CHAPTER ONE

INTRODUCTION

BACKGROUND OF STUDY

Inventory valuation, management and control is the system designed by the management of a firm to control its investment in stock.

This is found to be in existence in Emenite limited Emene, which produces roofing sheets and hard boards for ceiling.  The system involves the recording and monitoring of stock levels, knowing when to place orders and how many orders to be placed.  Effective, efficient and economic inventory helps to check the following costs:-

1.                     Carrying cost which include interest on capital invested in stock

2.                     Storage charged

3.                     Store staffing

4.                     Material handling cost

5.                     Transportation cost

Since management needs information on inventory as a guide to decision making, inventory handling should not be placed on the basis of trial and error.

Material control is an act of -management, which ensures the provision of the required quantity of inventories of the required quantity at the required time.  With the minimum amount of capital tied up.  It embraces stock control procedure, placing of purchasing, receiving, inspecting, storing requirement and issuing of stocks.

            It is an important and difficult task, inventories are necessary in order to satisfy ever yawing need of customers and smooth running of an organisation, most organisation invest in large number of inventory items, irrespective of the system of storage adopted there must be place for everything are everything in it’s place for the stock weeping system to operate efficiently.

Floor space is very expensive and must be used to the best advantage.  It is therefore necessary to build warehouse for storing materials and provide things for feasible, bins racks and shelves must be provided.

 STATEMENT OF PROBLEMS

            Problems of stock valuation its management and control exist in almost all firms except service oriented organizations.  The problems arise form the fact that most organizations (mainly manufacturing companies) based their stock control on huma

n judgment approach rather than applying modern scientific models like recorder levels which removes entirely all elements of bias in determine stock levels, lead time provision, Economic order quantity (EOQ) and other relevant inventory models are conspicuously ignored.

            The relative degree of weakness of the internal control system with respect ot stock, leaves much to be desired especially in the management and the control aspect of most firms.

            Furthermore, indiscriminate placing of orders bulk over above the economic order quantity (EOG) increase holding costs.

The total of the invoice price of the inventory plus other incidental cost associated with ordering and holding cost give the value of the inventory.  Streamlining these costs and proper valuation of inventories is the problem.  This study is expected to solve for Emenite limited.

 PURPOSE OF THE STUDY

            This research is conducted to enable companies with trading and manufacturing orientation to see the effective models e.g minimum stock level, re-order level, maximum stock level, economic order quantity (EOQ) etc of inventory control and effect they have folded or wounded up because of carefree attitude towards stock control.

            It is not an overstatement to say that material cost in all organisation constitute a considerable percentage of production. Cost of such stores administration in relation to stock control should not be neglected since such stocks represent an equivalent amount invested.

            Moreover, great reliance should not be placed on the accuracy of the costing records if conditions under which such inventories are kept and not under strict control.  Hence proper storage conditions must be maintained in other to minimize inventory losses through pilferage, damage, deterioration and careless handlings.  It goes without change that for a cost accounting system to be fully effective, there must be properly designed system of re-ordering materials from the time order is placed till the materials issued to production or sold.  Where stated case is absent, excess stock of some items is likely to occur consequent unnecessary tying up of capital.

            On a more general basis, the overall purpose of the research is as itemized below:

i.                    To evaluate the system of material control with respect to stock.

ii.                  To ascertain how Emenite Limited determines her re-order point and achieve safety of stock.

iii.                To ascertain as to whether the costs incurred in maintaining the inventory and the opportunities available.

iv.                To ascertain the modern inventory control techniques (if any) which the company uses during this period of economic recession (SAP)

v.                  To determine whether sales forecast can be made with relative degree of certaninty.

vi.                To determine a better approach to inventory valuation, recording and control.

Above all, to offer useful suggestion on how management can make decisions and problems associated with inventories.

The research hypothesis is made to test the reality and correctness of the questions contained in inventory valuation, management and control in manufacturing organizations.  The research questions can only be corrected when they have tested and proved to be corrected.

      This work is designed to test the following hypothesis:-

Ho:            The Company does not use scientific method of inventory like buffer levels maximum stock level etc.

Hi:             The company uses scientific method of inventory like buffer level, maximum stock level etc.

Ho:            There is no proper security covering handling and storage of stocks.

Hi:             There is proper security covering handling and storage of stocks

Ho:            there is no procedure for receiving materials ordered.

Hi:             There is procedure for receiving materials ordered

Ho:            There are no purposes of inventory control in Emenite Enugu.

Hi:             There are purposes of inventory control in Emenite, Enugu.

 SCOPE OF THE STUDY

            This research has to do with an industrial sector known as Emenite limited Enugu.  It relates the activities and operations of the company.

The research is mainly concerned with the following:-

1.                  To investigate and find out if the company keeps appropriate internal control system in relation to inventory.

2.                  To Investigate into the purpose of inventory control

3.                  To ascertain if the method of stock valuation can affect the company’s profit and loss and balance sheets.

4.                  To investigate and find out if the company uses the scientific model of inventory control like the buffer level, maximum stock level and economic order quantity (EOQ) etc.

5.                  To ascertain there are proper security covering handling and storage of stocker.

It is strongly believed that the result, findings and recommendations pertaining this case study will apply to all other related companies in Nigeria.  That means any information divulges out of the specific scope should not be in any way regarded as unnecessary, provided it serve as an avenue of enlightening other related companies.

RESEARCH QUESTIONS

a.         Does the company uses scientific method of inventory like buffer level, maximum stock level?

b.         Is there proper security covering materials and storage of stocks?

c.         Are there procedures for receiving materials ordered?

d.         Are there purpose of inventory control in Emenite, Enugu?

RESEARCH HYPOTHESIS

On the research.

1.         LACK OF RELATED LITERATURE

            The research was able to go through some of the related literature, but the works are so out dated and are basically more of theory then practical.  Hence, the researcher was unable to finalize works than can be used to match the practical demands of the research study.

            Like the system of functions of stock controlling unit of the stock department of an organisation cannot be found in any text.

2.         ATTITUDE OF RESPONDENTS

            The knowledgeable respondents who are mainly top managers of the very few companies the research visited are not always available and if available are not easily accessible to provide the necessary information required. In addition, some who are ever accessible, deem the information too secret to be divulged probably for fear of selling their strategies to competitors.

3.         INADEQUATE FINANCE

            The research faced a lot of financial constraints due mainly to the fact that the continuous fall in the value of the Naira has made the budgeted sum for the research work so insufficient that is affected the extent of data collection, all the places mapped out to be visited were not covered due to inadequate finance.

4.         TIME CONSTRAINTS

            The fact that the study had to be undertaking along side with normal lectures the effort of the researcher, more often then not the researcher had to ignore some lecturers in other to meet up with appointments in connection with the study.

            In spite of the above-mentioned constraints, the researcher still was able to carry out on objective study to arrive at a logical conclusions.

SIGNIFICANCE OF THE STUDY

            Inventory control in modern business period, such as a month quarterly, semi-annually and annually. Inventories compromise a significant portion of the assets of many companies, hence, the valuation and presentation inventories have a considerable effect in the determination and presentation of the financial position and the result operations of those enterprises.

            The study makes it crystal clear why it is necessary for companies and individuals to control their inventories such reason as to minimize carrying, regulate the quantities of stock on hand etc.

Also, by this study an opportunity is created for existing and spective businessmen, employers and employees to benefit form the modern inventory control techniques.

            Finally, to any user of this research, the readers, it will improve a reat part, their theoretical and practical knowledge about inventory valuation, control and management.

1.10DEFINITION OF TERMS

1.         INVENTORY:- It is stock of products the company deals on or manufacturers and components that makes up the product.

2.         CONTORL:- This is the act of selling performance (expected) and monitoring actual performance against standard”.

            The primary concern in the management of stock control must be to provide the right goods in the right condition at the right price in right place at the right time.

3.         INVENTORY CONTROL:- The regulation of quantities of materials o hand in such a way as to ensure current needs which avoiding excess reserves, stock, the calculation being based on the rate of issues and time necessary for replenishment.

4.         SAFETY STOCK:-  This is the quantity of stock added to the expected demand (quantity) during the lead time to take care of fluctuations in demand and lead time variations.

5.         CARRYING COST:- This is the cost of inventory storage handling and insurance together with required rate of return in invested inventory.  This cost includes floor-space, racks, bins, security quid’s, maintenance etc.

6.         ORDERING COST:- These are entire cost of acquiring materials stock. . Generally their are costs which are incurred in requisitioning purchase ordering, transportation, receiving, inspecting and storing.

7.         STORE PRECORDS CARDS:- These are cards for each item in the stock and they show names of products, quantities  received, issued, balance and prices.

8.         BASE STOCK:- It is the minimum quantity of raw materials or other goods, without which they the company cannot operate their plaints or conduct their operations. It is at times treated as being fixed assets, which is under constant renewal by charged to revenue.