Heritage Inventory

8/20/2019 Heritage Inventory

1/83

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.


2/83


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'.


3/83


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.


4/83


CHATER ! II

COMANY ROFILE


5/83


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


6/83


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


7/83


@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 !#


8/83


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


9/83


(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


10/83


!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:


11/83


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/**


12/83


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.


13/83


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.


14/83


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:


15/83


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.


16/83


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


17/83


: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:


18/83


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.


19/83


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


20/83


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.


21/83


' M#


22/83


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:


23/83


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


24/83


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+:


25/83


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


26/83


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.


27/83


"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+:


28/83


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:


29/83


#. 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.


30/83


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


31/83


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:


32/83


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


33/83


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.


34/83


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.


35/83


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


36/83


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.


37/83


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.


38/83


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.


39/83


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


40/83


#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)+:


41/83


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


42/83


%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


43/83


"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


44/83


II. :&MME":I#* 'E


45/83


30 (E*E:TI&) &%


46/83


(egregation of indents for attending at :.


47/83


URCHASE DEARTMENT

URCHASE EN-UIRY

Ms.

S%2

No2 M#ter"#% Code De.#rt,e&t -u#&t"ty U&"t

7he&

Re8u"red


48/83


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.

•


49/83


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.

•


50/83


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:

•


51/83


3. Material specification B part number

4. Guantity

5. "ate

8.


52/83


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.


53/83


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.


54/83


•


55/83


• (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.


56/83


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


57/83


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.

•


58/83


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.

•


59/83


5

STORES DEARTMENT

ACTIVITY: REJECTED MATERIALS

• "eAected materials kept in allotted area of reAected materials.

•


60/83


• :orresponding with supplier. If the Ecise Invoice is not found with

delivery challans.

STORES DEARTMENT

ACTIVITY: RECEITS OF MEDICINES

•


61/83


CHATER ! IV


62/83


RATIO ANALYSIS


63/83


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


64/83


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


65/83


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


66/83


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


67/83


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


68/83


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


69/83


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.


70/83


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.


71/83


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


72/83


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"


73/83


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


74/83


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


75/83


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


76/83


C#%'u%#t"o& of Curre&t 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


77/83


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


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 -.-=


78/83


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


79/83


CHATER ! V

U


80/83


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.


81/83


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.


82/83


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


83/83


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+

Date post:	07-Aug-2018
Category:	Documents
Upload:	yugendra-babu-k
View:	217 times
Download:	0 times

Heritage Inventory

Documents