Topic: INVENTORY VALUATION MANAGEMENT AND CONTROL IN MANUFACTURING ORGANIZATION

Chapter One

INTRODUCTION

1.1 Background of the Study

Inventory valuation management and control involves the recording and monitoring of stock level, knowing when to place order. It also involves the timing of such orders and good knowledge of the delivery lead-time. Many decisions fall under the inventory valuation management and control like when is the best time to purchase material or merchandises which is the best way to handle materials or merchandise inventory once they are received. How should purchasing arrangement be structured? It mis aim at preventing stock out, which has serious consequences. Most organization invest a large number of inventory items, irrespective of the system of storage adopted. There must be proper management and control for stock keeping system to operate efficiently. Floor space is expensive and must be used to the best advantages. It is therefore necessary to build warehouse for storing material and provide equipment for adequate handling where shelving is not feasible, effect and economic inventory check the following caring cost. 1. Storage handling cost 2. Transport cost 3. Quantity cost 4. Appraisal cost Inventory control is an act of management, which ensure the provision of the required quantity of stock of the required quantity at the required time with the minimum amount of capital tied up. It embraces stock control procedures, placing of required order, receiving inspecting, storing and issuing. It is an important task. In the course of our study effort will be made to itemize the advantages arrived at if proper inventory control are put in place as stock is very useful part of the company’s asset. Inventory are classified into four: 1. Spare parts inventory 2. Raw material inventory 3. Work in progress inventory 4. Finished goods inventory Continuous inventory provide a great deal of information for management. Hence inventories are necessary in order to satisfy the ever-increasing need of the customers.

1.2 Statement of Problem

The problem arises from the fact that organizations (mainly manufacturing ones), base their stock control on experience, gues work and human judgmental approach other as EOQ which removes entirely all element of bias in determining stock level. Also, the determination of minimum stock level, maximum stock level, the re-order level, land-time provision, economies order quantity and other relevant model that were conspicuously ignored. The relative degree of weakness of the internal control system with respect to stock leaves much to be desired especially in the management and control of most firms. Furthermore, indiscriminate placing of orders increases the ordering cost. Also buying in bulk over and above the economic order quantity increase the holding cost. Streamlining the ordering and holding cost and proper valuation of inventories is the problem. This study is expected to solve for manufacturing companies.

1.3 Aim and Objectives of the Study

The objective of the study are as follows: 1. To evaluate the systems of internal control with respect to stock. 2. To ascertain the company’s re-order point and safety stock level. 3. To ascertain whether the cost incurred in maintain the inventory is economically justifiable in the light of profit opportunity available. 4. To ascertain the modern inventory control techniques (if any) which the company has or will apply during the period of economic recession like (SAP). 5. To determine a better approach to inventory valuation, recording and control and offer useful suggestions on how management can take decision and solve problems associated with inventories. 6. To ascertain whether the method of stock valuation can affect the company’s profit and loss and the balance sheet. 7. To ascertain whether there are proper security covering and handling stock storage and control. Proper storage condition must be maintained in order to minimize inventory bases through pilferage, damage, degeneration and careless handling. It goes without challenge that for a cost accounting system to be fully effective there must be proper design system of re-ordering materials from the time the order is place to the time the material is issued to production sold.

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