THE EFFECT OF INVENTORY CONTROL SYSTEM ON
FIRMS
PRODUCTION: A STUDY OF NIGERIAN
BREWERIES PLC
RESEARCH PROJECT
IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE
AWARD OF BACHELOR OF SCIENCE DEGREE (B.Sc)
IN ACCOUNTING
AUGUST, 2014
Abstract
The
study was carried out on the Effect of Inventory Control System on Firm
Production. It was to examine the inventory methods used in Nigerian Breweries
Plc., to find out the level of consistency in the use of this system stand to
see if it conforms with generally accepted accounting principles,
ascertain the effect of different inventory control methods on a profitability
and managed efficiency. To achieve the above objectives the researcher made
use of primary data collected by the use of questionnaire. The data
obtained were presented and analyzed through the use of Pearson's
Product Movement Correlation Analysis. Based on the analysis, it was
found that, there is significant relationship between inventory control system
and productivity of Nigerian Breweries Plc., that the Company
recognizes the
importance of inventory control system and has therefore been using inventory
method to control values of its inventory,
that excessive investment in inventory has the effect of increasing productivity. In the light of the above, it was
recommended that the company should establish a good standard of inventory
planning and control system; Nigerian Breweries Plc. should improve her inventory recording system like perpetual inventory
system. This would lead to reduction in theft and other causes of loss.
TABLE OF CONTENTS
Title page - - - - - - - - - Page
Certification - - - - - - - -
i
Dedication - - - - - - - - ii
Acknowledgements - - - - - - - -
iii
Abstract - - - - - - - - - vi
Table of
contents - - - - -- - - vii
CHAPTER ONE: INTRODUCTION
1.1 Background
of the study - - - - - -
1
1.2 Statement
of the problem - - - - - - 4
1.3 Objectives of the
problem - - - - - - 5
1.4 Research question - - - - - - - 6
1.5 Research hypothesis - - - - - - 7
1.6 Scope of the research area - - - - - 7
1.7 Significance
of the study - - - - - - 8
1.8 Organization
of the study - - - - - - 9
1.9 Operational definition of terms - - - - - 10
1.10
Historical background of organization under study - 11
CHAPTER TWO: LITERATURE
REVIEW AND THEORETICAL FRAMEWORK
2.1 Theoretical framework - - - - - - 14
2.2 Theory of inventory control - - - - - 16
2.3 Method of production - - - - - - 18
2.4 Definition of inventory - - - - - - 20
2.5 Classification of inventory - - - - - - 21
2.6 The need for inventory planning - - - - 23
2.7 Inventory planning and forecasting - - - - 20
2.8 Inventory planning and control system - - - 34
2.9 Inventory control techniques - - - - 26
2.10 Inventory
cost - - - - - - - 40
2.11 The impact of
inventory control system company productivity - - - - - - - 65
CHAPTER THREE: Research Methodology
3.1 Research design - - - - - - - 68
3.2 Population of the study and method of
population determination - - - - - - - 68
3.3 Sample size and sample determination - - - 69
3.4 Sampling procedure and
sampling technique - 70
3.5 Method
of data collection and data sources - - 71
3.6 Limitation of the
study Instrument development - 72
3.7
Instrument Validation - - -
- - -
- - -
- - 74
3.8
Instrument Reliability Test -
- - -
- - -
74
3.9 Model Specification - - - - - - -
76
CHAPTER FOUR: DATA
PRESENTATION, ANALYSIS AND DISCUSSION OF FINDINGS
4.1 Data
presentation - - - - - - 79
4.2 Data
analysis - - - - - - - 87
4.3 Test of hypothesis (state null
and alternative) - - 91
4.4 Discussion of findings - - - - - - 98
CHAPTER FIVE: SUMMARY
OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of major findings - - - - - 100
5.2 Conclusion - - - - - - - 101
5.3 Recommendation - - - - - - 102
5.4 Suggestion for further study - - - - - 103
REFERENCES
APPENDICES
CHAPTER ONE
INTRODUCTION
1.1 Background of study
Every business
organization requires resources to carry out its activities and set objectives.
These resources
play vital role in the survival and success of any firm. These resources could
be human or material. The material resources are known as inventories and there are three types of inventories in
the manufacturing business, raw materials,
goods in process, and finished goods inventory.
Hermanson (1992) stated
that a company can only prepare accurate income statement, statement of owner's equity,
statement of cost of goods
manufactured and balance sheet only if the
company has correctly value inventory.
Net income for a merchandizing company
depends on
the valuation and control of ending inventory and for a manufacturing company.
On the valuation of the finished goods inventory will lead to an overstatement
of gross margin sand net income. Current assets total assets and owners
capital. Moreover, a company mistakes its ending inventory in the current year, the
company carried that misstatement into the next year, since the ending
inventory amount of the current years the beginning inventory amount for the
next year. Also an error in one period ending inventory automatically causes an
error in the opposite direction in the next period.
The above underscores
the important role played by inventory valuation in determining the profitability of a
company.
Every business
organization has the objective of making profit and company's management puts
in a lot of
effort in order to effectively achieve this objective.
According to Larson
(1990) in a business organization, the underlying motive of its economic activities is profit
making.
It is the return received on a business
undertaking
after an operating
expenses have been met and deducted from the sales made for a specific period usually referred to as
"the accounting period" profit occurs when there is excess of the
value of out put over the cost of inputs (resources used by a firm.) when the
reverse happens, it is a loss. Profit is the main objective of business except
those set up for charitable purposes and
are classified as “non-profitable
organization".
The profitability of a
company is dependent on a number of factors (both internal and external).
Inventory control,
being one of the factors that internally determine the profitability of a
company also determines how efficient a companies management achieves its goals.
1.2 STATEMENT OF THE PROBLEM
Due to the current rate
of business failures, there is an upsurge of interest as to why some company,
how can inventory be popularly valued?
Also, what role does
this control of inventory play in enhancing the profitability and managerial
efficiency of a company? Many business organizations fail due to lack of proper
inventory plan and control and have suffered great loss. Some companies have
gone under due to the negative effect of either over-control or under-control
of their inventory.
Hence, for companies to excel in
profitability and Managerial efficiency,
there is need for the inventories of
that companies to be properly planned and controlled. There is need for the relationship that exists
between inventories, inventory control efficiency's management.
It is from this reason
that this research is being designed to address problems such as, which inventory
control method should be used in various circumstance, how can inventory plan
and control improve profitability, how can inventory control enhance management efficiency etc.
1.3 OBJECTIVE OF THE
STUDY
To meet its general
objectives the study will focus on the
following specific objectives.
1. To find out the level
of consistency in the use of this system and to see if it conforms with
generally accepted accounting principles.
ii. To ascertain the effect of different
inventory control methods on a
company's profitability and managerial efficiency.
iii. To determine the problems
associated with inventory control at Nigerian
Breweries plc.
1.4
RESEARCH QUESTIONS
The following
research questions were formulated for the study.
1. Are there any inventory control methods used in Nigerian
Breweries plc.
2. Is there any level of consistency in the
used of this system to see if it is conforms with generally accounting
principles:
3. Are there any impact of the different
inventory control methods on a company's profitability
and managerial efficiency?
4. Is there any problem
Associated with inventory control in Nigerian Breweries plc?
1.5 RERSEARCH HYPOTHESES
In order to ensure the
objectives of the research and also provide answers to the research problems, the following
research hypothesis are formulate.
Ho: there is no significant relationship
between inventory control system and the productivity of Nigerian Breweries plc.
1.6
SCOPE OF THE RESEARCH AREA
This study is limited
to Nigeria Breweries plc Calabar- Cross River state. It will deal only with
inventory control and its corresponding effects on the managerial efficiency
and profits of Nigerian Breweries plc. This research will likewise be created on the relevant
departments of the company namely, purchasing, stores, accounting among others.
1.7
SIGNIFICANCE OF THE STUDY
Inventory control is an
important aspect of any business organization be it manufacturing
or merchandizing. This is when there is a proper control of inventory;
the company will be successful while improper inventory control
could lead to severe losses. Therefore, inventory control of primary importance
in the affairs of any company.
This research will
reveal the various methods and their effects on managerial efficiency and company profits. This
will help the management of Nigerian Breweries plc. And other interested companies and users to
select and apply suitable inventory control methods.
This research would be
of further great value as a reference to students and other interested persons who may wish to
carry out a research on inventory control in a form.
1.8 ORGANIZATION OF THE STUDY
The research will be
organized into five chapter made up as follows:
CHAPTER ONE: this chapter will be made up of the introduction of the
problem objective of the study, scope the organization of the study, research methodology
and the organization of the study.
CHAPTER TWO: Chapter two will be
concerned with
the research reviews, what has already been written and said about inventory control and
its relevance to the profitability and management of the
study.
CHAPTER THREE: This chapter deals with the design of the study. It
will deal with the method of investment and
the instruments used
in the investigation.
CHAPTER FOUR: This chapter deals with
data collection presentation and analysis.
CHAPTER FIVE: This chapter
comprises the Summary, Conclusion,
Recommendation and Area for further Researcher.
1.9 OPERATIONAL DEFINITION OF TERMS
It can be defined as
the aggregate of those items of tangible property which are to be currently consumed in
the production of goods and services to be available for sale.
It can be defined as
one of the fathers that
internally defined the profitability of a company. Profit:
this is where there is excess of the value output over the cost of inputs
(resources) used by a firm.
It
can be defined as the process of manner of being organized.
Can be defined as exact of free from
error. Generalization:
can be defined as the treating
or dealing with facts without distorting by personal feeling or prejudices.
1.10 HISTORICAL BACKGROUND OF ORGANIZATION UNDER STUDY
Nigerian Breweries plc. Is the pioneer and
largest Brewery Company in Nigeria. The Company's conception
was part of the vision of U.A.C. a Uniliver subsidiary operating on Nigeria,
which was finalized by the technical expertise of Heineken N.V. the world renowned brewers.
Both of them provided that technical and
commercial expertise needed to firmly establish the company as a viable enterprise.
Incorporated in 1946,
Nigerian Breweries plc. Commenced operation in June 1949, when the first bottle of Star larger
beer rolled of the bottling lines at its Lagos brewery. This followed with a second
brewery located at factory road Aba, the Commercial heart beat of Abia State in
1957 and Kaduna are brewery joined the teaming family in 1982, to be followed in
1973 by Enugu
brewery.
Nigerian Breweries plc.
Has a rich portfolio of high quality brands, the collective success of which
has been responsible
for the Company's growth, strength and enduring
achievements.
These brands, Stars,
Gulder, Heinken, Legend, Maltina and Dustel Malta which span the three (3)
segments of the brewed products market.
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