Professional Documents
Culture Documents
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TABLE OF CONTENTS
CHAPTER 1..............................................................................................................3
INTRODUCTION.................................................................................................3
CHAPTER2...............................................................................................................8
COMPANY PROFILE............................................................................................8
CHAPTER3...............................................................................................................12
CHAPTER 4..............................................................................................................46
CHAPTER 5..............................................................................................................58
REFERENCES..........................................................................................................60
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CHAPTER 1
INTRODUCTION
1.3 CONCEPTS:
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house fees insurance etc. The objective of the chapter is to examine the impact of
inventory on the financial decision making.
In India a study of 29 major industries has revealed that the average cost of
materials is 64 paisa and the cost of labor and overheads is 36 paisa of a rupee. About
90% of working capital is invested in inventories. The main reason attributed for loss
making is financial indiscipline in managing the resources particularly in inventory
management for an organization, the product profitability considering standards and
budgets is of paramount importance needless to say that in this context, inventory
management assumes lot of significances.
RAW MATERIALS:
An inventory of raw materials allows separation of production scheduling from arrival of
basic inputs to the production process. Factories affecting the amount the raw materials
inventory include proximately to the suppliers relationship with the suppliers,
predictability of the production process, lead time required to place on order, and
transportability and perishability of raw materials.
WORK IN PROCESS:
An inventory of partially completed units allows the separation of different phases
of the production process, the amount of work in process inventory is in past a function
of the type of product, the measurement period and the nature of the product process.
FINISHED GOODS:
An inventory of finished allows separation of production from selling , with a
stock of finished merchandised on hand a firm can fill order as they are received rather
than depend upon the completion of production to satisfy customer demands.
FUNCTIONS OF INVENTORY:
The functions of the firm such as purchase of raw materials ,processing, and
having a finished goods available for sales, have a sequential physical dependence
maintenance of inventories allows the firm to decouple those functions so that each can
be planned, scheduled ,and operated independently. For retail firms inventory provides
customers with selection choice and decouple the purchasing functions from the selling
functions.
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1.4 NEED FOR THE STUDY:
To facilitate smooth production and sales operation (Transaction motive).
To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary motive )
To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary motive )
To take advantages of price fluctuations(Speculative motive)
1.6 LIMITATIONS:
First there is a cost of information problem in keeping track of the physical
inventories of some goods
Second because of number of variables involved it is very difficult to develop on
accurate measure of inventory turnover.
The very nature of the organization places limitations on the collection of the data
and analysis thereof.
The accounting procedure and other accounting principles are limited by the
company changes in them may vary the inventory performance.
The study is limited up to the date and information provided by EGA GLOBAL
and annual reports.
1.7 METHODOLOGY AND DATABASE:
For this project the collection of data is by various sources. mainly
primary
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secondary
PRIMARY DATA:
The information collected directly without any reference in primary data in the study it is
mainly through concerned offers or staff member either individually or collectively data
includes
SECONDARY DATA:
Study has been taken from secondary sources that is published annual report of
the editing, classifying and tabulation of the financial data for their.
This study is confined for the period of approximately three months.
For this purpose, previous abstracts on inventory management, periodicals,
academic journals and articles have been reviewed in this section.
Sampling statistical techniques like percentages, bar graphs, averages, chi-
squares, and z-test may be applied based on the data collected for the study.
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CHAPTER 2
COMPANY PROFILE
EGA Global is promoted by the FORTUNE Group and was started in the early 60's to
manufacture automobile wheels. Today, EGA Global has grown as a leading
manufacturer of steel wheels for passenger cars, utility vehicles, trucks, buses,
agricultural tractors and construction equipment in India. The company supplies 2/3 rd of
the domestic market requirement and exports 18% of the turnover to North America,
Europe, Asia Pacific and South Africa.
EGA Global designs and manufactures wheels for the specific requirements of the
customer. Our activities are driven by the following objectives:
Continuously improve & innovative product design, process technology and work
environment to offer better products.
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Product Development:
o listed below:
Process Design
Has developed process technology to optimize tubeless truck rim design with
lesser material input.
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generation vehicles.
Has a qualified and experienced team specialising in tool design for forming /
rolling steel.
Fully equipped in-house tool room facility with state-of-the-art machinery and
design tools.
EGA Global has the ability to design the complete range of steel-wheels to suit customer
requirements, incorporating necessary styling and performance characteristics.
Product Type
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8. Wire Wheels
EGA Global has developed "Air Suspension Systems" which are being marketed under
the brand name ERIDE.
There are approximately 1000 buses on the roads, using TVS-WILRIDE Air
Suspension Systems.
-WILRIDE Air Suspension Systems are currently being manufactured by EGA Global
Limited, in a technical agreement with TRELLEBORG.
Reduces vibration.
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Lowers natural frequency to provide a higher ride comfort.
CHAPTER 3
3.1. INTRODUCTION:
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Every enterprises needs inventory for smooth running its activities. It serves as a
link between production and distribution processes. There is, generally, at a time
lag between the recognition of a need and its fulfillment. The greater the time-lag,
the higher the requirement for inventory, the unforeseen fluctuations in demand
and supply of goods also necessitate the need for inventory. It also provides a
cushion for future price fluctuations.
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3.2 INVENTORY CONTROL AND ITS IMPACT ON COSTS:
Value wise inventory and consumption analysis are brought out on quarterly basis
indicating RM; SS, CT, PM are value at cost. A class items which are 70%, B class items
which are valuing 20% and C class items which are valuing 10%. Of the total inventory
are brought for verification of internal audit. The stores verified C class items and to that
extent certificate 4 is issued at the year end regarding the correctness. Physical balances
are verified with kardex and the difference is intimated to stores FAW of the group by the
internal audit.
FAW of the group verifies and gives the rectification in entries that is shortage
items values are charged of to physical inventory variation and the excess quantities are
adjusted in the inventory ledger after obtaining the competent authorities approval.
This system enables control on the inventories and at the same time costs on some
are checked.
Materials issued to subcontractors are booked to consumptions as and when
issued through MIRS. A record is being maintained at subcontracts section, park wise, job
wise and description of materials and quantities issued.
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highly important to the manager of working capital. At the minimum the analyst must
recognize that inventories are the least liquid of the current assets.
3. LIQUIDIRY LAGS: inventories are tied to the firms pool of the
working capital in a process that involves three specific lags.
Creation lags: It most cases, inventories are purchased on credit, creating an account
payable. When the raw materials are processed in the factory, the case to pay
production expenses is transferred at future times. Whether manufactured or
purchases, the firms will hold inventories for some period before payment is made.
This liquidity lag offers a benefit to the firm.
Storage lags: once goods are available for resale, they will not be immediately
converted into cash. First the items must be sold. Evenly when sale are moving
briskly, affirm will hold inventory as a backup. Thus the firm will usually pay
suppliers, workers and overhead expenses before the goods actually sold.
This lag represents a cost to the firm.
Sale lag: once goods have been sold, they normally do not create cash immediately.
Most sales occur on credit and become accounts receivable. This lag also represents a
cost to the firm.
CIRUCLATING ACTIVITY: inventories are in rotating pattern with other current
asset. They get converted into receivables which generate cash is invested again in
inventory to continue the operate cycle.
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2. Precautionary motive: a firm should keep some inventory for unforeseen
circumstances also. The firm must have inventory of raw materials as will as finished
goods for meeting any emergencies.
3. Speculative motive: the firm may be empted to keep some inventory in order
to capitalize an opportunity to make profit e.g., sufficient level of inventory may help
the firm to earn extra profit in case expected shortage in the market.
1. Avoiding loss sales: without goods on hand that are ready to be sold most firms
would lose business. Some clusters are ready to wait, particularly when an item
must be made on order or is not widely available from competitors. Affirm must
be prepared to deliver goods on demand. Shelf stock refers to items that are stored
by the firm and sold with little or no modification to the customers.
2. Gaining quantity discounts: inurn for making bulk purchases many suppliers
will reduce the of supplies and component parts. This discount will reduce cost of
goods sold and increase the profits earned.
3. Reducing order cost: each time a firm place an order it incur certain good that
arrive must be accepted, inspected and counted. Later an invoice must be
processed and payment made. Each of these costs will vary with the order placed.
By placing fewer orders the firm will pay less to process each order.
4. Achieving efficient production runs: each time a firm sets up workers and
machines produce an item startup cost are incurred. These are the absorbed as
production begins. The longer the run the smaller the costs to begin producing the
goods.
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5. Reducing risk of production shortages: manufacturing firm frequently produce
goods with blunders or thousands of components. If any these are missing entire
production operation can be halted with heavy expenses. To avoid starting a
production run and then discovering the shortage of vital raw material or other
component, the firm can maintain larger than inventories. Basically, inventory
management is concern of stores management, production management is
concerned. In case of raw material, the stores management and production
management is concerned. In case of finished goods, production and sales
management is concerned.
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Work in Progress- generally signifies a project that will not be settled in one
attempt, or even several. Sometimes as WIP List, synonymous with a To-Do list.
WIP as an asset means the portion of work that is complete but not yet billed.
WIP is a good or goods in various stages of completion throughout the plant,
including all material from raw material that has been released for initial
processing up to completely processed material awaiting final inspection and
acceptance as finished good inventory.
Finished Goods:
These are the goods which are ready for the consumers. The stock of finished goods
provides a buffer between production and market. The propose of maintaining inventory
is to ensure proper supply of goods to customers. In some concerns the production is
undertaken on order basis, in these concerns there will not be a need for finished goods.
The need for finished goods. The need for finished goods inventory will be more when
production is undertaken in general without waiting for specific orders.
Spares:
Spares also form a part of inventory. The consumption pattern of raw materials. The
stocking policies of spares are different from industry to industry. Some industry like
transport will require more spares than the other concerns. The costly spare parts like
engines, maintenance spares etc. are not discarded after use, rather they are kept in ready
position for furtherer use. All decisions about spares are based on the financial cost of
inventory on such spares and the costs that may arise due to their non-availability.
Consumables:
These are the materials, which are needed to smoothen the process of production.
These materials do not enter directly into production but they act as catalysts.
Consumables may be classified according to their consumption and critically. Generally,
consumables stores do not create any supply problem and form a small part of production
cost. There can be instances where these materials may account for much value than the
materials. The fuel oil may from a substantial part of the cost.
Cycle Inventory:
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The portion of total inventory that varies directly with lot size is
called inventory. Determining how frequently to order, and in what quantity, is called lot
sizing. Two principles apply.
1. The lot size, Q, varies directly with the elapsed time (or cycle)
2. Between orders. If a lot is ordered every five weeks, the average lot size must
equal five weeks demand.
3. The longer the time between orders for a given item, the greater the cycle
inventory must be at the beginning of the interval, the cycle inventory is at its
maximum or Q. At the end of the interval, just before a new lot arrives, cycle
inventory drops to its minimum, or 0. The average of these two extremes:
This formula is exact only when the demand rate is constant and uniform. However, it
does provide reasonably good estimate even when demand rates are not constant. Factors
other than the demand rate (e.g., scrap losses) also may cause estimating errors when this
simple formula is used.
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To create safety stock, a firm places an order foe delivery earlier than when the
item is typically needed. The replenishment order therefore arrives ahead of time, giving
a cushion against uncertainty.
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opportunity cost of investment while in the later case, the firm has to pay inters tot
the outsider.
2. Storage and Handling costs: Holding of inventories also involves costs on
storage as well as handling of materials. The storage costs include the rental of the
go down, insurance charges, etc.
3. Risk of price decline: There is always a risk of reduction in the prices of
inventories by the suppliers in holding inventories. This may be due to increased
market supplies, competition or general depression in the market.
4. Risk of Obsolescence: The inventories may become obsolete due to improved
technology, changes in requirements, change in customers tastes, etc.
5. Risk Deterioration in Quality: The quality of the materials may also deteriorate
while the inventories are kept in stores.
Inventory and the Growing Company:
Most successful small companies find that as their economic fortunes rise, so too
do the complexity of inventory logistics. The increase in inventory management is
primarily due to two factors: 1) greater volume and variety of product, and 2) increased
allocation of company resources (such as physical space and financial capital) to
accommodate that growth in inventory The transaction from seat-of the pants
ordering policies and little or no record keeping to a formal inventory system that
includes specific ordering policies and a formalized inventory record file is a difficult one
for most companies to make, stated Weiss and Gershon. It is but one of the many
sources of growing pains that emerging companys experience, especially those in the
fast-growing industries, such as fast food or high technology. This transition requires the
creation of new job functions to identify the costs (holding, shortage) associated with
inventory and to implement the inventory analysis.
The inventory record file also must be maintained by someone, and, on a periodic
basis, it must be audited by someone. In addition, the transition requires more
coordination between different company functions. This transition, they note, often leads
into computerization of inventory management. This can be a daunting prospect,
particularly for companies lacking employees with appropriate data management
backgrounds.
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Just In Time Inventory Control System:
Just-in-time production is a simple idea that may be difficult to implement,
wrote Gershon and Weiss. The basic concept is that finished goods should be produced
just in time for delivery, and raw materials should be delivered just in time for
production. When this occurs, materials or goods never sit idle, which means that a
minimum amount of money is tied up in raw materials, semi finished goods . The
just-in-time approach calls for slashing production and purchase lot sizes and also buffer
stocks-bit incrementally, a little at a time, month after month, year after year. The result is
sustained productivity and quality improvement with greater flexibility and delivery
responsiveness. This production concept, which originated in Japan and became
immensely popular in American industries in the early and mid-1990s, continues to be
hailed by proponents as a viable alternative for business looking for a competitive edge.
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that such segmentation break the companys total inventory into much more manageable
parts for analysis.
Key Considerations:
According to business experts, perhaps no factor is more important in ensuring
successful inventory management than regular analysis of policies, practices, and results.
Companies that hope to establish or maintain an effective inventory system should make
sure that they do the following on a regular basis:
Regularly review product offerings, including the breadth of the product line and
the impact that peripheral products have on invent.
Ensure that inventory strategies are in place for each product and reviewed on a
regular basis.
Review transportation alternatives and their impact on inventory / warehouse
capacities.
Undertake periodic reviews to ensure that inventory is held at the levels that best
meets customer needs; this applies to all levels of business, including raw
materials, intermediate assembly, and finished products.
Regularly canvas key employees for information that can inform future inventory
control plans.
Determine what level of service (lead time, etc.) is necessary to meet the demands
of customers.
Establish and regularly review a system for effectively identifying and managing
excess or obsolete inventory, and determining why these goods reached such
status.
Devise a workable system wherein safety inventory stocks can be reached and
distributed on a timely basis when the company sees an unexpected rise in
product demand.
Calculate the impact of seasonal inventory fluctuations and incorporate them into
inventory fluctuations and incorporate them into inventory management
strategies.
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Review the companys forecasting mechanisms and the volatility of the
marketplace, both of which can (and do) have a big impact on inventory
decisions.
Institute continuous improvement philosophy in inventory in inventory
management.
Make inventory management decisions that reflect a recognition that inventory is
deeply interrelated with many other areas of business operation.
To summarize, inventory management system should be regularly reviewed from top
to bottom as an essential part of the annual strategic and business and business planning
processes. Indeed, even cursory examinations of inventory statistics can sometimes
provide business owners with valuable insights into the companys foundations. business
consultants and managers alike note that if an individual business has an inventory
turnover ratio that is low in relation to the average for the industry in which it operates, or
if it is low in comparison with the average ratio for the business, it is pretty likely that the
business is carrying a surplus of obsolete or otherwise unsalable stock inventory.
Conversely, they note that if a business is experiencing unusually high inventory turnover
when compared with industry or business averages, then the company may be losing out
on sales because of a lack of adequate stock on hand. it will be helpful to determine the
turnover rate of each stock item so that you can evaluate how will each is moving, noted
the entrepreneur magazine small business advisor. You may even want to base your
inventory turnover on more frequent periods than a year. For perishable items, calculating
turnover periods based on daily weekly or monthly periods may be necessary to ensure
the freshness of the product. This is especially important for food-service operations.
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In accounting for the purchase and sale of securities for tax purposes, FIFO is
assumed by the IRS unless it is advised of the use of an alternative method.
The main objective so inventory management are operation and financial. The
operational objective mean that the material and spares should be available in sufficient
quantity so that work is not disrupted for want of inventory. The financial objective
means that investments in inventories should not remain idle and minimum working
capital should be locked in it.
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To ensure continuous supply of materials, spares and finished goods so that
production should not suffer at any time and the customers demand should also be
met.
To avoid both over-stocking and under-stocking of inventory.
To maintain investment in inventories at the optimum level as required by the
operational and sales activities.
To keep material cost under control so that they contribute in reducing cost of
production and overall cost.
To eliminate duplication in ordering or replenishing stocks. This is possible with
the help of centralizing purchases.
To minimize losses through deterioration, pilferage, wastages and damages.
To design proper organization for inventory management. Clear cut accountability
should be fixed at various levels of the organization.
To ensure perpetual inventory control so that materials shown in stock ledgers
should be fixed actually lying in the stores.
To ensure right quality goods at reasonable prices. Suitable quality standard will
ensure proper quality of stocks. The price analysis, the cost analysis and value
analysis will ensure payment of proper prices.
To facilitate furnishing of data for short term and long term planning and control
of inventory.
Material Control:
Most of the manufacturing concerns. The cost of raw materials represents a major
part of the total cost of production. Hence proper control over material is necessary from
the time the order is place with the supplier till they are actually consumed. An efficient
system of material control will lead to significant reduction in production cost.
Material control may be defined as the Systematic control over the procurement,
storage and usage of materials so as to maintain an even flow of materials and avoiding at
the same time excessive investment in inventories. Material control covers three stages
namely.
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Purchases of material
Storing of material
Issue of material
Objectives:
The objectives of material controls as follows:
1) To ensure regular and uninterrupted supply of materials i.e., to make materials
available as and when they are needed.
2) To keep investment in stock at a reasonable levels, so that there is no loss of
interest on capital.
3) To purchase the materials at a reasonable price without sacrificing the quality of
such materials.
4) To avoid abnormal wastage by exercising direct control.
5) To avoid the risk of spoilage and obsolescence of the materials by fixing the
maximum stock level.
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Issue Related to Material Planning:
Material Identification
Standardization
Make or Buy
Quality specification
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4.9 TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT:
A.B.C. Analysis.
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Determination of stock levels.
A.B.C. Analysis.
Minimum Level:
This presents the quantity, which must be maintained in hands at all times. If
stock is less than the minimum level then the work will stop due to shortages of
materials.
Lead time:
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A purchasing firm requires some time to process the order and time is also
required by the supplying firm to execute the order. The time taken in processing the
order and then executing it is known as lead-time. It is essential some inventory during
this period.
Rate of consumption:
It is the average consumption of materials in the factory. The rate of consumption
will be decided on the basis of past experience and production.
Nature of material:
The nature of materials also affects the minimum level. If material is required
only against special orders of the consumers then minimum stock will not be required for
such materials minimum stock level can be calculated using the formula:
Re-order level:
When the quantity of materials reaches at a certain figures then fresh order is sent
to get materials again. The order is sent before the materials reach minimum stock level.
Re-ordering level or ordering level is fixed between minimum stock level and maximum
stock level. The rate of consumption, number of days required on any day is taken into
account while fixing reordering level. Re-ordering level is fixed with the following
formula;
Maximum level:
It is the quantity of materials beyond which a firm should not exceed its stock. If
the quantity exceeds maximum level limit then it will be over-stocking. A firm should
avoid over-stocking because it will result in high materials costs. Over stocking will more
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blocking of more working capital, more space for storing the materials, more wastage of
materials and more chances of losses from obsolescence. Maximum stock level will
depend upon following factors:
Danger level:
It is the level beyond which material should not fall in any case. If level arises
then immediately steps should be taken to replenish the stock even if more cost is
incurred in arranging the materials. If materials. If material is not arranged immediately
then there is a possibility of stoppage of work. Danger level is determined with the
formula:
Danger level = consumption * maximum re- order period for emergency purchases.
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Average stock = minimum stock level + of re-order quantity.
The basic problem of inventory is ton decide the re-order point. The point
indicates when an order should be placed. The re-order point is determined with the help
of these things
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Fixed order quantity system generally known as economic order quantity (EOQ)
systems.
Fixed period order system of periodic re-ordering system or periodic review
system;
Single order and schedule part delivery system.
Q = 2CO\I.
Where: q = quantity to be ordered.
I = interest payment including variable cost of storing per unit per year i.e., holding costs
of inventory.
Economic order quantity is determined keeping in view the ordering costs and carrying
costs. With the interaction of these two costs, the economic ordering costs
During a particular period are equal to carrying costs during that period and total cost to
order and carry is lowest.
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There are many variations on the basic EOQ model. I have listed most useful once
below,
Quantity discount logic can programmed to work in conjunction with the EOQ
formula to determined optimum order quantity. Most systems will require this additional
programming.
When use in manufacturing to determine lost size where production runs are very
long and finished product is being released to stock and consumed /sold through out the
production run you may need to take into account the ratio of production consumption to
more accurately represent the average inventory level.
Assumptions:
There are a number of assumptions that must be made with the EOQ. These include:
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Every firm has to maintain a certain level of inventory of finished goods so as to
be able to meet the requirements of the business. But the level of inventory should neither
be too high nor too low. It is harmful to hold more inventories for the following reasons.
It unnecessarily blocks capital which can otherwise be profitably used
somewhere else.
Over-stocking will require more go down space, so more rent will be paid.
There are chances of obsolescence of stocks. Consumers will prefer goods of
latest design, etc.
Slow disposal of stacks will mean slow recovery of cash also which will
adversely affect liquidity.
There are chances of deterioration in quality if the stocks are held for more
periods.
It wills there fore, be advisable to dispose off inventory as early as possible.
On the other hand, too low inventory may mean loss of business opportunities.
Thus, it is very essential to keep sufficient stocks in business.
Inventory turnover ratio also known as stock velocity is normally calculated as
sales/ average inventory or cost of goods sold/ average inventory. It would indicate
whether inventory has been efficiently used or not. The purpose is to see whether only the
required minimum funds have been locked up in inventory. Inventory turnover ratio
indicates the number of times the stock has been turned over during the period and
evaluates the efficiency with which a firm is able mange its inventory
Inventory turnover ratio is calculated to indicate whether inventories have
required minimum funds in inventory. The inventory turnover ratio also known as stock
velocity is normally calculated as sales/average inventory or cost goods sold/ average
inventory cost. Inventory conversion period may also be calculated to find the average
time taken for clearing the stock.
Inventory Reports:
From effective inventory control, the management should be kept informed with
the latest stock position of different items. This usually done by information necessary for
managerial action. On the basis of these reports management takes corrective action
wherever necessary.
Valuation of Inventory:
The value of materials has a direct bearing on the income of a concern, so it is
necessary that a method of pricing of materials should be such that it gives a realistic
value of stock the traditional method of valuing materials cost price or market price
which ever is less is no longer the only method. If management is interested to show
more profits then it can choose such methods which will more stock of vice versa. To safe
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guard public interest the government of India has instituted statutory controls to prevent
frequent change of material valuation methods. A concern will have to use a particular
valuation method for least three years and any changes there from must be approved by
the board.
The following methods of pricing material issues or generally used:
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the time a fresh purchase has not been made. After a fresh purchase, the quantity will be
added to earlier balance quantity and material cost will be changed total cost. A fresh
price is calculated by dividing the changed total cost by the number of units in stock after
the purchase. A new price list calculated where even a fresh purchase is made.
System Overview:
The following system is being followed in EGA Global, and the main features of the
system are as follows:
1. Receipt vouchers are prepared on receipt of materials.
2. Issues voucher are prepared for all issues of out of stores.
3. All receipts, issues and returns are recorded in priced stores ledger (PSL).
4. Stock transfer voucher (STV) is used for recording transferring raw materials
from one division/ group to another. Transfers are made at weighted average
prices.
5. Finished goods delivery notes (FGDN) are used for transferring finished
production in shop floor to finished stores.
6. Physical verification is carried out at regular interval and discrepancies and
reconciles and recorded.
7. Finished goods, work in progress valuation is as per the accounting policy of
company.
Stock A/c Dr
To
Sundry Creditors A/c
Material code, quantity etc which is fed to EDP which calculates the value based on
monthly weight average method.
Based on MIR data the WIP is brought out by collating material analysis. The direct
material is booked job wise in WIP ledger and the same is reconciled with financial
records. Thus, the direct materials job wise may be traced from WIP ledger.
In the similar fashion, some other receipt document and issue document are operated like;
Based on the above documentations EDP generates the following prints outs for
material viz.
Priced stores ledger is brought out on monthly basis consisting of that months
receipts, issues, balance stock available with value and with summary and cumulative
receipts, issues and consumption values for materials like raw materials, stores and
spares, consumable tools and packing materials.
Inventory is brought on monthly basis comprising of materials codes in seriatim
along with material description unit code. Quantity available as at the end of the month
rate of the material and total value and also indicating cumulative receipts and cumulative
consumption.
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Job wise material analysis is brought out on monthly basis for those jobs, for
which materials have been consumed along with value and description of the material in
order to have monthly record of material used for each job.
Inventory Control and its Impact on Cost:
Value wise inventory and consumption analysis are brought out on quarterly basis
indicating RM; SS, CT, PM are valued at cost. A class items which are 70%, B class
items which are valuing 20%, C class items are verified by the stores and to the extent
certificate are issued at the year end regarding the correctness. Physical balance is
verified with kardex and the difference is intimated to stores. FAW(Farm workers) of the
group verifies and gives the rectification entries i.e., shortage items value are charges off
to physical inventory variation and the excess quantities are adjusted in the inventory
ledger after obtaining the component authoritys approval.
The system enables to control the inventories and at the same time costs on some
are controlled.
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CHAPTER 4
DATA ANALYSIS AND INTERPRETATION
The entire procedure for making ABC analysis can be summarized in the following steps:
Determine the number of units sold or used in the past 12-months period.
Compute the annual consumption value (in rupees) of each consumed item by
Arrange these items in descending order of the usage value compute above.
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ABC Classification of Items:
Graphical presentation:
particulars
Raw materials 5307 4735 5630 5267 1645 1616 1616
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Sundry debtors 19865 16681 31344 42946 58073 79469 98870
consumed
profit
Total 55462 62381 81160 73880 67710 61842 56897
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RAW MATERIAL
Consumed(per 12 12 12 12 12 12
Month)
Monthly 2187 2725 4108 3937 3939 3243 3954
Consumption(2)
No. of months
Raw material
Stock available
consumption(3)
=R.M/monthly
Consumption(1/2)
WORK IN PROGRESS:
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Particulars 2008- 2009- 2010- 2011- 2012- 2013- 2014-
month)
Monthly 4647 5298 6763 6157 5643 5237 4741
consumption(2)
No .of months 1.33 1.61 0.57 0.69 0.6o 0.73 0.68
work in
progress held in
Inventory=W.I.
P/M
Monthly
Consumption
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Graph presentation for work in progress:
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FINISHED GOODS:
goods
Consumptio
n
No. of
Months F.G
inventory
INTERPRETATION: the average F G stock held during the period of study is 0.17
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SUNDRY DEBTORS:
consumptio
n
month
Of sales
INTERPRETATION: the credit of the corporation is one month credit. However the
study revealed the organization has never maintained one month credit the study of the
project
For arriving no.of months gross working capital and each components including
raw material, work in progress, finished goods are co-related as follows:
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INTERPRETATION ABC
The corporation held a maximum stock of Raw material in the year 2008-2009
and improved year by year and reached 0.73 months at the end of 2014-2015.
Work in-progress:
The corporation held a peak WIP during the year 2011-2012 and around 0.68
months on a average every year during the next 4 year
Finished goods:
The average finished goods stocks held during the period of study is 0.20 month
with peak finished goods stock of 0.30 months and lowest to the turn of 0.16 months
per month.
The ITR has increased from 6.70 in the year 2008 to 2009 to 7.57 in the year 2009
to 2010 which indicates that the inventory is managed in a good manner.
The ITR (inventory turnover ratio) has increased from 4.09 to 6.07 from the year
2008-2009 to 2009-2010 which shows that the inventory is efficiency managed.
In the similar ways thee ITR has increased from 7.57 in the year 2010-2011 to
8.09 in the year 2011-2012 which indicates that the inventory has been managed
efficiency n the year 2012-2013 has increased from 8.9211
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5.2 CALCULATIONOF INVENTORY TURNOVER RATIOS:
Inventory turnover ratio=Cost of goods sold/average inventory
Cost of goods sold=sales/gross profit.
Average inventory = (Opening stock+ closing stock)/2.
Particulars 2008- 2009- 2010- 2011- 2012- 2013- 2014-
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INTERPRETATION:
From the above calculation it is found that the inventory turnover has gradually
increased from 4.09 to 10.99 from the year 2008-2009 to 2014-2015 which is indicative
of good inventory management.
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INVENTORY CONVERSION PERIOD
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CHAPTER 5
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5.2 CONCLUSIONS:
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REFERENCES
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