THE EFFECT OF INVENTORY MANAGEMENT IN THE VIABILITY OF A COMPANY

( A CASE STUDY OF STEEL AND NAILS MANUFACTURING INDUSTRY)

By

OKOYE TOCHUKWU. B

Presented To

Department of Accountancy

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

1.10 OPERATIONAL DEFINITION OF TERMS 9

CHAPTER TWO:

2.0 INVENTORY CONTROL AND INVENTORY VALUATION

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 49

2.7 INVENTORY VALUATION SYSTEMS

2.8 INVENTORY VALUATION METHODS 53

2.9 FACTORS AFFECTING INVENTORY VALUATION DECISIONS 57

2.10 THE CONCEPT OF VIABILITY 60

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

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. 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

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 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.

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.

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.

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 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.

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.

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.

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.