EVALUATION OF STOCK AND CONTROL SYSTEM

CHAPTER ONE

1.1 INTRODUCTION

Stock can be defined as goods available for sale, distribution or use and goods kept by a trader or shopkeeper. There are varieties of inventories existing in a manufacturing company. The inventory includes:

·                    Raw materials

·                    Work in progress

·                    Finished goods

According to Omolehinwa (1985) raw materials is defined as the items of materials that have not been processed at all by the relevant manufacturing department but will be used later as part of the inputs for the output of the firm.

John Nwafa (2005) says that what is raw materials to one company or organisation may be a finished product to another organisation. Work-in-process, also know as work-in-process are the items for which work has started, in the manufacturing process but not yet completed for sale. It is valued by adding the cost of raw materials consume so far with the labour cost and other manufacturing cost incurred on the items semi-process (known as overhead expenses) up to the end of the accounting period.

While finished goods are manufactured goods or are manufacturing good completed and being held for safe, they are valued by adding up the direct material and direct labour consumed and the overhead cost adsorbed by the finished units still to be sold.

Formally called materials control, the stock control history dated back to the 18th century’s industrial revolution are in Europe. At the nascent stage, the benefits of stock control and valuation procedures was not greatly appreciated because most of the industries were just beginning to develop industrially. Hence, stock control system comes along with the expansion of manufacturing industries. And this was significantly enhanced by the awareness of production cost, reduction and profit maximization.

However, starting from the Second World War period, the importance of raw materials and work-in-progress on the production process was felt. This subsequently led to the discovery of various means by which improvement could be brought to stock control and valuation system. Thereby eventually increasing the production level of goods by reducing the production costs.

1.2 PURPOSE OF THE STUDY

Apart from looking into the practice and application of stock control, the purpose of this research is to examine the relationship that exist between the profit planning objectives of Nigerian Breweries Plc and the present level of investment of the company’s investment in inventories. Furthermore, it is to determine if there is another level of stocks at which profit can be maximised.

1.3 PROBLEM ANALYSIS

It is no gain saying that most of the industrial concerns in the country, the brewing section inclusive, are faced with many problems. The problems range from lack of adequate raw materials, shortage of spare parts, through poor management of stocks, to obsolete and obsolescence’s. These bottlenecks usually result into production stoppages. In some cases, it often leads to temporary closure of plants.

Direct materials do account for over 50 percent of total product cost in must companies. And stock maintenance cost can amount to about 25 percent of the value of stock. According to a business asciom “the customers is a king”. He should be made to feel so. Equally the employees should be well-motivated. Hence, their needs should be considered.

1.4 RESEARCH QUESTIONS

The questions to which answers are being sought are:

·                    Is there any shortage of raw materials

·                    Is the company operating at it full capacity or below capacity

If below, then at what capacity?

·                    What is the impact of shortage of over stocking on profit of Nigerian Breweries Plc

·                    How does the volume of production affect the selling price?

1.5 JUSTIFICATION OF STUDY 

The importance of evaluation of stocks and control system in any developing country, like Nigeria, cannot be overemphasized. Stock being the beginning of production activities in manufacturing organisation in general and Nigeria Breweries Plc in particular would be analysed. Recommendation would also be given to enable Nigerian Breweries Plc to more profit. Hence, contributing more to the Gross National Product (GND) of the country.

1.6 LIMITATION OF THE STUDY

The research will be limited to areas that relates to stock within Nigeria Breweries Plc, Iganmu. This would include the following department:

·                    Purchasing department

·                    Stores department

·                    Production department

·                    Sales department

1.7 SCOPE OF THE STUDY

Brewing companies in Nigeria are many. Most states in the country are having at least two brewing concerns. And each company having its peculiar problems. The peculiarity of some of the problems not withstanding, the breaking companies faces similar problems.

Albeit, extending this research work to all the brewing companies in Nigeria is unadvised. The inhabitation being the cost (finance) time and the extend of coverage of each an undertaking. Hence, the research work is limited to a case study of Nigerian Breweries Plc.

Nigerian Breweries Plc has an increase export business that also back to 1986. Currently, the company exports to the U.K., Europe and the West African sub-region. And the topic of this study evaluation of stocks and control system is addressed from stories routine, stock taking, cost and cost accounting prospective.

1.8 CONTRIBUTION OF THE STUDY

Shortage of raw materials and lack of effective stock control often result into production stoppages and company closures. Not only that, it may also result into workers lay-offs. The subject matter of this study will no doubt add to the ideas pool on stocks evaluation and control system in relation to the Nigeria Breweries Plc.

Again the study is going to be useful to other companies as well. They can compare the operative since their stores and purchasing department with this (research) approach, procedures and techniques contained in this study. Hence, the issue of shortage of raw materials, lack of spare parts and stock out can be minimized.

1.9 DEFINITION OF TERMS

Stock:                       Goods available for sales, distribution or use, and goods kept by a trader in shop keeper.

Stock Control:            The process of regulating the stocks of operating business. It is concerned with keeping of records and stocks within acceptable limits.

Stock-Out-Cost:          The cost of not meeting the production demands. This can lead to loss of customer’s goodwill and reduced profit.

Maximum Stock Level: This is maximum stock level of stock which the management must not allow the stock level to rise above. It is an indication to management to show that the stock is rising high; any stock above the maximum level may affect the cost of production in form of storage and security cost.

Minimum Stock Level: This is the stock level which the management must not allow the stock in the warehouses to fall below, if the stock level fall below the minimum level, there is possibility of shortage of supplies which may affect production.

Re-Order Level:           This is the level when new orders will be place for material. The reorder is in between the minimum level and the maximum level.

Re-Order Quantity:    This is often called the economic order quantity (E.O.Q). It is the quantity where the management will try to minimize re-ordering cost and storage/carrying cost.

Waste:    Discarded materials that has not recovery value.

Scrap: Discarded materials having some recovering values.

Obsolescent:    Materials which are becoming out of decte or passing out of use.

Full Capacity: This is when the level of activities of volume of production equal to total installed capacity of the plant. A stage at which the manufacture starts considering the issue of plant expansion, depending on other market variable.

REFERENCES

Omolehinwa, Eddy O. (1985) Fundamental of Costs Accounting. Nigeria Ayo Sodimu Publishers.

Mr. John Nwafa (2005): Cost Accounting Lecturer, Yaba College of Technology, Yaba, Lagos.

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