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APPRAISAL OF INVENTORY MANAGEMENT AND VALUATION IN THE COMPANY

10,000 3,000

(A STUDY OF NIGERIAN BREWERIES PLC 9TH MILE CORNER ENUGU)

Topic Description

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CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THE STUDY

It has been observed over the year that inventories constitute the most significant part of current assets of manufacturing companies in Nigeria and the world in general, moreover, in most industrial outlets raw material inventories account for over 50% of company’s cost of production. It is argued that a considerable amount of invested capital are locked up in stock while the cost of keeping (holding) these stocks amount to about one-quarter of the value of the stocks.

Further in the 1930s, most businesses in Europe and America experienced great slumps. This business slump was as a result of stock mismanagement and valuation. It was during this period the businessman coined the statement “stocks are the graveyard of any business”. The successor failure of any business depends in their level of stock management and valuation.

According to the statement of accounting standard (SAS) No. 4, 1986, “Appropriate classification and accurate determination of the quantity and cost of stocks are necessary for proper determination of  the result of the operation of an enterprise and for the presentation of current assets in its balance sheet”.

Further, Olojede 1996, said that in this ha time any good management will want to avoid two danger points usually associated with stock control.

These are:

  • That of inadequate stock which disrupt production and loss of sales and good customers and
  • Excess stock which constitute carrying costs and obsolescence risk.

As far as manufacturing companies are concerned stocks exist in various form; raw materials work-in-progress, finished goods and engineering spare parts/consumables. The stock of raw materials, work-in-progress and engineering spare parts/consumerable facilities production, which stock of finished goods is required for smooth marketing operation. Excessive investment in stock will cause unnecessary tie up of the firms fund increase in carrying cost (cost of keeping stock), and risk of liquidity while under-stocking will cause production hold-ups failure to meet delivery commitments and possible reduction in profits. Therefore, the aim of stock management should be to avoid excess and inadequate levels of stock but to maintain sufficient stocks for the smooth production and sales operations.

Infact, this study will seek to identifying and appraise the various stock management and valuation methods in manufacturing companies and in Nigeria Breweries in particular.

1.2     STATEMENT OF THE PROBLEM.

Inventory management and valuation is a matter of observing the standard stock accounting techniques which is aimed top sustain and improve the industries as a going concern thereby enhancing their long-term profitability. Indeed one of the problems that are normally faced by manufacturing companies. Is how to maintain and value their inventories?

These companies lack the right valuation methods and best optimum level to maintain in stocks. To tackle this problem, effort should be made by the management to eliminate price instability and high expenditure on frequent re-order stocks.

Furthermore, since various stock valuation methods have different effects on the financial statement. The problem here is that many manufacturing companies have not been using the right stock valuation methods.

1.3     OBJECTIVE OF THE STUDY

Demerits as it concerns manufacturing companies. Reliably, manufacturing companies cannot exist without stocks. Therefore, it is good for every meaningful manufacturing company to take re cord of its stock. This is because a little deviation form the appropriate way of stock valuation and management will lead to material wastages, reduction in profit and loss of goodwill.

 

Specifically, the aims of these study are:

  • To appraise the management of inventories in terms of merits and demerits as it concerns manufacturing companies and Nigeria Breweries in particular.
  • To ascertain the extent of application of stock valuation methods in manufacturing companies.
  • To Ascertain the effect of various stock valuation methods on the reliability of the financial statement.
  • To determine the effects of poor storage spaces, under or over-stocking and non-store record keeping.

It is also the objective of this study to make suggestions in a view to helping to solve the problem.

1.4     RELEVANT RESEARCH QUESTIONS

  • How does the absence of the observation of economic order quantity (EOQ) in stock management contributed to the poor performance of manufacturing companies particularly Nigerian Breweries Plc?
  • What effects has the absence of the practice of periodic or perpetual stock taking on Nigeria Breweries?
  • What effects does poor space have towards the continued sustenance of Nigeria Breweries plc?

1.5     RESEARCH HYPOTHESES

This research will test the following:

  • Different stock valuation methods have different effects on the reliability of financial statement.
  • Effective stock management has a relationship with profitability.
  • Adequate and efficient stock control enhance workflow in manufacturing companies

1.6     SIGNIFICANT OF THE STUDY

This study would mean a great deal to the users especially the users of financial statements, these statements, manufacturing companies and the reader. To the user of financial statements, this study will give in-depth knowledge on the best stock management and valuation. To the manufacturing companies, it will help them tackle their age-long stock management and valuation problem. To the targeted readers, it will serve as a stepping ground for subsequent research on this topic.

 

1.7     SCOPE AND LIMITATIONS OF THE STUDY

This study would focus on the appraisal of inventory management and valuations in manufacturing companies in Nigeria and Nigerian Breweries in particular. The scope of this study is limited by a number of factors. The presence of few manufacturing companies in Nigeria particularly in Enugu state brought about the choice the Nigerian Breweries Plc., 9th mile as a case study.

Further, the method of providing information for research purpose has not been adequately developed among corporate bodies as the research met difficulties in obtaining information from officials. The high cost transportation occasioned by the high cost of fuel also posed a problem.

1.8     DEFINITION OF TERMS

Raw materials are those basic inputs that are converted into finished products through work-in-progress. These are semi-manufactured products. They represent products that are needed more before they become finished products for sale or use.

  • Finished Goods
  • Finished goods are

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