Narendra Summer Training Report

8/3/2019 Narendra Summer Training Report

1/53

SUMMER TRAINING PROJECT REPORT

ON

INVENTORY MANAGEMENT

AUTOMAT IRRIGATION PVT. LTD.

SIDCUL IIE, HARDWAR

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR

THE MASTERS DEGREE IN BUSINESS ADMINISTRATION

OF

UTTARAKHAND TECHNICAL UNIVERSITY, DEHRADUN

SUBMITTED TO:

INTERNAL GUIDE EXTERNAL GUIDE

Name Name

Designation Designation

IMS Company Name

Dehradun Location

SUBMITTED BY:

NARENDRA SINGH NEGI

MB10B03

INSTITUTE OF MANAGEMENT STUDIES-DEHRADUNBATCH: 2010-2012


2/53

ACKNOWLEDGEMENT

I am immensely thankful to God who provides me the health ability to withstand the problem coming

in my way.

I am thankful to Mr. A. S. Pandey (Dean) faculty of MBA department, INSTITUTE OF

MANAGEMENT STUDIES, DEHRADUN for his encouragement and providing other assistances

whenever required.

I wish to express my gratitude to Mr. A. S. Pandey who generously helped me to color the mosaic ofthis project report with the titles of their knowledge, expertise and memories.

Thanks are also due to various employees for their co-operating during research.


3/53

EXECUTIVE SUMMARY

Inventories constitute the most significant part of current assets of a large majority

of companies in India. To maintain a large size of inventory, a considerable amount of

fund is required to be committed to them. It is, therefore, absolutely imperative to

manage inventories efficiently and effectively in order to avoid unnecessary

investment. A firm neglecting the management of inventories will be jeopardizing its

long-run profitability and may fail ultimately. It is possible for a company to reduce its

levels of inventories to a considerable degree, e.g.10% to 20%, without any adverse

effect on production and sales, by using inventory planning and control techniques.

The reduction in excessive inventories carries a favorable impact on a companys

profitability.

A companys merchandise raw materials, and finished and unfinished products

which have not yet been sold is called Inventory.

The term inventory management is used in two ways unit control and value control.

Production and purchase officials use this word in term of unit control whereas in

accounting this word is used in term of value control. As investment in inventory

represents in many cases, one of the largest assets item of business enterprises

particularly those engaged in manufacturing, wholesale trade and retail trade.

Sometimes, the cost of material used in production surpasses the wages and production

overheads. Hence, the proper management and control of the capital invested in the

inventory should be the prime responsibility of accounting department because

resources invested in inventory are not earning a return for the company. Rather, on

the hand, they are costing the firm money both in terms of capital costs being incurred

and loss of opportunity income that is being foregone.


4/53

OBJECTIVES

GROWTH:

To ensure a steady growth by enhancing the competitive edge of AUTOMAT IRRIGATION in

existing business, new areas and International operations so as fulfill national expectations from

AUTOMAT IRRIGATION .

PROFITABILTY:

To provide a reasonable and adequate return on capital employed, primarily through

improvements in operational efficiency, capacity utilization and productivity, and generate

adequate internal resources to finance the company's growth.

CUSTOMER FOCUS:

To build a high degree of customer confidence by increasing value for his money through

international standards of product quality, performance and superior services.

PEOPLE-ORIENTATION:

To enable each employ to achieve his potential, improve his capabilities, perceive his role and

responsibilities participate and contribute positively to the growth and success of the company. To

invest in human resources continuously and be alive to their needs.

TECHNOLOGY:

Achieve technological excellence in operations by development of indigenous technologies and

efficient absorption and adaptation of imported technologies to suit business needs and priorities,

and provide the competitive advantage to the company.


5/53

CONCLUSION

On seeing the liquidity position of AUTOMAT IRRIGATION. I conclude that it is not verygood as the current assets are in the form of inventories and debtors. The debt collection

period is high and inventories are least liquid current assets. So maintaining the inventories are

relatively costly affair for the company and the management must have to investigate properly.

It is very necessary so that fund should not be blocked unreasonably. Efficient inventory

management is required in AUTOMAT IRRIGATION.

On seeing the leverage position of the AUTOMAT IRRIGATION. I conclude that it is verygood as the stake of owners in company is continuously increasing and its long-term debt

continuously decreasing it means that company is paying its debt promptly and creditors will

not face any risk in investing in AUTOMAT IRRIGATION as also AUTOMAT

IRRIGATION is giving assured ROI.


6/53

CONTENT


7/53

LIST OF TABLES AND FIGURE


8/53

OBJECTIVE OF THE STUDY

The project work is done to fulfill the requirement of our M.B.A degree course. Itis an integral part of the curriculum of this program. The main objective of this project is to

have deeper insight in to the financial position of the company and make analysis of items of the

Balance sheet and profit & loss a/c. This will help to know about the past and present trend as

well as predict about the future. It will help to make inter firm comparison and act according to

this. What strategy a company has to make and in what filed more expenditure is to be made can

be analyzed with the help of the project.

In addition to the knowledge, this project report provides the financial position of the unit

for the current financial years for various areas. It is also tells about the various policies and

accounting adopted by the firm.


9/53

INTRODUCTION

HISTORICAL PERSPECTIVE:

Founded in 1972, Automat Industries Pvt. Ltd. is a progressive engineering concern

engaged in the production of world class custom made high-precision parts and irrigation

products. We are one of the leading manufacturers and exporters of premium quality impact

sprinklers, part circle sprinklers, water guns, filter products, air release valves, pressure

release valves, quick coupling valves, etc.

Renowned for their precision, perfection and superb performances, our products are moving

towards setting new standards. We are better known for our commitment to quality and reliabilityfor timely delivery. The company is also involved in the import of various items such as water

guns, filters, compressors fittings, ball valves, etc. from the markets of Italy and Middle East.

We are a member of PHD Chamber of Commerce, Export-Import Council and Federation of

Indian Chamber of Commerce and Industries.

OurProducts

With our extensive knowledge and technical expertise, we, Automat Industries Pvt. Ltd. offer

an unbeatable line of irrigation products and custom made high-precision parts. We are adistinguished manufacturer, exporter and importer of the following products:

Irrigation Products:-o Impact sprinklerso Part circle sprinklerso Water gunso Filter productso Air release valveso Pressure release valveso Quick coupling valveso Aluminum accessorieso Wheel moves and center pivotso Other products

Industrial Products:o High precision parts and components manufactured on screw machineso Precision components for hierological industry and the defense sectoro Brass impact sprinklerso Precisely engineered components of up to 10 micron accuracy.


10/53

OurCoreCompetencies

The following are the hallmark features of our organization:

Precision machining of brass, aluminum stainless steel on Swiss sliding head machines withaccuracies of 8-10 microns with ability to design and develop components & assemblies

within a very short period

Capability to handle large volumes to the tune of 1 million pieces per month for each item Highly productive & efficient manufacturing systems with flexibility for large scale as well as

batch production.

OurValues

Our primary business objectives are:

To deliver our clients with the world's best range of products at highly economical prices. Constant re-engineering and innovative development with a target of 25% of the business each

year from new products.

Focus on the concept of Frugal Engineering, without diluting the quality & functional aspectsof the product.

Developing & manufacturing a lot of products cost-effectively in short duration Minimizing error through rigorous quality control checks by using modern statistical methods

thereby reducing costs for our clients.

OurQuality

We follow rigid quality control measures at every stage of our operation to ensure smooth

and flawless production. The company follows well defined parameters of quality control right

from the initial stage of designing, production and finishing, thus leaving no space for the quality

degradation.

Our entire process is supervised by an expert team of professionals having versatile knowledge of

their respective discipline. The biggest strength of Automat lies in its ability to integrate

knowledge, skills and resources from different fields of engineering to develop reliable products

and present them to the market at a competitive price.


11/53

Infrastructure

Automat Industries Pvt. Ltd. is well equipped with an outstanding facility at Patparganj

Industrial Estate, Delhi, the commercial hub of India. We are outfitted with ultra modern machines

and a team of excellent workers to innovate world class products. The following is a small detail of

our mechanical strength:

Automates/Screw Machines

Sliding Head Automats Tornos & Petermann Stationary Head Automats Traub (capacity up to 32 mm)

Secondary Operations Machines:

Drilling MachinesAciera, Switzerland Milling MachinesAciera, Switzerland

Threading/Tapping Machines:

Centreless GrindingAgathone & Wickman

SemiAutomatic LatheSchlaublin, Switzerland

Tool Room:

CAM Shaving and Milling Surface Grinders Precision Lathes Vertical Milling Machines Drilling Machines

Clean Room Assembly Facilities:

Paddle Press Machines Special Purpose Assembly Equipment Vibro-Honing and Ultrasonic Cleaning

Testing and Quality Assurance Facilities:

Digital Profile Projector Hauser & Nikon Microscopes Bore Gauge, Slip Gauge & Height Gauge Various Kinds of Specialized Quality Assurance Equipments e.g Comparators


12/53

ORGANISATIONAL CHART OF AUTOMAT IRRGATIION


13/53

Inventories are stock of the product a company is manufacturing for sale and components that make

up the product.

VARIOUS FORMS IN WHICH INVENTORIES EXIST IN A MANUFACTURING COMPANY:-

1)Raw materials: Raw materials are those basic inputs that are converted into finished product

through the manufacturing process. Raw materials inventories are those units which have been

purchased and stored for future productions.

2)Work-in-process: Work-in-process inventories are semi-manufactured products. They

represent products that need more work before they become finished products for sale.

3)Finished goods: Finished goods inventories are those completely manufactured products

which are ready for sale.

Stocks of raw materials and work-in-process facilitate production, while stock of finished goods is

required for smooth marketing operations.


14/53

OBJECTIVE OF INVENTORY:-

Inventories represent investment of a firms funds. The objective of the inventory management

should be the maximization of the value of the firm. The firm should therefore consider:

(a) Costs,(b) Return, and(c) Risk factors in establishing its inventory policy.

Two types of costs are involved in the inventory maintenance:

1-Ordering costs: - Requisition, placing of order, transportation, and staff services. Ordering

costs are fixed per order size increases.

2-Carrying costs: - Warehousing, handling, clerical and staff services, insurance and taxes.

Carrying cost increases.

The firm should minimize the total cost (ordering cost + carrying cost). The economic order

quantity (EOQ) of inventory will occur at a point where the total cost is minimum. The

following formula can be used to determine EOQ:

EOQ= (2AO/C)^1/2

Where,

A=Annual requirement.

O=per order cost.

C=per unit carrying cost.


15/53

WHEN SHOULD THE FIRM PLACE AN ORDER TO REPLENISH INVENTORY?

The inventory level at which the firm places order to replenish inventory is called reorder point.

It depends on

(a) the lead time and

(b) the usage rate.

Under perfect certainty about the usage rate, the instantaneous delivery (i.e. zero lead time, the

reorder point will be equal to:

Lead-time *Usage rate +Safety stock.

The firm should strike a trade-off between the marginal rate of return and marginal cost of funds

to determine the level of safety stock.

A firm, which carries a number of items in inventory, which differ in value, can follow a

selective control system. A selective control system, such as the A-B-C analysis, classifies

inventories in to three categories according to the value of item:

A-Category consists of highest value items,

B- Category consists of high value items,

C-Category consists of lowest value items.

More categories of inventories can also be created. Tight control may be applied for high-value

items and relatively loose control for low-value items.


16/53

Why business houses hold inventories?

There are at least three motives for holding inventories:

1-To facilitates smooth production and sales operation (transaction motive).

2-To guards against the risk of unpredictable changes in usage rate and delivery time

(precautionary motive).

3- To make advantage of price fluctuations (speculativemotive).

ELEMENTS OF INVENTORY:-

There are three basic forms of inventory :

1.STORES INVENTORY : This mainly comprises with

(a) Direct materials: such as raw material in form of ferrous, non ferrous,

insulating materials , casting-forgings and components.

(b) Indirect materials:These are also known as general stores,

Maintenance and operating supplies and the like it includes all the non product items regularly

stocked by the company and either consumed in operation of the plant or office or needed to

maintain its building and equipment.

2.Stores In Transit: These are item which have been shipped or dispatched from vendor but

not yet reached their destination in stores and not yet accounted for in the priced ledger.

3.Production Inventory :

a)Work In Progress Inventory: This includes all product materials on which the company hasperformed some manufacturing, processing or converting operation but which are not yet in

finished form ready for sale.

b)Finished goods inventory: these include completed the items of modules that are ready forsale. These may be located at a company plant or store for a branch for a commercial

warehouse.


17/53

MANAGEMENT OF INVENTORIES

THE NEED AND IMPORTANCE: -

The need for inventory control in a manufacturing concern can hardly be overemphasized, since

in varies constitute the largest component of working capital in most of the organizations, its needs

the greatest amount of care and attention for proper control. Its excess or inadequacy, both has

adverse effects on liquidity and profitability of a firm. Insufficient and inefficient procedures may

lead to unbalanced inventories e.g. some items out of slick and some over slick, resulting in

excessive investment. All these insufficiencies will ultimately have an adverse effect on profits.

Control techniques, such techniques are applied for reducing the investment in inventories, out

adversely affecting the smooth running of production and sales operation. Material Management is

an integrated function of the various sections of an organization dealing with the supply of

materials and allied activities in order to achieve maximum coordination and optimum expenditure

on materials.


18/53

INVENTORY MANAGEMENT TECHNIQUES

Altogether the company deals with stock of thousands of items raising a serious problem of how

one can keep control of track of all these items also, where it necessary to have some extent of

control on each and every item. Different types of analysis each having its own specific advantages

and purpose help in bringing a practical solution to the control of inventory . The most important

of all such analysis is the ABC analysis. The others ones are-

VED - analysis SDE - analysis HML - analysis FSN - analysis

ABC ANALYSISIts a formal way of classifying inventory so that the important ones will be given the

most attention. Through this analysis the professional inventory manager will concentrate his

efforts on were they will yield the greatest rewards. The ABC of ABC analysis refers to the

classes, A, B and C into which the inventory is divided.

A is high value items whose rupee volume typically account for 75-80% of the value of the total

inventory while representing only 10-15% of the inventory items, the B class is lesser value item

whose rupee volume accounts for 15-20% the value of the inventory, while representing 15-20% of

the inventory items. The C class is low Value item whose volume accounts for 10-15% of the

inventory value but 75-80% of the inventory items.

The same degree of control is not justified for all the three classes of items. The class of items

requires the greatest attention and the class of items the least attention. Class C items need no

special calculations since of they represent a low inventory investment. The order quantity might be

a one-year supply a periodic review once year class B items could have CODs developed into a

semi-annual review of the variables. Class of items could have EOQs developed a review of the

variables each time an order is placed. The major concern of an ABC classification in to direct


19/53

attention to there inventory items their represent the largest amount expenditure. If inventory levels

can be reduced for claim of items it result in a significant reduction in inventory investment.

ABC INVENTORY CLASSFICATIONPercent of total class percent of total

No. of units in Annual usage value each class

Percentage of

inventory items

Category of

classes

value of the total

inventory(rupee volumein %)

10 A 75

15 B 15

75 C 10


20/53

VED ANALYSISThis analysis specially pertains to the classification of maintenance spares denoting the

essentiality of blocking spares.

V - stands for vital - items when out of stick or when not readily available, completely bring the

production a hault.

E - Is for essential items without which temporary losses of production or dislocation of production

week occurs.

D - Denotes desirable items - all other items, which are necessary but do not cause any immediate.

S.D.E ANALYSISEffects on production.For developing countries and especially where certain items are in

scarce supply. This analysis is very useful.

S - Refers to scarce items, especially imported items and those which are very much in short

supply.

D - Are difficult items which are available in market but no easily available.

E - Items are those which are easily available, most local items.

HMLANALYSISThe cost per item is considered for this analysis.

H - High cost

M - Medium cost

L - Low cost


21/53

FSNANALYSISMaterials are classified as: -

F- Fast moving - the items with other rates of consumption.

S- Slow moving- if less than five percent is consumed.

N - Non moving itemsif less than one percent of the item inventory has been consumed in

the past three months, it is termed as non-moving.

Ordering SystemsThe main problem in any ordering system is when to order and how much to order accordingly.

Main methods used for overcoming these problems are:-

1.Reorder level system (ROL method):-

In this method, at first a recorder level is found out taking into consideration the lead-time

and also the rate of consumption. To take care of any variation either in the lead-time or in the ratio

of consumption of quantity known as a buffer stock or safety slick is provided.

2.Periodic ordering method:-

The stocks received at fixed intervals of time and orders are placed either for a fixed quantity

or a variable quantity.

SAFTEY STOCKThe safety stock become necessary in order to avoid 'stock outs' if the rate of

consumption increased and/or the lead time gets extended from the values considered for the

replenishing systems, Thus, a simple way of establishing the safety stock would be to find out the

above two variations that could systematize such a big amount of information. What is required

then I a upgrading on the class of information processing technology. In other words the

management are as follows.

1. It enables to establish a well-defined ordering policy.


22/53

2. It helps on accurate program planning.3. It helps in detection of universal consumption on trends by consumption analysis.4.

It produces derailed machine processed stores ledgers.

5. It picks up important items from wide inventories require management attention.6. It produces ABC analysis for effective control of issue and procurement.7. It highlights pending orders and pinpoints disparity between the last purchase rate and the

current purchase. Before and inventory can be put on the computer a large manual efforts is

required for assignment of individual codes after the coding structure is selected from either of

the systems indicated below. In large inventory of over hundred thousands of items, this effort

may take a year pr even longer specially if meaning codes are to be assigned. Is the coding effort

can be very expensive and therefore effort can be very expensive and, therefore effort should be

made to minimize it by depending the coding structure as simple as possible. So in this present

era of computer, computerization of material management has become a necessity.

The safety stock would be to find out the above two variations that could normally occur over a

period of time in terms of additional quantity of stock to be maintained.


23/53

DETERMINATION OF ORDERING COST

Ordering cost is the cost which will be incurred by concern because of initializing or placing order

for the supply of materials.

To find out the ordering cost, at first the following cost are determined for a particular year-

1.Suitable position of administrative staff lost who have been engaged in purchasing activities.2.Clerical cost.3.Depreciation on building furniture, and on office equipments.4.Post telegraphic cost and stationary expenditure.5.Travel and electricity expenditure.

After finding out the total expenditure of all the items, divide that particular amount by the total

number of orders placed in that particular year, which will give the order cost in Rs.


24/53

DETERMINATION OF INVENTORY CARRYING COST

Inventory carrying cost is the total expenditure incurred by the material management function for

carrying the inventory in stock. So find the inventory carrying cost at first the following

expenditure for the particular year is find out.

(1) Suitable position of the administrative staff cost.

(2) Suitable position of the security cost & electrical cost.

(3) Maintenance and depreciation expenditure on building and

furniture.

(4) Stationary, post, telegraph and electricity expenses.

(5) Obsolescence, Insurance and handling charges.


25/53

OBJECTIVES OF INVENTORY CONTROL

1.Financial: goal is to keep investment in inventories within the limits of budget available so

that composition of working capital is not thrown out of balance.

2.Operating:

a)To obtain the best overall balance between production and inventory carrying cost on the one

hand and customer service at the other.

b)To minimize losses resulting from inventory deterioration & obsolesce

3.Property protection:

a)To safeguard an important asset against theft preventable waste all unauthorized use.

b)To make certain that within reasonable tolerances the value of this asset is correctly stated in

companys books

To meet objectives AUTOMAT IRRIGATION Hardwar Inventory Control Department has

outlined following major objectives:

1.To maintain the investment in Inventories at the lowest point consistent with operating sales

turnover & financial requirements of the enterprise as per budget.

2.To ensurean adequate supply of required kind of raw materials parts supplies and other items

to maintain the most efficient level of operations to meet the demands of customers.

3.To report and liquidate slow moving, non-moving defective or obsolete items.

4.To ensure the actual existence of physical quantities and values shown in the records.

5.To prevent loss through waste, damage or pilferage.

6.To signal over under-stocked conditions in relation to current and projected demand.


26/53

FUNCTION OF INVENTORY CONTROL

Functions to be performed in the field of Inventory Control are:

1 Setting up norms for carrying Inventory.2 Determining what items to be stocked.3 Setting rules for Inventory replenishments.4 Receiving, storing and issuing inventory items as needed.5 Maintaining records of inventory quantities and values.6 Identifying and deposing of slow-moving, non-moving, obsolete or damage inventories.7 Furnishing summary information on inventory position for control purposes.

Locations of position responsible for performing each of these functions in organization

structure greatly vary from company to company.


27/53

INVENTORY MANAGEMENT IN AUTOMAT IRRIGATION

In AUTOMAT IRRIGATION Hardwar determination of product material or direct work

order material (what?) o be carried in Inventory is more or less automatic result of product

design formulation and is given in material forecast for a work order. Indirect materials

consumed in manufacturing process such as electrodes, brazing alloys, tooling etc. are usually

given by process engineering or at times by design departments.

Balance great bulk of indirect materials is made up of repair parts and general supplies.

Responsibility for specific (what?) items to be carried in inventory rests with Works

Engineering.

With respect to raw materials and purchased parts, responsibility for determining (when?)

and how much to buy is a sign to relevant product manufacturing i.e. production planning and

material planning groups. However a strict budgetary control and allocation to specific work

order control on high value items is exercised by Inventory control department organized

separately under Material Management, Purchase department attached to manufacturing

department determines (where?) to buy.Determination of indirect material (when?) and how much to buy and (where?) , is done by

central group under Material Management by consolidating requirements of all sections and

while looking at consumption trends over a No. of years.

Again a strict budgetary control and control on high value items for their allocation is

exercised by Inventory control group.


28/53

There are different departments which deals with Inventory management :

Purchase Department

Shipping Department.Receiving Department.Storing SectionRejection Shell

Process of placing an order in AUTOMAT IRRIGATION:-

User department raise the indent. (Requirement) Indent will go to purchase department. Purchase department will raise the Tender. In Reply, supplier will give their quotations. Company choose any of them (lowest) & places the order. On receiving the material the user department will raise Stores Receipt Voucher (STR)

Inventory Record Keeping And Related Procedures:-

How well Inventory records are maintained has a major bearing on the effectiveness of

Inventory control program. Mostly information recorded automat irrigation. system is:

Name of the part or materialShort descriptionIdentifying No called Material codeUnit of measurementLocation in store (custody)Bin no.Opening, received, issue, closing quantity and value.

These records are maintained in an online system on main frame computer user departmentshave shared access for posting and retrieval of information.


29/53

There is a system for reserving specific items as customer specific which is done by tagging on

the item. Posting of withdrawals or issue from inventory is done on specific authorization by a

document called Store Issue voucher.

AUTOMAT IRRIGATION produces long production cycle items against the firm orders fromcustomers. Because of this as well as sizeable imported raw materials and compulsory bulk

purchase of items like steel and copper in line with availability from SAIL and MMTC, the

company has to carry high level of inventories.

NEED OF INVENTORY MANAGEMENT:-

Stiff competition, globalization of trade and liberalization.

Achieving, increasing and positive EVA.

Cost reduction.

Energy conservation.

Conservation of natural resources.

Better, work environment.

Improved health and safety.

Enhanced public image.

AUTOMAT IRRIGATION took the following steps to control its inventory:-

STRATEGIES/MEASURES:-

Formation of specific group in each area to identify the wastage elements and seek

participation of all.

Identification of wastage.

Formulation of action plan to eliminate/minimize wastage.

Review of status.

Identification of corrective actions and their implementation.

Highlighting the gains.


30/53

INVENTORY CONTROL

In managing inventories , the firms objective should be in consonance with

the shareholders , wealth maximization principle .

To achieve this , the firm should determine the optimum level of inventory . Efficiently controlled

inventories make the firm flexible . Inefficient inventory control results in unbalanced inventory

and inflexibilitythe firm may sometimes run out of stock and sometimes may pile up unnecessary

stocks . This increases the level of investment and makes the firm unprofitable .

Inventory can be controlled in two ways

1.BEFORE PROCUREMENT is decided HOW much should be ordered ?WHEN should it be ordered ?

To manage inventories efficiency ,answers to be sought to the following answers , HOW

MUCH TO ORDER relates to the problem of determining economic order quantity and is

answered with an analysis of costs of maintaining certain level of inventories . the second

question WHEN TO ORDER ,arises because of uncertainity and is a problem of determining

the re-order point.

There are certain TECHNIQUES adopted by firms ,they are

2.IN STORE it refers to continous stock checking when goods are in stores .This system is adopted by large firms to put check to discripencies and errors made in

stores.


31/53

IN AUTOMAT IRRIGATION ,this function is performed by PRICE STORES LEDGER and

STOCK VERIFICATION

A . PRICE STORES LEDGER ;

Price stores ledger relates to goods in stores only .

Its major functions includes following;

Inventory control in storesit relates to control of inventory in stores ,as it accounts forissue of materials to different departments .

Price variation control it controls price changes to stock ,implies impact of pricechange of stock in market to cost of material in stores .

Accounting for scrap and surplus stores Due to changes in design or obsolescence ofproducts etc, some items in stores become surplus. As maintenance of these items in the

inventory results in additional expenditure by way of inventory carrying cost, these items

are to be reviewed periodically declared as surplus and disposed off to the

best advantage of the company.

The accounting treatment accorded whenever the materials are declared surplus and

charged off to P & L account or when materials already declared as surplus and charged

off to P& L account are put to alternative use and issued for production or when the

surplus materials already declared as surplus are disposed of on sale .

BUT PSL s major function include receiving GOODS ,after the order have been placed as per

requirement by the indenter and then distribute those received goods to different departments for

conversion to finished goods .

It is regarded as its major function being basic requirement for production.

THIS is accomplished as follows under two systems;


32/53

Manual System:

In almost all the manufacturing divisions, this ledger is maintained on the computer or a

data processing machine. Where the priced stored ledger is maintained manually the registerwill be maintained .The stores Receipts Vouchers will be priced by the stores account

section(Stores review or stores bill group) with reference to the purchase order and the bills

passed for payments. The priced SRVs are posted in the receipts column of the Priced Stores

Ledger both in quantity and value. In respect of other receipts and issue documents, the

valuation will be done by PSL section in consultation with the other account sections and

departments concerned wherever required. The valuation of issues is generally done on the

basis of monthly weighted average price. For this purpose the issue price will be arrived at by

adding the opening balance of the month and all the receipts separately in value and quantity

and dividing the value by the quantity so arrived at, as illustrated below:

If A&B represents the quantities of opening balance and receipts , X & Y

represents opening balance and receipts during a month in value and t represents the weighted

average issue price

T=(X+Y)/(A+B)

All issues during the month will be priced on the basis of t.

At the end of every month the ledger will be closed and the closing balances will be struck.

The Priced Stores Ledger will be maintained material code-wise and a consolidated summary

of all the materials held in stock class-wise and material code-wise will be presented ,for

obtaining the class-wise summary and the grand total of all class-wise summaries agreed with

the general ledger.

Computerized System :

1.Processing and Receipt Documents :

All the receipt documents are checked for validation of material code, unit of

measurement and location with reference to material master on the computer. The

responsibility for correcting error in this respect rests with Stores department . After this

validation , SRVs are routed for pricing on computer. In this respect two further error

statements are generated. The first statement refer to those SRVs for which price factors

have been fed by Stores Accounts section (Stores review / Stores Bills group) but for which

there is no matching code in the material master. The second error list refers to those SRVs

for which price factors have not been received from the Stores Accounts section (Stores

Review /Stores Billing group). The responsibility for corrective action on these two error lists

rests with the Stores Review/ Stores Bills group of the Stores Accounts section.


33/53

2.Processing of Issue Vouchers on Computer :

Just like receipt vouchers , issue vouchers are also validated with reference to

material master regarding material code, unit and location . They are also validated with

reference to the stock available in the stock master and if there is no stock to

accommodate.

They are rejected by the computer. As in the case of receipts, the responsibility for error

location rests with the Stores department. After correction , the validated vouchers are

further processed in computer. The issue rate is arrived at base on a system of monthly

weighed averages after taking into account all the receipts during the month. Thus the

issue vouchers are priced on weighted average only after all receipts have been accounted

for in particular month. With this , Priced transaction file of of computer gets completed

in particular month and from there , different tabulation pertaining to current PSL,

progressive PSL, document-wise receipts and issues , accounts code -wise receipts and

issues , material- wise receipts and issues etc., are received from computer for futurework in PSL section.

3.Processing of Transfer and Other Documents on Computer :

The transfer and other documents specified above are priced in the PSL section

and fed into the computer. A tabulation for all such documents processed on the computer

is obtained at the end of every month.

4.Accounting of Material in PSL :

Based on the computer tabulations received for receipts/ issues/ transferdocuments necessary accounting adjustments through journal vouchers are effected in the

PSL section.

4.1.Accounting adjustments at the time of Mid- year / AnnualClosing of Accounts

At the time of Mid- year / annual closing of accounts, the balances under each of

the different stock heads are reconciled with the progressive PSL and the class summary

register. After reconciliation is made , the closing balance value in each of the stock

heads is cleared and taken to closing stock accounts in the Financial Ledger, The journal

entry is effected in Cost Accounts section.

4.2 Accounting of Stock of Durable Tools :

At the time of accounts, the values of durable tools in stock is brought to account

as stock. The tools are classified as consumable tools and durable tools. The criteria for

treating a tool as a durable tool are as follows :

(a) the cost of each tool shall be above Rs 10,000; and

(b) the life expectancy of the tool shall be more than one year.


34/53

4.3 Accounting of Non-stock Items of Stores:

4.3.1 In case of medical and stationary stores for which no Priced Stores Ledger is

maintained, statements of stock of medical stores and stationary stores are obtained from

the Chief Medical Officer/'Stores department, as at the end of accounting period/year,

duly priced and the following adjustments are made in the accounts based on the priced

stock statements.

Code Description Dr. Cr.

162001 Inventories Miscellaneous stores xxx

7130xx Medical expenses Stock of medial stores xxx

at the close of the year/ Overhead control

8040xx Printing and stationary/Overhead control xxx

The above entries are reversed in the following accounting year i.e. in December/April.

However in April, this is done by operating code 7110xx-'stock of medical stores at hebeginning of the year' instead of 7130xx, in case of medical stores.

5.2Check up of High Value Receipts/Issues:

The problem relates to accounting of stray mistakes in regard to pricing or in feeding

pricing element to computer e.g. rate which is reckoned per MT may be given as per Kg or

vice-versa. For this purpose tabulated figures of all high value SRVsare checked up every

month both for quality and value. The responsibility of ensuring that all receipts are

completely reported to EDP rests with the Stores Review group of Stores Accounts section.

5.3 Quantity Mistakes in Issue Vouchers due to Punching Errors:

Major errors are generally reconciled when current PSL is reviewed and minor errors are revealed

at the time of reconciliation of PSL balances with bin card balances. If the quantity is punched

wrongly value is also calculated wrongly by the computer. This mistake is corrected through PSL

adjustment forms.


35/53

5.5 Wrong Purchasing of Material Codes :

Because of wrong purchasing of material codes, the transactions relating to one material is wrongly

accounted for under another material code. These mistakes are generally revealed at the time of

reconciliation of PSL with bin card balances and they are also corrected through PSL adjustment

forms.

INVENTORY MANAGEMENT IN AUTOMAT IRRIGATION

AUTOMAT IRRIGATION produces long production cycle items against the firm orders fromcustomers. Because of this as well as sizeable imported raw materials and compulsory bulk

purchase of items like steel and copper in line with availability from SAIL and MMTC, the

company has to carry high level of inventories.

RS/LACS

PARTICULA

RS

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

ACT. ACT. ACT. ACT. ACT. ACT.

Raw Material

&

components

7639 5338 10469 11567 10375 10386

Material with

fabricators99 155 105 306 395 353

Stores

&spares2333 2092 1594 1848 2989 3061

Material in

transit1466 3819 3716 9910 8193 9705

Finishedgoods at plant

931 2603 2181 1770 2454 1819


36/53

W.I.P 18488 23699 38585 42120 38398 36411

Transfer in

transit1413 1508 2326 2277 4823 3630

Total 32370 39214 58976 67898 67627 65365

Turnover10133

597432

14069

7

16406

0

20086

4

23509

6

Average

inventory42267 45414 37915 35792 49095 33752

Inventory to

turnover 1.93 1.78 2.38 2.72 2.993.26

Days of

inventory

holding

139 192 248 215 166 135

Inventory Turnover Ratio = Sales / Average Inventory

Days Of Inventory Holding =365 / inventory Turnover Ratio


37/53

Graphical Representation of Days of Inventory Holding:

INTERPRETRATION:-

If we see from the above table that the days of inventory holding in the year 2005-06 has

come down to 215 days from 248days in the previous year. Inspite of increase in turnover i.e.

164060 in 2005-06 from 140697 in the year 2004-05the days of inventory holding decreases.

This indicates that the company is using effective strategy to bring down its inventory level.This makes very less investment in inventory.

It is in the interest of every organization to minimize its inventory level.

139

192

248215

166

135

0

50

100

150

200

250

300

350

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

NO.OFDAYS

YEARS

DAYS OF INVENTORY HOLDING

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08


38/53

Following is the process through which the company can achieve the optimum inventory level.

NEED OF INVENTORY MANAGEMENT:-

Stiff competition, globalization of trade and liberalization.

Achieving, increasing and positive EVA.

Cost reduction.

Energy conservation.

Conservation of natural resources.

Better, work environment.

Improved health and safety.

Enhanced public image.

STANDARD

INVENTORY

LEVEL

COMPARISION OF

ACTUAL WITH

STANDARD

TAKECORRECTIVE

ACTIONS

ANALYSING REASON OF

VARIATION/DEVIATION VARIATION/

DEVIATION

TAKING ACTUAL

INVENTORY


39/53

Graph of inventory in AUTOMAT IRRIGATION:

Interpretation:-

By the graphical representation, we can easily understand that the level of inventory is

coming down but in 2005-06 it increases due to large amount of raw material .It comes down

because company takes some effective measures to control the level of inventory.

0

10000

20000

30000

40000

50000

60000

70000

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08


40/53

STRATEGIES/MEASURES:-

Formation of specific group in each area to identify the wastage elements and seek

participation of all.

Identification of wastage.

Formulation of action plan to eliminate/minimize wastage.

Review of status.

Identification of corrective actions and their implementation.

Highlighting the gains.

Suggestion: -

After analyzing the steps taken by the company there are some suggestions to manage the

Inventory:

There should proper analysis of requirement of raw material. Order should be placed according to the lead-time. Wastage should be avoided. There should be proper coordination between the Inventory Department and Production

Department


41/53

USES OF FINANCIAL STATEMENTS TO DIFFERENT PARTIES

The analysis and interpretation of financial statements is an important accounting activity.

The end users of business statements are interested in these statements primarily as an aid to

determine the financial position and the results of the operations. There are different parties

interested in the financial analysis of their statements and their aims and their objectives also

differ significantly. The following are the use of statement analysis to different parties:-

TO THE FINANCIAL EXECUTIVES

The first party interested in the financial statement analysis is the finance department of the

business concern itself to the financial managers such analysis provides a deep insight into the

financial condition of the enterprises and the view of the past performance which helps in future

decision making. The financial statements give vital information concerning the position of the

enterprise as well the result of the operations.

TO THE TOP MANAGEMENTThe top management of the concern is also increased in the analysis of these statements

because it helps them reaching conclusions regarding:

Performance appraisal of overall business activities.Enquiry about current financial position and long term strategic planning.Queries concerning the relationships of earnings to trends in sales etc.Queries concerning the relationships of earnings to investment.


42/53

TO THE CREDITORSThe analysis of these statements is very essential to the creditors. Also some aspects of

enterprise operations are of interest to creditors in regard to liquidity of funds, soundness of

financial structure, profitability of the operations, effectiveness of working capital management etc.

TO THE INVESTORS AND OTHERSInvestors presents as well as prospects are also interested in the measurement of earn ing

capacity of the securities. Investors have been increasingly concerned with the cash generation

capability of an enterprise, primarily in terms of the flexibility available to such enterprises to

acquire other business and new assets on an advantage basis for this purpose.


43/53

PROBLEMS OF FINANCIAL STATEMENTS

There are certain problems and issues encountered in financial analysis, which call for care

and judgment in such exercise.

DEVELOPMENT OF BENCHMARKSGiven the diversity of AUTOMAT IRRIGATION product lines, it is difficult to find suitable

benchmarks for evaluating its financial performance and conditions. Hence even for such firm, the

financial analyst may run into difficulty. If information is available only about industry average or

some other standard and not about the entire dispersion of ratios for various firms in the industry, it

may not be possible to draw meaningful inferences.

WINDOW DRESSINGFirm may resort to window dressing to project a favorable financial picture. When window

dressing is suspected, the financial analyst should look at the average data available as per resource.

PRICE LEVEL CHANGESIn India financial accounting takes into consideration price level changes. As a result, balance

sheet figures are distorted and profits are misreported. Hence financial statement analysis can be

vitiated.

VARIATIONS IN ACCOUNTING POLICIESBusiness firms have some latitudes in accounting treatment like depreciation, valuation of

stocks research and development expenses, foreign exchange transactions, installment sales,

preliminary and preoperative expenses, and provision of reserve and revaluation of assets. Due to

diversity of accounting practices found in practice, comparative financial statement analysis may be

vitiated.


44/53

BENEFITS OF MODERN TECHNIQUES

These techniques helped in following manner-

1)Helps in reducing carrying cost of inventory.

2)It helped in reducing the level of working capital blocked in inventory .

3)It helped in reducing the level of work of store keeping department and inventory control

department as inventory level is optimum.

4)As more concern is given on wastages it helps in reducing losses.

5)As inventory is kept at optimum level , chances of obsolescence are decreased.

6)Ease in importing goods as, Transchart (Ministry of shipment) is recevied.

7)Auto indenting have helped MPIC official in placing the order.


45/53

RESEARCH METHODOLOGY

Research methodology is the way to systematically solve the research problem. Objectiveof research study is Analysis of inventory of AUTOMAT IRRIGATION Ltd. Analyzing of

inventory, we determining following inventories-

1. Raw materials inventory.

2. Work in progress inventory.

3. Finished goods inventory &

4. Supplies inventory.

In this section of inventories, we should analyze the annual investment in inventories,Valuation of inventory after closing balance of items in inventory. In this manner, we calculate

reorder point, safety stock levels, minimum & maximum levels of inventory. Working hypothesis

of the objective is that inventories are the stock piles of goods .The all organization on their

inventories. JOL invests about 60% of total assets inventory should be analyzed their records.

The analysis of inventory according to their data available in the company. The data collection

of inventory for analysis by the direct store department We should record primary and secondary

data by the helps of assistants ledger books M R N etc. We went to the all inventories as raw

material work in progress inventory, finished goods inventory by the proper observation of datas

of the company.

The particular method for data collecting used direct interview with assistants and telephone

interview with friends to known about annual investment of inventories and other important data.

SOURCES OF DATA:-The data collection for the project work from two sources i.e. primary and secondary sources-

1) PRIMARY DATA:-

a)Manualsb) Questionnaire

2) SECONDARY DATA:-

a)Websites.

b) Transcripts of book


46/53

SAMLING DESIGN-Descriptive

SAMPLING TECHNIQUE-The sampling method has been followed for this study is RANDOM SAMPLING.

SAMPLING SIZE-60

SAMPLING UNITS-Workers, Management (officers, executives), and Personal(H.R.)


47/53

QUESTIONNAIRE DESIGNING

Estimated development Expected development

1st 2nd

Quarter 2011 Quarter 2011

Compared with the same quarter of a year ago, Up Same Down Up Same Downare

1. a) Domestic sales (volume)

b) Export sales (volume)

2. Production (volume)

3. a) Domestic orders received (volume)

b) Export orders received (volume)

4. Unfilled orders relative to total sales

5. General business conditions

6. Number of factory workers

7. Average hours worked per factory worker

8. Fixed investment

9.The rate of increase in the

a) Average total cost per unit of production

b) Average labour cost per unit of production

c) Average purchase price per unit of raw

Material

d i) average domestic selling price per unit

of production

d ii) average export selling price per unit ofproduction


48/53

Estimated development

1st Quarter 2004

10.Compared with the same quarter of a year ago, are current Too High Just Sufficient Too Low

stocks of

a) Raw materials relative to planned production

b) Finished goods relative to expected total demand

11. Are delivery periods of orders received over the past 3 Longer Unchanged Shorter

Months?

12. Is your present level of output below capacity? (i.e. are you Yes No

working below a satisfactory full rate of operation)

13. How do you find current business conditions? Satisfactory Unsatisfactory

14. .To what extent do the following hamper your current Seriously Slightly Not at

all activities

a) Shortages of

Skilled labour

Semi-skilled labourUnskilled labour

Raw materials

b) The current level of short-term interest rates

c) Insufficient demand for your products

d) The current political climate

15. In comparison to current levels in your sector, what do you Higher Same Lower

expect the following to be in 12 months time?

a) Volume of goods imported

b) Volume of goods exportedc) Real investment in machinery and equipment

d) General business conditions

16. Compared to current levels of total investment spending

in your sector, what do you expect the following to be in 12 months

time?

a) Total fixed investment (excluding inventories)

b) Land, building and construction works

c) Inventories


49/53

17. What are the investment prospects over the next 12 High Same Lower

months regarding

a) Replacementsb) Additions

18. What factors are likely to limit your ability to invest over the Seriously Slightly Not at

all next 12months?

a) Insufficient demand for products

b) The political climate

c) Cost of credit

d) Tax structure


50/53

CONCLUSIONS AND SUGGESTIONS

I have obtained some weak and strong points of the company during the analysis of financial

statements, which are as follows: -

As just only the analysis financial statement is not only mean to reach at conclusions we

cannot substitute it for sound judgment. Furthermore good judgment depends upon the intelligence

and ability of the analyst-

On seeing the liquidity position of AUTOMAT IRRIGATION. I conclude that it is not verygood as the current assets are in the form of inventories and debtors. The debt collection

period is high and inventories are least liquid current assets. So maintaining the inventories are

relatively costly affair for the company and the management must have to investigate properly.

It is very necessary so that fund should not be blocked unreasonably. Efficient inventory

management is required in AUTOMAT IRRIGATIO.

On seeing the leverage position of the AUTOMAT IRRIGATION. I conclude that it is verygood as the stake of owners in company is continuously increasing and its long-term debt

continuously decreasing it means that company is paying its debt promptly and creditors will

not face any risk in investing in AUTOMAT IRRIGATION as also AUTOMAT

IRRIGATION is giving assured ROI.

On seeing turnover, fixed assets and current assets turnover of company goes on increasingwhich is a good indicator as it brings commensurate gain and also the average collection goes

on decreasing but management should take more efficient steps to reduce it.


51/53

On seeing the profitability of the AUTOMAT IRRIGATION its overall performance is verygood. A continuous increase in the values of EPS (except year 1999) and DPS results,

investors feel safe to invest money in AUTOMAT IRRIGATION.


52/53

RECOMMENDATIONS

1)The techniques and methods used should be regularly updated.

2)High value and high cost items should be carefully handled and regular check should be made.

3)With the globalization of economy , proper care should be given to suppliers

and customers.

4)It should aim at reducing non value added costs involved in production.

5)Investment should be made in those stock items which are fast moving rather than on those which

are non moving.


53/53

References

1)www.google.com2)www.AUTOMAT IRRIGATION PVT. LTD.co.in3)www.AUTOMAT IRRIGATION PVT. LTD.hwr.co.in4)www.wickeypedia.com5)www.answer.com

.BOOKS:-

Intelligent stock market security by N. J. Yasaswy. The Indian securities market by Tadashi Endo. The Big Picture : Reflects on Our Economic Times by T.T. Ram MohanFinancial Accountancy by M .Y .KhanResearch methodology by C.R.Kothari
http://www.google.com/http://www.google.com/http://www.bhelhwr.co.in/http://www.bhelhwr.co.in/http://www.wickeypedia.com/http://www.wickeypedia.com/http://www.answer.com/http://www.answer.com/http://www.answer.com/http://www.wickeypedia.com/http://www.bhelhwr.co.in/http://www.google.com/

Narendra Summer Training Report

Documents

Transcript of Narendra Summer Training Report