ASSESSMENT OF INVENTORY MANAGEMNT SYSTEM the

case of Moha Soft Drinks Company

By: RedietAbitu

I.D No.UU62126R

Advisor; MeskeremBogale

Senior Essay Submitted To The Collage Of Business, Economics And Social

Science, Department Of Accounting And Finance

May, 2018

Addis Ababa
STUDENT DECLARATION

I hereby declare that this research paper entitled “INVENTORY MANAGEMNT SYSTEM the
case of Moha Soft Drinks Company.” is my own work and suitable for submission for the award
of BA Degree in Accounting and Finance and that, to the best of my knowledge, neither contains
materials previously published by another person nor materials which has been accepted for the
award of any other degree of the university, except where due acknowledgement has been made
in the text.
Declared by;

Name:

Signature:

Date:
Advisor’s Declaration
This is to certify thatRedietAbituhas carried out this research paper titled as “
INVENTORY MANAGEMNT SYSTEM the case of Moha Soft Drinks Company
In Addis Ababa, Ethiopia”. The work is original and is appropriate for the award of BA Degree
in Accounting and Finance.

Advisor: __________________________
Signature: ______________
Date: __________________
 ACKNOWLEDGEMENTS

An indeed thanks is never enough to almighty God and his mother Marry. Yet, there is nothing I
could say than thank you for all the benevolence and miraculous deeds you have done in my life.

The study work could not only be of the researcher, therefore, I would like to take this
opportunity to forward my deepest gratitude to my advisor, MeskeremBogale, for her guidance
and tireless support from the beginning to the end of this paper. Thanks again for your
exceptional help in quickly responding all kinds of queries and corrections I have managed to
come up with.

I owe much to the teachers at unity University for sharing there unlimited knowledge’s during
my classes. I am also sincerely thankful to Leather Industry and support.

My deepest gratitude goes to my dear MekibibAdinew, who is always by my side and

encouraging me in every aspects of my career. Furthermore, I would like to thank all my families
and friends for the support and energy they were giving me.

Last but certainly not list, thanks also extended to the moha soft drank companies, without their
collaboration this thesis would not be completed. Therefore, I am deeply grateful to all the
managers and workers for their straight response and valuable time.
 ACRONYMS

List of acronyms
FIFO first in first out
LIFO last in first out
EOQ economic order quantity
CGS cost of goods sold
ITRO inventory turnover ratio
 ABSTRACT

This research paper seeks to address the inventory management system in MOHA SOFT DRINK
Company at summit plant. It was address 19 basic research questions designed to assess
inventory management system of the company. For the purpose of study both primary and
secondary data was used. , but much focus on primary data which was obtained by
questionnaires.
For primary data the researcher use direct distribute questionnaires to the employees of the
company for who have a direct relation with inventory area.
Secondary data is gathered through reviewing the company’s inventory procedure manual and
data was collected by reviewing company magazines, books and internet. This study used both
qualitative and quantitative types of data.

This research paper under literature review the major idea of inventory included, definition of
inventory, classification of inventory, inventory system, methods of inventory valuation and
Computerized inventory management techniques.

Then it would be analyzed and presented. The data analysis would be carried out based on
tabulation and percentage method. Carefully interpretation of analyzed information would be
carried out to arrive at reasonable generalization.
At the end the researcher has given conclusions and recommendations based on findings.
 Table of Contents
Contents page

 List of Agronomy’s……………………………………………….….I
 Abstract……………..………………………………………………II
 List of table………………………..……………………..………….III

Table of Contents
CHAPTER ONE..............................................................................................................................................9
The Problem and Its Approach....................................................................................................................9
1.1 Background of the Study...................................................................................................................9
1.2 Statement of the Problem...............................................................................................................11
1.3 Objective of the Study.....................................................................................................................12
1.3.1 General Objective.....................................................................................................................12
1.3.2 Specific Objective......................................................................................................................12
1.5 Scope and limitation of the study....................................................................................................13
1.6 Research Design and Methodology.................................................................................................13
1.6.1 Research Design........................................................................................................................13
1.6.2 Sampling Procedure..................................................................................................................13
1.6.3 Source of data and collection tools...........................................................................................13
1.6 .4 Method of Data presentation and Analysis..............................................................................14
1.7 Organization of the Study................................................................................................................14
Chapter Two:.............................................................................................................................................15
2 Literature Review...................................................................................................................................15
2.1 Definition of Inventory Management..............................................................................................15
2.1.1 Nature of inventories................................................................................................................17
 2.2 Classification of Inventory...............................................................................................................17
2.2.1 Manufacturing Inventory..........................................................................................................17
2.2.2 Merchandise Inventory.............................................................................................................18
2.2.3 Miscellaneous inventory: -........................................................................................................18
2.3 Types of inventories 1......................................................................................................................18
2.4 Inventory System.............................................................................................................................18
2.4.1 Periodic inventory system.........................................................................................................19
2.4.2 Perpetual Inventory system......................................................................................................19
2.5.1 First in First out (FIFO) method.................................................................................................19
2.5.2 Last in first out (LIFO) method..................................................................................................20
2.5.3 Weighted Average Method.......................................................................................................21
2.5.4 Specific Identification Method..................................................................................................22
2.6 Reasons for Inventories...................................................................................................................23
2.7 Requirement for effective inventory management.........................................................................23
2.8 Inventory count (keep track) the inventory.....................................................................................23
Inventory Management Techniques......................................................................................................23
2.10 I N V E N T O R Y C O S T S..............................................................................................................29
2.11 Product total cost..........................................................................................................................30
CHAPTER THREE........................................................................................................................................34
DATA PRESENTATION, ANALYSIS AND INTERPRETATION..........................................................................34
Background of the organization................................................................................................................34
3.2 DATA PRESENTATION, ANALYSIS AND INTERPRETATION................................................................36
2.16 Inventory turn over........................................................................................................................40
3.11 Inventory Turnover ratio...............................................................................................................41
3.2 Analysis of secondary data..............................................................................................................46
CHAPTER FOUR..........................................................................................................................................48
4 Summaries of Findings Conclusions and Recommendations..................................................................48
4.1. Summary of finding........................................................................................................................48
4.2 Conclusions......................................................................................................................................48
4.3 Recommendations.........................................................................................................................49
Reference..................................................................................................................................................50
 List of Tables
Table 3.1 Gender of Respondent………………………………………………………….32
Table 3.2 Age Distribution………………………………………………........................37
Table 3.3 Educational Background…………………………………………….………….38
Table 3.4 Work Position ………………………………………………………...............38
Table 3.5 Experience of Respondent ……………………………………………................39
Table 3.6 Accounting System……………………………………………………................40
Table 3.7 Inventory System Method………………………………………………..............41
Table 3.9 Availability of Raw Material for Production………………………………..........41
3.10 Table 3.10 Inventory Costing Method…………………………………………………42
3.11 Inventory Turnover ratio…………………………………………………………………42
Table 3.12 Counting, Weighting and Measuring………………………………………...........42
Table 3.13 Control of Spoilage………………….....................................................................43
Table 3.14 Cost Estimation Technique……………………………………………………….44
Table 3.15 Economic Order Quantity EOQ…………………………………..........................44
Table 3.16 Stock Control System……......................................................................................45
3.17 Separation Finished Goods and Raw Material ……..........................................................46
3.18 Maximum and Minimum Level of Inventory……………………………………………..46
3.2.1 Inventory Turnover ratio..................................................................................................47
Table 3.2.2 Inventory Period…………………………………………………………………48
 CHAPTER ONE

The Problem and Its Approach

1.1 Background of the Study

Inventory management is the process of efficiently overseeing the constant flow of units in to
and out of an existing inventory. It is the process of managing the stocks of finished products,
semi-finished products and raw materials by a firm. This process usually involves controlling the
transfer in of units in order to prevent the inventory from becoming too high. (Wilson R.M
(1934)).
Competent inventory management also seeks to control the costs associated with the inventory
both from the perspective of the total value of goods including and the tax burden generated by
the cumulative value of the inventory. Inventory are a material and suppliers that business or
institution carry either for sale or provide inputs or suppliers to the production (http: //www.
Barcode since.Com ````March 12 /2016).
Inventory management include planning, coordinating, and controlling activities related to the
flow of inventory in to, though, and out of an organization. (T.Horngre ET .al 691).
Inventory represents a significant investment for many firms. For atypical manufacturing
operation inventories will often exceed 15% of Asset for retailer’s inventories could represent
more than 25% Asset. (Ross, et .al, 1995 p 628.)
The success of one organization depends on the efficient and effective utilization of the given
resources. These resources need proper management. Management’s role in any organization
involves the acquisition, storage disposition and control of resources that are necessary for the
attainment of organizational objectives. Those (factors of production) typically include labor,
capital equipment and material of inventories. Inventories are stock of materials of any kind
stored for future used, mainly in the production process. Those today inventories are tomorrow’s
production, how every semi-finished good a waiting release for sale are also include in the brad
category of inventories.
Which are nothing but idle resources. Therefore, inventories are materials or resources of any
kind having some economic value, either a waiting conversion or use in future, inventory is one
part of those resources need much attention by managers. As it requires large investment and
Circulates constantly unlike fixed assets. The effective management of inventory in stores is
crucial to the performance of many organizations.
The term inventory includes stock of (1) finished goods (2) work-in-progress, and (3) raw
material and component in cause of a trading concern inventory primarily consist of finished
goods while in case of manufacturing concern inventory consists of raw material, component,
store, work-in-process and finished good. Finished goods inventories are those completely
manufacture products which are real for sale. Working in-progress inventories are semi-
manufactured products. They represent products that need more work before they become
finished products for sale. Raw material inventory is those basic input material that are converted
in to finished products. (Mahesihari and maheshwarie, 2000 p, 2.72)
Despite this fact, many organizations have not yet clearly understood the benefits of efficient
stores management and control, and those my subsequent study was tried to investigate how
stores management and control. Carried out in Moha soft Drinks Company
The purpose of the study was to assess the inventory management system of Moha Soft Drinks
Company.

1.2 Statement of the Problem

Manufacturing company has inventories, but accumulating or having more inventories by itself
is not adequate or a guarantee for the success fullness of the companies. In adequate control of
inventory can result in both under and over stocking of items under stocking results in missed
deliveries, lost sales, dissatisfied customer and production bottlenecks. Over stocking also results
unnecessarily ties up of funds that might be more productive elsewhere, this becomes the
excessive carrying cost and risk liquidity, because the inventory carried for long period increase
the chance of loss liquidity. inventory management is the active control program which allows
the management of sales, purchases and payments with good inventory management, companies
are able to monitor what shipments they have coming in and going out to customer, allowing
them to keep just enough
Inventory in stock to meet demand. Then inventory management lets companies enjoy many
benefits which include achieving inventory balance, using resource wisely, cutting costs, saving
time and becoming more efficient and planning a head for seasonal changes in demand.
According to these evidence this study was emphasize on how Moha soft drink industry
performs the activity to come up with a good result along with attaining the main objective of the
industry.
Therefore, in this proposal we have tried to raise this basic research questions;
 How does the company utilize inventory efficiently and effectively?

 Is there maximum and minimum limit of stock of inventories to have continuity in

production and sale use?

 What types of inventory management technique does the company use?

 Is there well establishment of inventory management system in the company

1.3 Objective of the Study

1.3.1 General Objective
The general objective of this study was to assess the inventory management system of MOHA
Soft Drinks Company

1.3.2 Specific Objective

 To find out the efficiency and effectiveness of the companies on inventory management.

 To evaluate the maximum and minimum limit of stocks of inventories to have continuity
in Production or sales process.

 To identify inventory management technique of the company.

To examine the existence of well-established of inventory management system in the company

under study.
 1.4 Significance of the Study
The study will have the following benefits:
 To indicate the strength and weakness of the firm in inventory management practice.
 To make effective and efficient the inventory management and control in Moha soft drink
Company and to forward suggestions conclusions and recommendations based on the findings
further more. It may also serve as secondary sources for further study on similar Issues. Study is
believed to have the following importance
It helps to remind the organizations management to have corrective action, if there is a
problem in inventory management

1.5 Scope and limitation of the study

The study was primarily aimed at the valuation of inventory management system of Moha Soft
Drinks Company by taking a five-year data starting from 2012 to 2016GC.
The major limitations were time constraint, financial constraint and lack of experience.
Inefficient data related with our research in company

1.6 Research Design and Methodology

1.6.1 Research Design
The researcher used both qualitative and quantitative type of data. The descriptive research
approach was applied to study inventory management of Moha Soft Drink at a place of summit

1.6.2 Sampling Procedure

The total populations of employee who work at inventory management are 80 but the
questionnaireswere distributed to cost and budget department supervisor 3, production
department supervisor 4, procurement department supervisor3 and sales department supervisor 5
using simple random sampling method.

1.6.3 Source of data and collection tools

The study used both primary and secondary source of data. Primary data collection tools were
questionnaire and interview.
Questionnaire the researcher used both closed and open-ended type of questioner to cost and
budget department supervisor, production department supervisor, procurement department
supervisor and sales department supervisor inventory management system.
The Secondary data were collected:
To search data under this method researcher different written documents about the company. In
addition to this researcher used web search related with Moha Soft Drink Company.

1.6 .4 Method of Data presentation and Analysis

After enough amount of data has been gathered it was presented and analyzed using different
techniques data that gathered using questionnaires was to be present and analyze using table ratio
and percentage and the qualitative type of response from questionnaires and interview were
presented by using descriptive analysis the secondary data were analyzed using similar approach
This analysis revealed the demography profile inventory management of moha soft drink, With
regards to inferential statistics, correlation as well as a regression analysis was used to
investigate the most important questions and objectives of this study and to arrive at the core
findings of the study with regards to the hypotheses forwarded.

1.7 Organization of the Study

The study was organized into four chapters. The first chapter is introduction background of the
study, statement of the problem, objective of the study, significance of the study, scope of the
study, limitation of the study, methodology, data presentation and analysis, organization of the
study. The second chapter describes review of literature. The third chapter is data presentation
and analysis. The fourth chapter is summary of findings, conclusions and recommendations.
 Chapter Two:
2 Literature Review
2.1 Definition of Inventory Management
The word inventory has been defined in many ways. Generally three definitions have been
chosen which to be more appropriate to the topic developed in this study. In the supply chain one
of the key variables which has to be managed is inventory. The inventory includes a vast
spectrum of materials that is being transferred, stored, consumed, produced, packaged, or sold in
one way or another during a firm`s normal course of business.
The planning, storing, moving and accounting for inventory is the basis for all logistics
Inventory has a financial value, which for accounting purposes is considered a floating asset.
However, it may be very difficult to convert physical inventory into liquid assets, hence the
inventory is very risky investment
An inventory system provides the organizational structure and the operating policies
formaintaining and controlling goods to be stocked. The system is responsible for ordering and
receipt of goods: timing the order placement and keeping track of what has been ordered, how
much, and from whom. The system also must follow up to answer such questions as:
Has the supplier received the order? Has it been shipped? Are the dates correct? Are the
procedures established for reordering or returning undesirable merchandise?
This section divides systems into single-period systems and multiple-period systems.
The classification is based on whether the decision is just a one-time purchasing decision where
the purchase is designed to cover a fi xed period of time and the item will not be reordered, or
the decision involves an item that will be purchased periodically where inventory should be kept
in stock to be used on demand. We begin with a look at the one-time purchasing decision and the
single-period inventory model.
Inventory are stock of raw materials, work in process and finished good. That appear at
numerous points throughout a firm’s production and logistic channel (Ballsu 2004, p.326).
According to chase Jocobs and Aquilando (2004, p.545) inventory is the stock of any item or
resource used in an organization. Whereas Mosich (1988 p.396) inventory is can be defined as
the amount of raw materials, finished goods and work in process to be stocked for the smooth
By Estonian financial Running of a plants operation. So a manufacture company will hold
stocks as the adequate amount of material resource in a transformation system. Many authors
have defined the word management in different ways. Plunket and Ather 1986 defined
management as the process of setting and achieving goals through the execution of five basic
management functions (Planning, organizing, staffing, directing and controlling that utilize
human, Financial and material resource. Therefore, inventory management is the process of
tracking product orders keeping adequate amount of products on hand and organizing products in
Warehouse and retail location. And also inventory management is the active control program
which allows the management of sales, purchases and payments.
By the position in company`s production/operation process:
 raw materials
 works-in-process
 finished goods

accounting rules:
 raw materials
 works-in-process
 finished goods
 goods purchased for resale
 advance payments to suppliers
Inventory Management ObjectivesGood inventory management is a careful balancing
act between stock availability and the cost of holding inventory.
Customer Service,
i.e., Stock Availability

 Service objectives
Setting stocking levels so that there is only a specified probability of running out of stock
 Cost objectives
Balancing conflicting costs to find the most economical replenishment quantities and timing
2.1.1 Nature of inventories
Inventories consists of good held for sale to customers, partially completed goods, and material
and supplies to be used in production. Inventory items are acquired and sold continuing by a
merchandising enterprise or acquired, placed in production, converted to a finished product, and
sold by a manufacturing enterprise. The sale of merchandise or finished products is the primary
source of revenue for most non service business enterprises (Mosich 1988 p.397).

2.2 Classification of Inventory

We can distinguish inventories classification into pre-production, in process and finished goods
inventory. Pre-production inventory includes raw materials, bought in Components and other
inputs secured from outside the firm. In process inventory is Work in progress and may be held
at points within the production process. Finishedgoods inventory consists of the firm's products
from which sales are drawn. (Gupta, 2003:457)

2.2.1Manufacturing Inventory
A manufacturing inventory consists of listed below

A. Raw materials inventory: are tangible goods purchased or obtained in order ways and on hand
for direct use in the manufacture of goods for resale parts or subassemblies manufactured before
use are sometimes classified as component parts inventory
B. Work in process inventory good requiring further processing before completion and sale work
in process also called good-in-process, inventory includes the cost of direct material, direct labor
and allocated manufacturing overhead cost incurred to data.
C. Finished goods inventory manufactured items completed and held for sale. Finished goods
inventory cost include the cost of direct material, direct labor, and allocated manufacturing
overhead related to its manufacture.
D. Manufacturing supplies inventory– lubrication oils for the machinery, clearing materials and
other items that make up an insignificant part of the finished product.
 2.2.2 Merchandise Inventory:

Its refer to a goods on hand purchased for resale by a retailer or a trading company such as
importer or exporter for sale

2.2.3Miscellaneous inventory: -
Include items such as office, janitorial and shipping supplies. Inventory of this types are
typically used in the near further and are usually recorded as selling or general expense when
purchased. (Dayckman, 1998:PP.346)

2.3 Types of inventories 1

 Cycle stock – inventories for satisfying usual (predicted) demand between
replenishments (receiving new ordered quantities)
 In-transit inventories / pipeline stock – items that are en route from one location to
another. They may be considered part of cycle stock even they are not available for sale or
shipment until after they arrive at the destination.
 Safety or buffer stock – held in excess of cycle stock because of uncertainty in demand
or lead time. Amount depends on extent of demand fluctuation, replenishment lead time and
planned availability level for customers. Makes the majority of inventory in the typical logistic
system
 Speculative stock – held some reasons other than satisfying current demand (getting
quantity discounts, forecasted purchase price increase or materials shortage, protecting against
strikes/natural disasters etc. Production economies may also lead to the manufacture of products
at times other than when they are in demand.
 Seasonal stock – form of speculative stock that involves accumulation of inventory
before a seasonal period begins (or ends – in agriculture)
 Dead stock - items for which no demand has been registered for some specified period of
time (obsolete products, demand season ended, etc.

2.4 Inventory System

In accounting for inventory we need to determine both the amount of inventory on hand at the
end of accounting period. Which is reported as a current asset in the balance sheet and the cost
inventory sold during the accounting period which is reported as a current asset in the balance
sheet and the cost of inventory sold during the accounting period? Which is reported a sad action
from sales on the income statement the amount of inventory on hand and cost of inventory sold
can be determined by either periodic. To determine the amount of inventory we have two system.

2.4.1 Periodic inventory system

Is used only the revenue from sale is recorded each time a sale is made. No entry is made at the
time of the sale to record the cost of merchandise that has been sold. Consequently. A physical
inventory must be taken in ordered to determine the cost of the inventory at the end of the
accounting period ordinary; it is practical to take complete physical inventory only at the end of
physical year.
The periodic inventory system is often used by retail enterprises that sell many kind of low unit
cost of merchandise such as groceries hard work and drugs.

2.4.2 Perpetual Inventory system

The perpetual inventory system uses accounting record that continuously disclosed. The
amount of the inventory’s a separate account for each types of merchandise is maintained in a
subsidiary lager. Increased in inventory items are recorded as debits to the proper accounts are
called the book Inventory of Items on hand. Regarding of the care with which the perpetual
inventory record maintained, their accuracy must be tested by taking.
2.5 Inventory with costMethods of Inventory Valuation

The basic method of inventory valuation are listed below

1. first in first out method (FIFO)
2. last in first out method (LIFO)
3. Weighted Average method
4. specific identification method

2.5.1 First in First out (FIFO) method

The first in first out method assumes follow of costs based on the assumption that the oldest
good on hand are sold first.
This assumption about cost flow generally confirm to reality; management usually find it
desirable to keep the oldest moving out to customer in order to keep fresh good on hand. The
method is and is easy to apply it adheres to the cost principle and the cost assigned to inventories
is likely to be in close harmony with the current price being paid for inventory replacement.
(Ibid: PP.55-60)
2.5.1.1 Advantages of FIFO method
It is simple to understand and easy to operate. It is logical method because it takes in to
consideration the normal procedures of utilizing first those materials which are received first.
Materials are issued at the purchase price; so the cost of jobs or work orders is correctly ascertain
so far as the cost of materials are concerned. Thus, the method recovers the cost price of
materials. This method is useful when prices are falling. Closing stock under this method would
consist of recent purchase of materials. This method also useful when transactions are not too
many and prices of materials are fairly steady.

2.5.1.2 Disadvantages of FIFO method

Increases are possibility of clerical errors, if consignments are received frequently at fluctuating
prices as every time an issue of material is made the store ledger clerk will have to go through
his record to assertion the price to be charged.
Violets the matching principle (FIFO matches some of the previous year’s inventory cost against
current revenue). Results in higher taxes and lower cash flows. Does not adjust cost of goods
sold for the effect of inflation. (Mosich, et’al, 1998: PP.404)

2.5.2 Last in first out (LIFO) method

The last in first out method assumes a flow of inventory cost based on assumption that the most
recently acquired goods on hand sold first because current cost are incurred to make current sale
and to maintain an adequate inventory on hand. Under this view, the latest cost is most closely
associated with current revenue and thus the matching principle of income determination is
carried out. In the balance sheet, however inventory under the life method is valued at the earliest
cost incurred. (Mosich, et’al, 1998: PP.405)

2.5.2.1 Advantage of LIFO method

It is simple to operate and is useful when transactions are not too many and the prices are fairly
steady. This method recovers cost from production because actual cost of materials is charged to
production.Production is charged at the recent prices because materials are issued from the latest
consignment .Thus effect of current market prices of materials is reflected in the cost of sales
provided the materials are recently purchases.
In time rising prices LIFO method of pricing issues is suitable because materials are issued at
the market prices which are high. This method thus helps in showing a lower profit,because of
increased charge to production during periods of rising prices of rising prices and lower profit
reduces burden of income-tax.
Given the cost trends in the problem, the advantages of using LIFO are that the lower net
income will result in a lower tax obligation (tax deferral). Also, LIFO is likely to better match
current costs against revenues. (David et’al, 1997: PP.696-697
2.5.2.2 Disadvantages of LIFO method
This method may lead to clerical errors as every time an issue is made, the store ledger clerk
will have to go through the record to ascertain the price to be charged. Comparisons between
onejob and the other job will become difficult because one job started a few minutes after
another of the same type man bear a different charge for materials consumed, rather than of the
price of the beginning, end or at one point of issue during the period because it is based on the
average of the material costs of the various lots available in the store. This method tends to
smooth out fluctuation in prices. (David et’al, 1997: PP.699-705)

2.5.3 Weighted Average Method

The method of inventory valuation is tasted on the assumption that all goods are coming led and
that no particular batch of good is retained in the inventory. Thus the inventory is priced on the
basis of average price paid for the goods, weighted according to the quantity purchased at each
price. (Mosichet’al, 1989: PP.413)
The method of allocating the cost of goods available for sale between ending inventory and cost
of goods sold is based on a single weighted average cost per unit. The weighted average cost per
unit is calculated by dividing the total cost of goods available for sale by the total number of
units available for sale this weighted average cost per unit is then multiplied by the number of
units sold to produce the cost of ending inventory. (Mosichet’al, 1998: PP.404)

2.5.3.1 Advantage of weighted average method

This method is rational, systematic and subject to handling it is representative of the prices that
prevailed during the entire period. When price are raising the LIFO methods produces the
smallest cost of ending inventory, the largest cost of goods sold and the smallest gross margin of
the four methods and low income tax.
2.5.3.2 Disadvantages of weighted average method
The greatest disadvantage of this method is that a fresh rate calculation will have to be made as
soon as new lots of materials are purchased which may involve tedious calculations. Issue price
of materials does not represent actual cost of material issued but it represents averages cost of
materials in store.
At the time of rising prices, it over-stated profit but not as much as FIFO because average price
is lower than the most recent price closing stock is not valued at current cost.\

2.5.4 Specific Identification Method

The method of allocating the cost of available for sale between ending inventory and cost of
goods sold is based on identification of the price per unit sold and inventory. At the first might
argue that each item of inventory should be identified with its cost and that the sum of their
amounts should constitute the inventory value.
This method is practical only for situation in which very few items are purchase and sold.
Otherwise, it will be too time consuming to keep track of exactly which units are sold.
Retail method a procedure for estimating cost of goods sold and ending inventory by using the
sale value of the ending inventory and the ratio of cost to retail for the goods available for sale
during the current period.
In order for the method to produce accurate, estimates of inventory and cost of goods sold, the
mix of goods in beginning inventory, purchase, and sales must be similar. It is not necessary that
all goods are marked up by the percentages but the mark up percentage should remain constant
for the same goods throughout goods available for
Inventories are essential for merchandising and manufacturing business inventories are
necessary in order to generate sales and sales are necessary in order to generate profit.
Inventory related costs are classifying in to three categories: carrying cost, ordering costs, stock
out cost (Dobler, et.al. 1996:PP.517)
2.6 Reasons for Inventories
 Improve customer service
Provides immediacy in product availability
 Encourage production, purchase, and transportation economies
Allows for long production runs
Takes advantage of price-quantity discounts
Allows for transport economies from larger shipment sizes
 Act as a hedge against price changes
Allows purchasing to take place under most favorable price terms
 Protect against uncertainties in demand and lead times
Provides a measure of safety to keep operations running when demand levels and lead times
cannot be known for sure
 Act as a hedge against contingencies
Buffers against such events as strikes, fires, and disruptions in supply

2.7 Requirement for effective inventory management

Regarding requirements for effective inventory management different literatures describe in
different ways based on their own task objective, but for this study the researcher favor
particularly Stephenson (1999, p.561-562) describe in his book about requirements for effective
inventory management in to four distinct mechanisms that are:-

2.8 Inventory count (keep track) the inventory

This mechanisms to control the inventory, physical count has to be conducted. This count
enables to the manager to determine the quantity on hand. Then the manager estimate how much
will be demand period prior to the next delivery periods and bases the order quantity on that
information.

Inventory Management Techniques

This is one of the best aspects in a company’s success or failure; appropriate inventory control
will definitely stabilize the consumer’s demand to protect items promptly with the business
requirement to regulate warehousing expenses. There are various inventory management
techniques. Form those:-
1. ABC techniques
2. Economic order
3. Just- in – time inventory control
4. Stock level
ABC techniques

Inventories are analyzed according to their value so that costly and more valuable materials are
given greater attention and care. All items of materials are classified according to their value or
cost significance-high, medium and low value’s which are known as A, B and C items
respectively.
“A” items are high value items which may consist of only a small percentage of the total items
handled. On account of their high cost, these materials should be under the highest control and
responsibility of the most experience personnel.
‘B’ items are medium value materials which should be under the normal control procedures.
‘C’ items are low value materials which may represent a very large number of items. These
materials should be under the simple and economic method of control (Stephen A.Ross p628)

Economic Order Quantity

The objective of inventory control is to minimize total inventory cost while ensuring that
adequate inventories exist to meet current demand. Inventory models used for achieving this
objective help answer two fundamental questions.
When should inventory be purchased?
How much inventory should be purchased?
The simplest and most commonly used inventory model is the economic order quantity (EOQ)
model. However, the economic order quantity model is based on assumption is that may not
always reflect the economic relate. These assumptions are:-
 Demand for the product is constant and known with certainty
 The lead time- the time between placing an order for inventory and is arrival is known
constant
 The total cost per year of holding inventories (carrying cost is variable that increase as
the quantities ordered increase. These cost include the opportunity cost of invested funds, storage
costs, property taxes, and insurance.
 There are no quantity discounts. Therefore, the total purchase price of inventory for the
year is constant.
The objective of economic order quantity model is to reduce total inventory costs. The
significant parameters in this model are charring cost and ordering cost. This model increase
number of ordering events decreases, causing the total annual cost of ordering to decrease
(Stephen A.Ross p628-629).
Just- in – time Inventory Control
The just-in- time inventory control is more just an inventory control system, it is production and
management system not only is inventory cut done to minimum, but the time and physical
distance between the various production operations are also reduced. In addition, management is
willing to trade off costs to develop close relationships with suppliers and promote speedy
replenishment of inventory in return for the ability to hold less safety stock.
Just- in time inventory system complements the total quality management (TQM). The success
of the system depends on how well companies manage its suppliers.
The system puts tremendous pressure on suppliers. They will have to develop adequate systems
and procedures to satisfactory meet the basic needs of manufacturers. (Stephen A Ross p 629).
Stock level
Stock level is one of the material cost management techniques in order to guard over stocking or
under stocking, most of the larger companies adapt a scientific approach of fixing stock level.
Under stock is when the materials in tock are below the required amount. Overstocking is when
excess materials are held in store by the business organizations. Thereof, each item of material
should be kept within the appropriate level of the materials by fixing stock level. The stock
levels are re-order level, minimum level, maximum level and economic order quantity or
recorder quantity.
Maximum level is the level of materials at the lowest rate of consumption which could be
expected, if delivery was received in the shortest possible time. Formula we use to determine
maximum level is as follows (Stephen A.Ross p630)
Maximum level = Re-order + Re-order – Minimum x minimum
 Level quantity Consumption re-orders period
Re- order level: is the level of materials at which purchase requisition is initiated or fresh
supplies. This level is fixed by re-ordering when materials fall in to this level, the formula is:

Re – order level + maximum x Maximum

Consumption Re-order period
Job Costing and process- costing system
Two basic of costing systems are used to assign costs to product of service.
A. Job costing system; in this system, the cost objective is a unit or, multiple units or
multiple units of a distinct product of service called a job. The product or service is often a single
unit. Job costing is also used to cost multiple units of distinct product (Horngren et al2011) this
method is applied where the items or prime cost are traceable to specific jobs
B. Process costing system In this system, the cost object is masses of identical of similar
units of a product of service is obtained of similar units in a manufacturing process- costing
setting each unit receives the same or similar amount of direct material cost direct manufacturing
labor cost, and, indirect manufacturing cost (manufacturing overhead).unit cost are then
computed by dividing total costs incurred by the number of units off output from the production
process(Horngren et al.2011)
The main different between process costing is the extent of over going used to compute unit
costs of product or service. In job-costing system, individual jobs uses different quantities of
production resources; so it would be incorrect to cost each job at the same average production
cost. Process costing systems reflect Work organized and collect by continuous process rather
than by baths and jobs. Processing cost can be characterized as follows;
 Work is organized around process
 Cost is collected by processes. Direct materials are issued and direct labors traced to specific
process, manufacturing overhead is assigned to a process using an overhead rate.
 The cost of goods complete and transferred from working process to finished good is based
on equivalent whole units of work performed.
 The cost of complete unit is maintained in finished goods at the equivalent whole unit cost
until the product is sold.(Charles et al 1998)
 Inventorial and period costs
The purpose of inventory account is to collect and store all costs that can be attached to the
product while they are product cost. Then in the period when the product is sold, in contrast all
non-product costs are related immediately. That’s because non product costs are realized in the
time period for which they are incurred, they are commonly referred to as period cost. Period
cost are never found in inventories (Charles et al.1998)
Inventor able costs
Inventor able costs are all costs of a product that are regarded as assets when they are incurred
and then become costs of goods sold when the product is sold for manufacturing sector
companies , all manufacturing costs are inventor able costs. Costs of direct material issued to
production from direct material inventory, direct manufacture labor cost, and indirect
manufacturing cost create new assets, beginning as work in process and becoming finished
goods. Hence manufacturing costs are included work-in process inventory and in finishing goods
inventory to accumulate the costs of creating these assets. When finishing good are sold, the cost
of manufacturing the goods sold is matched against the revenues from the sale. The cost of goods
sold include all manufacturing costs incurred to produce the goods sold finished goods may be
sold during a different accounting period then the period in which the good were manufactured
and expensing the manufacturing cost of goods sold later when revenues are recognized achieves
matching of revenues and expenses(Horngren al.2011)
Prime cost and conversion cost
Prime cost are all direct manufacturing cost but Conversion cost are all manufacturing cost
incurred to convert direct material costs so more manufacturing company uses conversion cost
;to simplify the accounting they have only two classification of cost ;direct material costs and
conversion cost.(Horgen et al.2011)

Period cost
Period costs are all costs in the income statements other than costs of goods sold. Period cost are
treated as expense of the period in which they are incurred because they are expected to benefit
revenue in the current period and not expected to benefit revenue in future revenue because there
is not sufficient evidence to conclude that benefit exist. Expensing these cost in the current
period matches expenses to revenue.(Horngren.etal,2o11) for manufacturing companies ,period
cost are design cost and distribution cost.
Scrap material
These are rejections from production process, which cannot be used anymore and are to be
thrown away. Similarly, old, broken parts, reject, cut pieces of iron sheet, angle iron, gaskets,
insulation materials etc., are generated during maintenance and repair works. These materials are
removed from the place of work and dumped in the scrapyard. Some of this material are very
useful for small jobs or can be reprocessed for other works. For example, damaged tire are a
good source of heat generation as they can be burnt in a furnace. Batteries, rejected of damaged,
can be useful source; its battery case can be taken out for making the re-conditioned battery.
Similarly shafts can be recovered from scraped pumps. They are likely to be in good condition
for uses in repair of other pumps are period costs (J.Psaxena; 2003, page317
Accounting for scrap
Scrap is material left over when making a product, it has law sales value compared within value
of product no distribution is made between normal and abnormal scrap because no cost is
attached to scrap. The only distribution is made is between scrap attributable to specific job and
scrap common to all jobs. Scrap reports are prepared as a source of documents for periodic
summarizes of the amount of actual scrap compared with the budgeted or standard amount. The
scrap is either sold or disposed or quickly or stored for later sale, disposal or reuse a careful
tracking of scrap often extends in to the accounting records. (Horngren et al 2011 p345)
 There are two aspects of accounting for scrap
 1 inventory costing including when and how it affects operating income
 2 planning and control, including physical tracing

Importance of Holding Inventory

Holding inventory is especially important if sales or production are not stable, continuous and
predictable. The most important role of inventory is to make immediate sales possible even if the
timing of demand is not known the optimum level of inventory is determined by minimizing the
combined cost of holding inventory and being out of stock form its importance the following is
basic:-
 A. To Protect Against Uncertainties:
In any inventory systems, there are uncertainties in supply, demand and lead time. Safety stocks
are maintained in inventory to protect against those uncertainties.
B. Allow Economic Production and Purchase
It is often economical to produce materials in lots. In this case, a lot may be produced over a
short period of time and then no further production is done until the lot is nearly depleted. This
makes it possible to spread the set up cost of the production machines over a large number of
items. It also permits the use of the small productive equipment for different products.
C. To Cover Anticipated Changes in Demand or Supply
There are several types of situations where changes in demands or supply may be anticipated.
One case is where the price or availability of raw materials is expected steel industry strike.
Another source of anticipation is a planned market promotion where a large amount of finished
goods may be stocked prior to a sale.
D. To Provide for Transit
Transit inventories consist of materials that are on their way form one point to another. These
inventories are affected by plant location decisions and by the choice of carrier. Technically
speaking, inventories moving between stages of production, even within a plant, can be also
classified as transit inventories (Schroeder, 1989).

2.10 I N V E N T O R Y C O S T S
In making any decision that affects inventory size, the following costs must be considered:
1. Holding (or carrying) costs. This broad category includes the costs for storage
Facilities, handling, insurance, pilferage, breakage, obsolescence, depreciation,
Taxes, and the opportunity cost of capital. Obviously, high holding costs tend to
Favor low inventory levels and frequent replenishment.
2. Setup (or production change) costs. To make each different product involves
Obtaining the necessary materials, arranging specific c equipment setups, filing out
The required papers, appropriately charging time and materials, and moving out the
Previous stock of material.
If there were no costs or loss of time in changing from one product to another, many
Small lots would be produced. This would reduce inventory levels, with a resulting
Savings in cost. One challenge today is to try to reduce these setup costs to permit
Smaller lot sizes. (This is the goal of a JIT system.)
3. Ordering costs. These costs refer to the managerial and clerical costs to prepare
The purchase or production order. Ordering costs include all the details, such as
Counting items and calculating order quantities. The costs associated with maintaining
The system needed to track orders arealso included in ordering costs
4. Shortage costs. When the stock of an item is depleted, an order for that item must
Either wait until the stock is replenished or be canceled. When the demand is not met
And the order is canceled, this is referred to as a stock out. A backorder is when the
Order is held and fi lled at a later date when the inventory for the item is replenished.
There is a trade-off between carrying stock to satisfy demand and the costs resulting
From stock outs and backorders. This balance is sometimes difficult to obtain because
it may not be possible to estimate lost profit ts, the effects of lost customers, or lateness penalties.
Frequently, the assumed shortage cost is little more than a guess, although it is usually possible
to specify a range of such costs.
Establishing the correct quantity to order from vendors or the size of lots submitted to the fi rm’s
productive facilities involves a search for the minimum total cost resulting from the combined
effects of four individual costs: holding costs, setup costs, ordering costs, and shortage costs. Of
course, the timing of these orders is a critical factor that may impact inventory cost.

2.11 Product total cost

The objective of most companies is buy every item at the lowest total cost per unit. The total cost
is the sum of three elements
 Material cost (landed cost). The purchase price of product plus freight and any other
charges that are related to specific shipment. Or manufacturing cost in production.
Ordering Cost of issuing, receiving and paying on a vendor. These are costs associated ordering
frequency, not with quantity ordered
 Inventory carrying or holding cost. Cost of maintaining inventory in warehouse before it
is sold, transferred or otherwise used. These are costs associated with quantity ordered,
not with ordering frequency.
 2.12 Importance of Inventory to Public Institutions

Inventory management is concerned with every aspect of the movement or flow of commodities
in an organization. This is to be done by:
i. Eliminating handling wherever possible.
ii. Minimizing travel distance.
iii. Providing uniform flow free of bottlenecks.
iv. Minimizing losses from waste, breakage, spoilage, and the an organization including public
institutions

Inventory transactions
 Normal stock receipt – from previously issued purchase orders and transfers
 Unexpected stock receipts – the stuff that just shows up on receiving stock
 Requisitions – a request for material to be consumed within company
 Emergency requisitions
 Sales
 Orders to be delivered
 Orders to be picked up
 Cash sales
 Direct shipments
 Orders for non-stock products
 Transfers to other warehouses or facilities
 Assembly orders
 Bin to bin transfers within warehouse
 Returns of stock material
 Returns of non-stock material
 Returns of damaged material
 Returns to supplier
 Adjustments of on-hand quantities – who is allowed to approve adjustments? Under what
circumstances?
 Scrapping and writing-off stock
Three possible responses to stock-out
Backordering
Substitution
Lost sales
Inventory position
The replenishment decision is made, when a inventory position of item, not on-hand inventory
reaches reorder point. The replenishment decision model includes the following components
 On-hand inventory. Quantity that inventory system shows as being physically in stock.
This value should never negative. This is the starting point for the replenishment calculation
 Available inventory is found by subtracting from on hand inventory all order demand
quantities, whether allocated or unallocated. The balance remaining is the quantity available to
immediately satisfy new customer demands. This value can be negative, if open customer orders
exceed on-hand inventory
 On-order inventory is replenishment stock that has been ordered but has not yet been
received. Although the inventory position calculation considers on-order inventory as if it were
on hand, this stock should not be allocated to open customer orders or existing backorders within
the replenishment lead time
 Inventory position – value that is determined for given item by subtracting the inventory
requirements generated by open customer and interbranch transfer orders, allocated (committed)
and backorders from the total on-hand stock and expected on-order inventory.
 Inventory turnover

Measures, how many times the stock hold by company changes within a year. With higher
inventory turnover, company is using its assets more effectively and the inventory carrying cost
per unit held in inventory is lower. Low turnover indicates the existence of excess, slow moving
or obsolete inventories in stock. Often the turnover of raw materials, finished products and
works-in-process is measured separately

Reorder point

The triggering mechanism that alerts inventory planners to that a stock-out is eminent is some
form of order point. Whether it is derived using a mathematical model or rule of thumb, the order
point provides the planner that must be acted on to avoid a stock-out. Order point attempts to
estimate demand during the replenishment time to which is added a calculated safety stock to
compensate for possible fluctuation in demand
ROP= d* LT+ SS

ROP = reorder point

d = demand during the lead time
LT = average lead time
SS= safety stock
 CHAPTER THREE
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
Background of the organization
MOHA Soft Drinks Industry S.C was established on May 15, 1996, following the acquisition of
four state-owned Pepsi plants by Sheikh Mohammed, which areNifas Silk Plant, TekleHaimanot
Plant, Gondar Plant, and Dessie Plant from the Ethiopian Privatization Agency with paid capital
of Birr 108,654,000. The company has seven operating units in the country – the Nifas Silk,
TekleHaimanot, Gondar and Dessie plants (acquired from the Ethiopian Privatization Agency)
and the Summit, Bure and Hawassa plants in the Southern Nations and Nationalities Peoples
Region.
MOHA Soft drink industry S.C is a member of MIDROC Ethiopia (Mohammad International
Development Research Organization Companies) and is engaged in manufacturing and selling of
different types of soft drink in Ethiopia. The overall activates of the company are managed and
administrated by Sheikh Mohammed Al-Amoudi, owner of the company.
Market
MOHA Soft Drinks Industry S.C holds 52% of the market share in soft drinks industry in the
country. With an expansion and replacement of obsolete machinery, production capacity of the
plants has increased substantially. A significant growth over the years of production, sales, and
profitability due to reorganization ofoperations has been achieved. Productivity has improved
tremendously with major cost saving and has insured a regular supply of high quality products. It
has also succeeded in reaching new market areas across the country.

Objectives
The business purposes of the MOHA Soft Drinks Industry S.C as stipulated in the memorandum
of association are –
  To manufacture, buy, sell, bottle, distribute and other wise deal in non-alcoholic
beverages, mineral and aerated waters and the ingredients there of Ethiopia and
elsewhere.
 To carry on beverage manufacturing, processing and bottling.
 To manufacture, sell, and distribute carbon dioxide.
 To invest in the other business enterprises, to establish and manage in Ethiopia or abroad,
such subsidiaries, branches or agencies as may be deemed desirable.
 To carry on and engage in other activities which the company may deem necessary
incidental or related to the attainment of any of the purposes.
Vision
The company’s visions are -
 To increase its distribution further and to be the largest soft drinks industry in the country
 The company envisions that it will be a dynamic and innovative force in the Ethiopian
beverages market
 It will be known for distinctive, high quality products packed by creative marketing and
compelling advertising campaigns
 It will be distinguished as the company that listens and delivers the utmost in
personalized service

Mission
The company states that its first responsibility and primary focus is to -
 Satisfy and delight the community of end users whom it exists to serve
 To fulfill their needs and wants
 To improve their quality of life.
It says that knowing the path to the end users lies through the retail and wholesale trades and its
priority that to listen and respond to the needs and wants of its retail and whole sale trade
partners. It will lavish the highest levels of respect, courtesy, and service. In addition to this, it
gives a high priority to its employees. There is assaying in its employee manual stating,” Without
happy, motivated, and dedicated employees, there can be no success”.
Responsibilities and Cooperation
 MOHA Soft Drinks Industry S.C has to- date paid Birr 656 million as excise and sales
tax to the government.

 It provided 2485 jobs for citizens out of which 1095 are new employment opportunities
since acquisition.

 It has been successfully implementing its social obligation by way of sponsoring different
events and supporting initiatives

 It has contributed Birr Two Million for victims of natural disaster

 It backed initiatives and supports HIV/AIDS victims in the company

Values
Customer satisfaction, enhancement of positive corporate identity and image insure employee’s
empowerment, be committed to social responsibility, sustainability of quality and excellence in
what we do and build a winning team.

3.2 DATA PRESENTATION, ANALYSIS AND INTERPRETATION

This chapter is about the presentation, analysis, and interpretation of the results based on the data
gathered using questionnaire. The data collected is presented using tables and charts. As
indicated in research proposal, questionnaires were distributed for fifteen employees working in
company. All questionnaires distributed were collected and summarized immediately in this
section as follows.
Table 3.1 Gender of respondent

Gender No of respondent Percentage

Male 10 67%
Female 5 33%
Total 15 100%
As table 3.1 indicate that majority of the respondent are male.

Table 3.2 Age Distribution

Age No Percentage
18 – 25 3 20%
26 – 35 10 67%
36 – 45 2 13%
Total 15 100%
From the above tablewe can understand that majority of the respondent were between26-35.
Therefore, most of the company’s employee are young and it’s very important to have young
employees in manufacturing company.

Table 3.3 Educational Background

Educational background Respondents

No Percentage (%)
 Below High school - -
 High school - -
 College diploma 4 27%
 first degree 10 67%
 Second degree and Above 1 6%
Total 15 100

Table 3.3 shows the majority of the respondent of the company has Degree. Thusit is significant
for a company to have educated people because, as being educated people one can have more
knowledge, better thoughts and wide understanding for the company Profitability.

Table 3.4Work Position

Department No of respondents Percentage %

Production 5 33%
Store 4 27%
 Inventory Control 4 27%
Quality Control 2 13%
Total 15 100
Asone can see from the above table the greater respondent works in Production department
section.

Table 3.5 Experience of respondent.

Experience No of respondent Percentage

0-3year 4 27%
4-6year 3 20%
7-10year 2 13%
Above 10 year 6 40%
Total 15 100%
As one can see from the above table most worker of the company has above 10 years of work
experience.This is good for the company to make quality product.

Table 3.6 Accounting system

Accounting system for No of respondent Percentage
recording inventory?

Computerized system 8 53%

Manual system 5 33%
Both 2 14%
Total 15 100%

The above table indicate 53% said computerized, 33% said manual and the rest of the respondent
said both. Therefore, the company uses computerized accounting inventory system that makes
work easier. For the last ten years the company uses Peachtree accounting software and now the
company Micro soft dynamics NAV or ERP system.
A record on computer readable storage is maintained for each item, transactions are posted
against this record as items are disbursed or received. The computer applies the ‘P’ or ‘Q’
decision rules. Forecasts demand, and monitors performance of the inventory system. The
computer system reduces clerical effort and also provider better management control of
inventories.The choice between these four systems depends on the relative costs and benefits.
Generally, the cost- benefit ratio for medium nod large inventories favors the computer with the
advent of the personal computer; even many small inventory items can be computerized. (Roger
G. Schroeder, 3rded.).
Stock should not normally below this level. When the stock is below this level, there is a risk of
stopping the production
Re formula for this is: Consumption Re-order period
Minimum level = Reorder – Minimum X Minimum

2.16Inventory turn over

Table 3.7 Inventory system procedure
What type of No of respondent Percentage
inventory recording
system?
Periodic 13 87%
Perpetual 2 13%
Other - %
Total 15 100%

The above table indicate majority of the respondent said periodic. Therefore, the company uses
periodic inventory system this may give accurate results on a specific date; there is no continuing
record of the inventory.
3.8 Way of disposing expired inventory

By rejection, if it is able to be recycled it can be transferred to recycling company.

Table 3.9 Availability of raw material for production

 Does raw material No of respondent Percentage
are available for
production?
Yes 14 93%
No 1 7%
Total 15 100%
From the above table almost all the respondent said yes. Therefore, the production department
get raw material at required time.

Table 3.10 Inventory Costing Method

What type of inventory costing method does the No of respondent

company uses?
FIFO 12 80%
Average cost 3 20%
Specific identification - -
Total 15 100%

From the above table majority of the respondent said FIFO. Therefore, the company is using
FIFO inventory costing method this method can use the company from expired material because
first manufactured material is sold first.

3.11 Inventory Turnover ratio

Does the company calculate No of respondent Percentage
inventory turnover ratio?
Yes 13 86%
No 2 14%
Total 15 100%

From the table majority of the respondent replied yes, the remaining replied no. Therefore, the
company compute inventory turnover ratio over a given period of time. The finance department
is assigned to calculate.
Table 3.12Counting, weighting and measuring

When does the No. of respondent Percentage

company make
counting, weighting
& measuring?
Monthly 10 67%
Quarterly 1 7%
Semiannually - -
Annually 4 26%
Total 15 100%

From table one can understand that the majority of the respondent said Monthly. Therefore,
MOHA makes counting, weighting and measure monthly and the company can prepare financial
statement more than 12 in a year.
Table 3.13 Control of spoilage

Does the company No of respondent Percentage

control spoilage?
Yes 13 87%

No 2 13%

Total 15 100%

From the above table majority of the respondent said yes and the remaining said no.
Thecompany can control the spoilage by product rotation system.This means uses first-in first
out which insure that the first item manufactured is first item sold.

Table3.14Cost estimation technique

What type of cost estimation No of respondent Percentage

 technique does the company
use?
Gross profit method 10 67%
Retail method 5 33%
Total 15 100%

From the table majority of the respondent answered gross profit method and the remaining retail
method. Therefore, the company uses gross profit method of inventory cost estimation technique.
The gross profit method is useful for several purpose (1) to control and verify the validity of
inventory cost;(2) to estimate interim inventory valuations between physical counts; and (3) to
estimate the inventory cost.

Table3.15 Economic order quantity EOQ

Does the company No of respondent Percentage
use EOQ?
Yes 12 80%
No 3 20%
Total 15 100%

From above table majority of the respondent said yes and the remaining said no. Therefore,
company is using EOQ model. Itis important for management to minimize the cost of inventory
and the amount of cash tied up in the inventory balance.
Table 3.16 Stock control system

How do you rate No of respondent Percentage

stock control system
of the company?
High 13 87%
Low 2 13
Total 15 100%

The table indicates that the majority of respondent saidhigh. Therefore, the company has high or
good stock control system.

3.17 Separation finished goods and raw material warehouse

Does the company No of respondent Percentage

has separated
warehouse for
finished product &
raw material?
Yes 14 93%
No 1 7%
Total 15 100%

From the table we can understand that almost all the respondent said the company has strict rule
about finished goods and raw material. The company also has different store because of the
sensitivity of the product.

3.18 maximum and minimum level of inventory

 Does the company No of respondent Percentage
has inventory level?
Yes 10 67%
No 5 33%
Total 15 100%

As the table indicate 67% of employee say yes but the remaining 33% say no. Therefore, the
company has maximum limit.

3.2 Analysis of secondary data

Inventory turnover ratio
The inventory turnover ratio indicates the efficiency of the firm in producing and selling its
products.
Inventory turnover ratio=Cost of goods sold/Average inventory
Generally, a high inventory turnover is indicating of goods management. A law inventory
turnover implies excessive inventory. A high level of sluggish inventory amount to unnecessary
tie-up of funds reduced profit and increased costs.This will adversely affect the working capital
and liquidity position of the firms. A high inventory turnover may be the result of a very low
level of inventory which results in frequent sickout and too many small inventory replacements
are costly for the firm.
Inventory turnover ratio of the company for last five years can be calculated as follows (2012-
2016).

Table 3.2.1 Inventory Turnover ratio

Year CGS Beginning Ending Average ITOR

inventory inventory inventory
2012 63,189,093 0 1,618,371 809,189 78 times
2013 293,327,404 1,618,371 7,000,000 4,309,186 68 times
2014 435,969,282 7,000,000 944,846 7,472,423 58 times
2015 614,421,817 944,846 4,000,000 2,472,423 248 times
2016 673,865,736 4,000,000 500,400 2,250,200 299 times

As the above table indicate in 2012 the company can have sold its inventory 78 times, in 2013
the company sold its inventory 68 times, in 2014 the company sold its inventory 58 times, in
2015 the company sold its inventory 248 times and in 2016 the company sold its inventory 299
times.
As the table indicates in 2015 and 2014 the company has good inventory management system.

Inventory period
This ratio indicates how long inventory item sites in store before it is obtained by dividing days
in a year by inventory turnover.Inventory period=Days in a year/inventory turnover
Table 3.2.2 Inventory period

Year Days in a year ITRO Inventory period

2012 365 78 4 days
2013 365 68 5 days
2014 365 58 6 days
2015 365 248 2 days
2016 365 299 1 days

As the table indicate in 2012 inventory item sits in the store 4 Days, in 2013 inventory item site
in the store 5 days, in 2014 the inventory item site in store 6 days, in 2015 the inventory site in
the store 2 days and in 2016 inventory item site in the store only for one day. This indicates that
the company can sold fast in2016.
Generally, both the inventory turnover and overage age of inventory point that there was slow
moving items in industry which is turn result a cost problem lived storage and depreciation in the
past four years. Conversely the industry’s present performance in inventory control is better than
the past years, hence turnover is increased and it derive the inventory interface with operating
efficiency and customer services. The more the numbers of days the inventory study in the
industry, the less the inventory is turned count receivable. This may arise storage and
depreciation cost that will be change against the profit of the industry perishable goods and age
controls must sold before an expiration date. The usual simplifying assumptions made in
inventory controls that holding cost are proportional to the size of inventory investment
 CHAPTER FOUR
4 Summaries of Findings Conclusions and Recommendations
In this final part of the research paper, the research would like to forward the summary of the
finding, the conclusions reached at based on the result and the possible recommendations are
presented.

4.1. Summary of finding

 Among the respondent more worker are male
 Among the respondent the most employee are between 26-35years.
 Among respondent most of the company employees have first degree,
 Most respondent have experience of more than 10 years.
 More respondent are work on inventory control and store.
 The company has good effective and efficient of management system.
 The company can use computerized inventory management system
 The company can dispose expired by rejecting.
 The company can control spoilage.
 The company can compute turnover ratio at a given period of time.
 The company makes counting and measuring monthly.
 The company apply inventory costing method
 The company can use average cost method
 The company can use gross profit method of inventory cost estimation method.
 The company can protect inventory at good way.
 The company can use EOQ model
 The company’s adequate stock control system is high
 The company use technique of inventory management system properly.
 The company can use inventory turnover ratio

4.2 Conclusions
 The company utilizes its inventory at good way.by using computerized inventory
management system by using modern machine, by controlling spoilage, expired material and by
using techniques of inventory management system properly.
 As the secondary data indicate in 2012 the company can sale its firm 78 times, in 2014
the company sold its firm 68times, in 2015 the company sold its firm 58 times, in 2015 the
company sold its firm 214 times and in 2016 the company sold its firm 299 times. The company
can sold its inventory fatly in 2016.
 The company has maximum and minimum limit of inventory in production process
because too high and too low inventory is a case for under and over stocking.
 The company can use FIFO inventory costing method. This indicate the company can
sale first produced food firstly this is good to control expirations of food .the company can use
gross method of inventory cost estimation method.
 The company have good establishment of inventory management system

4.3 Recommendations
On the basis of summaries made and conclusions given above the researcher would like to
provide the following recommendations to improve weakness and to maintain strength observed
 The company have medium stock control system therefore the company is advised to
change stock control system to high by adding more educated people and who has high
education.
 The company have scrap units therefore the company is advised to reduce the scrap unit
by recycling tools and by giving training and motivation to employees
 The company have only one store keeper who keep Raw material .therefore advise
company to add more store keeper .because it is very big store and difficult to keep it properly.
 The company has Improper recruiting and assignment of employee in work place there
for the company is advise to avoid recruiting of employee by communicating each other
 Reference
 AlvinA.Arens 2006 Financial management, 11th edition Kanpor publish on Indian.
 Ernst and Whinney ,A.N.Mosich1998: IntermediateAccounting 6thed USA
 J.Psaxena.2003 Fundamental Accounting principle,15th edition M.C. Graw-Hill
Companies North American
 KiesoWeygadtWarfield 1998 Financial and managerial accounting,8thedition,USA
 Megas R, Megas, wand Megs, M.M (1970): Financial Accounting 8th ed. McGraw-Hill.
 Dobler, Donland W. and David N. 1996: purchasing and management 6thed. New York
. McGraw-Hill publish
 Dyckman, R Thomas, Ronald E. Dukens and Charles J. Davis, 1998: Intermediate
Accounting 4thed USA McGraw-Hill
 Harrisa .W, Horngrene. C (1998); Financial Accounting 3rd ed. Prentile-Hall, Inc.
 J.Psaxena.2003 Fundamental Accounting principle,15th edition M.C. Graw-Hill
Companies North American
 KiesoWeygadtWarfield 1998 Financial and managerial accounting,8thedition,USA
 Megas R, Megas, wand Megs, M.M (1970): Financial Accounting 8th ed. McGraw-Hill.
 michielR. Leenders, Harold E. Fearon, Anna E. Flynn and R. Freaser Johnson, 2002:
Publishing and supplies management: McGraw company.
 Moisch (1998).intermediate accounting 6th edition, McGrew Hill book company
University of Southern Californi
 Robet, H, Hermanson and James Don Edwards, 1998: Financeable Accounting
Business perspective 6th e
 Appendix
A survey of “inventory management delivery at the Moha Soft drink industry”. (To be filled by
employer)
The purpose of the study is to assess the INVENTORY MANAGEMNT SYSTEM the case of
Moha Soft Drinks Company. Your kind cooperation will help the researcher to find reliable data
and will be used only for academic purpose. Please try to answer all questions. Thank you for
your help in answering these questions
PART I: RESPONDENT PROFILE
DIRECTION: Please select your answer by encircling the appropriate number from the
response categories against each question.
1. Gender: (1) Male (2) Female
2. Age: (1) 18-25 (2) 26-35 (3) 36-45 (4) 46-55 (5) above 55
3. Educational Level:
(1) Below High School (3) Diploma (5) Master and above
(2) High school (4) Degree

4 .Work position
(1) Production
(2) Store
(3) Inventory control
(4) Quality control
5 .How many years have been since you become Moha Soft Drinks Company?
(1) Less than one year
(2) One up to five years
(3) Six up to ten years
(4) Eleven up to twenty years
(5)Twenty one and above
Part Two: Questions Related to Subject matter
6. What methods of accounting system does the factory use to record inventory
transaction?
(1)Computerized
(2) Manual
(3) Both
7. What kind of inventory system does the company uses?
(1) Perpetual
(2) Periodic
(3) Both
If both, for which inventory item do you use periodic and perpetual. Please
explain
___________________________________________________________
__________________________________________________________
________________________________________________________

8.How do you dispose expired inventory? Please explain

………………………………………………………………………………………
………………………………………………………………………………………
9. Do you believe that the production department gets raw material for production
at required time?
(1)Yes
(2)No
10. Which inventory costing method does the company use?
(1)FIFO
(2) Average Cost
 (3) Specific identification
11.Does the company compute turnover ratio over a given period of time?
(1)Yes
(2)No
If No, why please explain
___________________________________________________________
__________________________________________________________
___________________________________________________________
12. When does your company make counting, weighting and measuring the
inventory it has?
(1) Monthly
(2)Quarterly
(3) Semiannually
(4) Annually
13. Does your company control the spoilage scrap, damage, breakage and
obsolescence?
(1)Yes
(2)No
If No, why please specify
___________________________________________________________
__________________________________________________________
___________________________________________________________
14. Which method of inventory cost estimation technique does the company use?
(1)Gross profit method
(2)Retail inventory method
15. Do you use EOQ (Economic Order Quantity)?
(1)Yes
(2)No
16 .How do you rate the adequacy of stock control system in your company
(1)High
(2)Medium
(3)Low
17. Does the company keep the finished goods product and the raw material
separately?
1) Yes
(2) No
If No, why______________________________________________________
__________________________________________________________
18. Does your company has minimum and maximum inventory level?
(1)Yes
(2)No
If No, why
___________________________________________________________
__________________________________________________________
19. Could you provide any suggestions for effective inventory management at Moha Soft drink
industry? ___________________________________________________________

______