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Transcript of Heritage Inventory
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Inventory Management
INTRODUCTION
Every enterprise needs inventory for smooth running of it’s activities. It serves
as a link between production and distribution process. There is, generally, a time lag
between the recognition of a need and its fulfillment. The greater the time lag, the
higher requirements for inventory. It also provides a cushion for future price
fluctuations.
In a comple industry like !E"IT#$E %&&'( I)'I# *IMITE' it studied
clearly of how the thing are being performed and what is the real impact of these on
industry and how effectively the inventory is utili+ed is interested to be known by
researcher because of its great significance in the research.
Need for the Study
Every industry on average spends - on raw materials /inventory0.
Therefore there is a need to know the raw material cost and also there is great
importance to understand the inventory management system of this industry.
The study helps a log to various departments to take steps to control the
inventory process.
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OBJECTIVES OF THE STUDY
1. To eamine the organi+ation structure of inventory management in the
stores of !E"IT#$E %&&'( I)'I# *IMITE'.
2. To discuss pattern, levels and trends of inventories in !E"IT#$E %&&'(
I)'I# *IMITE'.
3. To understand the various inventory control techniques followed by
studies in !E"IT#$E %&&'( I)'I# *IMITE'.
4. To access the performance of inventory management of the !E"IT#$E
%&&'( I)'I# *IMITE' by selected accounting ratios.
5. To know the inventory control techniques of !E"IT#$E %&&'( I)'I#
*IMITE'.
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METHODOLOGY OF THE STUDY:
The study is based on both primary and secondary data.
The primary data has been collected through structured questionnaire
reflecting inventory management practices of !E"IT#$E %&&'( I)'I#
*IMITE's. The collected data is tabulated and suitable interpretation had been made
by considering the data collection through secondary data like annual reports purchase
registers, storage records of the organi+ation.
LIMITATIONS OF THE STUDY:
The study has the following limitations6
1. The study is limited only for a period of 5 years i.e., from 2--5 7-8to
2--9 71-.
2. The limitations of ratio analysis can be applicable of the study.
3. There may be approimation in calculating ratios and taking the
figures from the annual reports.
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CHATER ! II
COMANY ROFILE
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COMANY ROFILE
Her"t#$e #t # G%#&'e:
The !eritage $roup, founded in 1992 by (ri )ara :handra ;abu )aidu, is
one of the fastest growing
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these states. &n the other side, !eritage is serving more than 8 lakh customers needs,
employing more than -- employees and generating indirectly employment
opportunity to more than 5--- people. ;eginning with a humble annual turnover of
Aust "s.4.3= crores in 1993794, the sales turnover has reached close to "s.3-- crores
during the financial year 2--72--=.
(ri )aidu held various coveted and honorable positions including :hief Minister of
#ndhra
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@e are committed to enhanced prosperity and the empowerment of the
farming community through our unique C"elationship %armingC Model.
To be a preferred employer by nurturing entrepreneurship, managing
career aspirations and providing innovative avenues for enhanced employee
prosperity.
Her"t#$e S%o$#&:
@hen you are healthy, we are healthy
@hen you are happy, we are happy
@e live for your C!E#*T! B !#
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continuous basis. Though, it is a beginning, !eritage has initiated the process of
standardi+ing and adopting similar quality systems at most of its other plants.
Co,,"t,e&t+:
M"%* rodu'er+:
:hange in life styles of rural families in terms of6
"egular high income through co7operative efforts.
@omen participation in income generation .
(aved from price eploitation by un7organi+ed sector .
"emunerative prices for milk .
Increase of milk productivity through input and etension activities
(hift from risky agriculture to dairy farming
!eritage
%inancial support for purchase of cattleH insuring cattle
Establishment of :attle !ealth :are :enters
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(upplying high quality :attle feed
&rgani+ing C"ythu (adasuC and ?ideo programmes for educating the
farmers in dairy farming
Cu+to,er+:
Timely (upply of Guality B !ealthy
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!ighest impotence to investor serviceH no notice from any regulatory
authority since 2--1 in respect of investor service
?ery transparent disclosures
Su..%"er+:
Doeh%#r: technical collaboration in Milk drinks, yogurts drinks and fruit
flavoured drinks #lfa7*aval6 supplier of high7end machinery and technical support
%ocusing on Tetra pack association for products package.
So'"ety:
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8. %actual approach to decision making to ensure its accuracy.
. :ontinual improvement processes for improved business results.
=. 'evelopment of suppliers to get right product and services in right time at
right place.
rodu't0M#r*et )"+e .erfor,#&'e:
The total turnover is "s 341 :rores during the financial year 2--971-
against the turnover of 292.-2 :rores in 2--=7-9. Today !eritage distributes quality
milk B milk products in the states of #.arnataka, >erala B Tamil nadu.
'uring the year 2--971- liquid milk sales was "s.2=329.9 lakhs
against "s.24525.23 lakhs in the previous year. The sales of milk products including
bulk sales of cream, ghee and butter were recorded "s 5=1.59 lakhs against "s
48.21 lakhs.
M"%* +#%e+:
23 growth was recorded in #< 2.3= lakhs litres per day/**
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years. To achieve this obAect, company is undertaking maAor epansion in dairy
business by inverting over "s2- crores during 2--971- and over "s1- crores during
the current year to strengthen the milk procurement.
BRANCHES OF HFIL:
!%I* has 3 wings. They are
1. 'airy
2. "etail
3. #gribusiness
12 D#"ry:
It is the maAor wing among all. The dairy products manufactured by !%I* are
Milk, curd, butter, ghee, flavoured milk, paneer, doodhpeda, ice cream.
32 Ret#"%:
In the retail sector !%I* has outlets namely F%reshKL. In those stores the products sold are vegetables, milkB milk products, grocery, pulses, fruits etc.
In !yderabad 19 retail shops are there. In ;angaloreB :hennai, 3B4
respectively are there. Totally there are 28 retail shops are there.
%reshK is a unique chain of retail stores, designed to meet the needs of
the modern Indian consumer. The store rediscovers the taste of nature every day
making grocery shopping a never before eperience.
The uniqueB distinctive feature of %reshK is that it offers the widest
range of fresh fruits and vegetables which are directly hand picked from the farms.
%reshness lies in their merchandise and the customers are always welcomed with fresh
fruits and vegetables no matter what what time they walk in.
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42 A$r" Bu+"&e++:
In this business !%I* employees will go to farmers and have a deal
with them. Those farmers will sell their goods like vegetables, pulses to !%I* only.
#nd !%I* will transport the goods to retail outlets.
The agricultural professors will eamine which area is suitable to
import vegetables from and also eamine the vegetables, pulses and fruits in the lab.
#nd finally they report to the !ead7#gribusiness. "epresentatives as per the
instructions given by the agri professors will approach the farmers directly and make
a deal with them. It is the process of registering the farmers.
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CHATER ! III
5
CONCETUAL BAC6GROUND
The investment in inventories constitutes the most significant part of current
assets working capital in most of the undertakings. Thus, it is very essential to have
proper control and management of inventories.
The purpose of inventory management is to ensure availability of materials in
sufficient quantity as and when required and also to minimi+e investment in
inventories.
Me#&"&$ #&d N#ture of I&/e&tory:
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In accounting language, inventory may mean the stock of finished goods only.
In a manufacturing concern, it may include raw materials, work7 in N progress and
stores etc.,
I&/e&tory "&'%ude+ the fo%%o)"&$ th"&$+:
a0 R#) M#ter"#%6 "aw material from a maAor input into the
organi+ation. They are required to carry out production activities
uninterruptedly. The quantity of raw materials required will be determined
by the rate of consumption and the time required for replenishing the
supplies. The factors like the availability of raw materials and $overnment
regulations etc., too affect the stock of raw materials.
b0 7or* "& .ro$re++6 The work in progress is that stage of stocks
which are in between raw materials and finished goods. The quantum of
work in progress depends upon the time taken in the manufacturing
process. The quantum of work in progress depends upon the time taken in
the manufacturing process. The greater the time taken in manufacturing,
the more will be the amount of work in progress.
c0 Co&+u,#(%e+6 These are the materials which are needed to
smoother the process of production but they act as catalysts.
:onsumables may be classified according to their consumption add
critically. $enerally, consumable stores doe not create any supply problem
and firm a small part of production cost. There can be instances where
these materials may account for much value than the raw materials. The
fuel oil may form a substantial part of cost.
d0 F"&"+hed $ood+6 These are the goods, which are ready for the
consumers. The stock of finished goods provides a buffer between
production and market, the purpose of maintaining inventory is to ensure
proper supply of goods to customers.
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BENEFITS OF HOLDING INVENTORIES
#lthough holding inventories involves blocking of a firm’s and the costs of
storage and handling, every business enterprise has to be maintain certain level of
inventories of facilitate un N interrupted production and smooth running of business.
In the absence of inventories a firm will have to make purchases as soon as it receive
orders. It will mean loss of time and delays in eecution of orders which sometimes
may cause loss of customers and business.
# firm also needs to maintain inventories to reduce ordering cost and avail
quantity discounts etc.
There are three main purpose of holding inventories.
1. The tr#&+#'t"o& ,ot"/e6 @hich facilitates continuous production and
timely eecution of sales order.
2. The .re'#ut"ory ,ot"/e6 @hich necessitates the holding of
inventories for meeting the unpredictable changes in demand and supplies of
materials.
3. The +.e'u%#t"/e ,ot"/e6 @hich induces to keep inventories for taking
advantage of price fluctuations, saving in re N ordering costs and quantity
discountsO
RIS6 AND COSTS OF HOLDING INVENTORIES
The holding of inventories involves blocking of a firms funds and incurrence
of capital and other costs.
The various costs and risks involved in holding inventories are6
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:apital costs6 Maintaining of inventories results in blocking of the firms
financial resources. The firm has therefore to arrange for additional funds to meet the
cost of inventories.
The funds may be arranged from own resources or from outsiders. ;ut in both
the cased, the firm incurs a cost. In the former case, there is an opportunity cost of
investment while in the later caseH the firm has to pay interest to t he outsiders.
1. Stor#$e #&d H#&d%"&$ Co+t+6 !olding of inventories also involves costs
on storage as well as handing of materials. The storage of costs include the
rental of the godown, insurance charges etc.
2. R"+* of r"'e de'%"&e6 There is always a risk of reduction in the prices of
inventories by the supplies, competition or general depression in the market.
3. R"+* of O(+o%e+'e&'e6 The inventories may become absolute due to
improved technology, changes in requirements, change in customer tastes etc.
4. R"+* Deter,"t"o& "& 8u#%"ty6 The quality of materials may also
deteriorate while the inventories are kept.
O(9e't+ of I&/e&tory M#$e,e&t
'efinition of Inventory Management6 Inventory Management is concerned
with the determination of optimum level of investment for each components of
inventory and the operation of an effective control and review of mechanism.
The main obAectives of inventory management are operational and financial.
The operational obAective mean that the materials and should be available in
sufficient quantity so that work is not disrupted for want of inventory.
The financial obAective means that inventory should not remain idle and
minimum working capital should be locked in it.
The following are the objectives of inventory management:
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1. To ensure continuous supply of materials, and finished goods so that
production should not suffer at any time and the customers demand should
also be met.
2. To avoid both over N stocking and under N stocking of inventory.
3. To maintain investment in inventories at the optimum level as required
by the operational and sales activities.
4. To keep material cost under control so that they contribute in reducing
the cost of production and overall costs.
5. To eliminate duplication in ordering or replenishing stocks. This is
possible with the help of centrali+ing purchases.
8. To minimi+e loses through deterioration, pilferages, wastages and
damages.
. To ensure perpetual inventory control so that materials shown in stock
ledgers should be actually lying in the stores.
=. To ensure right quality goods at reasonable prices. (uitable quality
standards will ensure proper quality of stocks. The price N analysis, the cost
analysis and value N analysis will ensure payment of proper prices.
9. To facilitate furnishing of data for short N term and long N term planning
and control of inventory.
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FOODS AND TECHNI-UES OF INVENTORY MANAGEMENT
# proper inventory control not only helps in solving the acute problem of
liquidity but also increases profit and causes substantial reduction in the working
capital of the concern. The following are the important %&&'( and techniques
of inventory management and control.
12 Deter,"t"o& of +to'* %e/e%+:
2. :arrying of too much and too little of inventory is detrimental to
the firm. If the inventory level is too little, the firm will face frequent
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stock outs involving heavy ordering cost and if the inventory level is too
high it will be unnecessary tie up of capital.
#n efficient inventory management requires that a firm should maintain an
optimum level of inventory where inventory costs are the minimum and at the same
time there is no stock out which may result in loss or sale or shortage of production.
# M"&",u, +to'* %e/e%:
It represents the quantity below its stock of any item should not be allowed to
fall.
Le#d t",e6 # purchasing firm requires sometime to process the order and time
is also required by the supplying firm to eecute the order.
The time in processing the order and then eecuting it is know as lead time.
R#te of Co&+u,.t"o&6 It is the average consumption of materials in the
factory. The rate of consumption will be decided on the basis of past eperience and
production plans.
N#ture of ,#ter"#%+6 The nature of material also affects the minimum level. If
a material is required only against the special orders of the customer then minimum
stock will not be required for such material.
Minimum stock level can be calculated with the help of following formula.
M"&",u, +to'* %e/e% ! Re ! order"&$ %e/e% ! ;Nor,#% 'o&+u,.t"o& < Nor,#% re !
order .er"od
( Re ! order"&$ Le/e%:
@hen the quantity of materials reaches at a certain figure then fresh order is
sent to get materials again. The order is sent before the materials reach minimum
stock level.
"e N ordering level is fied between minimum level maimum level.
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' M#
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D#&$er Sto'* %e/e% > A/er#$e r#te of 'o&+u,.t"o& < e,er$e&'y de%"/ery t",e2
e A/er#$e Sto'* Le/e%:
This stock level indicates the average stock held by the concern.
A/er#$e +to'* %e/e% > M"&",u, +to'* %e/e% = ? < reorder 8u#&t"ty2
3 Deter,"t"o& of S#fety Sto'*+:
(afety stock is a buffer to meet some unanticipated increase in usage. The
demand for materials may fluctuate and delivery of inventory may also be delayed in
such a situation the firm can be face a problem of stock out.
In order to protect against the stock out arising out of usage fluctuations, firms
usually maintain some margin of safety stocks.
Two costs are involved in the determination of this stock that is opportunity
cost of stock outs and the carrying costs.
If a firm maintains low level of safety frequent stock outs will occur resulting
into the larger opportunity costs. &n the other hand, the larger quantity of safety
stocks involves carrying costs.
4 E'o&o,"' Order -u#&t"ty ;EO-:
The quantity of material to be ordered at one time is known as economic
ordering quantity.
This quantity is fied in such a manner as to minimi+e the cost of ordering and
carrying costs.
Tot#% 'o+t ,#ter"#% > A'8u"+"t"o& Co+t = Co+t = C#rry"&$ Co+t+ = Order"&$ Co+t2
C#rry"&$ Co+t:
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It is the cost of holding the materials in the store.
Order"&$ Co+t:
It is the cost of placing orders for the purchase of materials.
E&G can be calculated with the help of the following formula
E&G P 2:& I
@here : P :onsumption of the material in units during the year
& P &rdering :ost
I P :arrying :ost or Interest payment on the capital.
@ A ! B ! C ! A%y+"+: ;A%)#y+ (etter 'o&tro% #%y+"+:
Qnder # N ; N : #nalysis. The materials are divided into 3 categories vi+., #,
; and :.
#lmost 1- of the items contribute to - of value of consumption and this
category is called R#’ category.
#bout 2- of the items contribute about 2- of value of category R:’ covers
about - of items of materials which contribute only 1- of value of consumption.
VED A%y+"+ : ;V"t#%%y E++e&t"#% De+"re
The ?E' analysis is used generally for classified as ?ital/?0, Essential /E0
and 'esirable /'0.
The vital spares are a must for running the concern smoothly and these must
be stored adequately. The RE’ type of are also necessary but their stocks may be kept
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at low figures. The stocking of R'’ type may be avoided at times. If the lead time of
these is less, then stocking of these can be avoided.
I&/e&tory Tur&o/er r#t"o:
Inventory turnover ratios are calculated to indicate whether inventories have
been used efficiently or not.
The inventory turnover ration also known as stock velocity is normally
calculated as sales average inventory of cost of goods sold average inventory.
Inventory conversion period may also be calculated to find the average time
taken for clearing the stocks. (ymbolically.
I&/e&tory Tur&o/er R#t"o > Co+t of $ood+ +o%d
A/er#$e "&/e&tory #t 'o+t
Or
> Net +#%e+
;A/er#$e I&/e&tory
A&d I&/e&tory 'o&/er+"o& .er"od > D#y+ "& # ye#r
I&/e&tory Tur&o/er r#t"o
C%#++"f"'#t"o& #&d Cod"f"'#t"o& of I&/e&tor"e+:
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The inventories should first be classified can then code numbers should be
assigned for their identification. The identification of short names are useful for
inventory management not only for large concerns but also for small concerns. *ack
of proper classification may also lead to reduction in production.
$enerally, materials are classified accordingly to their nature such as
construction materials, consumable stocks, lubricants etc. #fter classification the
materials are given code numbers. The coding may be done alphabetically or
numerically. The later method is generally used for coding.
The class of materials is assigned two digits and then two or three digits are
assigned to the categories of items divided into 15 groups. Two numbers will be
category of materials in that class.
V#%u#t"o& of "&/e&tor"e+ ! Method of /#%u#t"o&:
%I%& method
*I%& method
;ase (tock method
@eighted average price method
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CRITERIA FOR JUDGING THE INVENTORY SYSTEM
@hile the overall obAective of the inventory system is to minimi+e the cost to
the firm at the risk level acceptable to management, the more proimate criteria for
Audging the inventory system are6
:omprehensibility
#daptability
Timeliness
Are# of ",.ro/e,e&t:
Inventory management in India can be improved in various ways.
Improvements could be affected through.
Effe't"/e Co,.uter"#t"o&6 :omputers should not be used merely for accounting
purpose but also for improving decision making.
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"eview of :lassification6 #;: and %() classification must be periodically reviewed.
I,.ro/ed Coord"t"o&: ;etter coordination among purchase, production,
marketing and finance departments will be help in achieving greater efficiency in
inventory management.
De/e%o.,e&t of %o&$ ter, re%#t"o&+h".:
:ompanies should develop long term relationship with vendors. This would
help in improving quality and delivery.
D"+.o+#% of o(+o%ete 0 +ur.%u+ "&/e&tor"e+:
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I&/e&tory 'o+t ! #& o/er#%% /"e)
I&trodu't"o&:
In financial parlance, inventory is defined as the sum of the value of the raw
materials, fuels and lubricants maintenance consumable semi N processed materials
and finished goods stock at any giving point of time. The operational definition of
inventory would be amount of raw materials, fuel and lubricants, and semi N
processed materials to be stock for the smooth running of the plant industry.
Need of I&/e&tory:
Inventories are maintained basically for the operational smoothness which
they can be affected by uncoupling successive stages of production, whereas the
monetary value of the inventory serves as a guide to indicate the si+e of the
investment made to achieve this operational convenience. The materials management
departments primary function is to provide this operational convenience with a
minimum possible investment in inventories. Materials department is accused of both
stock outs as well a large investments in inventories. The solution lies in eercise a
selective inventory control and application of inventory control techniques.
Inventories build to act as a cushion between supply and demand. It is sufficient to
take care of the requirements of demand till the net supply arrives. It is sufficient to
take care of probable delays in supply as well as probable variations in demand.
The si+e of the inventory depends upon the factors such as si+e of industry internal
lead time for purchase, supplier’s lead time, vendor relations availability of the
materials, annual consumption of the materials. Inventory coat can be controlled by
applying Modern Techniques vi+., #;: analysis, ('E, E(), !M:, ?E' etc. These
techniques can be used effectively with the help of computeri+ation.
7h#t "+ ,e#&t (y "&/e&tory 'o+t:
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#. The total value of stores and spares and capital spares.
;. (tores in transit and under inspection and
:. (tock of finished products.
)ormally, there are certain problems in maintaining optimum level of
inventory.
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The ordering cost may vary depending upon the type of items, for eample raw
material like steel against production component like castings in steel plants, support
materials in the case of coal industry.
The 'o+t order"&$ "&'%ude+:
10
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10 Interest on capital.
20 Insurance and ta charges.
30 (torage costs N labour costs, provision of storage area and facilities like
bins, racks etc.,
40 Transport bills and hamali charges.
50 #llowance for deterioration or spoilages.
80 (alaries of stores staff.
0 &bsolescence.
The inventory carrying cost varies and a maAor portion of this is
accounted for by the interest on capital.
U&der +to'*"&$ 'o+t:
This cost is the cost incurred when an item is out of stock. It includes cost of
lost production during the period of stock out and the etra cost per unit which might
have to be paid for an emergency purchase.
O/er +to'*"&$ 'o+t:
This cost is the inventory carrying cost /which is calculated per year0 for a
specific period of time. The time varies in different contets N it could be the lead
time of procurement of entire life time of machine. In the case of one time purchases,
over cost would be P ur'h#+e r"'e ! S'r#. r"'e2
INVENTORY VALUATION AND COST FLO7S:
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7h#t "+ the 'o+t of "&/e&tory
&ne can readily visuali+e the determination of inventory quantities by physical
count or by use of perpetual inventory records. @hen this quantity is determined, it
must be multiplied by a unity cost in order to determine the inventory value that is
used on financial statements.
Trade and quantity discount are to be ecluded from unit cost since these
discount eist for the purpose of defining the true invoice cost of merchandise. :ash
discounts, on the other hand, have been considered as a reward for early payment and
as a penalty for late payment. The FrewardL has often been interpreted as a loss rather
than as a part of unit cost. Thus it would not be difficult to find difference of opinion
as to whether invoice cost includes or ecludes cash discount.
@hen the Fcurrent repla %&&'( costL of material on hand at the close of a
year is less than the actual cost, the inventory value is reduced to repla %&&'( cost
/current market price0. Thus the acceptable basis inventory valuation is the Flower of
cost or marketL or more properly the Flower of actual cost or repla %&&'( costL.
The determination of inventory values is very important from the point of
view of the balance sheet and the income statement since costs not included in the
inventory /the balance sheet0 are considered to be epensive and are thus included in
the income statement.
V#%u#t"o& of "&/e&tor"e+ ! ,ethod+ of deter,"t"o&:
#lthough the prime consideration in the valuation of inventories is cost, there
are a number of generally accepted methods of determining the cost of inventories at
the close of an accounting period. The most commonly used methods are first N in
first out /%I%&0 average, and last N in first N out /*I%&0. The selection of the method
for determining cost for inventory valuation is important for it has a direct bearing on
the cost of goods sold and consequently on profit. @hen a method is selected, it must
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be used consequently and cannot be changed for year to year in order to secure the
most favorable profit for each year.
THE FIFO METHOD ;FIRST ! IN FIRST ! OUT METHOD
Qnder this method it is assumed that the materials or goods first received are
the first to be issued or sold. Thus, according to this method, the inventory on a
particular date is presumed to be composed of the items which were acquired most
recently.
The value inventory would remain the same even if the Fperpetual inventory
systemL is followed.
#dvantage67 The %I%& method has the following advantages.
10 It values stock nearer to current market prices since stock is presumed to
be consisting of
20 The most recent purchases.
30 It is based on cost and, therefore, no unreali+ed profit enters into the
financial accounts of the company.
40 The method is realistic since it takes into account the normal procedure of
utili+ing or selling those materials or goods which have been longer
longest in stock.
D"+#d/#&t#$e+67 The method suffers from the following disadvantages.
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10 It involves complicated calculations and hence increases the possibility of
clerical errors.
20 :omparison between different Aobs using the same type of material
becomes sometimes difficult. # Aob commenced a few minutes after
another Aob may have to bear an entirely different charge for materials
because the first Aob completely ehausted the supply of materials of the
particular lot.
The %I%& method of valuation of inventories is particularly suitable in
the following circumstances.
I. The materials or goods are of a perishable nature.
II. The frequency of purchases is not large.
III. There are only moderate fluctuations in the prices of materials or goods
purchased.
I?. Materials are easily identifiable as belonging to a particular purchase lot.
The LIFO ,ethod ;L#+t ! "& ! F"r+t ! Out ,ethod
This method is based on the assumption that last item of materials or goods
purchased are the first to be issued or sold. Thus, according to this method, inventoryconsists of items purchased at the earliest cost.
Ad/#&t#$e+67 This method has the following advantages6
10 It takes into account the current market conditions while valuing materials
issued to different Aobs or calculating the cost of goods sold.
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20 The method is base on cost and, therefore, no unreali+ed profit or loss is
made on account of use of this method.
The method is most suitable for materials which are of bulky and non N
perishable type.
B#+e Sto'* Method:
This method is based on the contention that each enterprise maintains at all
times a minimum quantity of materials or finished goods in its stock. This quantity is
termed as base stock. The base stock is always valued at this price and its carried
forward as a fied asset. #ny quantity over and above the base stock is valued in
accordance with any other appropriate method. #s this method aims at matching
current costs to current sales, the *I%& method will be most suitable for valuing stock
of materials or finished goods other than the base stock. The base stock method has
advantage of charging out material goods at actual cost. Its other merits or demerits
will depend on the method which is used for valuing materials other than the base
stock.
7e"$hted #/er#$e .r"'e ,ethod:
This method is based on the presumption that once the materials are put into a
common bin, they lose their identity. !ence, the inventory consists of no specific
batch of goods. The inventory is thus priced on the basis of average priced on the
quantity purchased at each price.
@eighted average price method is very popular on account of its being based
on the total quantity and value of materials purchased besides reducing number of
calculations. #s a matter of fact the new average price is to be calculated only when a
fresh purchase of materials is made in place of calculating it every now and then as is
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the case with %I%&, *I%& methods. !owever, in case of this method different prices
of materials are charged from production particularly when the frequency of
purchases and issuessales in quite large and the concern is following perpetual
inventory system.
V#%u#t"o& of "&/e&tor"e+ ! ",.#'t o& the f%o) of 'o+t+:
#s should be quite evident, the different methods of calculating inventory
values will all have their impact on the flow of costs through the balance sheet into
the income statement. The dollars that are paid to acquire inventory are always
divided between the balance sheet /inventories0 and the income statement /cost of
goods sold0, there is not other place to put them. Thus if the different methods of
calculating inventory produce differing inventory values, they will also produce
differing cost of goods sold figures, and the differing cost of goods sold figures will
naturally produce differing profit figures.
In order show the impact of inventory valuation on cost flows, the preceding
ehibits are summari+ed. Each method produces a different figure for the transfer of
raw materials to work in process. These differences appear small, but the only reason
for this is that the dollar amounts have been kept small to make the illustration
workable.
@ith the transfer of materials to work in process, the cost flow or transfer with
have its impact on the work in process inventory and the transfer of completed
merchandise to finished gods. Qltimately when goods are soldH the varying methods
of valuing inventories will have their impact on cost of goods sold and these profits.
The effects of the cost flows on cost of gods sold and profits can be accentuated
further it the differing methods of valuing inventories are applies to work in process
and finished goods.
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E/#%u#t"o& of ,ethod+ ! 7h#t '#u+e+ the d"ffere&'e+
The differences in inventory values and flows for each of the method
illustrated result from only one factor, that it, changing purchases prices or unit costs.
If purchase prices had remained stable or unchanged, each method would have
produced the same inventory value and cost flow.
:ost flows and inventory are eactly the some under stable prices. @ith a falling price
level, the *I%& method produces the highest cost flow and the lowest inventory. @ith
a falling price level, the *I%& method produces the lowest cost flow and highest
inventory. The cost flow under *I%& follows the price level, *I%& produces larger
cost flows when prices are rising and smaller cost flows when prices are falling. #
final item to consider is that the average method produces results which fall between
the etremes of *I%& and %I%&.
E/#%u#t"o& of ,ethod+ ! '#& )e 9u+t"fy the d"ffere&'e+
The best method of inventory valuation might be Fspecific identificationL, that
is, the units in inventory should be identified with the specific invoices and thus
specific unit costs to which they apply.
%ortunately, the %I%& method constitutes a very useful approimation to the
specific identification method if on can reasonably assume that the actual flow of
materials is first7in first7out. This assumption is not unreasonable and thus we have
stated the main argument for the %I%& inventory scheme, that is, the physical flow of
materials would match the flow of costs under the first N in first N out method.
@hen the units in inventory are identical, interchangeable and do not follow
any specific pattern of physical flow, the average cost system would seen to
appropriate.
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The primary difference between the %I%& and average methods is centered on
the physical flow since both methods could involve identical and interchangeable
units. The %I%& method fits a first7in first7out physical flow. The average method fits
a system which has no specific pattern of physical flow. %inding a situation where
there is no specific pattern of physical flow should be quite difficult because of the
fact that most inventory items are subAect to deterioration by instituting a person
would attempt to reduce such deterioration and any reasonable person would attempt
to reduce such deterioration by instituting a physical flow approimating first7in7first7
out. The maAor reason for the use of the average method is something other than the
lack of specific physical flow.
&rdinarily the *I%& method cannot be Austified on the basis of the physical
flow of materials. Qnder conditions of changing prices, the advocate of *I%& says
that the only method which matches costs and revenues is the *I%& method. The
*I%& method assumes that the latest item is the first item out, and thus the current
costs of materials are matched with the other hand, assumes that the first item in is the
first item out, and thus the non7current costs of matching current costs with current
revenues is the essence of the argument for the *I%& method.
#s can be seen by the above comments, there is no one best method of valuing
inventories. The method chosen should fit the situation. # physical flow pattern
comparable to %I%& would force one to consider the %I%& method. The lack of a
discernible physical flow pattern would force one to consider the average method.
:oncentration on cost flows, as distinct from physical flows, would force to consider
the *I%& method especially where there appears to be a discernible trend towards
rising prices /or falling prices0 as has been the case in our economy during recent
years.
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I&/e&tor"e+ /#%ued #t +t#&d#rd 'o+t:
# very useful method of valuing inventories is at a standard cost. @ith a
standard cost system is no need of spending a great deal of time and money tracing
unit cost through perpetual inventory record.
ERETUAL INVENTORY CARD UNDER A STANDARD COST SYSTEM
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#s shown above, there is need only for physical quantities since the inventory
values is the physical quantity multiplied by the standard cost. @ith the cost and value
columns disposed off, a perpetual inventory card can include additional data such as
quantities on order, quantities reserved, and quantities available. These additional data
are very useful for inventory and production control purpose. &n the basis of a few
calculations concerning into inventories on a %I%&, a *I%&, or an average cost basis.
I&/e&tory of O(+o%e+'e&'e:
#bsolvent inventories cannot be used or disposed off at values carried on the
books. %requent reviews should be made of all inventories, and when obsolescence is
indicated a request for revaluation should be prepared for approval by management.
The difference between original and obsolete value should be recorded by a change to
an operating account. Inventory obsolescence, and a credit to inventory. If the
material is scrapped, this will be for the full inventory value or used in areas where it
will be work less than its original value, the entry would be only for the amount of
write down. (ome companies carry a solvage inventory and transfer to it materials
which may be sold or used at reduced values.
@here this is done, the entry would be6
'r. (olvage inventory
'r. Inventory &bsolescence. :r. "aw Material inventory or (upplies
inventory.
I&/e&tory 'o+t "& re%#t"o& HERITAGE FOODS INDIA LIMITED+ +h#%% to
'%#++"f"ed+ fo%%o)+:
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Inventory can be classified as capital and revenue certain items through titled
as capital in nature. !ence, due care is to be take whole drawing the material.
Materials which are to be imported from other countries have to be planned
well in advance nearly about 24 months are to initiate the proposals for procurement.
(imilarly some of the items do not require any lead time some they are
available in the local market.
%&&'( is highly energy intensive industry, the inputs like power and coal are
the maAor part of the variable cost since $overnment controls the coal B fuel sector,
and increase is rates adversely effects the %&&'( industry.
!E"IT#$E %&&'( I)'I# *IMITE' has it own power plant and through
which it saves energy consumption. ;y this the cost since $overnment controls the
coal B fuel sector, any increase rates adversely effects the %&&'( industry.
Inventory cost of any organi+ation also adversely affects by retaining obsolete scrap
and inventory costs can be reduced by management with an advance planning of
procurement of materials, periodical reviews of eisting spares with reference to the
fast consumption, ascertaining the information regarding the availability of in other
areas. !olding of etra inventory will be an additional financial burden to the
company due to payment of interest charges on the materials purchased, diminishing
value of materials purchased, diminishing value of materials by keeping them in
stores for a log time, handling charges, etc.,
The inventory of !E"IT#$E %&&'( I)'I# *IMITE' mainly includes
%oods, , :): %&&'(, 'airy.Inventory in !E"IT#$E %&&'( I)'I# *IMITE'
during 2--5 7-8to 2--9 71-are as follows6 /Qnits in m.t0
Ye#r+ 3 3 3 3 K 3K1
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%oods 1-5182- 98485 98854- 95=82- 12-9538
! % I * 4483 4528 42=1 43151 8598-
#gro
Merine22142 198-2 2--5 22-11 3858
'airy 458 9-22 182-1 328- 149255
The value of the above raw materials for the year 2--5 71-are as follows6 /?alue in
"s.0
Ye#r+ 3 3 3 3 K 3K1
%oods 11=281591 125449=2 1354492- 14-12-92- 19541-12-
! % I * 31==4885 2=98991 29-8=9- 234=8- 3255118
#gro
Merine1=513--2 181--52 181--2 1=995=2 48-8119
'airy 21-2 55545 88115 28495= 2-1115-2
?alue of imported and indigenous raw materials, stores, and componentsconsumed during the year6
I,.orted
Ye#r+ 3 3 3 3 K3K
1
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"aw Materials 945349 493--5833 881=--15 45122952815542
389=
%inished
$oods 5215-53 5115-5 83452-= 121824112
411=
-3=
I&d"$e&ou+
Ye#r+ 3 3 3 3 K 3K 1
"aw Materials 1-=5=8=9 2995==412 3458542 41-8-522= =-853181
%inished
$oods5-=1-8545 ==1==-958 1915958- 1284842=8 3812=8
%&&'( %#:T&" "Q)( @IT! ?#"I&Q( EGQI
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II. :&MME":I#* 'E
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30 (E*E:TI&) &%
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(egregation of indents for attending at :.
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URCHASE DEARTMENT
URCHASE EN-UIRY
Ms.
S%2
No2 M#ter"#% Code De.#rt,e&t -u#&t"ty U&"t
7he&
Re8u"red
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ACTIVITY: FLOATING EN-UIRIES:
FLO7 CHART:
• :hecking indented items and equipment name.
• Taking previous supplier’s information form previous supply. If new
equipment item, information to be taken from concerned department or
from competitors Aournals yellow pages.
•
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ACTIVITY : REARATION OF ORDER ROCESSING FROM
FLO7 CHART:
• "eceiving quotation against enquiries sent.
• Enter price and other of the quotation received from sub N contractors in
the order processing from.
• Mention the earlier purchase details of indented items against each item in
the order processing form if available.
•
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PURCHASE DEPARTE!T
PURCHASE "RDER
S%2 No2I&de&t
No2
Ite,
CodeDe+'r".t"o& -ty R#te U&"t A,ou&t
ACTIVITY: REARATION OF URCHASE ORDER
FLO7 CHART:
•
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3. Material specification B part number
4. Guantity
5. "ate
8.
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M#ter"#% Code M#ter"#%r"'e 0 -u#&t"ty
#+ .er Order
A,e&ded r"'e 0
-u#&t"ty
ACTIVITY: ORDER AMENDMENT ORDER FOLLO7 U AND INFORM
THE SULIER FOR THE REJECTIONS 0 DAMAGES 0 SHORTAGES:
FLO7 CHART:
• Issue of amendments in case of modification to purchase order.
• "eview the pending order and follow up the pending order for breakdown
requirement.
• (end regular reminders to suppliers against pending purchase order every
month.
• "eceive shortage ecess damages report from stores for the material
received.
• Information the supplier for the reAections damage ecess shortage.
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PURCHASE DEPARTE!T
ACTIVITY: IMORTS:
FLO7 CHART:
• "eceipt of indents for import items from stores department.
• Taking previous item, information to be taken from concerned
department or from competitors Aournals ellow pages.
• (end enquiry to overseas supplier.
• "eceiving quotations against enquiries sent.
• Enter price and other terms of the quotations received from overseas
supplier in the order processing form.
• Eamine order processing form and decide the sub N contractor to whom
purchase order to be placed.
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•
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• (tamping on 'ispatch #dvise 'elivery challan by $ate &ffice.
• :hecking of challans 'ispatch #dvise with purchase order.
• Qnloading of $oods at allotted place or in case of urgency direct at works
site.
• #ll safety precautions are taken while unloading of material like workers
should wear safety shoes, helmets, leather head gloves, noise respirator,
nose mask.
• Training is given to workers for unloading !eavy B ;ulky material by
using chain pulley ;locks, @ire "ope :eilings, %ork *ift. #fter QI*
receipt acknowledgement given to driver maintaining *orry receipts
register.
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STORES DEARTMENT
ACTIVITY: REARATION OF RECEIT AND AROVAL BOO6 FOR
GENERAL MATERIAL 0 D2C2 ENTER OF BLOC6 AND STATIONARY
MATERIAL MANUALLY IN REGISTER
• (orting of 'elivery challans as below6
a0 $eneral
b0 (tationery
c0 ;lock
• :hecking with
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STORES DEARTMENT
ACTIVITY: HYSICAL VERIFCATION OF GOODS:
• #ll '.:. handed over to stores assistant physical verification like
measuring, counting and tallying with '.:.’s Guantity 'escription of the
materials by the (tores #ssistant.
• Identification tags to be attached to the verified material. (hortage Ecess
'amages if any found to be noted on challans and inform to section
incharge.
•
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STORES DEARTMENT
ACTIVITY: AROVAL OF MATERIAL AND REARATION OF GOODS
RECEIT NOTES:
• Intimation is be sent to all the concerned departments. (howing materials
to concern person.
• Taking approval of the material in receipt B approval book.
•
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5
STORES DEARTMENT
ACTIVITY: REJECTED MATERIALS
• "eAected materials kept in allotted area of reAected materials.
•
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• :orresponding with supplier. If the Ecise Invoice is not found with
delivery challans.
STORES DEARTMENT
ACTIVITY: RECEITS OF MEDICINES
•
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CHATER ! IV
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RATIO ANALYSIS
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The investment on raw materials over a period of 5 years from 2--- to 2-1- is
presented in the following table.
1. I&/e+t,e&t o& R#) M#ter"#%+:
ear Investment on "aw Material /in crores0
2--4 N 2--5 12228.-
2--5 N 2--8 1349=.=-
2--8 N 2-- 5-95.=
2--N 2--= 518=8.=1
2--= N 2--9 42925.25
2--9 N 2-1- =9-5.=8
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I&ter.ret#t"o&:
10 %rom the above table it can be understood that the inventory of !E"IT#$E
%&&'( I)'I# *IMITE' was recorded at 12228.- during the year 2--4 7-5and it is increased to =9-5.=8 during the year 2--= 7-9.
20 It shows that there is on increase in the inventory to the more etent of
=9-5.=8.
30 The average inventory of !E"IT#$E %&&'( I)'I# *IMITE' was
recorded at "s52454.5
40 The highest investment in inventory was recorded in the years 2--971-
32 Tre&d A%y+"+:
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
100000
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
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Trend analysis technique is applied to know the growth rate in investment of
raw material of !E"IT#$E %&&'( I)'I# *IMITE' over the review period which
is shown in the following table.
Tre&d A%y+"+:
Ye#rR#) M#ter"#% ;"&
L#'*+Tre&d
2--4 N 2--5 12228.- 9=
2--5 N 2--8 1349=.=- 94
2--8 N 2-- 5-95.= 3=5
2--N 2--= 518=8.=1 295
2--= N 2--9 42925.25 313
2--9 N 2-1- =9-5.=8 99
I&ter.ret#t"o&:
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
100000
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
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10 The investment on investment has increased in the year 2--= 71-. #nd the lost
year investment has declared continuously. The percentage in 2--5 7-8was
295 as compared to years 2--8 7- to 2--9 71-.
20 The trends in inventories show that inventory have been more in the year 2--9
71-and then it has shown a downward trend and again it increased to some
etent.
42 I&/e&tory Tur&o/er R#t"o:
ss This ratio indicates the number of times the stock has been turned over during
the period B evaluates the efficiency with which a firm is able to manage its
inventory. This ration is calculated by applying the following formula.
Co+t of $ood+ +o%d
I&/e&tor tur& o/er r#t"o& >
A/er#$e "&/e&tory
I&/e&tory tur& o/er r#t"o&:
yrs Co+t of $ood+
+o%dA/$2 I&/e&tory R#t"o
2--4 N 2--5 59225.45 89--.22 =.5=
2--5 N 2--8 5=-22.22 38225.2- 1.5=
2--8 N 2-- 11-221.21 98-5.85 1.14
2--N 2--= 12-522.8= 1149-.- 1-.4=
2--= N 2--9 125492.= 12223.99 1-.28
2--9 N 2-1- 3-9288.9= 15--25.22 2.-8
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I&ter.ret#t"o&:
1. %rom the above table 2--4 it can be observed that /10 inventory turn
over ratio is =.5= during 2--4 N 2--5 and it gradually decreased to 1.5= during
2--5 N 2--8.
2. In the year 2--8 7- it is clear that the ratio is very less i.e., he stock
is not turned into sales quickly.
3. #s compared to all the years the ratio is very less in 2--8 7-
@2 I&/e&tory 'o&/er+"o& .er"od:
It may also be of interest to see average time taken for clearing the stocks.
This can be possible by calculating inventory conversion period. This period is
calculated by dividing the number of the days by inventory turn over.
Th"+ for,u%# ,#y (e #+:
0
20000
40000
60000
80000
100000
120000
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
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D#y+ "& # ye#r ;4 d#y+
I&/e&tory 'o&/er+"o& .er"od >
I&/e&tory tur&o/er r#t"o
I&/e&tory 'o&/er+"o& .er"od: ;"& 'rore+
Ye#rCo+t of $ood+
+o%d
A/$2
"&/e&toryR#t"o IC ;D#y+
2--4 N 2--5 59225.45 89--.22 =.5= 42
2--5 N 2--8 5=-22.22 38225.2- 1.5= 23-
2--8 N 2-- 11-221.21 98-5.85 1.14 28
2--N 2--=
12-522.8=1149-.- 1-.4= 33
2--= N 2--9 125492.= 12223.99 1-.28 32
2--9 N 2-1- 3-9288.9= 15--25.22 2.-8 21
0
20000
40000
60000
80000
100000
120000
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
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I&ter.ret#t"o&:
%rom the above table it can be identified the following observations6
10 The inventory conversion period was 23- days during the year 2--5 7-8but it
declined to 2-4 during 2--8 7 -5, which indicates that the stock has been very
quickly converted into sales which mean the company is managing the
inventory efficiently.
20 The lowest inventory conversion period was recorded at 28 days in the year
2--8 7- and the highest inventory conversion was recorded at 21days in the
year 2--9 71-.
30 The average inventory conversion period was recorded at 1- days during the
review period.
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2 er'e&t#$e of I&/e&tory o/er 'urre&t #++et+:
In order to know the percentage of inventory over current assets the
"atio of inventory to current assets is calculated and which is presented in the
following table.
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I&/e&tory
I&/e&tory o/er 'urre&t #++et+ r#t"o > 1
Curre&t #++et+
er'e&t#$e of I&/e&tory O/er 'urre&t #++et+:
Ye#r I&/e&tory Curre&t A++et+ R#t"o ;
2--4N 2--5 142=8.5 25129.23 58
2--5 N 2--8 11=-. 29=-.8= 39
2--8 N 2-- 5-925.- 54-3.55 94
2--N 2--= 4395-.8 48---.22 94
2--= N 2--9 4-.45 5-22.25 92
2--9 N 2-1- 948-5.8 =111.59 1-=
I&ter.ret#t"o&:
10 %rom the above table it can be understand that the of inventory over current
assets ratio was showing a declining trend for two years 2--4 7 2--5.
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
100000
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
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20 !owever from the year2--9 71-it is showing an increasing trend.
30 The lowest inventory over current assets ratio was recorded at 39 during the
year 2--5 7-8and the highest inventory over current assets ratio we recorded at
1-= during 2--9 71-.
40 The average inventory over current assets ratio was recorded at =5.
2 er'e&t of I&/e&tory O/er tot#% 'urre&t #++et+ f"
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I&ter.ret#t"o&:
10 'uring the year 2--4 N -3the ratio was 18.21 on it declined to
13.21 in the year 2--5 7-8
20 %rom the year 2--8N-5 it is showing fluctuating trend but as compared to
above 2 years it is increasing.
30 The lowest inventory over total assets ratio was recorded at 13.21 during the
year 2--5 7-8and the highest inventory ratio was recorded at 42.=3 during
the year 2--9 71-.
40 The average inventory to total assets ration was recorded at 3=.33 during the
review period.
0
50000
100000
150000
200000
250000
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
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2 er'e&t#$e of I&/e&tory o/er 'urre&t %"#("%"t"e+:
In order to know the percentage of inventory over current liabilities the
ration of inventory to current liabilities is calculated and which is presented in
the following table.
I&/e&tory
I&/e&tory o/er 'urre&t %"#("%"t"e+ r#t"o > 1
Curre&t %"#("%"t"e+
er'e&t#$e of I&/e&tory O/er 'urre&t %"#("%"t"e+:
Ye#r I&/e&tory Curre&t %"#("%"t"e+ R#t"o ;
2--4N 2--5 142=8.5 9--.21 1=
2--5 N 2--8 11=-. =1-1.11 145
2--8 N 2-- 5-925.- 12-2.41 298
2--N 2--= 4395-.8 1=--.42 248
2--= N 2--9 4-.45 1=2=.24 25
2--9 N 2-1- 948-5.8 325.22 253
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I&ter.ret#t"o&:
10 %rom the above table it can be understand that the
inventory over current liabilities ratio was showing a declining trend for two
years 2--4 7-5
20 'uring the year 2--57-8the ratio was it gradually increased
to 145 and there is a net increase to the etent of 12=.
30 The lowest inventory over total amounts ratio was recorded
at 1= during the year 2--4 7-5
2 Curre&t R#t"o:
In order to know the current ratio the percentage of current assets to current
liabilities is calculated and which is presented in the following table.
Curre&t #++et+
Curre&t R#t"o >
Curre&t %"#("%"t"e+
0
5000
10000
15000
20000
25000
30000
35000
40000
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
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C#%'u%#t"o& of Curre&t R#t"o+:
Ye#r I&/e&tory Curre&t %"#("%"t"e+ R#t"o ;
2--4 N 2--5 2522.33 =---.12 3.15
2--5 N 2--8 2989.9 =-42.- 3.-
2--8 N 2-- 54-.89 1299.15 3.12
2--N 2--= 488--.-2 19--.15 2.8-
2--= N 2--9 5-14.25 1=8--.25 2.2
2--9 N 2-1- ==99.25 3258.42 2.35
I&ter.ret#t"o&:
10 %rom the above table it can be interpreted that the of current assets over
current liabilities ratio i.e., current ratio was showing a decreasing trend
from year 2--5 7-8
20 In the year 2--4 7-5the ratio was 3.15 and has increased to 3.- in the
year 2--5 7-8
30 The lowest current ratio was recorded at 2--9 71-which is 2.35 and the
highest current ratio was recorded at 3.- during the year 2--5 7-8
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
100000
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
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40 The average current ratio was recorded at 3.-9 during the review period.
K2 -u"'* R#t"o:
The quick ratio is the relationship between quick to current liabilities quick
assets is more rigorous test of liability position of a firm it is computed by applying
the following formula.
-u"'* r#t"o > -u"'* #++et+ 0 Curre&t L"#("%"t"e+
7here -u"'* #++et+ > Curre&t A++et+ ! I&/e&tory
Ye#r I&/e&tory Curre&t %"#("%"t"e+ R#t"o ;
2--4 N 2--5 9= 8=2= 1.43
2--5 N 2--8 148- 9-42 2.12
2--8 N 2-- 3218 152-2 -.21
2--N 2--= 35-- 12-2 -.2-
2--= N 2--9 3-1 12-4 -.21
2--9 N 2-1- 32-3 3258 -.-=
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I&ter.ret#t"o&:
10 %rom the above table it can be understand as that the of quick assets to
current liabilities i.e., the quick ratio was -.--2 in 2--8 7-and from that
year it is showing increasing trend.
20 The highest quick ratio was recorded at 2.42 during the year 2--5
7-8and the lowest quick ratio was recorded at -.21 during the year 2--8
7-
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
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CHATER ! V
U
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CONCLUSIONSP
10 &ver all the inventory of !E"IT#$E %&&'( I)'I# *IMITE's is up to
the mark.
20 The production of clinker and %&&'( during 2--8 N 2-- was 8,4,834
and 8,=,-92 respectively which is higher as compared to 2--9 N 2-1-
which is 5,9,34 and 8,5,58.
30 Investment on raw material is 958-5.=9 lakhs which very high as
compared to 2--9 71-which is only 58---.58 lakhs.
40 The inventory turn over ratio shows that the stock has been converted into
sales is only 1.-2 times.
50 In the year 2--8 7- the stock was cleared within 2 days whereas it took
23- days in the year 2--5 N 2--8 which took more days for clearing stock.
80 ear 2--8 7- is not showing sample profits. This is because of %&&'(
prices have been continuously under pressure due to persistent mismatch
between supply and demand.
0 The quantity of dairy in the year 2--9 71-is =,9=,24- and its value
is12,94,24,=15 but whereas in the year 2--= 7-9 the quantity was =,92,58-
and the value is 12,1-,1,545.
=0 In purchase department for want of any item it should go through several
process. This may include receiving indents, floating enquiries,
preparation of order processing form, preparation of purchase order and
order follow up inform the supplier. Most of the time was spent in
accounts payable.
90 In this type of process, it requires more number of employees and supplier
should also wait for until the accounts are matched.
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1-0 This process takes an input, adds value to it and provides an output to an
internal or eternal customer.
SUGGESTION:
10 Though the production is higher is the year 2--8 7- and the sales were
very high i.e., as per inventory conversion period it took 2- days. This
shows that there is demand for %&&'( and the funds unnecessarily tied
up. (o, proper demand forecasting should be done and according to that it
may be manufactured.
20 The investment on raw material should be made as per the requirement.
Qnnecessary investment may block up the funds.
30 )either too high nor too low inventory turnover ratios may reduce profit
and liquidity position of the industry. (o, proper balance should be made to
increase profits and to ensure liquidity.
40 The raw material should be acquired from the right source at right quality
and at right cost.
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50 The process that was being used by !E"IT#$E %&&'( I)'I#
*IMITE's with the purchasing department should undergo changes, so
that, it seeks enhance the celerity of the delivery of a product without
compromising its quality by improving the utili+ation of materials, labour
and equipment.
80 To reduce the work, the purchasing department may enter the purchasing
order into database and did not send a copy to any one. @hen the
merchandise arrived, the receiving clerk would enter the database and
determine whether the order agreed with the electronic purchase order.
If it did, payment was authori+ed to be made at the appropriate
Time. If it didn’t match, the order would be returned until if it is agreed by the
!E"IT#$E %&&'( I)'I# *IMITE'.
If it institutes FInvoice less purchasingL where the supplier did not need to
send an invoice to be paid.
This generally simplifies the process for all concerned. #s a result, it would
able to reduce the work of its accounts payable department.
BIBLIOGRAHY
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12 F"&'"#% M#$e,e&t By IM #&dey
32 F"&'"#% M#$e,e&t By r#+#& Ch#&dr#
42 Tot#% -u#%"ty M#$e,e&t By 62 Shr"dh#r# B#"
@2 Co,.#&y+ Store+ M#&u#%
2 Co,.#&y+ A&&u#% Re.ort+