MANUFACTURING FIRM

By

OKAFOR JOSEPHINE .C.

Presented To

Department of Accountancy

ABSTRACT

Inventory connotes asset items held for sale in the ordinary course if business or raw materials which will be used in the production of goods to be sold. This study has looked at inventory control in a manufacturing organisation sun rise floor Mill Limited Emene, Enugu. Before now, inventory control has been posing serious, problems to the floor Mill. Some of the pronoured ones are sponlage to materials before being used in production determine the re-order level, valuation of materials used in production is not done immediately issues are made etc.

This research study has critically examined the company's view to determine the level of its efficiently. It collected and critically analyzed data from both primary and secondary sources using table, chi-square and percentage, and the findings are as follows;

1. That cost of stock pose problem at all level of inventory;

2. That valuation of materials used in production is not done immediately issues are made;

3. That it is wise to re-order materials before getting to minimum level;

4. That if materials are durable, it cannot suffer any loss in value if kept for being period.

Based on these finding, I OKAFOR JOSEPHINE CHEKWUBE of Registration Number AC/N2002/324 (the researcher) made some recommendation to improve inventory control and management in the company and concluded with suggestions for further studies in related areas and those were not fully treated.

TABLE OF CONTENT

Title page ii

Approval page iii

Dedication iv

Acknowledgement v

Abstract vi

Table of content viii

Chapter one

1.1 introductions 1

1.2 objective of the study 2

1.3 significance of the study 3

1.4 scope and limitations of the study 4

1.5 definition of terms 5

Chapter two

2.1 materials control 7

2.2 materials control method 8

2.3 need for inventory 10

2.4 perpetual inventory 13

2.5 inventory control models economic

order quantity system 14

2.6 economic order quantity assumptions. 18

Chapter three

Summary of findings conclusion and recommendation. 22

3.1 Summary of findings 22

3.2 Conclusion 22

3.3 Recommendation 23

Bibliography. 25

CHAPTER ONE

1.1 INTRODUCTION

Inventory control and management is an important aspect of management in firms and other business undertakings. Inventory has been defined as a tailed list of materials e.g., household and furniture materials in business organizations. It means more than mere taking list of materials. The systematic taking and keeping of records of equipment vehicles, furniture, raw materials,, finished product and other capital assets gave due to the over all assets or possession of a business firm.

Unfortunately however, some business firms do not carefully take list of their possession and thereby cannot account for what they have neither can they determine their assets nor access their business prospect. Infact, this lapses has contributed to the failure of most business depends extensively on the careful and proper inventory control.

Moreover, the detailed record of raw- materials in stock, the finished products available in a firm makes it possible for such business firm not to either overstock or under-stock its raw materials for production of finished goods for disposal thereby curbing wastage, Similarly, the wear and tear of machines, vehicles and other equipment of a business can be monitored if only records are kept and replenishment can easily affected if there is record. It is against this background that it become necessary to study inventory control and management in a firm especially in manufacturing company. I have taken sun rise flour Mill Company limited as a unit sample for the case study. The choice of sun Rise FlourMill Company Limited is unique in the sense that the company stock raw materials for production finished goods for disposal and equipment in which records can be kept. In the study, the researcher has analysed inventory control, stated the problems inherit in inventory control and has come out with improving inventory control in business firms with sun Rise Flour Mill Company Limited as a unit sample.

1.2 OBJECTIVE OF THE STUDY.

The aim of this study are;-

1. To find out the effect of cost on inventory system.

2. To determine how effective inventory control affects the functionality of industries.

3. To determine the adequacy of human and material resources involved in sun Rise Flour Mill Limited.

Offer recommendations from improvement of the activities of Sun Rise Flour Mill as far as inventory control is concern

1.3 SIGNIFICANCE OF THE STUDY.

Even though most companies exercise control over their inventory items, the control is often not adequate resulting in loss of stock through wastage pilferage. Efficiency is the key word of all organisation, be it manufacturing or merchandising which could be small scale or large scale. A well established inventory control measures enables the organisation to enjoy the multiplier effect of its merits. This study is important because it will bring to the knowledge of manufacturing companies solution to the problems being, encountered by various inventory managers. it will also help to produce reliable costing information as regards the records of inventory movements. This will inevitably create an opportunity for more co-ordinated work and profit maximization, since the satisfaction of most management is that they achieve maximum profit using the minimum cost. To the store managers, who are responsible for the stores department and accountable for inventories, this study will provide the necessary equipment needed for planning, control and procurement of inventory.

According to Hangren, two limit must be imposed in controlling inventory level because there are two danger points that management usually want to avoid. The first danger, that of inadequate inventories, disrupts production and may lose sales. The second danger is excessive inventories which introduces unnecessarily carrying cost and absolent rise. In the light of the above, it is hoped that this study will help to minimize the incidence of the above. The researcher will also benefit from this work as it exposed things I would not have come across ordinarily.

Finally, this study will be of immense help to any person who has an intention of setting up small-scale organizations.

1.4 SCOPE AND LIMITATIONS OF THE STUDY.

The research intents to demonstration methodology rather than dwell on important theoretical issues of inventory control that are discussed in accounting texts. The area of focus is specifically on the inventory control functions practised at the sun Rise Mill Limited it extends to the control of raw material, finished goods and supplies as well as the valuation method used. In the process of the research, the author encountered some problems as;-

1. Financial constraints

2. Time shortage

3. Attitude of the Respondents.

1.5 DEFINITION OF TERMS.

The following terms are relevant in inventory control levels and need to be explained;

i) Re-Order Quantity; This is the predetermined quantity for each material order. Re-order quantity could be received either downwards, or upwards depending on the need of each company.

ii) Lead Time;- When an order is placed for stock, it takes time for the ordered stock to be received by the purchaser. The time lag between ordering and receipt of stock is when a department requisitions for goods from the stores department.

iii) Economic order Quantity (E.OQ); Typical costs associated problem in holding cost in storing ordered stocks. The economic order quantity tries to minimize the balance cost between ordering cost and holding cost. E.O.Q is known as economic batch quantity.

iv) Minimum stock;- The level of stock or allowance set a side as an insurance against the risk of forecasting errors. Minimum sock is also known as butter stock or safety stock..

v) Re-Order level;- The predetermined level at which new should be planned. This is dependent on the actual demand and lead time. Hence re-order level is a product of demand and lead time.

vi) Maximum stock;- This represent the anticipated highest level of stock desirable to the company. It helps the company to check overstocking and tying down of capital.