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CHAPTER ONE

INTRODUCTION

1.1  Background of the Study

One of the major assets of any business is inventory and it represent a large proportion of total investment in any business including manufacturing, retailing, wholesaling, import, export, extraction and mining business. Inventories constitute the largest controllable (current) assets of must business. It usually represents the direct material employed in production and as a result. Constitute more than fiy percent of the total production cost in most industries. The large amounts of capital are normally locked up in stock of raw material instead of being invested in other sectors of the business. A lot of attention is therefore required to be paid to the companies inventory in order to avoid, management of such fund. Inventory changes or, are revealed at the end of every year and because of this renewable nature of inventory executives especially those in account section should therefore try as much as possible to manage account for and control inventory be paying continuous and careful attention to it. 

Unlike fixed asset which last for years in a company and are transformed into products within days, weeks or month. Because of this, inventories re-assed weekly or monthly depending on the nature of the company concerned. The stock taking exercised is carried out to ascertain the level of stock of each particular time. Many companies do not realize that material or stock represent on equivalent mount of money and careless handling pilferage and deterioration of such materials in stores result substantial losses to the company. Stores should therefore be well managed and most economically equipped. This can be done by maintaining an eicient and eective inventory management and control polices adopting good and eicient inventory management techniques in order to realize the maximum advantage of the costly benefit system. 

If the activities of the stores department were neglected, mismanagement of such stock result substantial loss of the company and even up in liquidation of the long run. A well managed inventory and control system ensure the company does not find itself in such problems as understocked were it has less stock as demanded and this will result in loss of customers, loss of sales, loss of goodwill and loss of profit in the long run, overstocking on the other hand occur when the firm has more goods than demanded by customers. This will result to additional cost as regard to were housing cost, insurance cost, cost of capital tied down, pilferage, deterioration and obsolesce.

1.2  Statement of Problem

There has been a growing realization of the needs of importance of stock control and management in industries due to the material cost element in industries involved. In many industries these days, about fiy percent of the total production cost of product is traced to be represented by direct material. Large amount of capital invested in the company are mostly locked up in stock of raw material and if such stock is not properly managed, result to the determent of the company as the cost of maintaining these stock of material are usually high. This research intends to appraise the extent of inventory management and control in the manufacturing industries.

1.3  Purpose of the Study

The purposes of this research work are:

(i) To determine how inventories are managed in manufacturing industries with special regard to KP beverage Ogidi Anambra State.

(ii) To find out how the firm management determines its buer zone, re-order quantity or economic order quantity.

(iii) To find out the method employed by the firm in valuation of its material goods at the end of the period will be examined.

(iv) To recommend possible solutions.

1.4  Significance of the Study

The need for proper inventory management needs not to be overemphasized. The study will bring to light such needs. This research work will enable the management of KP Beverages Nigeria Limited as well as other industries to house and control the optimal level of over stock and understocking. It will also enable them to replenish, whenever the arises, the optimal order size at the optimal cost or minimum total cost. In addition, this research work is also beneficial to the student of Accountancy as a whole.

1.5  Assumption of the Study

This research has been undertaken in other to emphasis on the benefit arising from or how inventories are maintained to reduce uncertainties in business environment and holding the optimal quantity of inventory reduces the total cost as well as meeting customer’s requirement. This work also intend to investigate whether proper management and control of inventory aids management of the organization in achieving its set of objectives efficiently and effectively.

1.6  Research Questions

These research works stand to answer a number of questions in order to confirm or dis-confirm the hypothesis on the work. These question centers on the importance of stock control and management in industries due to the material cost element of product involved:

(i) What Caused Mismanagement of Stock?

(ii) Is there any problem of holding less stock than required?

1.7  Definition of Terms

(i) Inventories: According to Staord L.W, (1983:100) described inventories as stock of a company’s product made up of raw material stock, work-in progress stock and finished goods.

(ii) Management: According to Igboeli (1995:85) involves “planning, organizing, staing the activities of the firm, directing them towards the desired direction in order to elicit contributions that will accomplish the objective of the organization”.

(iii) Control: In the word of Igboeli (1995:86) Control is a process that measures performance against standard and ensure that the organizational objectives are accomplished.

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