inventory store zuari-1
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this is the project report of inventory and store managementTRANSCRIPT
A STUDY ON
INVENTORY MANAGEMENT
IN
ZUARI CEMENT LIMITED, YERRAGUNTLA
A PROJECT REPORT
Submitted in partial fulfillment of therequirement for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION
Under the Guidance of
B. JAHAN
ByG.SRUTHI
(Reg.No.412109672043)Department of Management Studies
SUPRABATH P.G COLLEGE(Affiliated to OSMANIA UNIVERSITYS)
Raghavapur,BBNAGAR(2009 – 2011)
CERTIFICATE
This is to certify that the Project Report entitled “A
STUDY ON INVENTORY MANAGEMENT IN ZUARI CEMENT
LIMITD, AT HYDERABAD”, submitted to OSMANIA UNIVERSITY
HYDERABAD, by G.SRUTHI (Reg.No.412109672043) in a partial
fulfillment of the requirement for the award of the degree
of MASTER OF BUSINESS ADMINISTRATION from SUPRABATH
P.G COLLEGE, BB NAGAR is a piece of bonafide work carried
out by him under my supervision during the academic year
2009 – 11.
Mrs. B.JAHAN
PROJECT GUIDE Department of Management Studies
DECLARATION [[
I here by declare that the project work entitled “A
STUDY ON INVENTORY MANAGEMENT IN ZUARI CEMENT LIMITED AT
B.BNAGAR”, is record of independent research work. It has
been carried out by me during the period of my study and
submitted to OSMANIA UNIVERSITY under the guidance
of Mrs.B.JAHAN, E.JALJA Principal . SUPRABATH P.G
COLLEGE for the award of the degree of MASTER OF
BUSINESS ADMINISTRATION. It is my original work and has
not been submitted to any other university for the award of
any degree or diploma.
(G.SRUTHI)
ACKNOWLEDGEMENT
I sincerely thank to Mr. Ch. RAVI (Chief Accounts
Officer), Project Guide for granting me permission to do
my project in “ZUARI CEMENT LIMITED, HYDERABAD”.
There is no word to express my gratitude to my guide
Mrs. JAHAN, Head of the Department, Department of
Management Studies, SUPRABATH P.G COLLEGE, for
their expert guidance and suggestions went a long way in
enabling me to complete this project.
I convey my respectable thanks to JALJA, Principal,
other faculty members and non-teaching staff of
SUPRABATH P.G COLLEGE for giving their moral support
during the project work.
Last but not least, I would like to express my gratitude
to my parents and all of my friends for helping me with lot
encouragement without which it would not have been
possible for me to complete this project successfully.
[G.SRUTHI]
CONTENTS
CHAPTER CHAPTER TITLE PAGE .NO
1. INTRODUCTION1-4
2 INDUSTRY PROFILE
COMPANY PROFILE
5-12
13-27
3 RESEARCH METHODOLOGY
Need for the Study
Scope of the Study
Objectives of the Study
Methodology of the study
Limitations of the Study
28
29
30
31
32
33
4 DATA ANALYSIS & INTERPRETATIOM 34-61
5 FINDINGS
SUGGESTIONS
CONCLUSION
62
63
64
6 BALANCE SHEET
BIBILOGRAPHY
65-66
67
1. INTRODUCTION
Inventory Management
"Inventory" too many small business owners is one of the more visible and
tangible aspects of doing business. Raw materials, goods in process and finished goods
all represent various forms of inventory. Each type represents money tied up until the
inventory leaves the company as purchased products. Likewise, merchandise stocks in
a retail store contribute to profits only when their sale puts money into the cash register.
In a literal sense, inventory refers to stocks of anything necessary to do
business. These stocks represent a large portion of the business investment and must be
well managed in order to maximize profits. In fact, many small businesses cannot
absorb the types of losses arising from poor inventory management. Unless inventories
are controlled, they are unreliable, inefficient and costly.
Meaning of Inventory Management
Inventories are essential to provide flexibility in operating a system. The
inventory can be classified into
Raw materials Inventory – It remove dependency between suppliers and
plants.
Work-in-process – It remove dependency between machines of a product line.
Finished Goods Inventory – It remove dependency between plant and its
customers /market.
Definition of Inventory
Inventory is defined as a usable resource which is physical and tangible such as
materials. In this sense, our stock is our inventory, but even then the term inventory is
more comprehensive. Though inventory is a usable resource, it is also an idle resource,
unless it is managed efficiently and effectively.
The Main Functions of Inventory Are Summarized Below
Smoothing out irregularities in supply.
Minimizing the production cost.
Allowing organizations to cope with perishable materials.
2. INDUSTRY PROFILE
What is Cement
Cement is a mixture of limestone, gypsum, iron-ore, fly ash and bauxite\laurite.
It is fine powder which when mixed with water set to a hard mass as result of hydration
of the constitute compounds. It is the most commonly used material.
Types of cements and quality requirements
There are different types of cement based on different compositions according
to specific end uses. The basic difference lies in the percentage of clinker used. There
are nearly there varieties of cement presently existing namely.
Ordinary Portland cement (POC)
43 grades IS 8112(1987)
53 grades IS 12269 (1987)
Portland pozolona cement (PPC) IS 1489 (1976)
Portland blast furnaces slag cement (PBFSC) IS 455 (1989)
How is Cement Made
Today port land cement is as essential commodity on which our modern
standard of living is greatly dependent building, water supply projects, seaports,
airports, and irrigation scheme etc.
All demand cement
Cement is manufactured by either “wet” process or “Dry” process.
Wet process remained popular for many years with the modern development of
technique of dry mixing of powered materials using compressed air, the dry process
gained momentum.
Now a day in most of the plants, cement is being manufactured by dry process.
The raw material consisting of time stone, iron ore and bauxite or laturite, in
correct proportion are fed into a grinding mill where they are reduced to very fine
power, it is further blended and corrected for the right compositions and mixed by
means of compressed air the power from the strong silos is fed into rotary kiln through
per-heater cyclone. In the rotary kiln the material is subjected to a temperature of about
1500c. Chemical reaction takes.
Place between the various materials resulting in the formatting of cement compounds
like,
C3-tri calcium silicate (about 45%)
C2-di calcium silicate (about 20%)
C3-tri calcium aluminates (about 7 to 10%)
C4LFE-tetra calcium alumna ferrite (about 10 to 12%)
It is these compound that the impart the strength characteristics to cement at
these high temperatures of 1500c; the linker is then ground in a cement mill or ball mill
consisting of several compartments charged with progressively.
Smaller hardened balls. At this stage gypsum in required quantities is added
(generally about 2 to 3%) to facilitate easy working and prevent flash setting of cement.
The mixture is ground to the required finesse and transferred either by road or rail to
the desired destinations. Continuous monitoring of the quality of cement is exercised,
both at the raw materials stage and also at the finishing stage and also the finishing
stages with the help of x-ray analyzer etc.
History of cement :
Invention of cement by Joseph aspadin a leeds builder and bricklayer.21-10-1824 paternted as port land cement.1904 British and American standards.1912 Indian cement company ltd establish factory at porbandar.1951 Indian standards.
Industry Scenario :
Theb existence of modern civilization without cement is difficult to imagine in
cities and towns. Cement is synonymous with progress modern states. The progress
and size of cement industry in anu country industry in anu country is taken as the major
indicators growth.
Of economy when total demand is satisfied by home production.
Cement is an indicator of economy progress.
In indian, first to manufacture cement was made early in the country in the
European company is the year 1904 opened a factory in chemical “south Indian
Industries limited” for the purpose of manfacturing cement.
The real beginning of cement industry was started by the formation of Indian
cemenmt ltd. In 1914 under TATA’s management.
The Indian cement company started manufacturer of cement at porbandar on a
laerge scale total world production of cement is to around 1400 million tones. Asia is
largest consumer (59%) followed by Europe and Am erica. The concentration if lime-
stone deposits in few states has led to the formatting of cement plant cluster seven
location in India such as Silapur, Santa, Chandrapur, Gulbarga, Chanderia, Nalgonda
and Yerragunta, 74% of total limestone reserves are in the sates of A.P, Karnataka,
Rajasthan and Gujarat.
The largest producer in terms of installed capacity Is Birla group (above 25%)
followed by associated cement (11%) India is the world’s fourth largest cement
producer after china, Japan and U.S.
Production Process :
Cement is produced in four basic stages.
Quarrying and crushing.
Grinding and blending raw materials
Clinker production
Finish grinding
Recent acquisition :
In last four years the following cement units have been sold.
COMPANY ACQISITIONED
Narmada cement - Ultra tech cement ltd
Midi cement - Gujarat ambuja cement
CCI Raasi cement ltd - ICL
Sri Vishnu cement ltd - Zuari cement ltd
Sri Digvijay - Birla tisco Raymond ltd
Cement division - Lafarge
The Indian Cement Industry at present consists of 53 large cement companies
and 113 plants varying between 1MT TO * MT in addition the country has nearly 150
mini cement plants with a cumulate capacity of almlost 10MT.
Major Players in the cement industry are
Andhra cement ltdUltra tech cement ltdMadras cement ltdBirla corporation ltdGujarat ambuja cement ltdKesoram cement ltdTamilnadu cement ltdZuari cement ltd
Significance of cement :
Cement is major of every human being in their lives to building constructions,
roads, dam & bridges etc. The quality of cement playa an important role for
construction of slabs, walls floors, pillar, tanks etc.
Basic ingredient to construction of work.Generation of employment.Contribution to national exchequer.Helpful in development of other industriesEnhancement in national income.Huge export potentials and quick marketability’s“Cement industries has Rs.15000 crores debt” the cement industry has an
investment value of about Rs 30,000 crores out of which almost Rs 15,000 cr is in the
form of debt from financial institutions(FIS) and banks. The industry has been posing
an annualized loss in excess of Rs 1,000 cr.
Nearly 30 cement companies are in red out of which more than a dozen have become
bureau to industrial and financial reconstruction(BIFRI) cases.
Many cement units in the country are here by seeking buyers.
2.1 COMPANY PROFILE
Zuari cement was divisin of zuari industry ltd, a company promoted by the
house of bilas and us multinational giant USX having its. Register office at Krishna
nagar, Yerragunta, Kadapa district. The company is a part of the 45,000 crores K.K.B
irla group having primary interest in fertilizer, agro input, furniture, engineering
services, home finance etc.
The cement division was formed after acquisition of cement plants of 0.5 to 1.7
MTPA at a capacity from MIS Texaco ltd. (another K.K Birla Company) in february
1999 and the commercial production commerced from february 1999. The expanded
capacity has already stablized and the plant capacity was increased to2.2 MTPA from
1.7 MMT.
Zuari cement ltd has been hived off as Aspirate company group with 50:50
shareholdings by zuari industries ltd. Italic cement group with effect from head
quarters at Bangalore.
Zuari and italic cement group have formed a joint venture with 50:50 equity
sharing. The zuari cement business got transferrewd to the joint venture company viz.
Zuari cement ltd; it is projected to increase the current capacity of 2.2MTPA to a level
of about 8MTPM in spam of 2 to 4 years.
Zuari cemetn ltd divide into italic cement ltd. Sri vishnu cement ltd join the
zuari cement ltd.
Zuari Industry ltd, (zil) formally zuari agro chemicals ltd incorporated in 1967
promoted by K.K.Birla and US steel corporation. The company has its fertilizer units
at Goa. Which comprises a area plant of 0.34 MTPA capacity and an ammonia plant
with 0.22 capacities. Both these plants were commissioned In 1973. In the year 1987
the company pomoted chamber feritilizers and chemicals ltd. Zil manufacture
nitrogenous and phosphates fertilizer and also was diversified into manufacturer and
sale of cement, furinture, seeds, bio pesticides.
Later in 1994, zuari entered into an agrement with Toxamaco ltd a group
company was the competitive advantage of being situated in product deficit area-
sothern India and also has the added benefit to proxomity to limestone reserves.
During FTOO, the company decided do give off the cement divisio into a
separate company ZUARI cements ltd and concentrate on its core business. To
accelarate the growth and achieve capacity additions quickly. Location of ZCL.
The plant is located at a distance of 6km from Yerragunta and this plant is
connected to railway station by a railway track of 7km length and is having exchange
point inside the factory.
Raw Materials consumed and their sources :
Raw materials Source
Limestone Mines near factory
Literate kavali
Iron Ore Bellary
Bauxite Goa
Gypsum Chennai
Coal Singrains collieries
Shale Koduru village
Fly ash Dppll, locl
Varities of cement :
The company produces 2 grades of cement 43 grades53 grades with following benefist Higher compressive time Lesser heat if hydrationReduction construction timeBetter soundnessWelfare servicesTele communicationsPostal facilityTransportationHousingPark and clubSchoolCanteen facilityGuest’s houseHealth centerCompetitions to ZCL
Madras cement ltdGrasim cement ltd
India cements ltdUltra tech cement ltdPenna industry ltdCorporation marketing office
The company has its corporate marketing offices at chennai with branches at
Hyderabad, cochin, bangalore and panaji(GOA).
Increase in authorized share of the company was increase from 1550 million to
Rs2700 million to facilities further issue of 10,60,00,000, share @ 10/- each in the
capital of the company to the promoters’ viz. MIS ZUARI industries ltd and MIS
cements francis S.A France in the ratio fo 50-50 during the share holders meeting help
during the year.
SHARE CAPITAL :
Table 2.1 shows the share capital
PARTICULARS 2006-07 2007-08 2008-2009 2009-10
Share Holders
Fund
64693 64693 64693 64693
Debt-long Term 27130 28089 27198 25198
Total Share capital 91823 91782 91891 89891
Graph 2.1 share capital
Table 2.2 BRAND VALUE :
Rs in millions
PARTICULARS 2006-07 2007-08 2008-2009 2009-10
Revenue 31954 29257 33024 40147
Profit 11756 14504 16609 14344
Graph 2.2 brand value
PRODUCT PROFILE
Zuari Cement manufactures and distributes its own main product
lines of cement .We aim to optimize production across all of our markets,
providing a complete solution for customer's needs at the lowest possible
cost, an approach we call strategic integration of activities.
Cement is made from a mixture of 80 percent limestone and 20
percent clay. These are crushed and ground to provide the "raw meal", a
pale, flour-like powder. Heated to around 1450° C (2642° F) in rotating
kilns, the "meal" undergoes complex chemical changes and is transformed
into clinker. Fine-grinding the clinker together with a small quantity of
gypsum produces cement. Adding other constituents at this stage produces
cements for specialized uses.
Zuari Cements range of cement
Zuari Superfine Cement
Zuari 43 Grade Cement
Zuari Superfine P53 Cement
PPC Superfine
Quality Parameters Of Zuari Superfine Cement
TestPhysical Properties
Zuari Superfine
BISI 489 -(Part-1):1991
FINENESSSetting Surface M2/Kg 350.0 300.0
SOUNDNESSLechatlier Method (mm) Auto clave (%)
1.00.02
Not more than 10Not more than 0.8
SETTING TIMEInitial minutesFinal minutes
120-140200-220
Not less than 30Not more than 600
COMMPRESSIVE STRENGTH MPa3days 7days28days
38.0 47.060.0
Not less than 16.0Not less than 22.0Not less than 33.0
CHEMICAL REQUIREMENTSLoss of ignitionInsoluble residueMagnesium OxideLime saturation factorSulphuric AnhydrideAlkalisChloridesDeclared % of fly ash used
1121.31.3-0.01 (X) 15%
Not more than 5%X + 4.0(100-X)/100X= Declared % of Fly ash % will notvary more than +- 3.0%
Not more than 6%Not more than 3%Not more than 0.05
3 INVENTORY MANAGEMENT
3.1 INVENTORY MANAGEMENT – INTRODUCTION :
Inventories cost account for nearly 55 percent of the cost of production, as it is
clear from an it essential to esatablish suitable procedures for proper control of
materials from the time of purchase order placed with supplier until they have been
consumed properly and accounted for.
Definition :
The term inventory refers to assets, which will be sold in future in the normal
course of business operations. The assests, which the firm stores as inventory in
anticipation of need, are raw materials, work-in-progress/process, and finished goods.
Inventory often constitute a major element of a total working captial and hence
it has been correctly observed, ‘Good inventory management is good financial
management’.
Inventory control is a system, which ensures the provision of the required
quantity at the required time with the minimum amount of capital inventories are the
second largest asset category for the manufacturing firms next to plant and equipment.
Inventory control includes scheduling, the requirements, purchasing, receving
and inspecting, maintainig stock records and stock control. Inventory control is a
matter of coordination. A proper material control helps in improving theinput-output
ratio.
ZUARI CEMENT LTD DIVISION :
TOTAL INVENTORY TREND :
Table 3.1 Total inventory trend
PARTICULARS
A) Raw Material (at cost*)
2006
132
2007
167
2008
168
2010
311
B) work in process (at cost*) 288 178 128 241
c) Finished goods (at cost*) 633 280 236 422
Total 1053 625 532 974
Graph 3.1 total inventory trend
3.2. TYPES OF INVENTORIES :
Inventories play a major role in a business or company depending on nature of
the business. The inventories may be classibfied as under.
(i) Raw materials :
The raw material s include the materials, which are used in the production
process, and every manufacturing firm has to carry certain stock of raw materials in
stories. These untis of raw materials are regularly issued or transferred to production
department for production operations. Inventory of raw materials are held to ensure
that the production is not intrerrupted by storage of theese materials.
Amount of raw materials to be kept by a firm depends upon number of factor,
including the speed with which raw materials can be ordered and received. Its purpose
is to uncouple the production function from the purchasing function i.e. to make these
two functions independent of each other so that delay in procurement of raw-materials
do not cause production delays and the firm can satisfy its need for raw-materials out of
the inventory lying in the stores.
Raw material at ZUARI CEMNET Division :
Table 3.2 raw materials
Particulars 2006-07 2007-08 2008-2009 2009-10
Raw material (at cost *) 132 167 168 311
Graph 3.2 raw materials
Work In Process / Process :
It refers to the raw matrerials engaged in various phased of production process.
The degree of completion may be varying for different units some units may be 40%
finished, or some oter 90% completed. The value of work in progress involves material
costs, the direct wages expenses already incurred and the overheads if any. So, work in
progress inventory contains partially produced or completed goods. The purpose of
work-in-progress inventory is to uncouple the various operations in the production
process, so that machine failures and stoppage in operations will not affected by one
another.
Work in process at ZUARI CEMENT Division
Table 3.3 work in process
Particulars 2006-07 2007-08 2008-2009 2009-10
Work in process(at cost *) 288 178 128 241
Graph 3.3 work in progress
ii) Finished Goods :
In trading firm purchase where as in the manufacturing firm produce or process
the goods. However, it may be. These are goods that are either being purchased by the
firm or are being produced or processed in the firm. These are just ready for sale to
customers. Inventory of finished goods arise because of the time involved in
production process and to meet customers demand promptly. If the firms do not
maintain a sufficient finished goods inventory, they run the risk of `osing sales due to
customer dissatisfaction. The purpose of finished goods is iventory is to uncouple the
production and sale can be made directly out of inventory.
Finished Goods at ZUARI CEMENT Division :
Table 3.4 finished goods
Particulars 2006-07 2007-08 2008-2009 2009-10
Finished Goods(at cost*) 633 280 236 422
Graph 3.4 finished goods
S
FINISHED GOODS
3.3 NEED FOR INVENTORY CONTROL:
If a cost accounting system is to be effective there must be a proper control of
inventory and supplies form the time orders are placed with suppliers until they have
been effectively utilized in production.
Materials are equivalent to cash and they make up an important part of the total
cost. It is essential that materials should be properly safeguarded and correctly
accounted. Proper control of material can make a substantial contribution to the
efficiency of a business. The success of a business concern largely depends upon
efficient purchasing, storage, consumption and accounting.
In a large firm the planning and routing department is responsible for arranging
how and where the work is to be done and issue instructions. It sets definite time
schedules so that necessary materials are delivered to the proper department in proper
time not too long before hand neither lest it should interface with other work nor after
they are required as this result in idle time.
Business firm keep inventories for different purposes. Every firm big or small
trading or manufacturing has to maintain some minimum level of inventories. Based
on some motives the inventories are maintained.
a. Transaction motives:
Every firm has to maintain some level of inventory to meet the day-to-day
requirements of sales, production process, customer demand etc. In this finished goods
as well as raw material are kept as inventories for smooth production process of the
firm.
b. Precautionary motive:
A firm should keep some inventory for unforeseen circumstances also like loss due
to natural calamities in a particular area, lay outs etc so the firm must have some
finished goods as well as raw-materials tc meet circumstances.
c. Speculative motive:
The firm may be made to keep some inventory in order to capitalize an opportunity to
make profit due to price fluctuations.
3.4 REASONS AND BENEFITS OF INVENTORY:
The optimal level of maintaining inventory is a subjective matter and depends upon
the features of a particular firm,
(i) Trading firm:
In a case of trading firm there may be several reasons for holding inventories because
of sales activities that should not be interrupted. More over it is not always possible to
procure the goods whenever there is a sales opportunity as there is always a time gap
required between purchase and sale of goods. Thus trading concern should have some
stock of finished goods in order to under take sales activities independent of the
procurement schedule.
Similarly, a firm may have several incentives being offered in terms of quantity
discounts or lower price etc by the supplier of goods. There is trading concern
inventory helps in a de-inking between sales activity and also to capitalize a profit of
opportunity due to purchase made at a discount will result in lowering the total cost
resulting in higher profits for the firm.
(ii) Manufacturing firm:
A manufacturing firm should have inventory of not only the finished goods, but also of
raw materials and work-in-progress for following reasons.
a) Uninterrupted production schedule :
Every manufacturing firm must have sufficient of raw materials in order to have the
regular and uninterrupted production schedule. If there is stock Out of raw materials in
order to have the regular and uninterrupted production schedule.
If there is stock out of raw material at any stage of production process then the
whole production may come to a half. This may result in custom dissatisfaction as the
goods cannot be delivered in time more over the fixed cost will continue to be incurred
even if there is no production.
Further work-in-progress would let the production process run smooth. In most
of manufacturing concerns the work in progress is a natural outcome of the production
schedule and it is also helps in fulfilling when some sales orders, even if the supply of
raw-materials have stopped.
b) Independent sales activity :
Inventory of finished goods is required not only in trading concern but
manufacturing firms should also have sufficient stock of finished goods. The
production schedule is a time consuming process and in most of the cases goods cannot
be produced just after receiving orders. Therefore, every firm has to maintain
minimum level of finished goods in order to deliver the goods as soon as the order is
received.
3.5 ESSENTIALS OF INVENTORY CONTORL:
The important requirement requirements of Inventory control are:
a) The proper co-ordination among the departments involved in buying, receiving,
inspecting, ciorage, consuming and accounting.
b) Centralization of purchasing under the control of competent buyer whenever
possible.
c) Proper scheduling of material requirements.
d) Proper classification of materials with codes, material standardization and
simplification.
e) The operation of a system of internal check to ensure that all transactions
involving materials and equipment are checked by properly authorized and
independent persons.
f) The storage of materials is well planned and kept in properly. Planned and kept
in properly designated location, subject to adequate safeguard and supervision.
g) The operation of a system of perpetual inventory so that it is possible to
determine at any time, the amount and value of each kind of material in stock.
h) A suitable method of valuation of materials is essential because it affects the cost of
jobs and the value of closing stock of materials.
3.6 Objectives of Inventory Control:
The main objectives of inventory control are:
I. The maintain a large size of inventory for efficient and smooth production
and sales operation.
II. To maintain a minimum investment in inventories to maximize profitability.
III. To ensure a continuous supply of raw materials to facilitate uninterrupted
production.
IV. To maintain sufficient stocks of raw materials in periods of short supply and
anticipate price change.
V. Maintain sufficient finished goods inventory for smooth sales operation and
efficient customer service.
VI. Minimize the carrying cost and time.
VII. Control investment in inventories and keep it an optimum level.
3.7 Advantages and disadvantages of Inventory Control:
The following are suggested advantages:
I. Eliminates wastage in use of material.
II. It reduces the risk of loss from fraud and theft.
III. It helps in keeping perpetual inventory and other records to facilitate the
preparation of accurate material reports to management.
IV. To reduce the capital tied up in inventories.
V. It reduces the cost of storage.
VI. It furnishes quickly and accurately the value of materials used in various
department.
VII. It prevents delays in production due to lack of materials by supplying,
Proper quantities at the right time.
Disadvantages of Inventory control:
Every firm has to maintain optimal level of inventories. It not the following will be
the result in form of losses.
I. Opportunity cost: every firm has to maintain inventory for that some
investment is needed it is know as opportunity cost and handle the
investment in inventory are more the funds are blocks up with inventory.
II. Excessive inventories: it will lead to firm losses due to excessive carrying
costs and the risk of liquidity. It is also referred as danger level.
III. Inadequate inventory: it is another danger which results is production hold-
up and failure to meet delivery commitments. In adequate raw materials
and work-in-process inventors will results in frequent production
interruptions. It finished goods are not sufficient customers may shifts to
competitors.
IV. Danger due to physical decoration: It is one of the reason with the
inventories due to maintaining stocks at high levels they will be deteriorated
due to passage of time, some times due to mishandling or improper storage
facilities.
Costs involved in inventory:
Every firms maintains inventory depending upon requirement and other features of
firm for holding such inventory some cost will be incurred there are as follows.
a) Carrying cost :
This is cost incurred in keeping or maintaining an inventory of one unit of raw
materials, work-in-progress or finished goods. Here there are two basic cost involved.
i) Cost of storage :
It includes cost of storing one unit of raw materials by the firm. This cost may be for
the storage of materials. Like rent of spaces occupied by stock, stock for security, cost
of infrastructure, cost of insurance, and cost of pilferage, warehousing costs, handling
cost etc.
ii) Cost of financing:
This cost includes the cost of funds invested in the inventories. It includes the
required rate of return on the investments in inventory in addition to storage cost etc.
The carrying cost include therefore both real cost and opportunity cost associated with
the funds investment in the inventories. The total carrying cost is entirely variable and
rise in directly proportion to the level of inventories carried.
Total carrying cost = (carrying cost per unit) x (Average inventory)
b) Cost of ordering :The cost of ordering includes the cost of acquisitions of
inventories. It is the cost of preparation and execution of an order including
cost of paper work and communicating with the supplier.
The total ordering cost is inversely proportion to annual inventory of firm.
The ordering cost may have a fixed component, which is not affected by the
order size: and a variable component, which changes with the order size.
Total ordering cost = (No of orders) x (cost per order)
(c) Cost of stock out:
It is also called as hidden cost. The cost is the situation when the firm is not
having units of an item in stores but there is a demand for that item either for the
customers or the production department. The stock out refers to zero level inventories.
So, there is a cost of stock out in the sense that the firm face a situation of lost sales or
back orders. The stock outs are quite often expensive. Even the good will of firm also
be effected due to customers dissatisfaction and may lose business in case of finished
goods, where as in raw materials or work in process can cause the production process
to stop and it is expensive because employees will be paid for the time not spend in
producing goods.
The carrying cost and the ordering cost are opposite forces and collectively.
They determine the level of inventors in a firm.
Total cost = (cost of items purchased) + (Total carrying and ordering cost)
3.8 valuation of Inventory:
The methods of valuing inventory are combination of the actual of cost and
replacement cost plans. The chief advantage of the cost or net realizable value rule is
that it is conservative. Hence the methods of valuation of inventory are quite
independent of system of mincing.
In balance sheet closing stock is shown under current assets and is also credited
to manufacturing or trading accounts. The inventories are valued on the basis as
follows.
Cost of raw materials is stock may include freight charges and carrying cost. But such
cost should not exceed market price.
Work-in-process is generally valued at cost, which includes cost of materials, labor.
And the proportionate factory overhead, as it is reasonable according to degree of
completion,
Cost of finished goods wound normally to be total or full cost it includes prime cost
plus appropriate amount of the overhead. Selling and distribution cost is deducted on
the hand work in progress.
Purchases and stores procedure:
In inventory management the purchase department, stores department plays a
major role to be the effective inventory there must be cooperation of various
departments such as purchase, receiving and inspections, stores, production and stock
control departments.
The main functions of each department are as follows.
1) Purchase departments:
It is responsible for purchase of all necessary goods of proper quality to
purchases, without interruption to supply the finished goods.
It receives purchase requisitions.
Invites quotations or tenders from suppliers with desired quality.
Issue purchase orders to the selected supplier.
Certify the quality and quantity of order received in specified time.
Approve purchase invoice for payment after checking invoice for paying after
checking prices and extensions if any needed.
Material Cost:
Materials cost of a job or cost unit can be ascertained by multiplying the
quantity consumed for the job or cost unit by the price of the materials. For ascertaining
the quantity consumed for each job or cost unit we have devised material requisition
which will indicate the quantity required for the job and the job number against which
the material cost will be change directly.
For indirect material issued the material requisition will not indicate the job
number but the cost center number will be indicated for charging to relevant cost center
as indirect materials.
Thus in order to ascertain material cost;
I. Make valuation of purchase.
II. Make use of proper valuation of material issue and closing stock following
different method such as, FIFO, LIFO WEIGHTED AVG.etc.
The purchase price of material is directly obtained from the suppliers receives and
have to be issued to production before the invoice of materials is received.
The rate per unit, total price of the item as shown in the purchase order plus sundry
charges such as delivery and forwarding charges sales tax, duty etc, may be suppliers,
governments controlled prices by notifications, suppliers, catalogues and circulars may
be valuable guides for obtaining rates of materials. Delivery charges may be estimated
with reference to the kind of transport with charges incurred.
The price may also include sales tax, excise duty, fright etc, so the total cost and
rate per unit can be computed and entered in the stores received registered and posted
to stores ledger for the issue of material to production.
In some cases material needs adjustment for any discount allowed: charges for
transport containers etc.
Discounts may be like trade discounts quantity discount, cash discounts etc.
Transportation and storage costs may not include the cost of air, sea on land transport
and other stores costs, where the purchases has to bear the costs. Cost of containers
with regard may not make a separate charge because of non refundable and also sales
tax, excise duty, insurance etc., all the items are added to purchase price.
2) Receiving and inspection department:
Receiving all raw materials and other suppliers from various suppliers.
Verify items by count, weight etc., and report any shortage.
Inspect materials and supplied as to quality by analyzing them suitably.
Inform the purchasing department and accounts department all facts that may
require adjustment with vendor.
Analyze and give them the code depending up on the type of materials.
3) Stores keeping department:
Check and accept all materials from the received department
Identity each material received with the stock list, check the code number and
place in the respective bins.
Issue materials and supplies for use upon presentation of authorized
requirement.
Record quantities received and issued on bin lards or stock ledger cards
consisting the perpetual inventory records.
4) Production departments:
a) Make out materials requirement note i.e. requisition of requisite quantity and
quality of materials at the right moment so the all materials may be available without
delay on production.
Check and verify that the materials of requisite quantity and quality have been
received and charged to production.
Keep proper records of materials received and their progress through different
operations or progress.
Prepare materials return note for excess materials.
Prepare materials transfer note to cover any transfer of materials.
Prepare report on scrap for reporting to management.
5) Inventory control department:
In may be a subdivision of the cost accounting department, although in many concerns,
it is a part of the stores keeping department.
It keeps perpetual inventory records.
Adjust the stock on receipt of the property authorized adjustment notes.
Prepare weekly or monthly, statements of receipts, issue, balance and average
consumption of materials both in terms of quantity and value.
3.9RECEIPT AND ISSUE OF INVENTORIES:
a) Receipt of Inventories in to stories :
After incoming materials have been examined and approved they are passed on
to the appropriate stores together with the goods received note. Articles are inspected
and passed and on the stores in the usual way. In order to keep the accounting
procedure uniform, it is desirable that a goods received note be prepared for these
articles also: The store keeper then places the inventory in appropriate bin or shelf and
makes necessary entries in the receipt column of the Bin card.
A location code for materials helps in proper store – keeping with greater
efficiency, because stores can be easily identified. It is a part and parcel of stock control
procedure. Location code helps in mechanized accounting and safeguard against
omission in counting as verification.
BIN CARD
DESCRIPTION MAXIMUM LEVELMATERIAL CODE MINIMUM LEVELLOCATION CODE ORDERING LEVELBIN NO ORDERING QUANTITYSTORES LEDGER NO UNITS
Table 3.5 stores ledger account
Receipts Issues Balance AuditDate Goods
Received Note No.
Qty(Units)
Date Requisition note no.
Qty(Units)
Qty(Units)
Initial & Date
BIN CARD:
For each kind of materials or article a bin card is attached to the bin on which
each individual’s material is stored. A bin card provides a running record of receipts,
issues and stock in the simplest form. An entry will be made at the time of each receipt
or issue a new balance will be extended.
These cards should agree with the quantities entered in the relevant accounts in
the stores ledger. The main advantage is to enable the stores keeper purchase
requisition further suppliers the ordering level has been reached more over they provide
on independent check on stores ledger and anciently a second perpetual inventory. If
the bin card is from three years then the transactions are made in same card. If bin card
does not exist new bin card to be opened.
Issues of materials to be stores:
The storekeeper issue materials on receipt of proper authorized document
usually called a materials requisition is a document which authorities and records the
issue of materials for use. The materials requisition details the items required for use
showing the quantity, description, code or past number and the cost center of job to be
charged. Requisition is normally prepared in triplicate; the department receiving the
goods retains one copy and the other two copies are handed over to the two copies are
handed over to the storekeeper. He keeps one along with him and enters on the issue
sides of the appropriate bin card day-to-day transactions are noted in stores ledger.
Stores ledger:
The stores ledger which is usually a loose leaf or card type, contains an account
for each class of materials their ledger is kept in the cost department and contains such
information as well facilities the ascertainment of all details relating to the materials in
the minimum of time.
STORES LEDGER ACCOUNT
FORM NO : FOLIO
MATERIALS : MAXIMUM LEVEL:
GRADE : MINIMUM LEVEL:
UNITS : ORDERING LEVEL:
CODE NO : ORDERING LEVEL:
LOCATION:
Table 3.6 stores ledger account
Date CSR /
STO
No .MIR
No.
Production
Order No. /
Section
Receipts & Issue
Quantity
In Out Balance
Materials retuned to stores:
Where materials are issued in excess of requirement the excess quantity is
return to the stores together with materials Return note.
Since the materials return to store from a works order is a reduction in the
amount recorded as issued, the preferable entry is to enter the number of units and the
value of materials returned and received in a different work in the issue column of the
stores ledger account. These values are deducted from total issues, and amount
returned by each department. In enterprises where return of materials to stores return
of material to stores is a major problem it is customary to use a materials and supplies
journal for keeping records of items.
MATERIAL RETURN NOTE
FROM:
DEPARTMENT:
JOB NO: NO:
ORDER NO: DATE:
Table 3.7 material return note
Qty Description Code No. Office Use Only RemarksRate
Amount
Approved By
ReturnedBy
Received by Bin No.,StoresLedgerFolio No.
Cost officerRef.No.
Priced by
MATERIAL TRANSFER NOTE
NO. DATE:
FROM TO:
DEPARTMENT DEPARTMENT:
JOB NO: JOB NO:
ORDER NO: ORDER NO:
Table 3.8 material transfer note
Qty Description Code No. Office Use Only Remarks
Rate
Amount
Approved
By
Returned
By
Received by Cost Ref.
No.
Officer Priced by
4) Transfer of Materials:
Transfer of materials from one job to another is prohibited unless the detail is
adequately recorded on the materials transfer note. Such transfer is permissible only
where an urgent order has to be made and work started on a less urgent order and
debiting the cost accounts affected. These note are passed direct to the cost office for
the appropriate adjustment in the work-in-progress ledger.
All these four notes including stores ledger and bin card are major for inventory
management which are valued and checked for every Quarterly or Half yearly or
Annually.
Valuation of Materials Issues:
The fixation of the price at which the materials art issued are to be charged to
production is an important one from the point of view to Inventory management. These
are numerous factors to be taken into amount in pricing the material they are.
a) The nature of the business and type of production. The frequency of purchase
price fluctuations and issues of materials.
b) Range of price fluctuations and value of material issued and size of bath of
materials issued.
c) Requirement that purchasing efficiency should be revealed or not.
d) The accuracy with which issues can be computed.
e) The durability of stock i.e. whether it evaporates, absorbs, moisture or
deteriorates quickly.
f) The length of inventory turnover period and quantity of material to be handled
with the necessity for maintaining uniformity within an industry.
ISSUE PRICING METHODS:
There are two categories:
(i) Cost prices :
a) FIFO(first in first out)
b) LIFO(last in first out)
c) Specific price
d) Base stock price
e) HIFO (highest in first out)
(ii) Derived from cost prices:
a) Simple average price
b) Weighted average price
c) Periodic simple average price
d) Periodic weighted average price
e) Moving simple average price
f) Moving weighted average price
(iii) Notional prices :
a) Standard price
b) Inflated price
c) Re-use price
d) Replacement price
First in First out (FIFO)
This is the price paid for the material first taken into stock from which the
material to be priced could have been drawn.
Under this method stocks of materials may not be used up in chronological
order but for pricing purpose it is assumed that items longest in stock ate used up
first. The method is most suitable for use where in material is slow-moving and
comparatively high unit cost.
Advantages:
(i) Price is based on actual cost and not on basis of approximations such as no
profits or losses arises by reasons of adopting this method.
(ii) The resulting stock balance generally represents fair commercial valuation
of stock.
(iii) It is based on traditional principles.
Disadvantages
(i) The number of calculations in the stores ledger involved tends to be
complicated with increase in clerical error.
(ii) The cost of consecutive similar jobs will differ if the price changes
suddenly.
(iii) In times of rising prices, the charge to production is unduly low as the cost
of replacing the material will be higher.
Last In First Out (LIFO) :
This is the price paid for the material last taken into stock from which the
materials to be priced could have been drawn. This method also ensure material being
issued at the actual cost. Its use is based on the principal that costs should be as closely
as possible related to current price level. Under this method production cost is
calculated on basis on replacement cost.
Advantages:
(i) Production is charged at the most recent prices so that it is based on the
principle that cost should be related to current price levels.
(ii) It obviates the necessity for continuously made by using this method.
(iii) Neither profit nor loss is usually made by using this method.
(iv) In the times of rising prices there is no wind fall profit as would have been
obtained under FIFO method.
Disadvantages:
(i) Needs more clerical work.
(ii) Compassion among similar jobs is very difficult.
(iii) Stock values relating to prices of the oldest cost on hand may be entirely out
of the current replacement prices.
Weighted average price:
This is the price which is calculated by dividing the total cost of material in the
stock from which the material in the stock. This method differs from all other methods
because here issue prices are calculated on receipts of materials and not on issue of
materials. Thus as soon as new price is calculated and issues then taken.
Advantages:
(i) This method is advantages where the price varies widely as its use even out
the defect of these wide variations.
(ii) The basis of price calculations is a simple one involving only the division of
total amount of material in stock by quantity in stock.
(iii) Calculation of new prices arises only when receipt of stocks are received.
(iv) Stock records under this method give a fair indication of the stock values,
which can be used in financial analysis.
Disadvantages:
This method is completed than simple average because it takes into consideration
the total quantities and total costs in stock.
(i) Profit or loss may be incurred as in simple average prices.
(ii) As LIFO or LIFO this method calls for many calculations.
(iii) In order to calculate the accurate value of issues the average price must
normally be calculated to four to five decimal places.
Standard Price:
It is the predetermination of fixed price on basis of a specification of all factors
affecting price like the quantity of materials in hand and to be normally purchased and
rate of discount compared with existing price including or excluding freight and ware
expense.
A standard price for each material is set and the actual price paid is compared
with standard. It is paid exceeds the standard a loss will be realized if not profit will be
obtained.
Advantages:
(i) This method is easy to operate.
(ii) Comparing the actual prices with the standard price will determine the
efficiency of purchase department.
(iii) The effect of price variations is eliminated from the costs.
(iv) It reduces of inflation or price fluctuations is very difficult to fix a standard
price.
(v) The method also incurs a profit or loss on issues and closing .
NEEDS FOR THE STUDY
Materials are equivalent to cash and they make up an important part of the total
costs. It is essential that materials should be properly safeguarded and correctly
accounted. Proper control of material can make a substantial contribution to the
efficiency of a business. The success of a business concern largely depends upon
efficient purchasing, storage, consumption and accounting.
SCOPE OF THE STUDY
The study is done on inventories held by zuari cement ltd. The scope of the
study includes the ABC analysis of raw materials, WIP and finished goods for four
financial years. The study provides insight to the management of high vale items and
also brings attention of management towards movement of a class items over period of
4 years.
OBJECTIVES OF THE STUDY
To understand inventory management procedures followed zuari cement ltd.
To review the ABC analysis and understand the impact of business dynamics on
inventory.
METHODOLOGY
Information is collected form primary and secondary sources
Primary Data:
The data has been gathered through interactions and discussion with the
executives working in the division. Some important information bas been gathered
through couple of unstructured interviews of executives.
Secondary Data:
Referred standards texts and reference books for collecting the information
regarding the theoretical aspects, of the topic.
Annual reports and other magazines published by the company are used for
collecting the required information.
LIMITATIONS OF THE STUDY
Since the study covers only zuari cement ltd, it does not represent the over all
scenario of the zuari industry.
The period of the study is limited to 45 days.
TECHNIQUES OF INVENTORY CONTROL:
Main problems in inventory management are to answer.
(i) Are all items of inventory important if not what are items to given more
importance?
(ii) What should be the size of the order for replenishment be placed?
(iii) What should be the over level?
To answer these following techniques are used,
ABC Analysis
1) ABC Analysis:
It is based on proposition that
(ii) Managerial items and efforts are scare and limited
(iii) Some items of inventory are more important than others.
1)ABC Analysis:
ABC Analysis classifies various inventory into three sets or groups priority and
allocates managerial efforts in proportion of the priority the most important item are
classified into classified into classes-A, those of intermediate importance are classified
as “class-B” and remaining items are classified into class-C.assume these three classes
A, B, C are A-blended cement, B-Portland cement, C-premier cement.
The financial manager has to monitor the items belonging to monitor the items
belonging to different groups in that order of priority and depending upon the
consumptions.
The items with the highest value is given tcp priority and soon and are more
controlled them low value item. The re-rational limits are as follows.
Category % of Items %of total materials cost
A 5-10 70-85
B 10-20 10-20
C 70-85 5-10
* A-Blended Cement,B-portland cement,C-premerier cement
Procedure:
(i) Items with the value is given top priority and soon.
(ii) There after cumulative totals of annual of consumption are expressed as
percentage of total value of consumptions.
(iii) Then these percentage values are divided into three categories.
ABC Analysis helps in allocating managerial efforts in proportion to
importance of various items of inventory.
ABC Analysis at ZUARI CEMENTS Division:
Table: RAW MATERIAL (AT COST*) *Rs In millions
Particulars 2007 2008 2009 2010
Raw Material (at
cost*)
132 167 168 311
A 70% 92 69% 14 72% 120 70% 218
B 20% 26 23% 38 19% 32 17% 53
C 10% 14 8% 14 9% 16 13% 40
Interpretation:
Consumption of raw material A(blended cement) gradually increased every year
from 2006 to 2010, raw material B’s(Portland cement) consumption increased from
2006 to 2007 and decreased thereafter and raw material C’s(premiere cement)
Consumption increased gradually every year from 2006 to 2010.
Table 4.2WORK IN PROCESS (AT COST*)
*Rs In Millions
Particulars 2007 2008 2009 2010
Work in process(at
cost*)
288 178 128 241
A(blended cement) 70% 201 69% 123 72% 92 70% 169
B(Portland cement) 20% 58 23% 41 19% 24 17% 43
C(premeier cement) 10% 29 8% 14 9% 12 13% 81
Graph: Works in Process
Interpretation:
The consumption of work-in-progress A gradually increased from 2006 to 2008
and it decreased in the year 2010, work-in-progress B’s consumption increased from
2006 to 2010 and decreased there after and work-in-progress C’s consumption
decreased in the year 2007 compared to 2006 and increased thereafter.
Table FINISHED GOODS (A t cost*)
Table * Rs In millions
2007 2008 2009 2010
Finished Goods (at
cost*)
633 280 236 422
A(BLENDED
CEMENT)
70% 432 69% 193 72% 170 70% 295
B 20% 127 23% 64 19% 45 17% 72
C 10% 63 8% 23 9% 21 13% 55
Graph: Finished Goods
Interpretation:
The consumption of finished goods A (blended cement) increased in the year
2008 when compared 2009 and then it decreased in the year 2008 and again it is
increased in the year 2010. Finished goods B’s (Portland cement) consumption
increased in the year 2010. Finished goods C’s (premiere cement) consumption
gradually decreased in the years 2007 and 2008 when compared to 2008. In the year
2010 it again increased.
The determination of the appropriate quantity to be purchased in each lot to
replenish stock as a solution to the order quantity problems necessitates resolution of
conflicting goals. Buying in a higher average inventory level will assure.
(i) Smooth production / sale operation and
(ii) Lower ordering or setup costs. But it will involve higher carrying costs. On
the other hand small orders would reduce the carrying cost of inventory by
reducing the average inventory level but the ordering costs would increase,
as there is a likelihood of interruption in operations due to stock-outs. A
firm should not place either to high or small orders on the basis of a trade
off between benefits derived from the availability of inventory and cost of
carrying that level of inventory, appropriate or optimum level of order to
placed should be determined. The optimum level of inventory is popularly
referred to as the economic order quantity or economic lot size. It may be
defined as that level of inventory order that minimizes the total cost
associated with inventory management. It is based on some assumptions,
which are restrictive.
a. The firm knows with certainty the annual usage of a particular item of
inventory.
b. Rate at which the firm uses inventory is steady over time.
c. The orders placed to replenish inventor stocks are received at exactly that point
that point in time when inventories reach zero.
2) INVENTORY TURNOVER RATIO:
This ratio judge’s annual turns, it is usually conducted once a year.
The formula = cost of goods sold /average values of Inventory
Inventory Turnover Ratio:
Table Calculation of Inventory turnover ratio:
Particulars 2006-07 2007-08 2008-09 2009-10
Cost of Goods Sold 36445 29721 32491 35575
Average Inventory 1050 625 532 974
Inventory Turnover Ratio 34.7 23.4 61 36.5
Graph 4.4 Inventory turnover ratio
Interpretation:
The interpretation increased to 61 in 2009-2010 from 36.5 implying there was a
consistent and good management control. Being Cement Company, generally the
inventory will be high.
3) Percentage of Inventory Turnover Current Assets:
In order to know the percentage of inventory over current assets the ratio of inventory
to current assets is calculated and which is presented in the following table.
Inventory
Inventory turnover current assets ratio= ----------------------- * 10
Current ratio
Year Inventory Current assets Ratio (%)
2004-2005 13386.80 24172.33 55%
2005-2006 11690.67 28770.78 40%
2006-2007 49950.88 53063.75 94%
2007-2008 42950.66 45598.02 92%
2008-2009 46087.45 46713.32 92%
2009-2010 93605.78 86811.49 107%
Interpretation:
From the above table it can be understand that the 55% of inventory over current assets
ration was showing trend for two years 2005-06.
1) How ever from the year 2009-10 it is showing an increasing trend.
2) The lowest inventory over current assets ratio was recorded at 40% during the
year 2005-06 and the highest inventory over current assets ratio we recorded at
107% during 2009-10.
3) The average inventory over current assets ratio was recorded at 80
4) Current ratio:
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.
Current assets
Current ratio= ----------------------
Current liabilities
Calculation of Current ratio:
Year Current assets Current
liabilities
Ratio
2004-2005 24172.33 7862.11 3.07%
2005-2006 28770.78 8042.62 3.57%
2006-2007 53063.75 16204.14 3.27%
2007-2008 45598.02 14876.45 3.06%
2008-2009 49713.32 17728.22 2.80%
2009-2010 86811.49 36253.41 2.39%
Interpretation:
1) From the above table it can be interpreted that the 3.07% of current assets over
current liabilities ratio i.e., current ratio was showing a decreasing trend from
year 2005-06.
2) In the year 2004-05 the ratio was 3.07 and has increased to 3057 in the 2005-06.
3) The lowest current ratio was recorded at 2009-10 which is 2.39% and the
highest ratio was recorded at 3.57 during the year 2005-06.
4) The average current ratio was recorded at 3.02 during the review period.
6)Quick ratio:
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.
Quick ratio= current assets-current liability
Where quick assets = current assets- inventory
Year Quick assets Current
liabilities
Ratio
2004-2005 10785 7862.11 1.37%
2005-2006 17080 8042.62 2.12%
2006-2007 3112 16204.14 0.02%
2007-2008 3347 14876.45 0.22%
2008-2009 3625 17728.22 0.20%
2009-2010 3207 36253.41 0.08%
Interpretation:
1) From the above table it can be understand as that the % of quick assets to current
liabilities i.e., the quick ratio was 0.002 in 2006-07 and from that year it is showing
increasing trend.
2) The highest quick ratio was recorded at 2.12 during the year 2005-06 and the lowest
quick ratio was recorded at 0.002 during the year 2006-07.
3) The average quick ratio was recorded at 0.66 during the review period.
6) Inventory conversion period:
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 turns over.
This formula may be as:
Days in a year (360 days)
Inventory conversion period = _____________________
Inventory turnover ratio
Inventory conversion period: (in crores)
YearCost of
goods sold
Avg.
inventoryRatio ICP (Days)
2004 – 2005 59567.65 7200.12 8.27 43
2005 – 2006 57046.56 36822.20 1.54 233
2006 – 2007 118561.78 94022.27 1.26 285
2007– 2008 126368.65 11365.07 11.11 32
2008– 2009 129568.89 12225.77 10.59 33
2009 – 2010 299726.18 155627.91 1.92 187
Interpretation:
From the above table it can be identified the following observations:
1) The inventory conversion period was 233 days during the year 2005 – 06 but it
declined to 285 during 2006 - 07, which indicates that the stock has been very
quickly converted into sales which mean the company is managing the inventory
efficiently.
2) The lowest inventory conversion period was recorded at 285 days in the year
2006 – 07 and the highest inventory conversion was recorded at 187 days in the
year 2009 – 10.
The average inventory conversion period was recorded at 97days during the
review period
5 FINDINGS THE STUDY:
AREA OBSERVATION FINDINGS
Total Inventory Presently company maintains
adequate inventory turnover
ratio as a cement it exhibits
good signs.
There was good coordination
between the Marketing,
Planning, Procurement,
production and distribution
functions of ZCI , higher
inventory turnover was
possible.
Raw Material The company maintains
balanced position on Raw
Material at cost.
For few finished products, most
of the important raw materials
are either self manufactured or
procured locally.
WIP and FG The company maintained high
amount of work in process at
cost in the year 2004 compare
to other years. Finished goods
is very less in the FY 2004.
The company’s focus after
2002 had increase much
towards the markets like
Chennai, Hyderabad, Cochie,
Bangalore…
Therefore the company had
built up huge stocks to cater to
the needs of the customers
abroad.
SUGGESTIONS
The Zuari Cement ltd work-in-process time period is should be reduced.
The Zuari cement ltd to countinue the ABC analysis
The investment on raw material should be made as per the requirement.
Unnecessary investment may block up the funds.
Neither too high nor too may inventory turnover ratios reduce profit and
liquidity position of the industry. So, proper balance should be made to increase
profits and to ensure liquidity.
The raw material should be acquired from the right source at right quality and at
right cost.
The process that was being used by Zuari Cement 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
utilization of material, labour and equipment.
To reduce the work, the purchasing department may enter the purchasing order
into a database and did not send a copy to any one.
CONCLUSION
After analyzing the inventories to ZCL during the last three years, it is clear that
inventories of the company are not stable. The company by strictly following
inventory management like EOQ, ABC analysis cab increases its profits. However the
management needs to focus more on the inventories.
BALANCES SHEETS
BALANCE SHEET AS AT 2006-2007
S.no Particulars As on 31st March 2006 Rs.Lacs
Amount As on 31st March 2007 Rs.Lacs
1. SOURCE OF FUNDSA. Share holders funds:Share capitalShare application moneyReserves and surplus
25796.1417000.0021901.93
64698.07
15196.1410600.0021901.93
B. Loans funds:Secured loansUnsecured loans
22645.234484.79
27130.02
34614.733719.1638333.89
TOTAL 91828.09 86031.96
2. APPLICATION OF FUNDSA. Fixed assets:Gross blockLess: Depreciation
53355.44
14266.83
53222.48
11504.89Net blockCapital work in progress including advance for capital expenditureB. InvestmentsC. Advance /expensesD. Current assets, loans &advance:InventoriesSundry debtorsCash & bank balancesLoans & advances
Less: current liability& provisions:Current liabilitiesProvisions
Net current assetsE. miscellaneous expenditureF. Profit &loss account
TOTAL
39088.61
78.64
2693.46
1838.111371.05
1983.037885.65
3557.46
36.293593.75
39167.2536233.99-----
4291.90
378.6011756.35
91828.09
41717.59
105.8241823.410.112759.37
3036.66
3534.104164.68
3744.1914479.63
3448.29
35.253483.5410996.09
389.39
5227.59
86031.96
BALANCE SHEET AS AT 2007-2008
S.no Particulars As on 31st March 2007 Rs.Lacs
Amount As on 31st March 2008 Rs.Lacs
1. SOURCE OF FUNDSA. Share holders funds:Share capitalShare application moneyReserves and surplus
42796.14
-----21901.93 64698.07
25796.14
17000.0021901.93
B. Loans funds:Secured loansUnsecured loans 19018.51
9070.51 28089.02
22645.234484.7928023.35
TOTAL 92787.09 92721.422. APPLICATION OF FUNDS
A. Fixed assets:Gross blockLess: Depreciation 53331.74
16982.13
53355.4414266.83
Net blockCapital work in progress including advance for capital expenditureB. InvestmentsC. Advance /expensesD. Current assets, loans &advance:InventoriesSundry debtorsCash & bank balancesLoans & advances
Less: current liability& provisions:Current liabilitiesProvisionsNet current assetsE. miscellaneous expenditureF. Profit &loss account
TOTAL
36349.61
128.23
2281.923109.721716.401771.468879.50
3827.4150.433877.84
36477.8436525.14
5001.66
278.19
14504.26
92787.09
39088.61
78.64
39167.2536233.99
2693.461838.111371.051983.037885.65
2664.1336.292700.425185.23
378.60
11756.35
92721.42
S.no Particulars As on 31st March 2008 Rs.Lacs
Amount As on 31st March 2009 Rs.Lacs
1. SOURCE OF FUNDSA. Share holders funds:Share capitalReserves and surplus
42796.14
21901.9364698.07
42796.14
21901.9364698.07
B. Loans funds:Secured loansUnsecured loans 17431.03
9767.41 27198.44
19018.519070.5128089.02
TOTAL 91896.51 92787.092. APPLICATION OF
FUNDSA. Fixed assets:Gross blockLess: Depreciation
53550.0719787.74
53331.7416982.13
Net blockCapital work in progress including advance for capital expenditure
B. InvestmentsC. Advance /expensesD. Current assets, loans &advance:InventoriesSundry debtorsCash & bank balancesLoans & advances
Less: current liability& provisions:Current liabilitiesProvisions
Net current assetsE. mliscellaneous expenditureF. Profit &loss account
TOTAL
33762.33
140.42
2503.20
2467.391290.711906.208167.50
3381.69127.903509.59
333902.7536557.57
4657.91
169.10
36349.61
128.23
36477.8436525.14
2281.92
3109.721716.401771.468879.50
3827.4150.433877.845001.66
278.19
16609.18
91896.51
14504.26
92787.09
BALANCE SHEET AS AT 2008-2009
BALANCE SHEET AS AT 2009-2010
S.no Particulars As on 31st March 2009 Rs.Lacs
Amount As on 31st March 2010 Rs.Lacs
1. SOURCE OF FUNDSA. Share holders funds:Share capitalReserves and surplus
42796.14
21901.9364698.07
42796.14
21901.9364698.07
B. Loans funds:Secured loansUnsecured loans
15330.07
9868.55 25198.62
17431.03
9767.41
27198.44
TOTAL 89896.69 91896.512. APPLICATION OF FUNDS
A. Fixed assets:Gross blockLess: Depreciation 54205.96
22537.1253550.0719787.74
Net blockCapital work in progress including advance for capital expenditure
B. InvestmentsC. Current assets, loans &advance:InventoriesSundry debtorsCash & bank balancesLoans & advances
Less: current liability& provisions:Current liabilitiesProvisions
Net current assetsE. miscellaneous expenditureF. Profit &loss account
TOTAL
31668.84
289
3114.57943.79
1383.35
5284.2310725.94
3758.62163.863922.48
31958.4636723.60
6803.46
67.10
14344.07
33762.33
140.4233902.7536557.57
2503.202467.39
1290.71
1906.208167.50
3381.69127.903509.594657.91
169.10
89896.6916609.18
91896.51
BIBLIOGRAPHY
I.M PANDAY “FINANCIAL MANAGEMENTY”
Vikas publishing house PVT limited, New Delhi, 10th edition 2008.
“ASWATHAPAPRODUCTION MANAGEMENT”
Himalaya publishing house, New Delhi, Hyderabad, 5th edition, 1999.
“MANAGEMENT ACCOUNT AND CONTROL”
S.N. Maheswari.
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