THE EFFECT OF INVENTORY MANAGEMENT IN THE VIABILITY OF A COMPANY
A CASE STUDY OF STEEL AND NAILS MANUFACTURING INDUSTRY
TABLE OF CONTENTS
1.1 background of the study
1.2 Statement of problem
1.3 Purpose of the study
1.4 Significant of the study
1.5 Scope and limitation of the study
1.6 Definition of terms
2.0 literature review
2.1 Definition of profitability and policy decision
2.2 Causes that leads to poor profitability
2.3 Importance of casting methods
on profitability of business
2.1 Solutions to the effects of profitability
3.0 summaries of findings
1.1 BACKGROUND OF THE STUDY
The concept of profitability can be defined as that concept which provides the management with alternative courses of action according to the various degree of profitability stating clearly in relevant cost accounting from the cost and benefits associated with individuals projects which enables management to select the most profitable.
Most of the policy decisions of manufacturing industries are generally directed towards profitability. Policy decision under this concept has a direct effect of increasing and enhancing the general profitability of the manufacturing industries concerned.
The origin of this concept can be traced back to the era of industrial revolution. Pride to this era, industries was run as a family concerned just to maintain a states quo.
Due to the increase in trade, brought about by the industrial revolution, most businesses grow from the usual family arrangement to large groups and consortia.
Resources were pulled together and handed over to other people to manage for the owners. Naturally, resources owners must expect of a profitable return from their investment.
This urgent obligation forced management to seek ways of carrying out the activities so as to make profitable return to the resource owners. Investment grow in all dimension until the first and second world war in which after it, manufacturing industries increased in large number, grew in importance and also in meeting the improved living demands of the over-developing world.
Material must have to be bought in enough quantity to avoid stack-out and at the same time check over-stocking.
Labour that is a very volatile community must be allowed to operate in a conducive environment so as to reap the benefit as hiring labour.
Generally ecological consideration must be reviewed thereafter, site is acquired, structures erected,, machines and equipment installed. Manufacturing industries moves with the changing technology, meet it’s social responsibility operate under government stipulations, pay tax and when due, meet the expectations of shareholders.
High administrative cost, cost of changing technology, price competition, scare resources, falling economy, cost of government restriction, the need for maximization of shareholders wealth, poor capital bases etc must be accommodated and adjusted in such a way that total cost of manufacturing of product will not only be less than sales revenue but give a good profit margin.
This situation of operation under many uncompromising variables gave rise to the need for policy decision on such thing as :
1. Setting an industry
2. Expansion of an existing product
3. Introduction of a new product
4. A change in product design
5. Sell or process further
6. Close down
7. The replacement of Labour by machinery.
The cost accountant supplies statements of anticipation cost and profit relation to such problems aforementioned.
1.2 STATEMENT OF PROBLEM
This research work entitled factors the concept of profitability as a guide to policy decision, a focus on manufacturing industries to determine the factors affecting the concept in some elected manufacturing industries in Enugu local government metro polices.
SUB – PROBLEMS
1 To know the present function of the concept in chosen examples of industries on such things as:
(a) The objectives of the concepts
(b) The basis on which it was selected
(c) The significance of the concept
(d) The general awareness of the existence of the concept among selected industries.
(e) Department covered by the concept
2 what are the reactions of the industries to these factors affecting concept
3 What are the resources of the industries to the factors affecting the concept?
4 To make recommendation based on the finding about the factors affecting the concept.
1.3 PURPOSE OF STUDY
This research study on factors affecting the concept is formed by the need to explaining the causes of selected industries through the concepts.
The profitability of industries encourages them to assume their social responsibilities and participate effectively and concretely in the economic growth of the economy of Enugu local government Area in particular.
The research work looked into the policy decision of some of the selected industries, factors affecting their execution. The factor effects were also qualified in terms of their companies profit decision. The research work developed on the concept of profitability from which it determined the exogenous, endogenous and political factors. It equally looked on how management contribute negatively towards the concept, and how the production schedule in terms of efficiency and cost saving to determine how they were arranged to achieve the set project objectives.
1.4 SIGNIFICANCE OF THE STUDY
The study of the factors affecting the concept of profitability as a guide to policy decision in manufacturing industries in Enugu local government Area is unique to the extent that is pursues a focus in trying to X- ray the concept and it’s factors affecting it. But the extent of the study done is significant in the sense that it will provide both sound theoretical and practical base for future research and inventors in this particular area having know the establishing a manufacturing industries and factors affecting it.
Finally, it will enable the researcher to have in-depth knowledge of this study and open a new area of further research for students and industrial researcher.
1.5 DEFINITION OF TERMS
In order to appreciate what the project topic is all about, it is necessary to understand the terms used.
CONCEPT OF PROFITABILITY: This is the concept which provides managers of manufacturing industries with alternative courses of action according to the various degree of profitability starting clearly in relevant lost accounting form, the costs and benefits associated with individual projects which enables them to select the must profitable.
POLICY: Policy means principles and objectives which guides decision making as particular maters and which expresses broad intention or attitudes of a manufacturing industries.
INDUSTRY: This means the activities of processing manufacturing goods on a large scale using extensive plant and equipment or a class of firms that are sufficiently similar in their main activities or products to be grouped together for the purpose of descriptions.
MANUFACTURING: This means the process of changing raw materials into finished goods lising plants and equipment’s.
1.2 THE STATEMENT OF THE PROBLEM
1.3 THE NEED FOR THE STUDY
1.4 THE PURPOSE OF THE STUDY
1.5 RESEARCH HYPOTHESIS
1.6 THE SCOPE OF THE STUDY
1.7 RESEARCH METHODOLOGY
1.8 LIMITATION OF THE STUDY
1.9 ORGANIZATION OF THE STUDY
1.10 OPERATIONAL DEFINITION OF TERMS
2.0 INVENTORY CONTROL AND INVENTORY VALUATION12
2.1 NATURE OF INVENTORY
2.2 INVENTORY CONTROL
2.3 ACQUISITION AND ISSUE OF MATERIALS
2.4 BASIC INVENTORY CONTROL SYSTEMS
2.5 FACTORS THAT AFFECT INVENTORY CONTROL
2.6 INVENTORY CONTROL METHODS
2.7 INVENTORY VALUATION SYSTEMS
2.8 INVENTORY VALUATION METHODS
2.9 FACTORS AFFECTING INVENTORY VALUATION DECISIONS
2.10 THE CONCEPT OF VIABILITY
3.1 SELECTION OF DATA
3.2 COLLECTION OF DATA
3.3 TOOLS OF DATA ANALYSIS
3.4 RELIABILITY OF DATA
CHAPTER FOUR: DATA PRESENTATION ANALYSIS
4.1 DATA PRESENTATION AND ANALYSIS
4.2 HYPOTHESIS TESTING
SUMMARY, CONCLUSION AND RECOMMENDATION
The viability of an organization ca be enhanced through an effective and efficient management of material resources. Inventory control is a notable measure in managing material resources. Management of resources covers every action taken from the procurement of the resources to their disposal. Firms take certain measures towards preventing their stocks from being in shortage, pilferage and waste some of the measures are very effective while other are not.
In consideration of the scarcity raw materials, their exorbitant costs of procurement and management in the present prevailing economic condition, if is imperative for firms to do away with the rule of thumb’ approach of inventory control and adopt the scientific approach. It is on the basis of this that the need for this study lies.
1.2 THE STATEMENT OF THE PROBLEM
The goal cot every business entity is to maximize wealth. Wealth maximization is achieved when the interest of the shareholders are met. The interest of the shareholders can be met only when the business entity makes profit. Profit is said to have been made when the total revenue exceeds the total cost and expenses incurred. Effect five inventory controls are important factors in keeping the total cost of maintaining inventories at a minimum and help to increase return on the investment.
Many organizations do not adequately control their inventory making it possible for losses [through shortage of stock pilferage, waste of materials etc.) to pas unnoticed. The stores department is often neglected equivalent amount of (illiquid) cash.
Unplanned flaw of materials is determined to efficient operation. Production stoppages resulting from stock out have innumerable negative effects (costs). They lead to loss of man-hour, disappointment of customers and possible loss of goodwill.
Few manufacturing firms use scientific approach of inventory control. Many fall back on the rule of thumb. This is reasonably inaccurate. It leads in to over-stocking or under stocking over stocking entails incurring high storage spaccs and stock loss
On the other hand, under-stocking may result to panic buying and diction delay and loss of sales revenue which gives rises to be of profit and goodwill or even penalty payment where there is a conduct to maintain regular supplies.
Stock losses could occur when inventories are not properly accounted for. This may be due to type of inventory system used, the method of valuation of unused of unsold inventories at the end of valuation period and the managerial efficiency in adopting an acceptable inventory. Control when most required.
This study will look in to the nature and external of solving their problem.
1.3 THE NEED FOR THE STUDY,
Many companies are making looses while others are winding up. These gives rises to the people through that, there is inability to manage resources effectively in Nigeria. This is because these things are happening in the midst of abundant resources Ringin viewing as above stated that prudent management for our financial, materials and human resources is more important now than ever before as the economy takes a downturn. No wonder Hingren says that good inventory control helps maximizing efficiency, minimize waste, with tensional errors and fraud therefore, the reductional of wastetage is one of the must important elements of inventory planning. When a business concern minimizes waste. Unintentional errors. Fraud and maximizes efficiency, it makes profile and unfenced the ‘yields profit, that is pays back the resources employed in time and will too could be said to be viable. For viability of any business there could be said to be profit. Profit is necessary for new plants equipment, working capital and loan. Also the willingness of individuals to invest in a business is governed largely by the firms profit history and profit potentials. In many respects the welfare of all employees of a business rest on the above that the need for a research into the effect of inventory control on the viability at a company becomes obvious.
1.4 THE PURPOSE OF THE STUDY
The objective of the research is to appraise, the appreciation of inventory control principle in business organization. It is also the purpose of this to find out whether the method the companies are can be justified on the basis of found accounting principles. The study will also find out, if through the control and accruing benefits it any, the companies can be said to be making profit.
1.5 RESEARCH HYPOTHESIS
I. Ho: The system of inventory control used by company is justified on the basis of sound accounting principles.
Hi: The system of inventory control used by the company is not justified on the basis of sound accounting principles.
II. Ho: Effective inventory control enhances organizational liability.
Hi: effective inventory control does not enhanced organizational liability.
1.6 THE SCOPE OF THE STUDY
A research on the effect of inventory control on the viability a company is a very wide topic. In abid to keep the work within the limited time available the research confirmed the study to the inventory valuation methods in use in the companies and the effect of the method on the viability of a company used as the case study. The findings can be related to other company and the recommendations applied to other companies too.
1.7 RESEARCH MENTHODOLOGY
The information for this research was collected from the following sources:
a) Textbooks, magazines, Newspapers and other written work that were extensively read to provide the secondary data.
b) Interview: Many workers in the stores and accounts department were interviewed to familiarize the student with necessary facts for the research work.
c) Observation: At the companies the students made observations of the inventory valuation and control prations of the companies as they were being carried out with some explanations from the relevant staff were necessary.
d) Questionnaires: These were directed to the workers of the companies relevant sections and these provide large part of the primary data for the research.
1.9 ORGANIZATION OF THE STUDY
This study is grouped into five inter-related chapters for convenience and understanding of the research work.
Chapter one: This chapter contains an introduction to the study, statement problem, the need for the study: the research hypothesis, the limitation and scope of the study, the organization of the research study and operational definition of terms.
Chapter two : This chapter reviews related literatures. Hence, what constitutes inventory are examined and the various valuation models critically weighed. Method of inventory control is also critically looked into.
Chapter three :This shows the research methodology. It looked at the methods and procedures of data selection, data collection research design and tools data analysis.
Chapter Four : This handles statistical analysis of data. This is made up of the analysis of response and test of hypothesis.
Chapter Five: This is a summary of findings, implication of findings, recommendation and Conclusion.
1.10 OPERATIONAL DEFINITION OF TERMS
ANS METHOD: Stock control technique that divides material, parts supplies and finished goods into sub-classification and uses different control system for each classification.
GARRUING COST: Usually consists of a desired related return on the investment in inventory and costs of storage space, breakage, obsolescence, deterioration, insurance and personal property fax;
ECONOMIC ORDER QUANTITY (EOQ) Amount of inventory that should ordered at one fine so that the associated annual const of inventory can be minimized.
FIRST IN FIRST OUT (FIFO) The inventory which is acquired earliest is assumed to be first used, the inventory acquired later is assumed to be in hand still.
INVENTORY : Inventory means a schedule of items hold at a particular time for sale, production of goods and services or is in process of production of goods and services (W.T.P) Inventory is called stock, hence the two terms “stock’
LAST IN FIRST OUT: A lost flow assumption that the inventory acquired earliest is still on hand; the inventory acquired latest is used first.
LEAD TIEST: Time internal between planning an order and receiving inventory.
ORDERING COST : Clerical cost of preparing a purchase order or production order and processing and receiving cost relating to the member of order processed.
PERIODIC INVENTORY SYSTEM : System inventory the cost of good sold is computed periodically by relating solely on the physicals counts and not keeping day-to-day records of units hold or an hand.
PERPECTUIAL – INVENTORY SYSTEM : A continuous record of addition or reductions in materials, work in progress and cost of goods and services sold on a day to day basis.
PROFITABILITY : A term used to measure the relationship of profit to investment that generated the profit. It measured the effectiveness and efficiency of a firms use of resources at its disposal.
RECORD POINT : Quantity level at which a new order should be placed.
SAFETY STOCK : Minimum or buffer inventory used as a cushion against reasonable expected maximum usage.
STOCK OUT COST : Cost that include expensive spending loss of contribution margins and loss of customers good will.
VABILITIES : Here it refers to profitability and growth.
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