Inventory-Management- Theory & DI

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ASUMMER TRAINING PROJECT REPORT

ONINVENTORY MANAGEMENTIN JUBILANT ORGANOSYS LTD.

GAJRAULA, (U.P.)

PROJECT REPORT SUBMITTED IN PARTIAL FULFILMENT OFMASTER OF BUSINESS ADMINISTRATION OF

Uttar Pradesh Technical University

Under the Guidance of:

Mr. nil Kumar Goal

(Finance Facul!"

IVS In#iue o$ Mana%emen (Ma&ura"

Submitted By:

VAIBHAV AGARWALM.B.A. IIIrd Sem.

Roll. No. 0730870025

IVS In#iue o$ Mana%emen Ma&ura(A'liae o Uar Prae#& Tec&nical Uni)er#i!*

+uc,no-"

N./0 1el&i Ma&ura .i%&-a!* A,2ar3ur* Ma&ura /045678(UP"


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ACKNOWLEDGEMENT

I express my sincere gratitude to Mr. N. K. Agarwal (Senor Manager! "#$lan%

Organo&'& under whose superision has he!ped to c!ari"y my concepts o" Inentory

Management# distinguished scho!ars and authors# whose wor$ I hee used in this pro%ect.

I wou!d a!so !i$e to than$ to Mr. Anl Goal )a*#l%' )nan*e+. &o words o"

appreciation are good enough "or the constant encouragement# which I hae receied "rom

him.

I than$ Mr. Ma,e&, "an (-ea A**o#n%& an )nan*e# "#$lan% Organo&'& "or his

unstinted support to the pro%ect.

'ina!!y# I wou!d !i$e to than$ Mr. ". L. G#/%a ()a*%or' Manager! "#$lan%

Organo&'& to gie the opportunity to comp!ete the pro%ect in the esteemed organi(ation.

VAIBHAV AGARWAL

MBA IIIrd Sem


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re1a*e

As a part o" the partia! "u!"i!!ment o" the M..A. programme at 4S n&%%#%e o1

Manageen%! A6$ar/#r )Ma%,#ra# Summer *raining was underta$en with the

internationa! company# "LANT ORGANOSS LIMITED# Ga%rau!a )+. ,. &AGAR-.

*his pro%ect is specia!!y designed to understand the su%ect matter o" Inentory Management

o" the company. *his pro%ect gies us in"ormation and report aout company/s Inentory

Management. *hroughout the pro%ect the "ocus has een on presenting in"ormation and

comments in easy and inte!!igi!e manner.

*he purpose o" the training was to hae practica! experience o" wor$ing in a organi(ation and

to hae exposure to the arious management practices in the "ie!d o" 'inance. *his training

has a!so gien me an on the %o experience o" 'inancia! Management.

*his pro%ect is ery use"u! "or those who want to $now aout company and Inentory

Management o" the company.

Contents


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ART9

01%ectie o" the Study

0Introduction o" 2ompany

0 2ompany ,ro"i!e

0 History

0 Board o" 3irectors

0 ,resence Across Va!ue 2hain

0 Awards

: ro#*%&

0 Guiding ,rincipa!s o" 2ompany

0 Structure o" the 2ompany

0 Research Methodo!ogy

0 Introduction o" the *opic

0 2onceptua! 3iscussions

ART9

0 3ata 2o!!ection

0 'inancia! Statements

0 3ata Ana!ysis and Interpretation

0 ,ro!ems and Suggestions

0 2onc!usions

0 Bi!iography


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OBJECTIVE

OF THE

STUDY


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Objective of The Study:

Inentories constitute the principa! item in the wor$ing capita! o" the ma%ority o" trading and

industria! companies. In inentory# we inc!ude raw materia!s# "inished goods# wor$ in

progress# supp!ies and other accessories. *o maintain the continuity in the operations o"

usiness enterprise# a minimum stoc$ o" inentory re4uired.

Howeer# the physica! contro! o" inentory is the operating responsii!ity o" stores

superintendent and "inancia! personne! hae nothing to do aout it ut the "inancia! contro! o"

these inentories in a!! !ines o" actiity in which they comprise a sustantia! part o" the

current assets is a "re4uent pro!em in the management o" wor$ing capita!. Management o"

inentory is designed to regu!ate the o!ume o" inestment in goods on hand# the types o"

goods carried in stoc$ to meet the needs o" production and sa!es whi!e at the same time# the

inestment in them is to $ept at a reasona!e !ee!.


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INTRODUCTION

O COM!"N#


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COMPANY PROFILE

Co/an' ro1le;

+ui!ant 1rganosys Limited is the !argest specia!ty chemica! company o" India and a !eading

g!oa! manu"acturer in de"ined chemica! categories i(# second !argest in pyridine and its

deriaties# third !argest in so!id po!yiny! acetate and !eading positions in acety!s and other

specia!ty chemica!s. *hese inc!ude pharmaceutica!s and !i"e science chemica!s# per"ormance

chemica!s# organic intermediates# agri products and a range o" other specia!ty chemica!s.


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It was incorporated in the year 5678 under the companies Act# 569:. *he company is a

part o" +ui!ant 2orporation# which a!so inc!udes +ui!ant ;npro# 3omino/s# +ui!ant Biosys.

*he manu"acturing "aci!ities !ocated at Ga%rau!a in +.,.&AGAR 3istrict# 1rganic chemica!s# Biotechno!ogy and ;nironment/.

*he company di""erentiates itse!" in its manu"acturing approach which is ased on the use o"

a renewa!e resource as the main "eed stoc$# the consere energy re4uirement and a comp!ete

recyc!ing and reuse o" the "ina! wastage at the p!ant. *he main "eed stoc$ "or %ui!ant?s

product !ine is Mo!asses# a renewa!e io@mass# occurs as a y product in the sugar mi!! "rom

which industria! a!coho! is produced "rom the process o" "ermentationand disti!!ation. *his

ma$es the manu"acturing approach inheretant!y ecoe""icient. Industria! a!coho! is "urther

proccessed to produced a series o" a!ue added chemica!s.

+ui!ant 1rganosys Limited has historica!!y# een a producer and !eading manu"acturer o"

acety!s in India "or more than two decades. +ui!ant 1rganosys a!so en%oy a g!oa! position in

these products. +ui!ant 1rganosys derie our strengths in this usiness "rom our mo!asses

ased production process. +ui!ant 1rganosys use renewa!e iomass )mo!asses-# as

"eedstoc$ "or manu"acturing acety!s. +ui!ant 1rganosys# there"ore# are not impact y the cost

cyc!e that a""ects the industry wor!dwide.


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Glo$all' "#$lan% Organo&'& are %,e<

0Largest A!coho! 3isti!!ery 1utside Bra(i!.

0Largest Acetic Acid Manu"acturer 'rom Renewa!eGreen Resources.

0:th Largest in Aceta!dehyde.

08th Largest in ;thy!e Acetate.

06th Largest in Acetic Anhydride.

+ui!ant 1rganosys owns disti!!eries at Ga%rau!a and &ira. *hese are strategic to the usiness

as they are !ocated in two !argest

sugar e!ts o" India )


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approa!. +ui!ant 1rganosys a!so en%oy !eadership in Industria! products and ,re"ormance

,o!ymers products in India. It is head4uarted in &1I3A# with net sa!es o" @


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OURPROMISE


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OUR VALUES


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e !ill care"#lly select$train and devel%& %#r &e%&le t% 'e creative$e(&%!er the( t% ta)edecisi%ns$ s% that they

res&%nd t% all c#st%(ers!ith agility, confidence

and teamwork

e stretch %#rselves t% 'ecost effectie and e""icient

in all as&ects %" %#r %&erati%ns and "%c#s %n

flawless deliery t% createand &r%vide the 'est val#e

t% %#r c#st%(ers

By sharin* %#r )n%!led*eand learnin* "r%( each

%ther and "r%( the (ar)ets!e serve$ !e !ill c%ntin#et% s#r&rise %#r c#st%(ers!ith innoatie s%l#ti%ns

ith #t(%st care "%r theenironment and safety$

!e !ill al!ays strive t%e+cel in the ,#ality %" %#r &r%cesses$ %#r &r%d#cts

and %#r services


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.ISTORY

-STOR


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2005

Ac4uires *arget Research Associates# Inc.# renamed 2!insys Inc.J a


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&ew corporate identityK +ui!ant 1rganosys Ltd. re"!ecting changed corporateand usiness pro"i!e

2000

;nters the Bio E chemo in"ormatics arena y setting up +ui!ant Biosys Ltd.

>??8

;nters high a!ue@added ,yridine deriates. 2ommissions ,yridine HBR and2yano ,yridine p!ants.'orms mar$eting susidiary in the ??7

2ommissions "irst Mu!ti@purpose "ine chemica!s p!ant. ,!ant "or "ood po!ymer commissioned.

>??5 Gets IS1 6FF5 certi"ication.

>??0

2ommissions ,yridine C ,ico!ine p!ant.

>?88 Launches its "irst randed productK Vamico!# an adhesie product.

>?87


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Introduces new products in ,er"ormance 2hemica!s segmentsK ,o!y iny!acetate emu!sion "or paint# texti!e# paper C pac$aging and woodwor$ingindustry.

>?85

Research C 3ee!opment center gets recognition "rom Goernment o" India.

>?83

2ommercia! production o" Viny! Acetate Monomer )VAM-.

>?8>

Initia! ,u!ic 1""ering. Listing on !eading stoc$ exchanges o" India.

>?78

Incorporated as Vam 1rganic 2hemica!s Ltd.


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BOARD OFDIRECTORS


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oar O1 Dre*%or&

Shyam S Bhartia 2hairman C Managing 3irector

Hari S Bhartia 2o@2hairman C Managing 3irector

;xecutie 3irector C ,resident Li"e . Sciences

S & Singh ;xecutie 3irector @ 2hemica!s

;xecutie 3irector @ Manu"acturing C Supp!y 2hain

A%ay Re!an 3irector

Ahay Haa!dar 3irector

Bodhishwar Rai 3irector

Arainda Ray 3irector


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PRESENCEACROSS

VALUECHAIN


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RESENCE ACROSS 4ALE C-AN;


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AWARDS

AWARDS


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+ui!ant?s rapid progress across a!! corporate aspects has consistent!y een ac$now!edged yarious industry odies# goernment and non@goernment agencies in the "orm o" awards andcerti"ications.

Go!den ,eacoc$ award "or Innoation Management @ =FF

Six@sigma Dua!ity Award at the A!! India 2II 2onention @=FFN

*he Greentech 'oundation Award "or ;nironment ;xce!!ence

*he ;nergy 2onseration Award )2hemica! sector- "rom the Goernment o" India "or theGa%rau!a unit

Best Managed Manu"acturing ,!ant "or Sing!e super phosphate y 'AI @ =FF

Best HR ,ractices Award y 2entre "or Internationa! Businesses @ =FFN

, 2 Acharya Award "or 3ee!opment o" Indigenous *echno!ogy y I2MA @ =FFN

*op 9 Best Managed Wor$"orce in India @ Hewitt Award

*he 3SIR Award "or Innoation in 2hemica!s C A!!ied Industries


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GUIDING PRINCIPALS

OF JUBILANT

ORGANOSYS LTD


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GDNG RNCALS O) "LANT ORGANOSS LTD

5. We wi!! conduct ourse!es or usiness with the highest standards o" honesty# integrity and

pro"essiona!ism.

=. We wi!! recogni(e the positie contriution that indiidua!s C our team memers to

produce usiness success"u!!y.

. We wi!! encourage a !earning enironment where peop!e can constant!y grow# dee!op C

contriute.

N. We wi!! strie "or exce!!ence and see$ continuous improe in eerything.

9. We wi!! respect a!! stoc$ho!ders inc!uding emp!oyees# partners and supp!iers C sti!! them

with a passion to de!ier the highest 4ua!ity goods serices.

:. We wi!! "oster initiatie Ccreatie y empowering indiidua!s to attain we!! de"ined

o%ecties.


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STRUCTURE OFTHE COMPANY


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STRCTRE O) T-E COMAN

+ui!ant 1rganosys Ltd. act upon the ru!es C regu!@ ations o" the 2ompanies Act# 56N8. *he

company hae we!! de"ined structure .It hae the "o!!owing departmentsK

5. HRE ,ersonne! department

=. Accounts departments

. ,urchase departments

N. Store department

9. Dua!ity department

:. Shipping department

7. Sa!es C ;xcise department


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ORGANSATONAL C-ART O) "OL


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RESEARC-

MET-ODOLOG


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RESEARC- MET-ODOG

Research methodo!ogy is the way to systematica!!y so!e the research pro!em.

1%ectie o" research study is Ana!ysis o" inentory o" +ui!ant 1rganosys Ltd. Ana!y(ing o"

inentory# we determining "o!!owing inentories@

5. Raw materia!s inentory.

=. Wor$ in progress inentory.

. 'inished goods inentory C

N. Supp!ies inentory.

In this section o" inentories# we shou!d ana!y(e the annua! inestment in inentories#

Va!uation o" inentory a"ter c!osing a!ance o" items in inentory. In this manner# we

ca!cu!ate reorder point# sa"ety stoc$ !ee!s# minimum C maximum !ee!s o" inentory.

Wor$ing hypothesis o" the o%ectie is that inentories are the stoc$ pi!es o" goods .*he a!!

organi(ation on their inentories. +1L inests aout :FOo" tota! assets inentory shou!d e

ana!y(ed their records.

*he ana!ysis o" inentory according to their data aai!a!e in the company. *he data

co!!ection o" inentory "or ana!ysis y the direct store department. We shou!d record primary

and secondary data y the he!ps o" assistants !edger oo$s M R & etc. We went to the a!!

inentories as raw materia! # wor$ in progress inentory# "inished goods inentory y the

proper oseration o" data/s o" the company.

*he particu!ar method "or data co!!ecting used direct interiew with assistants and

te!ephone interiew with "riends to $nown aout annua! inestment o" inentories and other

important data.


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INTRODUCTIONOF THE TOPIC


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NTRODCTON

Inentories constitute the most signi"icant part o" current assets o" a !arge ma%ority o" companies

in India. 1n an aerage# inentories are approximate!y :FO o" current assets in pu!ic !imited

companies in India. Because o" the !arge si(e o" inentories maintained y "irms# a considera!e

amount o" "euds is re4uired to e committed to them. It is there"ore# aso!ute!y imperatie to

mPnage inentories e""icient!y and e""icient!y in order to aoid unnecessary inestment. A "irm

neg!ecting the management o" inentories wi!! e %eopardi(ing its !ong run pro"itai!ity and may

"ai! u!timate!y. It is possi!e "or "ore a company to reduce its !ee!s o" inentories to a

considera!e degree e.g. 5F to =F percent# with out any aderse e""ect on production and sa!es# y

using simp!e inentory p!anning and contro! techni4ues. *he reduction in excessie inentory

carries a "aora!e impact on a company/s pro"itai!ity.

MEANNG O) N4ENTOR;9

Inentory is the physica! sto$e o" goods maintained in an organi(ation "or its smooth sunning. In

accounting !anguage it may mean stoc$ o" "inished goods on!y. In a manu"acturing concern# it

may inc!udes raw materia!s# wor$@in@progress and stores etc. In the "orm o" materia!s or supp!ies

to e consumed in the production process or in the rendering o" serices.

In rie"# Inentory is unconsumed or unso!d goods purchased or manu"actured.

NATRE O) N4ENTORES ;9

Inentories are stoc$ o" the product a company is manu"acturing "or sa!e and

components that ma$e up the product. *he arious "orms in which inentory exist in a

manu"acturing company are raw materia!s# wor$ in progress and "inished goods.


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RAW MATERALS;9

Raw materia!s are those inputs that are conerted into "inished product though

the manu"acturing process. Raw materia!s inentories are those units which hae een purchased

and stored "or "uture productions.

WORK N ROGRESS;9

*hese inentories are semi manu"actured products. *hey represent products that

need more wor$ e"ore they ecome "inished products "or sa!es.

)NS-ED GOODS;9

'inished goods inentories are those comp!ete!y manu"actured products which

are ready "or sa!e. Stoc$ o" raw materia!s and wor$ in progress "aci!itate production. Whi!e stoc$

o" "inished goods is re4uired "or smooth mar$eting operation. *hus# inentories sere as a !in$

etween the production and consumption o" goods.

*he !ee! o" three $inds o" inentories "or a "irm depend on the nature o" its usiness. A

manu"acturing "irm wi!! hae sustantia!!y high !ee!s o" a!! three $inds o" inentories# whi!e a

retai! or who!esa!e "irm wi!! hae a ery high and no raw materia! and wor$ in progress

inentories. Within manu"acturing "irms# there wi!! e di""erences. Large heay engineering

companies produce !ong production cyc!e products# there"ore they carry !arge inentories. 1n the

other hand# inentories o" a consumer product company wi!! not e !arge# ecause o" short

production cyc!e and "ast turn oer. 'irms a!so maintain a "ourth $ind o" inentory# supp!ies or

stores and spares.


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SLES;

It inc!udes o""ice and p!ant c!eaning materia!s !i$e soap# rooms# oi!# "ue!# !ight# u!s

etc. *hese materia!s do not direct!y enter production# ut are necessary "or production process.


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MANAGEMENT OF INVENTORY

Inentories constitute the principa! item in the wor$ing capita! o" the ma%ority o"

trading and industria! companies. In inentory# we inc!ude raw materia!s# "inished goods#

wor$@in@progress# supp!ies and other accessories. *o maintain the continuity in the operations

o" usiness enterprise# a minimum stoc$ o" inentory re4uired. Howeer# the physica! contro!

o" inentory is the operating responsii!ity o" stores superintendent and "inancia! personne!

hae nothing to do aout it ut the "inancia! contro! o" these inentories in a!! !ines o" actiity

in which they comprise a sustantia! part o" the current assets is a "re4uent pro!em in the

management o" wor$ing capita!. Management o" inentory is designed to regu!ate the

o!ume o" inestment in goods on hand# the types o" goods carried in stoc$ to meet the needs

o" production# and sa!es whi!e at the same time# the inestment in them is to e $ept at a

reasona!e !ee!.

CONCET O) N4ENTOR MANAGEMENT

*he term inentory management is used in two ways@ unit contro! and a!ue contro!.

,roduction and purchase o""icia!s use this word in term unit contro! whereas in accounting

this word is used in term o" a!ue contro!. As inestment in inentory represents in many

cases# one o" the !argest asset items o" usiness enterprises particu!ar!y those engaged in

manu"acturing# who!esa!e trade and retai! trade. Sometimes the cost o" materia! used in

production surpasses the wages and production oerheads. Hence# the proper management

and contro! o" capita! inested in the inentory shou!d e the prime responsii!ity o"

accounting department ecause resources inested in inentory are not earning a return "or

the company. Rather# on the other hand# they are costing the "irm money oth in terns o"

capita! costs eing incurred and !oss o" opportunity income that is eing "oregone.


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O"ECT4ES O) N4ENTOR MANAGEMENT

*he asic manageria! o%ecties o" inentory contro! are two@"o!dJ "irst# the aoidance

oer@inestment or under@inestment in inentoriesJ and second# to proide the right 4uantity

o" standard raw materia! to the production department at the right time. In rie"# the

o%ecties o" inentory contro! may e summari(ed as "o!!owsK

A. O/era%ng O$@e*%e&;

)5- Enrng Aala$l%' o1 Ma%eral&; *here shou!d e a continuous aai!ai!ity o" a!!

types o" raw materia!s in the "actory so that the production may not e he!p up wants o" any

materia!. A minimum 4uantity o" each materia! shou!d e he!d in store to permit production

to moe on schedu!e.

)=- Aoan*e o1 A$noral Wa&%age; *here shou!d e minimum possi!e wastage o"

materia!s whi!e these are eing stored in the godowns or used in the "actory y the wor$ers.

Wastage shou!d e a!!owed up to a certain !ee! $nown as norma! wastage. *o aoid any

anorma! wastage# strict contro! oer the inentory shou!d e exercised. Lea$age# the"t#

eme((!ements o" raw materia! and spoi!age o" materia! due to rust# ust shou!d e aoided.

)- roo%on o1 Man#1a*%#rng E11*en*'; I" the right type o" raw materia! is aai!a!e to

the manu"acturing departments at the right time# their manu"acturing e""iciency is a!so

increased. *heir motiation !ee! rises and mora!e is improed.

)N- Aoan*e o1 O#% o1 S%o*6 Danger; In"ormation aout aai!ai!ity o" materia!s shou!d

e made continuous!y aai!a!e to the management so that they can do p!anning "or


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procurement o" raw materia!. It maintains the inentories at the optimum !ee! $eeping in

iew the operationa! re4uirements. It a!so aoids the out o" stoc$ danger.

)9- e%%er Ser*e %o C#&%oer&; Su""icient stoc$ o" "inished goods must e maintained to match

reasona!e demand o" the customers "or prompt execution o" their orders.

(B-g,lg,%ng &low ong an o$&ole%e %e& o1 a%eral&.

(7 De&gnng /oorer organa%on 1or nen%or' anageen%; 2!ear cut accountai!ity shou!d

e "ixed at arious !ee!s o" organi(ation.

. )nan*al O$@e*%e&;

(> E*ono' n /#r*,a&ng; A proper inentory contro! rings certain adantages and

economies in purchasing a!so. ;ery attempt has to ma$e to e""ect economy in purchasing

through 4uantity and ta$ing adantage to "aora!e mar$ets.

(2 Rea&ona$le r*e; Whi!e purchasing materia!s# it is to e seen that right 4ua!ity o" materia!is purchased at reasona!y !ow price. Dua!ity is not to e sacri"iced at the cost o" !ower price.

*he materia! purchased shou!d e o" the 4ua!ity a!one which is needed.

)- O/%# ne&%ng an E11*en% &e o1 *a/%al; *he asic aim o" inentory contro! "rom

the "inancia! point o" iew is the optimum !ee! o" inestment in inentories. *here shou!d e

no excessie inestment in stoc$# etc. Inestment in inentories must not tie up "unds that

cou!d e used in other actiities. *he determination o" maximum and minimum !ee! o" stoc$

attempt in this direction.


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TES O) N4ENTOR

>. Moeen% nen%ore&K@

Moement inentories are a!so ca!!ed transit or pipe!ine inentories. *heir

existence owes to the "act that transportation time is ino!ed in trans"erring sustantia! amount

o" resources.

=.#11er nen%ore&K@

In Bu""er inentories are he!d to protect against the uncertainties o" demand

and supp!y. An organi(ation genera!!y $nows the aerage demand "or arious items that it needs.

,rod.deptt. issue store inspect receie supp!ier

Supp!ies

3emand

Inentory in

Hand p!ace

1rders

,urchase

dep/t.

&et order issue receie tender

Duantity tenders 4uotation ea!uations

nen%or' *'*le


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. An%*/a%on nen%ore&.

Anticipation inentories are he!d "or the reason that "uture demand "or the product is anticipated.

,roduction o" specia!i(ed times !i$e crac$ers we!! e"ore dewi!y# umre!!as and raincoats e"ore

taints set in# "ans whi!e summers are approachingJ or the pi!ing up o" inentory stoc$s when a

stri$e is on the ani!# are a!! examp!es o" anticipation inentories.

CONTROL O) MATERALS ;

Rigid contro! oer materia!s are necessary not on!y to guard against the"t# ut a!so to minimi(e

waste and misuse "rom causes such as excessie inentories# oer issue# deterioration# spoi!age#

and oso!escence.

*here are certain prere4uisites to an e""ectie contro! system "or materia!sK

5.Materia!s o" the desired 4uantity wi!! e aai!a!e when neededJ

=.Materia!s wi!! e purchased on!y when a need exists and in economica! 4ua!itiesJ

.,urchases o" materia!s wi!! e made at most "aora!e pricesJ

N.Vouchers "or the payments o" materia!s purchased wi!! e approed on!y i" the materia!s hae

een receied in good conditionJ

9.Materia!s wi!! e protected against !oss y proper physica! contro!J

:.Issue o" materia!s wi!! e proper!y authori(ed and accounted "orJ and

7.A!! materia!s# at a!! times# wi!! e charged# as the responsii!ity o" some indiidua!.

*he contro! o" materia!s# as an e!ement o" cost o" production# is i!!ustrated with re"erence to the

purchase and issues procedures# inentory systems# and inentory contro! techni4ues.


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MORTANCE O) N4ENTOR CONTROL;

*he importance or necessity o" inentory contro! is we!! exp!ained in the terms o" the

o%ects o" inentory contro!# which are otained through it. A proper inentory contro! !owers

down the cost o" production and improes pro"itai!ity o" enterprise.

AD4ANTAGES O) N4ENTOR CONTROL;

)5- Reduction in inestment in inentory.

)=- ,roper and e""icient use o" raw materia!s.

)- &o ott!enec$ in production.

)N- Improement in production and sa!es.

)9- ;""icient and optimum use o" physica! as we!! as "inancia! resources.

):- 1rdering cost can e reduced i" a "irm p!aces a "ew !arge orders in p!ace o" numerous

sma!! orders.

)7- Maintenance o" ade4uate inentories reduces the set@up cost associated with each

production run.


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R&6 an *o&% A&&o*a%e w%, nen%ore&;

Ho!ding o" Inentories expose the "irm to a numer o" ris$s and costs.

Ma@or r&6& areK

)a- r*e e*lneK *hey may e due to increase in mar$et supp!y o" the product# introduction o" a

new competitie product# price@cut y the competitors etc.

)- ro#*% e%erora%on; *his may due to ho!ding a product "or too !ong a period or improper

storage conditions.

)c- O$&ole&*en*e; *his may due to change in customer/s taste# new production techni4ue#improements in product design# speci"ications etc.

T,e Co&%& o1 ,olng nen%ore& are a& 1ollow&;

)a- Ma%eral Co&%; *his inc!ude the cost o" purchasing the goods# transportation and hand!ing

charges !ess any discount a!!owed y the supp!ier o" goods.

)- Orerng Co&%; *his inc!udes the aria!es cost associated with p!acing an order "or the

goods. *he "ewer the orders# the !ower wi!! e the ordering costs "or the "irm.

)c- Carr'ng Co&%; *his inc!udes the expenses "or storing and hand!ing the goods. It comprises

storage costs# insurance costs# spoi!age costs# cost o" "unds tied up in inentories etc.


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ESSENTALS O) N4ENTOR CONTROL SSTEM

'or an e""icient and success"u! inentory contro! there are certain important conditions

that are a "o!!owsK

(> Cla&&1*a%on an en%1*a%on o1 nen%ore&; *he usua! inentory o"

manu"acturing "irm inc!udes raw@materia!# stores# wor$@in@progress and component etc. *o

"aci!itate prompt recording the dea!ing# each item o" the inentory must e assigned a

particu!ar code numer and it must e c!assi"ied in suita!e group or su@diisions. AB2

ana!ysis o" materia! is ery he!p"u! in this context.

(2 S%anara%on an &/l1*a%on o1 nen%ore&; In order to "aci!itate inentory

contro!# the inentory !ine shou!d e simp!i"ied. It re"ers to the e!imination o" excess types

and si(es o" items. Simp!i"ication !eads to reduction in c!assi"ication o" inentories and its

carrying costs. Standardi(ation# on the other hand# re"ers to the "ixation o" standards o" raw

materia! to e purchased and speci"ication o" the components and too!s to e used.

(3 Se%%ng %,e Ma# an Mn# l%& 1or ea*, /ar% o1 nen%or'; *he third step

in this process is to set the maximum and minimum !imits o" each item o" the inentory. It

aoids the chances o" oer@inestment as we!! as running a short o" any item during the cost

o" producing. Reordering point shou!d a!so e "ixed e"orehand.

(= E*ono* Orer #an%%'; It is a!so a asic inentory pro!em to determine the

4uantity as how much to order at a time. In determining the ;1D# the pro!em is one to set a

a!ance etween two opposite costs# name!y# ordering costs and carrying costs. *his 4uantity

shou!d e "ixed e"orehand.


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(5AeF#a%e &%orage )a*l%e&; *o ma$e the system o" inentory contro! success"u! and

e""icient one# it is a!so essentia! to proide the ade4uate storage "aci!ities. Su""icient storage

area and proper hand!ing "aci!ities shou!d e organi(ed.

(BAeF#a%e Re/or%& an Re*or&; Inentory contro! re4uires the maintenance o" ade4uate

inentory record and reports. Various inentory records must contain in"ormation to meet the

needs o" purchasing# production# sa!es and "inancia! sta"". *he typica! in"ormation re4uired

aout any c!ass o" inentory may e re!ating to 4uantity on hand# !ocation# 4uantities in

transit# unit cost# code "or each item o" inentory# reorder point# sa"ety !ee! etc. Statements

"orms and inentory records shou!d e so designed that the c!erica! cost o" maintaining these

records must e $ept a minimum.

(7n%ellgen% an E/eren*e er&onnel; An important re4uirement o" success"u!

inentory contro! system is the appointment o" 4ua!i"ied and experienced sta"" in purchase

and stores department. Mere esta!ishment o" procedures and the maintenance o" records

wou!d not gie the desired resu!ts as there is no sustitute "or sincere and deoted as we!! as

experienced hands. Hence# the who!e inentory contro! structure shou!d e manned with

trained# 4ua!i"ied# experienced and deoted emp!oyees.

(8Coorna%on; *here must e proper coordination o" a!! departments ino!ed in the

process o" inentory contro!# such as purchase# "inance# receiing# approing# storage and

accounting departments. *hese a!! departments hae di""erent out!oo$ and o%ects in

inentory management ut "inancia! manager has to coordinate them a!!.

(?#ge%ng; An e""icient udgeting system is a!so re4uired. ,reparation o" udgets

concerning materia!s# supp!ies and e4uipment to ensure economy in purchasing and use o"

materia! is a!so necessary.


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(>0n%ernal C,e*6; 1perating o" a system o" interna! chec$ is a!so ita! in inentory

management so that a!! transactions ino!ing materia! supp!ies and e4uipment purchase are

proper!y approed and automatica!!y chec$ed.

)ACTORS A))ECTNG STOCK N4ESTMENT LE4EL

*hese "actors can e put in two categoriesK Genera! and Speci"ic.

Genera! 'actorsK *hese "actors inc!ude those "actors# which a""ect direct!y or indirect!y !ee!

o" inestment in any asset. *hese are as "o!!owsK

)5- &ature o" Business

)=- Si(e and sca!e o" Business

)- ;xpected Sa!es Vo!umes

)N- ,rice Lee! 2hanges

)9- Aai!ai!ity o" 'unds

):- Management iew ,oint

S$ecific %cto&s: *hese "actors are direct!y re!ated with inestment in stoc$.

'o!!owing are the main "actorsK

(> Sea&onal C,ara*%er o1 Raw Ma%eral&; I" supp!y o" raw materia! used in the "irm is

seasona!# the "irm wi!! re4uire more "unds "or the purchase o" raw materia! during season.


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(3 Ter& o1 #r*,a&e; I" some concessions or discount in price or "aci!ities o" credit are

proided y supp!iers on purchase o" raw materia!s in huge 4uantity then the "irm is inspired

"or excessie purchase o" goods and hence comparatie!y more inestment is re4uired in

inentory.

(= Na%#re o1 En ro#*%; &ature o" end product a!so in"!uences inestment in inentory.

I" the end product is a dura!e good# high inestment wi!! e re4uired ecause dura!e goods

can e stored "or a !ong period. 1n the other hand# perisha!e goods cannot e stored "or a

!ong period. Hence# inestment in inentory o" such products is !ow.

(5 S#//l' Con%on&; I" the supp!y o" raw materia! is regu!ar and there is no possii!ity o"

interruption in "uture# high inestment in inentories is not re4uired.

(B Te )a*%or; *he !ead time o" raw materia! time to$en in production process and sa!e o"

product a!so in"!uence inestment in inentories. Longer the period# higher wi!! e the

inestment in inentories.

(7 Loan )a*l%e&; I" raw materia!s are purchased on credit or !oan "rom the an$ or other

"inancia! institution can e otained on the security o" raw materia!# !esser inestment wou!d

e re4uired. In the asence o" such !oan "aci!ity# higher inestment wou!d e re4uired.

(8 r*e Leel )l#*%#a%on&; I" there are expectations o" price rise in "uture then raw materia!s

may e store in high 4uantity and so more inestment wou!d e re4uired. 1n the contrary# i"

the prices o" raw materia!s are expected to go down in "uture# then comparatie!y !esser

inestment wou!d e re4uired.

(? O%,er 1a*%or&; ,rice contro!# rationing# change in taxation and export po!icy o" goernments

etc. a!so in"!uence inestment in inentories.


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TECHNIQUES OF

INVENTORYCONTROL


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TEC-NES O) N4ENTOR CONTROL

In managing inentories# the "irm/s o%ectie shou!d e in consonance with the wea!th

maximi(ation princip!e. *o achiee this# the "irm shou!d determine the optimum !ee! o"

inestment in inentory. *o dea! with the pro!ems o" inentory management e""ectie!y# it

ecomes necessary to e conersant with the di""erent techni4ues o" inentory contro!.

A!though the concepts ino!ed in inentory management are production@oriented and are

not strict!y "inancia! it is important that the "inancia! manager understand them since they

hae certain ui!t@in "inancia! costs. *he di""erent techni4ues o" inentory contro! may e

summari(ed as "o!!owsK

)5- nen%or' leel Te*,nF#e

*he main o%ectie o" stoc$ contro! is to determine and maintain the optimum !ee! o" stoc$ so

that there is neither shortage o" any materia! nor unnecessary inestment in inentory. 'or

this purpose# determination o" maximum and minimum !imits o" inentory and ordering !ee!

is necessary.

)=- Ma# &%o*6 L%; *his represents the 4uantity o" inentory aoe which it shou!d

not e a!!owed to e $ept. *he main o%ect o" "ixing this !imit is to ensure that unnecessary

wor$ing capita! is not !oc$ed in stores. *he 4uantity is "ixed $eeping in iew the

disadantages o" oerstoc$ing.


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T,e &aan%age& o1 oer&%o*6ng are;

5. 2apita! is !oc$ed up unnecessari!y in stores so there wi!! e !oss o" interest.

=. More godown space is needed so more rent wi!! hae to e paid.

. *here are chances o" deterioration in 4ua!ity ecause !arge stoc$s wi!! re4uire more time

"or use is the "actory.

N. *here is the possii!ity o" !oss due to oso!escence.

9. *here is danger o" depreciation in mar$et a!ues.

T,e a# &%o*6 leel & 1e $' %a6ng n%o a**o#n% %,e 1ollowng

1a*%or&;

)5- Amount o" capita! aai!a!e "or maintaining stores.

)=- Godown space aai!a!e.

)- Rate o" consumption o" the materia!.

)N- *he time !ag etween indenting and receiing o" the materia!.

)9- Length and technica! nature o" the production process.

):- ,ossii!ity o" !oss in stores y deterioration# eaporation etc.

*here are certain stores# which deteriorate in 4ua!ity i" they are stored

"or !onger period.

)7- 2ost o" maintaining stores.


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)8- Li$e!y "!uctuation in prices. 'or instance# i" there is a possii!ity o" a sustantia! increase

in prices in the coming period# a comparatie!y !arge maximum stoc$ !ee! wi!! e "ixed. 1n

the other hand# i" there is the possii!ity o" decrease in price in the near "uture# stoc$s are $ept

at a much reduced !ee!.

)6- *he seasona! nature o" supp!y o" materia!. 2ertain materia!s are aai!a!e on!y during

speci"ic periods o" year. So these hae to e stoc$ed heai!y during these periods.

)5F-Restrictions imposed y the goernment or !oca! authority in regard to materia!s which

there are inherent ris$s# e.g. "ire and exp!osion.

)55-Ris$ o" oso!escence# i.e.# possii!ity o" change in "ashion and hait which wi!!

necessitate change in re4uirements o" materia!s.

T,e 1ollowng 1or#la a' $e a//le %o *al*#la%e %,e a# &%o*6;

)5- Maximum Stoc$ Minimum Inentory Q Lot si(e

)=- Maximum Stoc$ Reorder Lee! @ Minimum consumption during Minimum !ead time Q Lot

si(e


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Mn# S%o*6 L% (Sa1e%' or #11er &%o*6

*his represents the 4uantity e!ow which stoc$ shou!d not e a!!owed to "a!!. It is

maintained to sae "rom the situation o" stoc$ out in the eent o" anorma! increase in

materia! usage rate andEor de!iery period. In "act determination o" this 4uantity is signi"icant

ecause o" uncertainty in respect to materia! usage rate and de!iery period. *he main

purpose o" this !ee! is to ensure that production is not he!d up due to shortage o" any

materia!. *his !ee! is "ixed "or a!! items o" stores and "o!!owing "actors are ta$en into

account "or the "ixation o" this !ee!K

)a- Lea %e i.e. time !ag etween intending and receiing the materia!.

)- Ra%e o1 *on/%on o" the materia! during the !ead time.

(* Re9orer Leel

*he "o!!owing "ormu!a is app!ied to ca!cu!ate Minimum Stoc$K

Mn# S%o*6 Re9orer Leel 9 Noral #&age #rng Noral Lea %e

But i" norma! usage and norma! !ead time is not $nown then aerage usage wi!! e treated as

norma! usage and aerage re@order wi!! e treated as norma! re@order period.


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Re9orerng Leel (Orerng Leel

It is the point at which i" the stoc$ o" the materia! in stores reaches# the store$eeper shou!d

initiate the purchase re4uisition "or "resh supp!y o" materia!. *his !ee! is "ixed somewhere

etween maximum and minimum !ee! is such a way that the di""erence o" 4uantity o" the

materia! etween the reordering !ee! and the minimum !ee! wi!! e su""icient to meet

re4uirements o" production up to the time o" "resh supp!y o" the materia!. It is "ixed a"ter

ta$ing into consideration the "o!!owing "actorsK

)a- Ra%e o1 a%eral #&ageK Genera!!y this rate is "ound out as usage rate per day# pre wee$

or per month. *he 4uantity o" production "!uctuates according to demand o" the product

which resu!ts in ariation in usage rate.

-en*e! %,e 1ollowng %,ree 1a*%or&;

)i- Ma# #&age ra%e; It imp!ies 4uantity o" materia! re4uired at maximum capacity

production.

)ii- Mn# #&age ra%e; It imp!ies 4uantity o" materia! re4uired at capacity production in most

un"aora!e usiness conditions.

)iii- Noral or aerage &age Ra%e; It imp!ies 4uantity o" materia! re4uired at capacity

production under norma! usiness conditions.

)- Orerng eroK *he time ta$en in preparing the order "or purchase o" materia! is ca!!ed

ordering period. In some concerns this period may e signi"icant ut in !arge concerns this

period is signi"icant ecause e"ore p!acing the order the purchase manager has to trace out

the est supp!iers# a"ter that on!y he p!aces the order.


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Deler'! Lea or ro*#reen% Te; *he time ta$en "rom the date o" p!acing the order

to the date o" de!iery y the supp!iers is ca!!ed procurement time. *he maximum# minimum

and aerage procurement time shou!d a!so e determined.

(DMn# S%o*6 Leel; *his is the !ee! o" stoc$ e!ow which stoc$s shou!d norma!!y not

e a!!owed to "a!!.

Cal*#la%on o1 Re9orer on%;

A"ter ta$ing into account the aoe "acts re@order 4uantity is ascertained. 'or this purpose#

the "o!!owing "ormu!a is app!iedK

S%#a%on>;

When rate o" usage and !ead time are $nown with certaintyJ

Re9orer /on% Rate o" usage x !ead time.

S%#a%on2;

When rate o" usage is $nown with certainty and !ead time is a!so $nown ut is aria!eK

)i- Re9orer /on% Minimum Inentory Q Aerage usage during &orma! !ead *ime.


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)ii- Re9orer /on% Rate o" usage x Maximum Lead *ime.

S%#a%on3;

When rate o" usage and !ead time is $nown ut aria!e and !ead time is $nown with

certaintyK

( Re9orer /on% Minimum Inentory Q Aerage usage

during !ead time.

( Re9orer /on% Maximum


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ECONOMC ORDER ANTT TEC-NE

1ne o" the ma%or inentory management pro!ems to e reso!ed is how much inentory shou!d

e added when inentory is rep!enished. I" the "irm is uying raw materia!s# it has to decide !ost

in which it has to e purchased on rep!enishment. I" the "irm is p!anning a production run# the

issue is how much production to schedu!e )or how much to ma$e-. *hese pro!ems are ca!!ed

orer F#an%%' /ro$le&! and the tas$ o" the "irm is to determine the optimum or economicorder 4uantity )or e*ono* lo% &e-. 3etermining an optimum inentory !ee! ino!es two

type o" costsK )a- ordering costs and )- carrying costsK *he economic order 4uantity is that

inentory !ee! that minimi(e the tota! o" ordering and carrying costs.

Orerng *o&%&; the term ordering costs is used in case o" raw materia!s )or supp!ies- and

inc!udes the entire costs o" ac4uiring raw materia!s. *hey inc!ude costs incurred in the "o!!owing

actiitiesK re4uisitioning# purchase ordering# transporting# receiing# inspecting and storing )store

p!acement-. 1rdering costs increase in proportion to the numer o" order p!aced.

1rdering costs increase with the numer o" orderJ thus the more "re4uent!y inentory is ac4uired#

the higher the "irm/s ordering costs. 1rdering costs decrease with increasing si(e o" inentory.

Carr'ng *o&%&; 2osts incurred "or maintaining a gien !ee! o" inentory are ca!!ed carrying

costs. *hey inc!ude storage# insurance# taxes# deterioration and oso!escence. *he storage costs

comprise cost o" storage space )warehousing cost-# stores handing costs and c!erica! and sta""

serice costs )administratie costs-.


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Ta$le; Orerng an Carr'ng Co&%&

Orerng Co&%& Carr'ng Co&%&

)5-Re4uisitioning (> Warehousing

(21rder p!acing (2 Hand!ing

)- *ransportation (3 2!erica! and sta""

)N- Receiing inspecting and storing (= Insurance

)9- 2!erica! and sta"" (5 3eterioration

1so!escence

2arrying costs ary with inentory si(e. *he economic si(e o" inentory wou!d thus depend on

trade@o"" etween carrying costs and ordering costs.

Orerng an Carr'ng Co&%& %rae9o11; *he optimum inentory si(e is common!y

re"erred to as e*ono* orer F#an%%'. It is that order si(e at which annua! tota! costs o"

ordering and ho!ding are the minimum. We can "o!!ow three approaches@the tria! and error

approach# the "ormu!a approach and the graphic approach@to determine the economic order

4uantity (EO.

Tral an Error A//roa*,; *he trai! and error# or ana!ytica!# approach to reso!e the order

4uantity pro!em can e i!!ustrated with the he!p o" a simp!e examp!e. Let us assume the

"o!!owing data "or a "irm.

;stimated annua! re4uirements# A 5#=FF units


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,urchasing cost )per order-# )Rs- 9F

1rdering cost )per order-# )Rs.- 7.9F

2arrying cost per unit# )Re- 5

Aerage inentory @ )5=FF Q F-E= :FF units

Aerage a!ue @ Rs F#FFF ):FF0Rs9F-

I" we choose the mu!tip!e order than we order 5FFunits on month!y asis

Aerage inentory @ )5FFQF-E= 9Funits-

Aerage a!ue @ 9F 0 Rs 9F =# 9FF

Many other possii!ities can e wor$ed out in the same manner.

5=FF

5FFF

8FF

DE=

:FF

stoc$ NFF

=FF

9F

F = N : 8 5F 59

*ime

Inentory !ee! oer time

Orer9 1or#la a//roa*,; *he tria! error# or ana!ytica!# approach is somewhat tedious to

ca!cu!ate the ;1D. An easy way to determine ;1D is to use the order@"ormu!a approach. Let

us i!!ustrate this approach.

Suppose the ordering cost per order# 1# is "ixed. *he tota! order costs wi!! e numer o"

orders during the year mu!tip!ied y ordering cost per order. I" a represents tota! annua!


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re4uirements and D the order si(e# the numer o" orders wi!! e AED and tota! order costs wi!!

eK

*ota! ordering cost (Ann#al reF#reen% : er orer *o&%

Orer &e

TOC AOE

Let us "urther assume the carrying cost per unit# c# is constant

*he tota! carrying costs wi!! e the product o" the aerage inentory units and the carrying cost

per unit.

I" D is the order si(e and usage is assumed to e steady# the aerage inentory wi!! e.

Aerage nen%or' orer &e

2 2

And tota! carrying costs wi!! eK

*ota! carrying cost Aerage inentory

0 ,er unit carrying cost

TCC *

2

*he tota! inentory cost# then# is the sum o" tota! carrying and ordering costsK

*ota! cost *ota! carrying cost Q *ota! order cost

*2 Dc Q A1


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= D

;4uation )N- reea!s that "or a !arge order 4uantity# D# the carrying cost wi!! increase# ut the

ordering costs wi!! decrease. 1n the other hand# the carrying costs wi!! e !ower and ordering

cost wi!! e higher with the order 4uantity. *hus# the tota! cost "unction represents a trade@o""

etween the carrying costs and ordering costs "or determining the ;1D.

*o otain the "ormu!a "or ;1D# ;4uation )N-is di""erentiated with respect to D and setting the

deriatie e4ua! to (ero# we otainK

;conomic order 4uantity =0 4uantity re4uired 0 ordering cost

2arrying cost

;1D =A1

2


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Gra/,* a//roa*, ;

*he economic order 4uantity can a!so e "ound out graphica!!y. 'igure i!!ustrates the ;1D

"unction. In the "igure# costs@carrying# ordering and tota!@ are p!otted on ertica! axis and

hori(onta! axis is used to represent the order si(e. We note that tota! carrying costs increase as the

order si(e increasers# ecause# on an aerage# a !arger inentory !ee! wi!! e maintained# and

ordering costs dec!ine with increase in order si(e means !ess numer o" orders. *he ehaiors o"

tota! costs !ine is noticea!e since it is a sum o" two types o" cost which ehae di""erent!y with

order si(e. *he tota! costs dec!ine in the "irst instance# ut they start rising when the decrease in

aerage ordering cost is more than o""set y the increase in carrying costs. *he economic order

4uantity occurs at the point D0 where the tota! cost is minimum. *hus# the "irm/s operating pro"it

is maximi(ed at point D0.

Minimum tota!

2ost

2arrying cost

2osts ordering cost


61/102

D0 order si(e )D-

E*ono* orer F#an%%'

O/%# /ro#*%on& r#n;

*he use o" the ;1D approach can e extended to production runs to determine the optimum

si(e o" manu"acture. *wo costs ino!ed are set@up costs and carrying costs. Set@up costs inc!ude

costs on the "o!!owing actiitiesK preparing and processing the stoc$ orders# preparing drawings

and speci"ications# too!ing machines set@up# hand!ing machines# too!s# e4uipment and materia!s#

oer time etc. ,roduction runs ut carrying costs wi!! increase as !arge stoc$s o" manu"actured

inentories wi!! e he!d. *he e*ono* /ro#*%on &e wi!! e the one where the tota! o" set@up

and carrying costs is minimum.

Reorer on%;

*he pro!em# how much to order# is so!ed y determining the economic order 4uantity# yet

answer shou!d e sought to e second pro!em# when to order. *his is a pro!em o" determining

the reorder point. *he reorer /on% is that inentory !ee! at which an order shou!d e p!aced to

rep!enish the inentory. *o determine the reorder point under certainty# we shou!d $nownK )a-

!ead time )- aerage usage# and )c- economic order 4uantity. Lea %e is the norma!!y ta$en is

rep!enishing inentory a"ter the order has een p!aced. By certainty we mean that usage and !ead

time do not "!uctuate.


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*he demand "or inentory is !i$e!y to "!uctuate "rom time to time. In particu!ar# at certain

points o" time the demand may exceed the anticipated !ee!. In other words# a discrepancy

etween the assumed )anticipatedEexpected- and the actua! usage rate o" inentory is !i$e!y to

occur in practice.

*he e""ect o" increased usage andEor s!ower de!iery wou!d e shortage o" inentory. *hat is# the

"irm wou!d disrupt production schedu!e and a!ienate the customers. *he "irm wou!d# there"ore# e

wi!! adised to $eep a su""icient sa"ety margin y haing additiona! inentory to guard against

stoc$@out situation. Such stoc$s are ca!!ed sa"ety stoc$s. *his wou!d act as a u""erEcushion

against a possi!e shortage o" inentory. Sa1e%' &%o*6 a'! %,#&! $e e1ne a& n#

a%onal nen%or' %o &ere a& &a1e%' argnH$#11erH*#&,on %o ee% #nan%*/a%e

n*rea&e n #&age rel%ng 1or #n#all' ,g, ean anHor #n*on%rolla$le la%e re*e/%

o1 n*ong nen%or'.

*he carrying costs are the costs associated with the maintenance o" inentory. Since the "irm is

reF#re to maintain additiona! inentory# in excess o" the norma! usage# additiona! carrying

costs are ino!ed.

*he stoc$@out and carrying costs are countera!ancing. *he !arger the sa"ety stoc$# the !arger the

carrying costs and *e er&a. 2onerse!y# the !arger the sa"ety stoc$# the sma!!er the stoc$@out

costs.

max. inentory

aerage usage

;1D

ag. inentory@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@


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re@order point@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@

max.usage

sa"ety stoc$ @@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@

wee$s !ead time

re@order point under sa"ety stoc$

4ED Anal'&&; *he V;3 ana!ysis is used genera!!y "or spare parts. *he re4uirement and

urgency o" spare parts is di""erent "rom that o" materia!s. A@B@2 ana!ysis may not e proper!y

used "or spare parts. *he demand "or spares depends upon the per"ormance o" the p!ant and

machinery. Spare parts are c!assi"ied asK Vita! )V-# ;ssentia! );- and 3esira!e )3-. *he ita!

spares are a must "or running the concern smooth!y and these must e stored ade4uate!y. *he

non@aai!ai!ity o" ita! spares wi!! cause haoc in the concern. *he ; types o" spares are a!so

necessary ut their stoc$s may e $ept at !ow "igures. *he stoc$ing o" 3 types o" spares may e

aoided at times. I" the !ead time o" these spares is !ess# then stoc$ing o" these spares can e

aoided.

*he c!assi"ication o" spares under three categories is an important decision. A wrong

c!assi"ication o" any spare wi!! create di""icu!ties "or production department. *he c!assi"ication o"

spares shou!d e !e"t to the technica! sta"" ecause they $now the need# urgency and use o" these

spares.

A&/%on&; In app!ying ;1D "ormu!a# it is assumed thatK

)i- *ota! demand is $nown with certainty.

)ii- *he usage rate o" materia! is steady.


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)iii- 1rders "or rep!enishment on inentory are p!aced exact!y when inentories reach

ordering !ee!.

)i- *he ordering cost per order and ho!ding cost per unit are constant.

EO an To%al nen%or' Co&%; At ;1D !ee! tota! inentory cost is minimum. *ota!

inentory cost is the sum o" materia! purchase cost# ordering cost and carrying cost

As per the "ormu!aK

*ota! Inentory 2ost )*I2- Materia! ,urchase 2ost Q *ota! 1rdering 2ost Q *ota!

2arrying 2ost

)R x ,- Q )RE,o x 2p- Q )DoE= x 2h-

D&*o#n% O11er an E*ono* Orer #an%%';

Sometimes supp!ier o""ers di""erent discounts on orders o" !arge 4uantity. In such a situation#

at "ist we shou!d ca!cu!ate ;1D and "ind out *I2 without considering discount o""er. *hen

we shou!d ca!cu!ate *I2 o" each a!ternatie o""er. *hat 4uantity wi!! e ;1D at *I2 is the

!owest.

ERETAL N4ENTOR CONTROL TEC-NE


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,erpetua! inentory system imp!ies maintenance o" up@to@date stoc$ records and in its

road sense it coers oth continuous stoc$ ta$ing as we!! as up@to@date recording stores

oo$s. According to We!don# It may e de"ined as a method o" recording stores a!ances

a"ter eery receipt and issue to "aci!itate regu!ar chec$ing and to oiate c!osing down "or

soc$@ta$ingT. *he asic o%ect o" this system is to ma$e aai!a!e detai!s aout the 4uantity

and a!ue o" stoc$ o" each item at a!! times. *he system thus proides a rigid contro! oer

stoc$ o" each item o" store can regu!ar!y e eri"ied with the stoc$ records in the in cards

$ept in the stores and stores !edger maintained in cost o""ice.

Aan%age& o1 er/e%#al nen%or' &'&%e;

5. Sang n %eK *he !ong and cost!y wor$ o" stoc$ta$ing

is aoided. Hence# interim and "ina! "inancia! accounts can e prepared with greater

conenience.

=. Arrangeen% o1 /ro/er er1*a%on; In this system a

detai!ed and more re!ia!e chec$ing o" the store is exercised ecause o" the continuous and

random chec$ing.

. 4er1*a%on o1 Error&; ;rrors are easi!y !ocated and

recti"ied. *his gies an opportunity "or preenting a recurrence in many cases.

N. Do#$le *on%rolK 3ue to separate records in Bin card and

stores !edger# dou!e contro! is maintained.


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9. O/%# &e o1 a%eral; 1erstoc$ing and under

stoc$ing can e aoided ecause perpetua! inentory system coers eri"ication o" stoc$ with

regards to maximum# minimum and other !ee!s.

:. La*6 o1 &e o1 Ma%eral; B/ group wi!! consist o" the items accounting "or the next !argest inestment.


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*he >2/ group wi!! consist o" a !arge numer o" items o" inentory accounting "or sma!!

inestment.

*he >A/ items re4uire intensie inentory contro! and most sophisticated inentory contro!

techni4ues shou!d e app!ied to these items.

*he >B/ items can e contro!!ed using !ess sophisticated techni4ue# and their !ee! can e

iewed !ess "re4uent!y than >A/ items.

*he >2/ items can receie the minimum attentionK they wi!! proa!y e ordered in !arge

4uantities in order to otain them at the !owest price.

*hough the AB2 techni4ue is a good techni4ue ut it cannot e uniersa!!y app!ied. 2ertain

items o" inentory may e inexpensie ut may e critica! to the product in process and

cannot e easi!y otained. *here"ore# they may re4uire specia! attention.

*hese types o" items must e treated as AT c!ass items een though# using the road

"ramewor$# they wou!d e BT or 2T c!ass items.

A!though# not per"ect# the AB2 system is an exce!!ent method "or determining the degree o"

inentory contro! e""orts re4uired to expand each item o" inentory.

*he "o!!owing points shou!d e $ept in mind "or AB2 ana!ysisK

)5- Where items can e sustituted

"or each other# they shou!d e pre"era!y treated as one item.

)=- More emphasis shou!d e gien

to the a!ue o" consumption and not to price per unit o" the item.


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)- A!! the items consumed y an

organi(ation shou!d e considered together "or c!assi"ying as A# B or 2 instead o" ta$ing item as

spare# raw materia!s# semi@"inished and "inished items and then c!assi"ying as A# B and 2.

*here can e more then three c!asses and the period o" consumption need not necessari!y e

one year

A//l*a%on o1 AC Anal'&&;

AB2 ana!ysis can e e""ectie!y used in Materia! Management.

*he arious stages where it can e app!ied areK

)5- In"ormation o" items which

re4uire higher degree o" contro!.

)=- *o eo!e use"u! re@ordering

strategy.

)- Stoc$ records.

)N- ,riority treatment to di""erent

items.


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)9- 3etermination o" sa"ety stoc$

items.

):- Stores !ayout.

)7- Va!ue ana!ysis.

(2 "#&%9n9%e ("T S'&%e;

+apanese "irms popu!ari(ed the @#&%9n9%e ("T &'&%e in the

wor!d. In a +I* system materia! or the manu"actured components and part arrie to the

manu"acturing sites or stores %ust "ew hours e"ore they are put to use. *he de!iery o" materia! is

synchroni(ed with the manu"acturing cyc!e and speed. +I* system e!iminates the necessity o"

carrying !arge inentories# and thus# saes carrying and other re!ated costs o" manu"acturer. *he

system re4uires per"ect understanding and coordination etween the manu"acturer and supp!ier

in terms o" the timing o" de!iery and 4ua!ity o" the materia!. ,oor 4ua!ity materia! or

comp!ements cou!d ha!t the production. *he +I* inentory system comp!ements the tota! F#al%'

anageen% (TM. *he success o" the system depends on how we!! a company manages its

supp!iers. *he system puts tremendous pressure on supp!iers. *hey wi!! hae to dee!op ade4uate

system and procedures to satis"actory meet the needs o" manu"acturers.

S'&%e o1 A**o#n%ng 1or Ma%eral &eHnen%or' S'&%e&


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;ither the periodic inentory system or the perpetua! inentory system may e used to

account "or materia!s issued to production and ending materia!s inentory.

ero* nen%or' S'&%e


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to units counted. It is assumed that goods not on hand at the end o" the period hae een so!d.

*here is no system and accounting period# and they can e discoered on!y at the end.

N4ENTOR TRNO4ER RATE TEC-NE

1ne important techni4ue o" inentory contro! is to use inentory turn oer ratios. *hese

ratios are ca!cu!ated to asses the e""iciency in use o" inentories. 'o!!owing contro! ratios can

e computed "or inentory ana!ysisK

)i- nen%or' T#rnoer Ra%o 2ost o" goods so!dE Aerage Inentory

W,ere Aerage nen%or' )1pening Inentory Q 2!osing Inentory-E=

Inentory *urnoer Ratios ca e ca!cu!ated separate!y "or raw materia!s and "inished goods.

)A- Raw Ma%eral T#rnoer Ra%o Raw Materia! 2onsumedE Aerage stoc$ o" Raw

materia!.

)B- )n&,e Goo& T#rnoer Ra%o 2ost o" Goods So!dE Aerage Stoc$ o" 'inishedGoods

Aerage Age o" inentory o" inentory *urnoer in 3ays 3ays during the periodE Inentory

*urnoer Ratio

)ii- Aerage nen%or' %o %o%al *o&% o1 /ro#*%on )Aerage InentoryE tota! cost o"

production- x 5FF

)iii- Slow Mong S%ore& %o To%al nen%or' Aerage 2ost o" S!ow Moing

StoresEAerage Inentory


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)i- nen%or' er1oran*e ne )Actua! Materia! *urnoer RatioE Standard Materia!

*urnoer Ratio- x 5FF

*hese ratios proide a road "ramewor$ "or the contro! and proide the asis "or "uture

decisions regarding inentory contro!. *he ratios proide a tough indication o" when

Inentory !ee!s are going to e high. ;en i" it appears "rom the ratio that the !ee!s are too

high there might e a per"ect!y good reason why the !ee! o" Inentory is eing maintained.

*he ratios a!so indicate the situation and trend. Howeer# the !imitation o" ratios shou!d e

$ept in mind. *hey are not an end themse!es# ut on!y too!s o" sound Inentory

Management.

)NANCAL MANAGERIS ROLE N N4ENTOR MANAGEMENT

Inentory represents a !arge inestment y manu"acturing concernK there"ore# great

emphasis must e p!aced on its e""icient management. *hough# the operatie responsii!ity

"or Inentory management !ies with the inentory manager# the "inancia! manager must a!so

e concerned with a!! types o" inentories@ raw materia!s# wor$@in@progress and "inished

goods. He must monitor Inentory !ee!s and see that on!y an optimum amount is inested in

Inentory. He shou!d e "ami!iar with the Inentory contro! techni4ues and ensure that

Inentory is managed we!!.

He shou!d try to reso!e the con"!icting iew points o" a!! the departments in order to hae

e""icient inentory management. He has to act as a care"u! inspector !ee!s. He shou!d

introduce the po!icies which reduce the !ead time# regu!ate usage and thus# minimi(e sa"ety

stoc$. A!! these techni4ues o" Inentory management !ead to the goa! o" wea!th

maximi(ation.

4ALATON O) N4ENTORES

O"ECT4E;


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A primary issue in accounting "or inentories is the determination o" the a!ue at which

inentories are carried in the "inancia! statements unti! the re!ated reenues are recogni(ed.

*his statement dea!s with the determination o" such a!ue# inc!uding the ascertainment o"

cost o" inentories and any write@down thereo" to net rea!i(a!e a!ue.

5. *his statement shou!d e app!ied in accounting "or inentories other thanK

)a- Wor$@in@progress arising under construction contacts# inc!uding direct!y re!ated serice

contracts.

)- Wor$@in@progress arising in the ordinary course o" usiness o" serice proiders.

)c- Shares# deentures and other "inancia! instruments he!d as stoc$@in@trade.

)d- ,roducer/s inentories o" !iestoc$# agricu!tura! and "orest products and minera! oi!s# ores

and gases to the extent that they are measured at net rea!i(a!e a!ue in accordance with we!!

esta!ished practices in those industries.

=. *he inentories re"erred are measured at net rea!i(a!e a!ue at certain stages o"

production. *his occurs# "or examp!e# when agricu!tura! crops hae een harested or minera!

oi!s# ores and gases hae een extracted and sa!e is assured under a "orward contract or a

goernment guarantee or when a homogenous mar$et exists and there is a neg!igi!e ris$ o"

"ai!ure to se!!. *hese Inentories are exc!uded "rom the scope o" this statement.

DE)NTONS

*he "o!!owing terms are used in this statement with the meanings speci"iedK


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Inentories are assetsK

)a- He!d "or sa!e in the ordinary course o" usiness.

)- In the process o" production "or such sa!e# or

)c- In the "orm o" materia!s or supp!ies to e consumed in the production process or in the

rendering o" serices.

5. Inentories encompass goods purchased and he!d "or resa!e# "or examp!e# merchandise

purchased y a retai!er and he!d "or resa!e# computer so"tware he!d "or resa!e# or !and and

other property he!d "or resa!e. Inentories a!so encompass "inished goods produced# or wor$@

in@progress eing produced# y the enterprise and inc!ude materia!s# maintenance supp!ies#

consuma!es and !oose too!s awaiting use in the production process. Inentories do not

inc!ude machinery spares which can e used on!y in connection with an item o" "ixed asset

and whose use is expected to e irregu!arJ such machinery spares are accounted "or in

accordance with Accounting Standard )AS- 5F# Accounting "or 'ixed Assets.

=. Inentories shou!d e a!ued at !ower o" cost net rea!i(a!e a!ue.

3. Co&% o1 nen%ore&

*he cost o" inentories shou!d comprise a!! costs o" purchase# costs o" conersion and other

costs incurred in ringing the inentories to their present !ocation and condition.

=. Co&%& o1 #r*,a&e

*he costs o" purchase consist o" the purchase price inc!uding duties and taxes )other than

those suse4uent!y recoera!e y the enterprise "rom the taxing authorities-# "reight# inwards


75/102

and other expenditure direct!y attriuta!e to the ac4uisition. *rade discounts# reates# duty

drawac$s and other simi!ar items are deducted in determining the costs o" purchase.

5. Co&%& o1 Coner&on

*he costs o" conersion o" inentories inc!ude costs direct!y re!ated to the units o"

production# such as direct !aour. *hey a!so inc!ude a systematic a!!ocation o" "ixed and

aria!e production oerheads that are incurred in conerting materia!s into "inished goods.

'ixed production oerheads are those indirect costs o" production that remain re!atie!y

constant regard!ess o" the o!ume o" production# such as depreciation and maintenance o"

"actory ui!dings and the cost o" "actory management and administration. Varia!e production

oerheads are those indirect costs o" production that ary direct!y# or near!y with the o!ume

o" production such as indirect materia!s and indirect !aour.

:. *he a!!ocation o" "ixed production oerheads "or purpose o" their inc!usion in the costs o"

conersion is on ased on the norma! capacity o" the production "aci!ities. &orma! capacity is

the production expected to e achieed on an aerage oer a numer o" periods or seasons

under norma! circumstances# ta$ing into account the !oss o" capacity resu!ting "rom p!anned

maintenance. *he actua! !ee! o" production may e used i" it approximates norma! capacity.

*he amount o" "ixed production oerheads a!!ocated to each unit o" production is not

increased as a conse4uence o" !ow production or id!e p!ant.


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identi"ia!e# they are a!!ocated etween the products on a rationa! and consistent asis. *he

a!!ocation may e ased# "or examp!e# on the re!atie sa!es a!ue o" each product either at the

stage in the production process when the products ecome separate!y identi"ia!e# or at the

comp!etion o" production. Most y@ products as we!! as scrap or waste materia!s# y their

nature# are immateria!. When this is the case# they are o"ten measured at net rea!i(a!e a!ue

and this a!ue is deducted "rom the cost o" the main product. As a resu!t# the carrying amount

o" the main product is not materia!!y di""erent "rom its cost.

8. 1ther costs are inc!uded in the costs o" inentories on!y to the extent that they are incurred

in ringing the inentories to their present !ocation and condition. 'or examp!e# it may e

appropriate to inc!ude oerheads other than production oerheads or the costs o" designing

product "or speci"ic customers in the cost o" inentories.

6. Interest and other orrowing costs are usua!!y considered as not re!ating to ringing the

inentories to their present !ocation and condition and are# there"ore# usua!!y not inc!uded in

the cost o" inentories.

>0. E*l#&on& 1ro %,e *o&% o1 nen%ore&

In determining the cost o" inentories in accordance with paragraph . It is appropriate to

exc!ude certain costs and recogni(e them as expenses in the period in which they are

incurred. ;xamp!es o" such costs areJ

5. Anorma! amounts o" wasted materia!s# !aour# or other production costs.


77/102

=. Storage costs# un!ess those costs are necessary in the production process prior to a "urther

production stage.

. Administratie oerheads that do not contriute to ringing the inentories to their

present !ocation and condition# and

N. Se!!ing and distriution costs.

55. *he cost o" inentories o" items that are not ordinari!y interchangea!e and goods or

serices produced and segregated "or speci"ic pro%ects shou!d e assigned y speci"ic

identi"ication o" their indiidua! costs.

5=. Speci"ic identi"ication o" cost means that speci"ic costs are attriuted to identi"y items o"

inentory. *his is an appropriate treatment "or items that are segregated "or a speci"ic pro%ect#

regard!ess o" whether they hae een purchased or produced. Howeer# when there are !arge

numers o" items o" inentory which are ordinari!y interchangea!e# speci"ic identi"ication o"

costs is inappropriate since# in such circumstances# an enterprise cou!d otain predetermined

e""ects on the net pro"it or !oss "or the period y se!ecting a particu!ar method o" ascertaining

the items that remain in inentories.

5. *he cost o" inentories# other than those dea!t with in paragraph 55# shou!d e assigned

y using the "irst@in# "irst@out )'I'1-# or weighted aerage cost "ormu!a. *he "ormu!a used

shou!d re"!ect the "airest possi!e approximation to the cost incurred in ringing the items o"

inentory to their present !ocation and condition.

5N. A ariety o" cost "ormu!as is used to determine the cost o" inentories other than those "or

which speci"ic identi"ication o" indiidua! costs is appropriate. *he "ormu!a used in

determining the cost o" an item o" inentory needs to e se!ected with a iew to proiding the


78/102

"airest possi!e approximation to the cost incurred in ringing the item to its present !ocation

and condition.

*he 'I'1 "ormu!a assumes that the items o" inentory which were purchased or produced

"irst are consumed or so!d "irst# and conse4uent!y the items remaining in inentory at the end

o" the period are those most recent!y purchased or produced.


79/102

*he practice o" writing down inentories e!ow cost to net rea!i(a!e a!ue is consistent with

the iew that assets shou!d not e carried in excess o" a amounts expected to e rea!i(ed "rom

their sa!e or use.

58. Inentories are usua!!y written down to net rea!i(a!e a!ue on an item@y@item asis. In

some circumstances# howeer# it may e appropriate to group simi!ar or re!ated items. *his

may e the case with items o" inentory re!ating to the same product !ine that hae simi!ar

purposes or end uses and are produced and mar$eted in the same geographica! area and

cannot e practica!y ea!uated separate!y "rom other items in that product !ine. It is not

appropriate to write down inentories ased on a c!assi"ication o" inentory# "or examp!e#

"inished goods# or a!! the inentories in a particu!ar usiness segment.

56. ;stimates o" net rea!i(a!e a!ue are ased on the most re!ia!e eidence aai!a!e at the

time the estimates are made as to the amount the inentories are expected to rea!i(e. *hese

estimates ta$e into consideration "!uctuations o" price or cost direct!y re!ating to eents

occurring a"ter the a!ance sheet date to the extent that such eents con"irm the conditions

existing at the a!ance sheet date.

=F. ;stimates or net rea!i(a!e a!ue a!so ta$e into consideration the purpose "or which the

inentory is he!d. 'or examp!e# the net rea!i(a!e a!ue o" the 4uantity o" inentory he!d to

satis"y "irm sa!es or serice contracts is ased on the contract price. I" the sa!es contracts are

"or !ess than the inentory 4uantities he!d# the net rea!i(a!e a!ue o" the excess inentory is

ased on genera! se!!ing prices.

2ontingent !osses on "irm sa!es contracts in excess o" inentory 4uantities he!d and

contingent !osses on "irm purchase contracts are dea!t with in accordance with the princip!es

enunciated in Accounting Standard )A.S- N# contingencies and eents occurring a"ter the

a!ance sheet date.


80/102

=5. Materia!s and other supp!ies he!d "or use in the production o" inentories are not written

down e!ow cost i" the "inished products in which they wi!! e incorporated are expected to

e so!d at or aoe cost. Howeer# when there has een a dec!ine in the price o" materia!s and

it is estimated that the cost o" the "inished products wi!! exceed net rea!i(a!e a!ue# the

materia!s are written down to net rea!i(a!e a!ue. In such circumstances# the rep!acement

cost o" the materia!s may e the net aai!a!e measure o" their net rea!i(a!e a!ue.

An assessment is made o" net rea!i(a!e a!ue as at each a!ance sheet date.

22. D&*lore.

*he "inancia! statements shou!d disc!oseK

*he accounting po!icies adopted in measuring inentories# inc!uding the cost "ormu!a used#

and *he tota! carrying amount o" inentories and its c!assi"ication appropriate to the

enterprise.

=N. In"ormation aout the carrying amounts he!d in di""erent c!assi"ications o" inentories

and the extent o" the changes in these assets is use"u! to "inancia! statement users. 2ommon

c!assi"ications o" inentories are raw materia!s and components# wor$ in progress# "inished

goods# stores# spares and !oose too!s.


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DATA

COLLECTIO

N


82/102

DATA COLLECTON

In ana!ysis o" inentory o" +1L# We co!!ect the data y the di""erent sources. We co!!ect the

primary and secondary data.

S;21&3AR 3A*A *he secondary data are those data the a!ready in presence "or

speci"ic purpose we use the secondary data aout inentory to !oo$s o!d records o" the

company .'or the dai!y in"ormation aout the items We show the MR !edger register and

dai!y issue s!ip o" materia!s the purchase register and other documentary eidence used "or

the "indings.

In the ana!ysis o" inentory the secondary data are not su""icient .then We co!!ect primary

data.

,RIMAR 3A*A

,rimary data are those data that are originated ery "irst time or

"resh data .with the he!p o" primary data "ormu!ated the research o%ecties. ,rimary data

are the accurate attaina!e re!ia!e and use"u! data.

5. Inentory contro! techni4ues used y the company

=. Inentory systems as perpetua! and periodic systems.

. Stoc$ !ee!s etc.


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N. 2ompanies wesite

FINANCIAL

STATEMENTS


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,ro"it C Loss Account

Partic!lars"#

$%%&"#

$%%'"#

$%%("#

$%%)"#

$%%$-r%ss Sales ./01023 .045426 317/24 487523 /73820E+cise ..8321 .65125 8/124 4.327 /1321Net Sales *'%')+' **%$+ -'.$+% *)(+( '.(-+-D%(esticSales

3.602. 476.26 /56124 7./.2. 14//25

Internati%nal

Sales

737.21 106.24 008425 .34525 ..8027

Other Inc%(e .3/23 .//21 3327 5325 112./otal Income *'$'%+( **-&.+* -&.*+' *)+ '..$+. E01endit!reC%st %"(aterials

8.7823 /.4424 111524 5/132. 5..827

Man#"act#rin* e+&enses

.73426 .53121 ..4.26 3032/ 81.21

Sellin*$*eneral andad(inistrativee+&enses

5.042. 067126 .10/24 .5.525 ..7525

/otalE01endit!re

*$--)+% .&$&+* %(*+( '-.$+% '**)+$

P2I3/A $)&+( $$()+% *&'%+* *$-*+ -.+


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De&reciati%n 7.521 58.21 50/20 05427 07728P2I/ *-'(+% *-&*+& *)$)+. *%((+$ &$)+.Interest .4024 00621 5742/ 16027 1..2.PBDT 0.3124 06002/ .03027 84320 1/82/P2/ *&-*+) *&(*+$ .&&+) &(*+ $*$+-

Ta+ 53021 15.2/ .4326 ./62/ 9.321PA/ *$--+. *$%.+& -+) (-*+* $)$+$

Share %"Pr%"it : ;L%ss<in Ass%ciate

6266 6266 9823 9625 6266

Min%rityInterest

428 9.424 126 6266 6266

PA/ afters4are of1rofit 5 loss

in associateand minorityinterest

*$.&+ **.*+. -$+( (-%+- $)$+$


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2ash '!ow

"INAN6E 76ONSOLI3A/E3 6AS8 "LO9 7 :!;ilant Organ+

$%%&+) $%%'%) $%%(%) $%%)%)6as4 "low S!mmary

Cash and CashE,#ivalents at Be*innin*%" the year

547241 004276 .6/204 .6.214

Net Cash "r%( O&eratin* Activities

.1.280 .../246 8152.1 15/266

Net Cash Used inInvestin* Activities

1/642159

07372669

48/2/89

..00286Net Cash Used inFinancin* Activities

7158251 .144236 /6254 /3.2/6

Net Inc:;Dec< in Cashand Cash E,#ivalent

6266 .182/6 1257 6266

Cash and CashE,#ivalents at End %" theyear

.5/123 547246 004217 .6/204


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'inancia! Ratios

Ratio"#

$%%&"#

$%%'"#

$%%("#

$%%)"#

$%%$De't = E,#ity Rati% 6284 6241 026. 0243 5263C#rrent Rati% 0255 .243 025. 0216 027.%r)in* Ca&ital Days 36 /. 86 87 81

/URNOVER RA/IOS Assets 6236 .20. .20. .2./ .205Invent%ry 1285 /261 /271 7208 7244

De't%rs /264 /2/5 /267 8247 4241Interest C%ver Rati% .6241 8217 5246 0273 .270Earnin* Be"%re InterestTa+ and De&reciati%nMar*in ;><

.7245 .32.4 .320. .4234 .1243

Pr%"it Be"%re Interest andTa+ Mar*in ;><

.0250 .723. .721. .12/1 .6213

Pr%"it Be"%re De&reciati%nand Ta+ Mar*in ;><

.1278 .4208 .7261 .0250 4288

Net Pr%"it ;a"ter (in%rityinterest< Mar*in ;><

827/ .6251 32./ /241 5236

Ret#rn %n Ca&italE(&l%yed ;><

.72.4 0127/ 002.1 062/. 04273

Ret#rn %n Net %rth ;>< .3258 55284 15233 542.8 .42/5


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DATA ANALYSIS

ANDINTERPRETATION


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N4ENTOR TRN O4ER RATO@

*ota! sa!es

Inentory turn oer ratio Aerage inentory

*he sa!es o" +1L in year =FF7 is 7=F mi!!ion C its inestment on inentory is 5=:mi!!ion .

*hen inentory turn oer ratio 7=FE5=:

9.75

+1L used Rs. : mi!!ion worth inentory "or operation. It cou!d generates additiona!sa!es# sa!es

Sa!es : mi!!ion 0 9.75 N.=: mi!!ion

I" +1L increases inestment more on their inentories # then company increases their sa!es.

Inentory turn in year =FF:@

*ota! sa!es in =FF: :7F mi!!ionInestment on inentories 558 mi!!ion


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*urn oer ratio :7FE558 9.:7

Inentory turn oer in year =FF9@

*ota! sa!es in =FF9 :=F mi!!ionInestment on inentories 55F mi!!ion

*urn oer ratio :=FE 55F 9.:

Inentory turn ratio in year =FFN

*ota! sa!es in =FFN :59 mi!!ionInestment on inentories 5FF mi!!ion

*urn oer ratio :59 E 5FF :.59


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ne&%en% o1 nen%ore& J &ale& on war& 200=9

year Inestment oninentories in mi!!ion

tota! sa!es in mi!!ion

=FFN 5FF :59

=FF9 55F :=F

=FF: 558 :7F=FF7 5=: 7=F

+ui!ant 1rganosys Ltd. increases inestment on their inentories.;ery year# then tota! sa!es increases year y year.

Sa!es ;MB;3 ;xce!.2hart.8 s

=FFN =FF9 =FF: =FF7

ears

4ALE NDER ))O MET-OD @

7=F


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3ate Dty 2ost Va!ue Dty 2ost Va!ue Dty 2ost

+an

5 5FFFF =.5F

6 5FFF =.=5 ==5F 55FFF @

5= =FFF =.5F N=FF 6FFF @=7 5FFF =.5 =5F 5FFFF @

'e

5F NFFF =.5F 8NFF :FFF @

5: =FFF =.N5 N8=F 8FFF @

March

=FFF =.N5 N8=F 5FFFF @

57 NFFF =.5F 8NFF :FFF @

=6 NFFF =.=6 65:F 5FFFF @

Apr

N =FFF =.5N N=8F 5=FFF @

58 NFFF U 6NF :FFFF @= =FFF =.FN NF8F 5FFFF @

May

5= 5FFF =.NF =NFF 6FFF @

=N FFF =.FF :FFF 5=FFF @

+un

5F 5FFF =.NF =NFF 55FFF @

F =FFF =.F= NFNF 5FFF @

*ota! 56FFF =.56 N57FF 5:FFF @ 95NF

Where U is 5FFF =.=5 ==5F 5FFF =.5 =5F =FFF =.N5 N8=F*ota! NFFF @ 6NF


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n%er/re%a%on 9 *he 'I'1 method o" a!uation o" inentory is ased on the assumption that the inentoryconsumed in chrono!ogica! order . that is receied "irst are issued E consumed "irst and a!ue"ixed according!y . 'rom the ta!e with an opening inentory o" 5FFFF units at rs =.5F# the

"irst 5FFFF units issued are charged to the cost o" goods so!d at this opening inentory rate rs=.5F . the Apri! 58 issue or consignment o" NFFF units is costed on the asis o" "irst receiedo" the year . +anuary 6 #5FFF units at rs =.=5# +anuary =7 5FFF units at rs =.5 # and 'eruary5: #=FFF units at rs =.N5. the 5FFF each issued on May 5= and +une 5F are costed on the asiso" the =FFF units receied on March . there"ore the cost o" the 5FFF inentory on +une Fis composed o" the receied o" March=6 Apri! N and = #May =N and +une F and the a!ue is the sum o" the cost o" these receipts.

4al#a%on #ner /er/e%#al nen%or' &'&%e9

3ate Receipts Issues Ba!ance D R A D R A D A5+an @ @ @ @ @ @ =FF 5NFF:+an @ @ @ 5FF 7 7FF 5FF 7FF8+an 55FF 8.9F 69F @ @ @ 5=FF 5FF9F6+an @ @ @ =FF 8.9F 57FF 5FFF 89F59+an @ @ @ NFF 8.9F NFF :FF N69F

=9+an FF 6 =7FF @ @ @ 6FF 7:9F=7+an @ @ @ FF 8.9F =99F FF =NF FF 6 =7FF F5+an NFF 6.=F :8F @ @ @ 7FF :F8F

*he a!ue o" inentory a"ter 5 +anuary is :F8F Ers

n%er/re%a%on ;9*he a!ue o" inentory under periodic C perpetua! inentory system is di""erent. *hea!ue o" inentory under perpetua! system is more than periodic system.


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DETERMNATON O) STOCK LE4ELS

3ata o" concentrate at +1L is as "o!!ows

Maximum consumption :9 units per day

Minimum consumption 99 units per day

&orma! consumption 96 units per day

Re@order period 5F@59 days

Re@order 4uantity 878 units

&orma! re@order period 5= days

Re@order !ee! Maximum consumption 0 MaximumRe@order period

Re@order !ee! :9 units 0 59 days 679 units

Minimum stoc$ !ee! re@order !ee! )norma! consumption 0

&orma! re@order period- 679 @ )96 units 0 5= days- =:7 units

Maximum stoc$ !ee! )re@order !ee! Q re@order 4uantity -@ ) min. consumption order period-

) 679 units Q 878 units - @ )99 units 0 59 days-

5F=8 units

Aerage stoc$ !ee! minimum stoc$ !ee! Q o" Re@orderingDuantity

=:7 units Q 0 878 units

=:7 units Q N6 units 7F: units


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n%er/re%a%on o1 rel% K @

5. A"ter ca!cu!ation the re@order !ee! o" +1L is 679 units ut the actua! re@order 4uantity is

878 units.

=. *he minimum stoc$ !ee! o" +1L is =:7 units.

. *he maximum stoc$ !ee! o" +1L is 5F=8 units.

N. *he aerage stoc$ !ee! must e 7F: units.

Cal*#la%on o1 e/e*%e &%o*6 o#% *o&%

Sa"ety stoc$ stoc$ pro. 1" expected tota!stoc$ out)units- out stoc$ stoc$ out expt.!ee! cost)NFEunit- out cost S12

9FF F F F F FNFF 5FF NFFF F.F5 NF NF=9F =9F 5FFFF F.F5 5FF 59F :FFF F.F= 5=F ==F

5FF NFF 5:FFF F.F5 5:FFF 5=FFF F.F= =NF 98F59F :FFF F.F 58F

9F N9F 58FFF F.F5 58F9F 5NFFF F.F= =8F=FF 8FFF F.F =NF 78F9F =FFF F.FN 8F

F 9FF =FFFF F.F5 =FFNFF 5:FFF F.F= =F=9F 5FFF F.F FF 558F5FF NFFF F.

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