INTRODUCTION Finance in the modern business world is regarded as life and blood of a business enterprise.

Finance function has become so important that it has given birth to financial management as a separate subject. Therefore, this subject is acquiring a universal applicability. Financial management is that managerial activity which is concerned with the planning and controlling of the firms financial resources. As a separates activity or discipline is of recent origin it was a branch of economics till 1890. Still today, it has no unique body of knowledge of its own, and it draws heavily on economics for its theoretical concepts. The subjects of financial management are of immense interest to both academicians and practicing managers. It is of great interest to academicians because the subject is still certain area where controversies exist for which no unanimous solutions have been reaching yet. Practicing managers are interested in this subject because among the most crucial decisions of the firms are those which relate to finance and un understandings of theory of financial management provides them with conceptual and analytical insights to make decisions skillfully.

The modern thinking in financial management accords a far greater importance to management in decision-making and formulation of policy. Financial management occupies key position in top management and plays a dynamic role in solving complex management problems. They are now responsible for shaping the fortunes of the enterprise and are involved in allocation of capital.

DEFINITIONS:

Financial Management is an area of financial division making, harmonizing individual motives and enterprise goals. -Weston and Brigham

Financial Management is the application of the planning and control functions to the finance function. -Howard and Upon

NEED FOR THE STUDY Materials are equivalent to cash and they constitute an important part of the total cost. It is essential that materials should be properly safe-guarded and correctly accounted. Proper control of material can make a substantial contribution to the efficiency of a business. The success of a business concern largely depends upon efficient purchasing, storage, consumption and accounting.

OBJECTIVES OF THE STUDY

To learn various inventory management procedures followed at Ravali Spinners ltd. To understand relative advantages and disadvantages of various techniques To review the various techniques and their impact on business inventory.

METHODOLOGY Information is collected from primary and secondary sources. Primary sources of data: The data has been gathered through interactions and discussions with the Executives working in the division. Some important information has been gathered through couple of informal discussion of executives. Secondary source of data: Referred standards texts and reference books for collecting the information regarding the theoretical aspects, of the topic. Annual reports and other magazines published by the Company are used for collecting the required information. Many websites pertaining to the industry and pertaining to inventory management have also been used as secondary sources of data.

SCOPE OF THE STUDY

The study is done on inventories held by Ravali Spinners Pvt. Ltd. The scope of the study includes various methods & techniques used for management of inventories like Raw Material, WIP, Finished goods for four financial years. This study of items for a period of 4 years provides insight to the management of inventory. The study thus provides a scope to the management to understand their inventory position and take necessary actions as per the findings and suggestions.

LIMITATIONS OF THE STUDY The study of inventory management of the company had a few constraints One of the factors construing the study was the lack of availability of ample information. The information collected for the study had been taken from documents, which had been, let out to the public. To the extent that the executives could spare their time, they gave me the information by way of small discussions for the purpose of data collection. Most of the information has been kept confidential and as such was not passed on as part of the policy of the company. The time allotted for the completion of the project was very limited and proved to be a major constraint in the successful completion of the project.

INDUSTRY PROFILE

Spinning is the conversion of fibers into yarn. These fibers can be natural fibers (cotton) or manmade fibers (polyester). Spinning also entails production of manmade filament yarn (yarn that is not made from fibers). Final product of spinning is yarn. Cotton value c h a i n s t a r t s f r o m G i n n i n g t h a t a d d s v a l u e t o i t b y s e p a r a t i n g c o t t o n f r o m s e e d a n d impurities. Spinning is the foundation process and all the subsequent value additions i.e. Weaving, Knitting, Processing, Garments and Made ups, depend upon it. Any variation in quality of spinning product directly affects the entire value chain. Product Characterization T h e p r o c e s s o f ma k i n g f a b r i c f r o m r a w c o t t o n i s a l o n g o n e a n d c o n s i s t s o f v a r i ou s stages. There are two technologies available to spin the yarn, first and the foremost is Ring Spun and second is Open End. With the development in technology, and changing need of people world over different types of cotton yarns like 100% cotton compact yarn,100% organic cotton yarns, 100% cotton mercerized yarns etc. have been developed which are used to manufacture a wide variety of cotton fabrics and clothing. Mostly ring s p u n ya r n s a r e u s e d f o r p r o d u c i n g f i n e q u a l i t y c l o t h i n g , b e d l i ne n s , b e d s h e e t s , b e d spreads, pillow covers etc., while open end yarns are used for manufacturing denim wear, towels, etc This is similar to treating different diseases with different medicines. Like a wrong medicine can prove hazardous for the heath of a patient, in a similar way a wrong choice of yarn will result in the creation of the wrong type of fabric or clothing. The basic difference between the yarns is their count. Different counts
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are used to make different type of fabrics. In some cases, the cotton yarn is blended with some other yarn in different ratios to provide different effects like shining or to lend more elasticity to the yarn. It is the yarn count and the twisting mode of the yarn that actually determines the overall strength and look of the manufactured fabric. 100% cotton compact yarn and100% cotton mercerized yarns have less hairiness and the fabric made from these is of fine quality are is used for manufacturing luxury clothing and bedding The count of Yarn can vary from 2s to 72s, the higher the number, the finer the yarn is.

Spinning Companies in India T h e s p i n n i n g i nd u s t r y i s d o mi n a t e d b y l a r g e u ni t s a n d i t h a s b e e n a b l e t o u n d e r g o significant modernization since the 1990s. The main factors behind the modernization include lowering of custom duties and other restrictions on imports of machinery and equipment and lowering of restrictions on imports and exports of raw cotton and yarn. The spinning industry, which is dominated by medium and large units producing more than 90 percent of the output and total value added. During an early period of policy reform (19831990), the demand increased due to spurt in exports, which caused better utilization of existing spindles and led to reduction in idle capacity. During later phase (19902005), the investment in new spindles increased at a very rapid rate. This lead to rise in efficiency of the working spindles and relative productivity of working spindles compared to the most recent technology improved over time.
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The units in spinning sector are relatively less as most of the units in this segment belong to large sector. This becomes clear as units belonging to cotton and synthetic spinning in terms of value added accounts for 22.4 per cent in the total value added in textile and clothing sector. The high share in value added compared to units is mainly because of dominance of medium and large units in spinning sector. The share of large units in total value addition in cotton and synthetic spinning sector accounts for 86.1 per cent

Company Vardhaman Group Spindles Nahar Group Bannari Amman Spinning Mills Limited Sangam Group Malwa Cotton Spinning Mills Sambandam Spinning Mills Ltd

Capacity 8,00,000 spindles 3,70,000 spindles 2,20,000 spindles 1,93,920 spindles 1,40,000 Spindles 1,10,000 Spindles

There are1834 cotton/man-made fiber textile mills (non-Small Scale) in the country with37.07 million spindles, 4, 89,718 rotors and 56,524 looms. Share in GDP

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Its importance is underlined by the fact that The Textile industry accounts for around 4% of Gross Domestic Product, 14% of industrial

p r o d u c t i o n , 9 % o f e x c i s e collections, 18% of employment in the industrial sector, and 16% of the countrys total exports earnings. The Spinning sector, w h i c h i s i n t e g r a t e d t o t h e T e x t i l e industry accounts to 22.4% of the total value of the Textile Industry Economic trends. The Textile industry has been witnessing a massive upsurge in the recent years. The industry size has expanded from USD 49 billion in 2006-07 to USD 65 billion in 2009-10. During this era, the local market witnessed a growth of USD 15 billion, that is, from USD 30 billion to USD 45 billion Domestic Production The Production of Yarn has been on the rise. Raw material has been less with respect to the demand for Spun Yarn. The prices of Cotton Hank Yarn increased by 32.5% in Oct.2010 in comparison to the prices of Oct. 2009.The consumption of the Raw material i.e. Cotton and the production of yarn have been going up gradually.

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The Production of Yarn has been on the rise. Raw material has been less with respect tothe demand for Spun Yarn. The prices of Cotton Hank Yarn increased by 32.5% in Oct.2010 in comparison to the prices of Oct. 2009.The consumption of the Raw material i.e. Cotton and the production of yarn have been going up gradually.

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The share of medium and large units in total value added of the sector is 92.8 per cent whereas their share in value of output is 90.2 per cent. These units employ around 66percent of the total labor engaged in the spinning

Foreign Exports

The textiles industry accounts for 14% of industrial production and accounts for nearly 12% share of the country's total exports basket. The Government fixed the target for 2008-09 at US $ 26.55 billion an increase of 20% over the actual performance of US$22.14 billion in 2007-08, for export of textiles. However, no targets were fixed for 2009-2010.At p r e s e n t , I n d i a n t e x t i l e i n d u s t r y h o l d s 3 .5 t o 4 p e r c e n t s h a r e i n t h e t o t a l t e x t i l e production across the globe and 3 percent share in the export production of clothing.USA is known to be the largest purchaser of Indian textiles. Nearly half of Indian export was accounted by eight countries namely Bangladesh, Egypt, China, Portugal, Italy, Turkey, Iran and South Korea Russia (In order of export value).L a s t ye a r , t h e pr o p o r t i o n wa s a c c o u n t e d b y o nl y s e v e n c o u n t r i e s n a me l y Tu r k e y, Bangladesh, Brazil, Egypt, Italy, South Korea and Peru.

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The prices of Yarn export have been increasing with no sign of relief due to the recent increase in demand after a lull period in 08-09.The Spinning Industry in India is on set to hit the global market with other fabrics as well like the cotton textiles with its enthusiasm and consistency in work. It has already reached a phenomenal status in India by beating the obstacles that caused a downfall since past few years and is now on its way to cover a wider area in the spinning sector.

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COMPANY PROFILE AN OVERVIEW OF RAVALI SPINNERS PRIVATE LIMITED:

RAVALI SPINNERS PRIVATE LIMITED was incorporated as a private limited company on 13-05-2005, with an objective to establish spinning and textile mills. Sri Vanka Ravindra Nadh is the chief promoter of the company. The promoter till now is engaged in the export business of Human hair processing and exports. He has started the unit in 1990 under the name of Indian Hair Industries Private Limited. This company is engaged in human raw hair exports. The managing director Sri Vanka Ravindra Nadh traveled all over and visited many countries. The company engages 2000 workers every day for processing and grading of human hair. This is the biggest human hair processing and export unit in India. The company has got national export award from Government of India twice in 1997 and 1999. The company has also got best export oriented unit from Government of Andhra Pradesh twice in 1998 and 2001. The company has also got top export award from ministry of commerce twice in 2001 and 2002. Today they are pioneer in India in export of Human hair to all contents. Another company, R.K hair products pvt limited is engaged in value addition in the human hair like, Hair pieces, Hair extensions, etc.

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Thus the chief promoter is having good cotton business back ground and track record for more than 15 years. Now with the above back ground, as a diversification, the promoters have proposed to setup a Spinning Mill with an initial spinldlage of 16800 spindles at a project cost of rs.3000.00 lakhs at khandavalli, Peravali (mandal), West Godavari district, A.P. The advantage in setting up the unit in A.P is as follows: There will be saving in transportation charges than south based spinning mills. Guntur is main center for cotton lint availability, which are only 170KMs. is estimated on average there will be saving of Rs.400 per candy on account of this.

Labor is available from the nearby villages at comparatively lesser rates than in Tamil Nadu.

The site is on the National highway; hence transportation of both Raw material and finished products can be done with competitive freights.

A.P. state Government in the industrial Investment Promotion Policy 20052010 have proposed for the following benefits to the industry; Reimbursement of power cost by Rs 0.75 per unit. 25% of the tax paid during one financial year will be ploughed back as a grant towards the payment of tax during next year. 100% reimbursement of stamp duty and transfer duty on land.

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As per the guidelines issued by the office of the textile Commissioner, Ministry of textiles, Government of India dated 20 October 2004, in order to be eligible for interest subsidy of 5% under TUF, the minimum economic size for new spinning mill has been reduced to 12000 spindles and the stipulation for the down stream value addition requirement has been done away with. As such the company being established with 16800 spindles will be eligible for an interest subsidy of 5% on the term loan for the total project period.

Considering the present market scenario for the spinning industry by the Government of India by way TUFS scheme and also the experience of the promoters in export business, the unit will be definitely viable.

HISTORY OF THE COMPANY

RAVALLI SPINNERS PRIVATE LIMITED is located at Kandavalli, and was established on 13-05-2005 with an objective to establish spinning on textile mills.

The promoter got equity support from Financial Institutions like IDBI, SBI, ICICI, Andhra Bank, State Bank of India, State Bank of Hyderabad and Public Deposits. The mills are stretched around an area of 21 acres. It entered into commercial production on May 2005.Its initial capacity 3000, 00 lacks with capacity of 16,800 spindles.

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The company RAVALLI SPINNERS PRIVATE LIMITED is a broad managed company with on the Board Sri Vanka Ravindranadh is the chairman and Managing director. The company is a manufacture of Hank Yarn and Cone yarn Production is carried out in the plant situated in Khandavalli at West Godavari District in Andhra Pradesh. The plant is being operated with sophisticated technical collaboration and machinery by using high speed spinning and waving process. The plant has dual feed facility with the help of which production can be carried out either by cotton or polyester or viscose as one of the major raw materials. With the recent expansion the capacity has been increased substantially.

The company directors are assisted by qualified and experienced professionals in various fields of production, research and development exports, finance, marketing , secretarial and legal functions. The total manpower of the company including managerial, personnel, executive staff, trainers, and workmen are amount of 852.

The company has been operating the plant constantly since its inception at full capacity and has a mark with its quality product and it is after sales services. The company has an impressive record in terms of increasing turnover (including exports) and its profits, as revealed by the financial statements. The company pays dividends to the shareholders.

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The company being a progressive one, caries out research and development in specific areas like reducing raw material consumption and reducing waste etc. The company plant to manufacture value added polyester products as well.

With an already impressive track record, the company got safety award from Andhra Pradesh Government for environmental safe.

The reasons for selecting the location are many. As there were very few at that time in A.P the promoters thought of establishing this firm. It facilitates employment to rural people. As the company is a manufacturer of textile products it requires the raw-material in bulk so it is located neared to them. The climate conditions are also in favor to the growth of cotton corps. Another reason for the location of site is the transportation. The mill is located nearer to the railways and roadways so there is no problem of transportation.

The company has expanded its spindles from time to time. Its installed capacity in May 2005 a new spinning mill has been reduced to 12,000 spindles (from the earlier 25,000 spindles) and the stipulation for the downstream value addition requirement has been done away with. As such the company being established with 16,800 spindles will be eligible for an interested an interest subsidy of 5% on the term loan for the total project period.

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BIO-DATA OF THE CHIEF PROMOTERS Name of the Director Father's Name Age Address : Sri Vanka Ravindra Nath : Satyanarayana : 45 years : Door No.23-7-11, Park Street, Sajjapuram, Tanuku-534211 West Godavari Dist , A.P Education Qualification : Diploma in sugar Tech , B.sc (chemistry) Experience : 15 years of experience in export of raw Human hair Name of the Director Husbands Name Age Address processed human hair

Continents : Smt Vanka Raja kumari : Ravindra Nath : 40 years : Door No.23-7-11, Park Street, Sajjapuram, Tanuku-534211 West Godavari Dist , A.P

Education Qualification: Experience

: M.A (economics) : She also participates in the Business activities along with her husband. 15 years of experience in export or raw human hair and processed human hair to all continents

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LOCATIONAL ADVANTAGES

Ravali spinners pvt .ltd has proposed to set up a cotton yarn spinning mill at Khandavalli , Peravali (Mandal), W.G.Dt. Raw material required for the spinning mill is available in AP Particularly from the spinning mills located in GUNTUR . Guntur is very big market for cotton trade and can supply the required quality cotton to the proposed unit. As the raw material is available with in 170 kms, cost of transportation will be minimum.

RAW MATERIAL AND OTHER UTILITIES RAW MATERIAL: The proposed mill is Khandavalli Peravali (mandal), WG.dst. hundreds of ginning mills are in operation in Guntur to manufacture 40"s count yarn the required type of cotton is available from this ginning mills. Quality cotton is available at comparatively cheaper rates than to south based spinning mills due to the advantage in transport cost.

LAND AND BUILDING: Ravali spinners pvt.ltd has purchased ac. 17.23 cents of site at Khandavalli at a cost of RS 147.00 lakhs. It is proposed to construct 97,067 shift machinery halls , stock godowns, power and generator rooms, office, staff and workers quarters, canteen and ancillary buildings at a cost of Rs 354.76 lakhs to establish the spinning mill.

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PLANT AND MACHINERY: It is proposed to buy all the machinery from reputed machinery manufactures like LMW , RJK , Batliboi, Reiter (Switzerland), Schlafhorst (Germany) etc., the promoters propose to enter export market also for sale of cotton yarn. Hence thy have proposed to add machinery like combers and auto corner to have good quality of cotton yarn. All the machinery will be new machinery only The main machinery consists of the following: Name of Machinery/ equipment Name of the supplier Number machines Blow room Carding machines -LC 300A -V3 and Chute feeds Draw frames -LDO/6 Draw Frame-RSB 851 Speed Frames-LF 1400 A-144 spindles each Ring Frams-LR\6s 1200 each Combers-E65 uNllap- E 32 Auto coner (Imported) Cone Winding - 160 drums LMW, coimbatore Reiter; Switzerland Reiter; Switzerland (Schlafhorst) Germany RJK Ahmedabad 14 5 1 5 1 LMW, coimbatore LMW, coimbatore LMW, coimbatore 3 3 4 LMW, coimbatore LMW, coimbatore 1 10 of

With the above machinery the mill will be producing 100% 40s count combed and auto coned yarn.

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TECHINICAL ARRANGEMENTS: The Company will appoint experienced people at all levels to run the spinning mill through professional management. The suppliers of the machinery will do erection of the machinery. The process not much technology is involved. QUALITY CONTROLS The Director proposes to supervise the purchase of cotton through testing. One quality cotton is procured and processed the quality of the finished product, yarn, will always be good and fetch a better rate in the market .The technical persons through supervision and testing will insure quality control in all stages of spinning. The company is purchasing laboratory equipment required to test all parameters of cotton and yarn.

UTILITIES: Power requirement of the unit is estimated at 2000 KEV which will be draw from AP TRANSCO. As a standby, it is proposed to purchase a 500 KAV diesel generator set. Ground water is abundantly available.

MANUFACTURING PROCESS

Cotton bales and boras are opened, mixed and sent through blow room. IN' blow room cleaning if cotton will be done there by major impurities and foreign particles are removed from cotton and cleaned cotton will be received. The cleaned cotton will be sent from blow room through chutes to the cards.

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In Cards, cotton fiber individualization and further cleaning will be done .Processed material at this stage is called Card Silvers. These card silvers are filled in HDPE cans. Card silvers received from ceding are fed to Breaker Draw Frame and from there to Uni lap/which are comber preparatory and then to Combers where depending on the quality requirement short fibers are removed and combed Silvers are filled into cans.

Combed silvers received from combers will be fed to Drawing, where there will be improvement of uniformity and parallelization of fibers. The processed material at this stage is stage is called Drawing silvers.

Drawing silvers received from Drawing section will be fed to Simplex Where yarn will be formed as Roving Bobbins to feed continently to ring Frames. Bobbins received from Simplex will be fed to Ring Frames, Where final yarn is received in the form of Cops. Cops received from ring Frames will be fed to Auto Coners /cones Winding, where auto cones/Coned yarn, the finished product will be obtained.

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VISION: To be a continuously growing company Harness our growth potential and sustain profitable growth. Deliver high quality and cost competitive products and be the first choice of customers. Create an inspiring work environment to unleash the creative energy of people. Achieve excellence in enterprise management. Be a respected corporate citizen, ensure clean and green environment and develop vibrant communities around us.

CORE VALUES: The core values of the company are: Commitment Customer satisfaction Continuous improvement Concern for environment Creativity and innovation.

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Policies: Ravali spinners take all necessary actions for the fulfillment of regulatory requirements. It has dedicated departments for this purpose. Energy conservation, Environmental preservation, safety in work place, and

occupational health gets highest priority in the company. Some of the policies in this regard are reproduced below. Quality, Environment and Occupational Health & Safety Policy: Ravali spinners is committed to meet the needs and expectations of its customers and other interested parties , the occupational health and safety of its workforce and to preserve the environment . To accomplish this, it will Supply quality goods and services to customers delight. Document, implement, maintain & periodically review the management systems including the policy, objective and targets. Use resources efficiently and reduces waste & prevent pollution. Comply with all relevant legal, regulatory and other requirements applicable to products, activities and processes in respect of Quality, Environment, Occupational health & Safety and also ensure the same by contractors. Continually improve quality, environment, Occupational health and safety performance with respect to products, activities, processes, premises and services. Encourage development and involvement of employees. Maintain high level of quality, environment, occupational, health and safety consciousness amongst employees and contract workers by imparting education and training.
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HR Policy: Ravali spinners believe that its employees are the most important resources. To realize the full potential of employees, the company is committed to: Provide work environment that makes the employees committed and motivated for maximizing productivity Establishing systems for maintaining transparency, fairness and equality in dealing with employees Empower employees for enhancing commitment, responsibility and accountability. Encourage teamwork, creativity, innovativeness and high achievement orientation. Provide growth and opportunities for developing skill and knowledge. Ensure functioning of effective communication channels with employees. Customer Policy: Ravali spinners Endeavour to adopt a customer-focused approach at all times with transparency. Ravali spinners will strive to meet more than the Customer needs and expectation pertaining to Products, Quality, and Value for Money and Satisfaction. Ravali spinners greatly value its relationship with Customers and would make efforts at strengthening these relations for mutual benefits.

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THEORETICAL FRAMEWORK INVENTORY MANAGEMENT INTRODUCTION Inventory cost account for nearly 55 percent of the cost of production, as it is clear from an analysis of financial statements of large number of private and public sector organizations. So, it is essential to establish suitable procedures for proper control of materials from the time of purchase order placed with supplier until they have been consumed properly and accounted for. DEFINITION: The term inventory refers to current assets, which will be sold in future in the normal course of business operations. The assets, which the firm stores as inventory in anticipation of need, are raw materials, stores & spares, work-in-progress\process, and finished goods. Inventory often constitutes a major element of a total working capital and hence it has been correctly observed, Good inventory management is good financial management. Inventory control is a system, which ensures the provision of the required quantity at the required time with the minimum amount of capital. Inventories are the second largest asset category for the manufacturing firms next to plant and equipment. Inventory control includes scheduling the requirements, purchasing, rece3iving and inspecting, maintaining stock records and stock control. Inventory control is a matter of coordination. A proper material control helps in improving the input output ratio.

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TYPES OF INVENTORIES: Inventories play a major role in a business or company depending on nature of the business. The inventories may be classified as under, 1. Raw materials The raw materials include the materials, which are used in the production process, and every manufacturing firm has to carry certain stock of raw materials in stores. These units of raw materials are regularly issued or transferred to production operation. Inventory of raw materials are held to ensure that the production process is not interrupted by storage of these materials. Amount of raw materials to be kept by a firm depends upon number of factors, including the speed with which raw materials can be ordered and received. Its purpose is to uncouple the production function from the purchasing function i.e. to make these two functions independent of each other so that delay in procurement of raw-materials do not cause production delays in procurement of raw-materials do not cause production delay in procurement of raw-materials do not cause production delays and the firm can satisfy its need for rawmaterials out of the inventory lying in the stores 2. Work in process\progress: It refers to the raw materials & consumables engaged in various phases of production process. The degree of completion may be varying for different units some units may be 40% finished, or some other 90%completed. The value of work in progress involves conversion cost incurred and the overheads if any, so work in progress contains partially produced or completed goods.
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The purpose of work-in-progress inventory is to uncouple the various operations in the production process, so that machine failures and stoppage in operations will not affected by one another. 3. Finished goods: In trading firm purchase are made where as in the manufacturing firm produce or process the goods. However, it may be. These are goods that are either being purchased by the firm or are being produced or processed in the firm. These are just ready for sale to customers. Inventory of finished goods arise because of the time involved in production process and to meet customers demand promptly. If the firms do not maintain a sufficient finished goods inventory, they run the risk of losing sales due to customer dissatisfaction. The purpose of finished goods inventory is to uncouple the production and sale can be made directly out of inventory, NEED FOR INVENTORY CONTROL: If a cost accounting system is to be effective there must be a proper control of inventory and supplies form the time orders are placed with suppliers until they have been effectively utilized in production. Materials are equivalent to cash and they make up an important part of the total cost. It is essential that materials should be properly safeguarded contribution to the efficiency of a business. The success of a business concern largely depends upon efficient purchasing, storage, consumption and accounting.

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In a large firm the planning and routing department is responsible for arranging how and where the work is to be done and issue instructions. It sets definite time schedules so that necessary materials are delivered to the proper department in proper time not too long before hand neither lest it should interfere with other work nor after they are required as this result in idle time. Business firm keep inventories for different purposes. Every firm big or small trading or manufacturing has to maintain some minimum level of inventories. Based on some motives the inventories are maintained. a. Transaction motives: Every firm tends to maintain some level of inventory to meet the day to day requirement of sales, production process and customers demand etc. in this, raw materials are stored for smooth production process of the firm. b. Precautionary motive: A firm should keep some inventory for unforeseen circumstances also like loss due to natural calamities in a particular area, strikes, layouts etc so the firm must have some finished goods as well as raw-materials to meet circumstances. c. Speculative motive The firm may be made to keep inventory in order to capitalize an opportunity to make profit due to price fluctuations

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REASONS AND BENEFITS OF INVENTORY: The optimal level of maintaining inventory is a subjective matter and depends upon the features of a particular firm, I.Trading firm: In case of a trading firm there may be several reasons for holding inventories because of sales activities that should not be interrupted moreover it is not always possible to procure the goods whenever there is a sales opportunity as there is always a time gap required between purchase and sale of goods in order to under take sales activities independent of the procurement schedule. Similarly, a firm may have several incentives being offered in terms of quantity discounts or lower price etc by the supplier of goods .there is a trading concern inventory helps in a de-linking between sales activity and also to capitalize a profit of opportunity due to purchase made at a discount will result in lowering the total cost resulting in higher profits for the firm II. Manufacturing firm: A manufacturing firm should have inventory of not only the finished goods, but also of raw materials and work-in-progress for following reasons Uninterrupted production schedule:Every manufacturing firm must have sufficient stock of raw materials in order to have the regular and uninterrupted production schedule if there is stock out of raw materials at any stage of production process then the whole production may come to half. This may result in customer dissatisfaction as the goods cannot be delivered in time moreover the fixed cost will continue to be incurred even if there is no production.

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Further work-in-progress would let the production process run smooth .in most of manufacturing concerns the work in progress is a natural outcome of the production schedule and it also helps in fulfilling when some sales orders ,even if the supply of raw-materials have stopped.

Inventory of finished goods is required not only in trading concern but manufacturing firms should also have sufficient stock finished goods. The production schedule is a time consuming process and in most the cases goods cannot be produced just after receiving orders .therefore deliver the goods as soon as the order is received ESSENTIALS OF INVENTORY CONTROL: The important requirements of inventory control are: a) The proper co-ordination among the departments involved in buying, receiving, inspecting, courage consuming and accounting. b) Centralization of purchasing under the control of competent buyer whenever possible c) Proper scheduling of material requirements. d) Proper classification of materials with codes, material standardization and simplification. e) The operation of a system of internal check to ensure that all transactions involving Materials and equipment are checked by properly authorized and independent persons.

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f) The storage of materials are well planned and kept in properly designated location, subject to adequate safeguard and supervision. g) The operation of a system of perpetual inventory so that it is possible to determine at any time, the amount and value of each kind of material in stock. Objectives of Inventory control: The main objectives of inventory control are: To maintain an optimum size of inventory for efficient and smooth production and sales operation. To maintain a minimum investment in inventories to maximize profitability. To ensure a continuous supply of raw materials to facilitate uninterrupted production. To maintain sufficient stocks of raw materials in periods of short supply and anticipate price change. Maintain sufficient finished goods inventory for smooth sales operation and efficient customer service. inimize carrying cost and time. To control investment in inventories and keep it at an optimum level.

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Advantages of inventory control: The following are suggested advantages: Eliminates wastage in use of material, It reduces the risk of loss from fraud and theft. It helps in keeping perpetual inventory and other records to facilitate the preparation of accurate material reports to management, To reduces the capital tied up in inventories, It reduces cost of storage, It furnishes quickly and accurately the value of materials used in various departments. It prevents delays in production due to lack of materials by supplying, proper quantities at the right time. Disadvantages of lack of inventory control firm has to maintain optimal level of inventories. If not the following will be the result in form of losses. Opportunity cost: every firm has to maintain inventory for that some investment is known as opportunity cost and handle the investment in inventory are more the funds are blocks up with inventory. Excessive inventories: it will lead to firm losses due to excessive carrying costs and the risk of liquidity. It is also referred as Danger level. Inadequate inventory: it is another danger which results is production hold-up and failure to meet delivery commitments .in adequate raw materials and work -in- process inventors will results in frequent
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production interruptions .it finished goods are not sufficient customers may shifts to competitors. Danger due to physical deterioration: it is one the reason with the

inventories due to maintaining stocks at high levels they will be deteriorated due to passage of time, some times due to mishandling or improper storage facilities. Costs involved in inventory: Every firms maintains inventory depending upon requirement and other features of firm for holding such inventory some cost will be incurred there are as follows: 1. Carrying cost: This is the cost incurred in keeping or maintaining an inventory of one unit of raw materials, work-in-process or finished goods. Here there are two basic cost involved. Cost of storage: It includes cost of storing one unit of raw materials by the firm. This cost may be for the storage of materials. Like rent of spaces occupied by stock, stock for security, cost of infrastructure, cost of insurance, and cost of pilferage, warehousing costs, handling cost etc.

36

Cost of financing: This cost includes the cost of funds invested in the inventories. it includes the required rate of return on the investments in inventory in addition to storage cost etc. the Carrying cost include there fore both real cost and opportunity cost associated with the funds invested in the inventories. The total carrying cost is entirely variable and rise in directly proportion to the level of inventories carried. Total carrying cost =(carrying cost per unit)*(Average inventor 2. Cost of ordering: The cost of ordering includes the cost of acquisitions of inventories. It is the cost of preparation and execution of an order including cost of paper work and communicating with the supplier. The total ordering cost is inversely proportion to annual inventory of firm. The ordering cost may have a fixed component, which is not affected by the order size: and a variable component, which changes with the order size. Total Ordering Cost = (No. Of orders) * (cost per order) 3. Cost of stock out: It is also called as hidden cost. The stock out is the situation when the firm is not having units of an item in stores but there is a demand for the item either for the customers or the customers or the production department. The stock out refers to zero level inventories. So there is a cost of stock out in the sense that the firm faces a situation of lost sales or back orders. The stock outs are quite often expensive.
37

Even the good will of firm also be effected due to customers dissatisfaction and may lose business in case of finished goods, where as in raw materials or work in process can cause the production process to stop and it is expensive because employees will be paid for the time not spend in producing goods. The carrying cost and the ordering cost are opposite forces and collectively. They determine the level of inventors in a firm. Total cost = (cost of items purchased) + (total carrying and ordering cost) Valuation of inventory: The methods of valuing inventory are combination of the actual cost and replacement cost plans. The main advantage of the cost or net realizable value rule is that it is conservative. Hence the methods of valuation of inventory are quite independent of system of financing. 1. Cost of raw materials in stock may include freight charges and carrying cost. But such cost should not exceed market price, 2. Work-in process is generally valued at cost, which includes cost of materials, labor. And the proportionate factory overhead, as it is reasonable according to degree of completion, 3. Cost of finished goods would normally to be total or full cost it includes prime cost plus appropriate amount of the overhead. Selling and distribution cost is deducted on the other hand work in progress may be valued at work in progress may be valued at work cost, marginal cost, prime cost or, even direct materials

38

Material cost: Materials cost of a job or cost unit can be ascertained by multiplying the quantity consumed for the job or cost unit by the price of the materials, for ascertaining the quantity consumed for each job or cost unit we have devised material requisition which will indicate the quantity required for the job and the job number against which the material cost will be change directly. For indirect material issued the material requisition will not indicate the job number but the cost center number will be indicated for charging to relevant cost center as indirect materials. Thus in order to ascertain material cost, 1. Make valuation of purchase. 2. Make use of proper valuation of material issue and closing stock following different method such as FIFO, LIFO WEIGHTED AVG. 3. The purchase price of material is directly obtained from the suppliers receives and have to be issued to production before the invoice of materials is received. The rate per unit, total price of the item as shown in the purchase order plus sundry charges such as delivery and forwarding charges tax., duty etc may be borne by suppliers, governments controlled prices by notifications, suppliers, catalogues and circulars may be valuable guides for obtaining rates of materials. Delivery charges may be estimated with reference to the kind of transport with charges incurred.

39

The price may also include sales tax, excise duty, fright etc, so the total cost and rate per unit can be computed and rate per unit can be computed and entered in the stores received registered and posted to stores ledger for the issues of material to production. In some cases material needs adjustment for any discount allowed: Charges for transports containers etc. Discounts may be like trade discounts quantity discount, cash discounts etc. transportation and storage costs may not include the cost of air, sea on land transport and other stores costs, where the purchaser has to bear the cots. Cost of containers with regard may not make a separate charge because of non refundable and also sales tax, excise duty, insurance etc., all the items are added to purchase price. RECEIVING AND INSPECTION DEPARTMENT: 1. Receiving all raw materials and other supplies from various suppliers. 2. Verify items by count, weight etc. and report any shortage. 3. Inspect materials and supplied as to quality by analyzing them suitably. 4. Inform the purchasing department and account department all facts that may require adjustment with vendor. 5. Analyze and give them the code depending up on the type of materials.

40

Stores keeping department: 1. Check and accept all materials from the received department 2. Identity each material received with the stock list, check the code number and pace in the respective bins. 3. Issue materials and supplies for use upon presentation of authorized requirement. 4. Record quantities received and issued on bin lards or stock ledger cards consisting the perpetual inventory records. Production departments: Make out materials requirement note I.e. requisition of requisite quantity and quality of materials at the right moment so the all materials may be available without delay on production. Check and verify that the materials of requisite quantity and quality have been have been received and charged to production. Keep proper records of materials received and their progress through different operations or progress. prepare materials return note for excess materials. Prepare materials transfer note to cover any transfer of materials. Prepare report on scrap for reporting to management. Inventory control department: In may be a subdivision of the cost accounting department, although in many concerns, it is a part of the stores keeping department
41

1. It keeps perpetual inventory records. 2. Adjust the stock on receipt of the property authorized adjustment notes. 3. Prepare statements of receipt, issue, balance and average consumption of materials both in terms of quantity and value weekly or monthly. RECEIPT AND ISSUE OF INVENTORIES 1. Receipt of inventories in to stores: After incoming materials have been examined and approved they are passed on to the appropriate stores together with the goods received note. Articles are inspected and on the stores in the usual way. In order to keep the accounting procedure uniform, it is desirable that a goods received note be prepared for these articles also: The store necessary entries in appropriate bin or shelf and make necessary entries in the receipt column of the bin card. A location code for materials helps in proper store keeping with grater efficiency, because stores can be easily identified. It is a part and parcel of stock control Location code helps in mechanized accounting and safeguard against omission in procedure.

For each kind of materials or article a Bin card is attached to the bin on which each individuals materials is stored. A bin card provides a running record of receipts, issues and stock in the simplest form. An entry will be made at the time of receipt or issue and a new balance will be extended.

42

These cards should agree with the quantities entered in the relevant accounts in the stores ledger. The main advantage is to enable the stores keeper to ascertain at a glace the quantity of materials in stock and remind him to place purchased requisition for further suppliers the ordering level has been reached more over they provide on independent check on stores ledger and anciently a second perpetual inventory. If the bin card is from three years then the transactions are made in same card. If Bin card does not exist new Bin card to be opened. 2. Issues of Materials from Stores: The storekeeper issue materials on receipt of proper authorized document usually called a materials requisition is a document which authorities and records the issue of materials for use. The materials requisition details the items required for use showing the quantity, code or past number and the cost center of job to be charged. Requisition is normally prepared in triplicate; the department receiving the goods retains one copy and the other two copies are handed over to the copies are handed over to the storekeeper. He keeps one along with him and enters on the issue sides of the appropriate bin card Day-to day transactions are noted in stores ledger. Stores ledger: The stores ledger which is usually a loose leaf or card type, contains an account for each class of materials their ledger is kept in the cost department and contains such information as well facilitate the ascertainment of all details relating to the materials in the minimum of time.

43

3. Materials retuned to stores: Where materials are issued in excess of requirement the excess quantity is return to the stores together with materials Return note. Since the materials return to store from a works order is a reduction in the amount recorded as issued, the preferable entry is to enter the number of units and the value of the stores ledger account. These values are deducted form total issues, and amount returned by each department as shown by materials return note is deducted from total issues and amount returned by each department as shown by materials return note is deducted from the total amount charged to each department. In enterprises where return of materials to stores is a major problem it is customary to use a materials and supplies journal for keeping records 4. Transfer of materials: Transfer of materials form one job to another is prohibited unless the detail is adequately recorded on the materials Transfer note. Such transfer is permissible only where an urgent order has to be made and work started on a less urgent order may be appropriates. Such notes how are incessancy date for ordering and debiting the costs accounts affected. These notes are passed direct to the cost office for the appropriate adjustment in the work-in-progress ledger.

All these four notes including stores ledger and bin card are major for inventory management which are valued and checked for every quarterly of half yearly or annually.

44

Valuation of materials issues: The fixations of the price at which the materials are issued are to be charged to production is an important one form the point of view to inventory management. These are numerous factors to be taken into amount in pricing the material they are the nature of the business and type of production, the frequency of purchase price fluctuations and issues of materials. Range of price fluctuations and value of material issued and size of bath of materials issued. Requirement that purchasing efficiency should be revealed or not. The accuracy with which issues can be computed. The durability of stock thats evaporates, absorbs moisture or deteriorates quickly. The length of inventory turnover period and quantity of material to be handled with necessity for maintaining uniformity within an industry.

45

ISSUE PRICING METHODS: There are two categories: I. Cost prices: a) FIFO (first in first out) c) Specific price e) HIFO (highest in first out) II. Derived from cost prices: a) Simple average price b) Periodic simple average price c) Periodic simple average price d) Periodic weighted average price e) Moving simple average price f) Moving weighted average price III. National prices: a) Standard price b) Inflated price c) Re-use price d) Replacement price b) d) LIFO (last in first out) Base stock price

46

First in first out (FIFO): This is the price paid for the material first taken into stock form which the material to be pried could have been drawn. Under this method stocks of materials may not be used up in chronological order but for pricing purpose it is assumed that items longest in stock are used up first. The method is most suitable for use where in material in slow- moving and comparatively high unit cost. ADVANTAGES: 1. Price is based on actual cost and not on basis of approximations such as no profits or losses arises by reasons of adopting this method. 2. The resulting stock balance generally represents fair commercial valuation of stock. 3. It is based on traditional principles. DISADVANTAGES: 1. The number of calculations in the stores ledger involved tends to be complicated with increase in clerical error. 2. The cost of consecutive similar jobs will differ if the price changes suddenly. 3. In times of rising prices, the charge to production is unduly low as the cost of replacing the material will be higher.

47

LAST IN FIRST OUT (LIFO): This is the price paid for the material last taken into stock form which the materials to be priced could have been drawn. This method also ensure material being issued at the actual cost. Its use is based on the principle that costs should be as closely as possible related to current price level. Under this method production cost is calculated on basis on replacement cost. ADVANTAGES: 1. Production is charged at the most recent prices so that it is based on the principle that cost should be related to current price levels. 2. It obviates the necessity for continuously ascertaining the replacement price. 3. Neither profit nor loss is usually made by using this method. 4. In the times of rising prices there is no wind fall profit as would have been obtained under FIFO method. DIS-ADVANTAGES 1. Needs more clerical work 2. Compassion among similar jobs is very difficult 3. Stock valves relating to prices of the oldest cost on hand may by entirely out of the current replacement prices

48

WEIGHTED AVERAGE PRICE: This is the price which is calculated by dividing the total cost of material in the stock form which the material to be priced have been drawn, by the total quantity of material in the stock. This method differs from all other methods because here issue prices are calculated on receipts of materials and not on issue of materials. Thus as soon as new lot is received a new price is calculated and issues are then taken. ADVANTAGES: 1. This method is advantageous where the price varies widely as its use even out the effect of these wide variations. 2. The basis of price calculations is a simple one involving only the division of total amount of material in stock by quantity in stock. 3. Calculation of new prices arises only when receipt of stock are received. 4. Stock records under this method give a fair indication of the stock values, which can be used in financial analysis. DISADVANTAGES: 1. Profit or loss may be incurred as in simple average price. 2. As LIFO OR FIFO this method calls for many calculations. 3. `In order to calculate the accurate value of issues the average price must normally be calculated to four to five decimal places.

49

STANDARD PRICE: It is the predetermination of fixed price on basis of specification of all factors affecting price like the quantity of materials in hand and to be normally purchased and rate of discount compared with existing price including or excluding freight and ware housing expense. A standard price for each material is set and the actual price paid is compared with standard. It is paid exceeds the standard a loss will be realized if not profit will be obtained. ADVANTAGES: 1. This method is easy to operate. 2. Comparing the actual prices with the standard price will determine the efficiency of 3. Purchase department. 4. The effect of price variations is eliminated from job costs. 5. It reduces classical costs by eliminating detailed cost records. 6. In times of inflation or price fluctuations is very difficult to fix a standard price. 7. This method also incurs a profit or loss on issues and closing

50

INFLATED PRICE: This is the price, which includes a charge designed to cover the cost of contingencies or related costs. This price includes not only the cost involved in bringing the material to the purchases premises but also the loss due to evaporation and breakage etc. as well as carrying cost. TECHNIQUES OF INVENTORY MANAGEMENT: Main problems in inventory management are to answer. 1. Are all items of inventory important if not what are items to be given more importance ? 2. What should be the size of the order for replenishment be placed? 3. What should be the over level? To answer these following techniques are used. I. III. V. ABC analysis VED analysis Safety stock II. IV . VI. Economic order quantity RE-ORDER level Just in time inventory

51

ABC ANALYSIS: It is based on proposition that 1. Managerial items and efforts are scare and limited 2. Some items of inventory are more important than others. ABC ANALYSIS: ABC analysis classifies various inventory into three sets or groups of priority and allocates managerial efforts in proportion of the priority the most important item are classified into class-A, those of intermediate importance are classified as class B and remaining items are classified into class C. The financial manager has to monitor the items belonging to monitor the items belonging to different groups in that order of priority and depending upon the consumptions. The items with the highest value is given top priority and soon and are more controlled then low value item. The re-rational limits are as follows Category A B C % of items 5-10 10-20 70-85 % of total materials 70-85 10-20 5-10

52

PROCEDURE: 1. Items with the highest value is given top priority and soon. 2. There after cumulative total of annual value of consumption are expressed as percentage of total value of consumption. 3. Then these percentage values are divided into three categories. ABC analysis helps is allocating managerial efforts in proportion to importance of various items of inventory. ECONOMIC ORDER QUANTTY: After various inventory items are classified on the basis of the ABC analysis the management becomes aware of the type of control that would the appropriate for each of the three categories of the inventory items. The determination of the appropriate quantity to be purchased in each lot to replenish stock as a solution to the order quantity problems necessitates resolution of conflicting goals. Buying in higher average inventory level will assure. 1. Smooth production \ sale operation and. 2. Lower ordering or setup costs. But it will involve higher carrying costs. On the other hand small orders would reduce the carrying cost of inventory by reducing the average inventory level but the ordering costs would increase, as there is a likelihood of interruption in operations due to stock outs.

53

A firm should not place either too high or small orders on the basis of a trade off between benefits derived from the availability of inventory and the cost of carrying that level of inventory, appropriate or optimum level of order to be placed should be determined. The optimum level of inventory is popularly referred to as the economic order quantity or economic lot size. 3. It may be defined as that level of inventory order that minimizes the

total lost associated with inventory management. It is based on some assumptions, which are restrictive. a) The firm knows with certainty the annual usage of a particular item of inventory. b) Rate at which the firm uses inventory is steady over time. c) The orders placed to replenish inventory stocks are received at a exactly that point in time when inventories reach zero EOQ can be illustrated by 1. 2. Trial and error approach Mathematical approach

54

Trial and error approach: In this approach the procedure of procuring the inventory is assumed the smaller the lot lower is average inventory and vice versa and high average inventory would involve high carrying costs. This approach is used for determination of EOQ uses different permutation and combination of lots inventory purchase so as to find out the least ordering and carrying cost combinations. The carrying cost and acquisition cost for different sizes of order to purchase inventories are computed and the order size with lowest total cost of inventory is EOQ. Mathematical approach: The EOQ quantity can use a shout cut method calculated by following EOQ = Root of 2AB\C Where, A = annual usage of inventory B= buying cost per order C = carrying cost per unit Limitation: While using EOQ it should be noted that it suffers from shortcomings, which are mainly due to the restrictive nature of the assumptions on which it is based.

55

The important limitation is assumption of constant consumption usages and, the instant replenishment of inventory is of doubtful validity. There may be unusual and unexpected demand for stock to meet such contingencies the firm has to keen additional inventories like safety stocks. Another weakness is to assume known annual inventories is open to question and there is likelihood of a discrepancy between the actual and expected demand leading to wrong estimate of EOQ. VED ANALYSIS: Vital essential and desirable analysis is done mainly for control of spare parts keeping in view of the criticality to production. Vital spares are spare the stock-out of which even for a short time will stop production for quite sometime. Essential spares are spares the absence of which cannot be tolerated for more than a few hours a day. Desirable spares are those, which are needed, but their absence for even a week or so will lead to stoppage of production. THE RE-ORDER LEVEL: The re-order level is the level of inventory at which the fresh order for that item must be placed to Procure fresh supply. The re-order level depends upon. 1. Length of time between the placement of an order and receiving the supply. 2. The usage rate of the item. The inventory is constantly being used up. The rate at which the inventory is being used up. The rate at which the inventory is being used up is called the usage rate.
56

SAFETY STOCK: The safety stock protects firm from trade off due to unanticipated demand for the items level of inventory investment is however increased by the amount of safety stock. Level is ascertained in inventory as a part because there is always an uncertainty involved in time lag usage rate or other factor. Usually smaller the safety level greater the risk of stock- outs. If stocklevels are predictable then there is a change of stock out occurring. However stock inflows and outflows are unpredictable or lesser predictable it becomes to carry additional safety stock to prevent unexpected stock out so usage rate is estimated if cost is low then no safety stock is needed. JUST- IN- TIME INVENTORY: The basic concept is that every firm should keep a minimum level of inventory on hand. To rely on suppliers to furnish stock just in time as and when required. JIT helps in emphasizing sufficient level of stocks to ensure that production will not be interrupted. Although the large inventories may be idea due to heavy carrying JIT is a modern approach to inventory management and the goal is essentially to minimize such inventories and there by maximizing the turnover. JIT system significantly reduces inventory-carrying cost by requiring that the raw materials be procured just in time to be placed into production. Additionally the work in process inventory is minimized by eliminating inventory buffers between different production departments. If JIT is to be implemented successfully there must be a high degree of coordination and co-operation between the supplier and manufacturer and among different production centre. JIT does not appear to have any relation with EOQ however it is in fact alters some of the assumption of EOQ model. The average inventory level under the
57

EOQ model is defined as Average inventory = 1/2EOQ safety level JIT attacks this equation in two ways. 1. by reducing the ordering cost 2. by reducing the safety stock The basic philosophy in JIT is that the benefits, associated with reducing inventory and delivery time to a bare minimum through adjustment in the EOQ model: will more than offset the costs associated with the increased possibility of stock-out.

58

DATA ANALYSIS AND INTERPRETATION

TOTAL INVENTORY TREND: (In Lakhs)

YEARS 2006-07 2007-08 2008-09 2009-10 STORES & SPARES 7 15 15 16 RAW MATERIALS 171 1095 1101 1790 WORK IN PROCESS 15 32 88 102 FINISHED GOODS 30 56 69 128 TOTAL 223 1198 1273 2036

59

TOTAL
2500 2036 2000

1500 1198 1000

1273 TOTAL

500 223 0 2006-07 2007-08 2008-09 2009-10

60

RAW MATERIALS: (In Lakhs)

PARTICULARS RAW MATERIALS

2006-07

171.50

2007-08

1095.75

2008-09

1101.59

2009-10

1790.82

61

RAW MATERIALS
2000 1800 1600 1400 1200 1000 800 600 400 200 0 2006-07 2007-08 2008-09 2009-10 171.5 1095.75 1101.59 RAW MATERIALS 1790.82

INTERPRETATION:
The raw material inventory shows an increase from year to year and in the year 2007-08 it has increased by 84% and in the year 2008-09 it has increased by 0.5% and again it increased by 63% in the year 2009-10.

In the year 2007-08 the raw material inventory value is increased too much this may be due to increase in sales or increase in order or future forecast or decrease in price of RM.

62

STORES & SPARES TREND ACTIVITIES: (In Lakhs)

PARTICULARS STORES & SPARES

2006-07

7.30

2007-08

15.18

2008-09

15.42

2009-10

16.56

63

STORES & SPARES

18 16 14 12 10 8 6 4 2 0 2006-07 2007-08 2008-09 2009-10 7.3 STORES & SPARES 15.18 15.42 16.56

INTERPRETATION:
The spares are increased in the year 2007-08 by 52% and in the year 2008-09, it increased by 0.01% and again it increased by 0.06% in the year 2009-10.

The spares have increased in the year 2007-08 against the year 2006-07 as they have been ordered on the requirement of production (or) problem with local supplier.

64

WORK IN PROGRESS: (In Lakhs)

PARTICULARS WORK IN PROGRESS

2006-07

15.31

2007-08

32.67

2008-09

88.80

2009-10

102.12

65

WORK IN PROGRESS
120 102.12 100 88.8 80

60

WORK IN PROGRESS 32.67 15.31

40

20

0 2006-07 2007-08 2008-09 2009-10

INTERPRETATION:
Here the work in progress increasing year to year. It increased in the year 200708 by 53% and in the year 2008-09 it increased by 63% and in year 2009-10 again it is increased by 13% this may be due to the increase in orders or sales.

66

FINISHED GOODS TREND ACTIVITIES: (In Lakhs)

PARTICULARS FINISHED GOODS

2006-07

30.68

2007-08

56.97

2008-09

69.45

2009-10

128.96

67

FINISHED GOODS
140 128.96 120

100

80 69.45 60 56.97 FINISHED GOODS

40

30.68

20

0 2006-07 2007-08 2008-09 2009-10

INTERPRETATION:
The finished goods are increasing in the year 2007-08 by 46%, this may be due to the lack of sales and the finished goods have increased by 18% in the year 2008-09 which may be due to the increase in orders and in the year 2009-10 finished goods inventory is again increased by 46% due to lack of sales.

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INVENTORY RATIO TREND:

PARTICULARS COST OF GOODS SOLD AVERAGE INVENTORY INVENTORY TURN OVER RATIO

2006-07

155.13

108.75

1.42

2007-08

2005.59

75.74

26.47

2008-09

3535.77

1243.54

2.84

2009-10

6741.45

1658.27

4.06

69

INVENTORY RATIO TREND

8000 7000 6000 5000 4000 3000 2005.59 2000 1000 155.13 0 2006-07 2007-08 2008-09 2009-10 3535.77 6741.45

COST OF GOODS SOLD AVERAGE INVENTORY

INTERPRETATION:
This ratio indicates the number of times the stock has turned over into sales in a year. In the year 2006-07, 2007-08 the ratio is increasing by 25.05% but in the year 2008-09 the ratio is decreased by 23.63% which means stock is increasing even though working capital position is improving which means stock is not moving so it is not satisfactory. So management has to take steps to increase the ratio and again the ratio is increased by 1.22% that means stock is not moving from the plant.

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FINDINGS

It is observed that some of the factors which are effecting working capital like functions in business credit policy business nature, availability of price etc. are effective the company working capital. It is found that the company is maintaining good proportion of inventories in gross working capital.

It is observed that RAVALI SPINNERS PVT LTD using (FIFO) First in First Out method for raw material. It is found that the Companys inventory turnover ratio is fluctuating among the years.

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SUGGESTIONS

Periodical stock verification will provide smooth production compared with annual stock verification. The company management should take care for maintaining good performance of company.

Company should try to the get the loan at low interest. The company should have to maintain a good inventory turnover ratio.

The company has to maintained inventory to meet the inventory requirements.

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ANNEXURES Balance sheet as at 31st march 2006-2007

PARTICULARS SOURCES OF FUNDS

2006

2007

Increase

Decrease

1.SHARE HOLDERS FUNDS a)Share Capital b)Reserves and surplus 2.LOANS FUNDS a)Secured loans 3.DEFERRED TAX LIABILITY Total II.APPLICATION OF FUNDS 1.FIXED ASSETS a)Gross Block b)L:Depreciation&other funds c)Net Block d)Capital Work-in-progress Sub Total 2.INVESTMENT 3.CURRENT ASSETS,LOANS&ADVANCES a)inventories b)sundry Debtors c)Cash&Bank Balance d)Other Current assets e)Loans & Advances

38,455,612

173,200,000

134,744,388

38,455,612

166,565,929 3,262,749 343,028,678

166,565,929 3,262,749 304,573,066

15,008,437 8,100 15,000,337 7,364,667 22,365,004

179,892,978 1,866,904 178,026,074 105,310,926 283,337,000

164,884,541 18,588,04 163,025,737 97,946,259 260,971,996

4,640,739 10,987,973 15,628,712

22,481,739 5,915,403 12,481,800 15,660,964 207,172 56,747,078

22,481,739 5,915,403 7,841,061 15,660,964 10,780,801 41,118,336

LESS:CURRENT LIABILITIES &

PROVISIONS

a)Current Liabilities b)provisions NET CURRENT ASSETS 4.Miscellanceous exp. (to the extent not written off of adjusted) 5.Profit and Loss a/c Total

63688 63,688 15,565,024 525,584

5,519,006 1,996 5,521,002 51,226,076 5,604,799

5,455,318 1,996 5,457,314 35,661,052 5,079,215

38,455,612

2,860,803 343,028.678

2,860,803 304,573,066

73

Balance sheet as at 31st march 2007-2008

PARTICULARS SOURCES OF FUNDS 1.SHARE HOLDERS FUNDS

2007

2008

Increase

Decrease

a)Share Capital b)Reserves and surplus 2.LOANS FUNDS a)Secured loans 3.DEFERRED TAX LIABILITY Total II.APPLICATION OF FUNDS 1.FIXED ASSETS a)Gross Block b)L:Depreciation&other funds c)Net Block d)Capital Work-in-progress Sub Total 2.INVESTMENT 3.CURRENT ASSETS,LOANS&ADVANCES a)inventories b)sundry Debtors c)Cash&Bank Balance d)Other Current assets e)Loans & Advances LESS:CURRENT LIABILITIES &
PROVISIONS

173,200,000

330,047,700

156,847,700

166,565,929 3,262,749 343,028,678

266,203,391 2,809,845 599,060,937

99,637,462 4,52,904 256,032,259

179,892,978 1,866,904 178,026,074 105,310,926 283,337,000

288,716,560 37,921,284 250,795,276 75,288,102 326,083,378 200,000

108,823,582 36,054,380 72,769,202 30,022,824 42,746,378 200,000

22,481,739 5,915,403 12,481,800 15,660,964 207,172 56,747,078

123,445,202 10,425,016 89,334,761 37,151,522 134,511 260,491,012

100,963,463 4,509,613 76,852,961 21,490,558 72661 203,743,934

a)Current Liabilities b)provisions NET CURRENT ASSETS 4.Miscellanceous exp. (to the extent not written off of adjusted) 5.Profit and Loss a/c Total

5,519,006 1,996 5,521,022 51,226,076 5,604,799

9,205,210 19,949 9,255,159 251,565,854 4,524,799

3,686,204 17953 3,734,157 200,039,778 1,080,000

2,860,803 343,028.678

16,986,906 599,060,937

14,126,103 256,032,259

74

Balance sheet as at 31st march 2008-2009

PARTICULARS SOURCES OF FUNDS

2008

2009

Increase

Decrease

1.SHARE HOLDERS FUNDS a)Share Capital b)Reserves and surplus 2.LOANS FUNDS a)Secured loans 3.DEFERRED TAX LIABILITY Total II.APPLICATION OF FUNDS 1.FIXED ASSETS a)Gross Block b)L:Depreciation&other funds c)Net Block d)Capital Work-in-progress Sub Total 2.INVESTMENT 3.CURRENT ASSETS,LOANS&ADVANCES a)inventories b)sundry Debtors c)Cash&Bank Balance d)Other Current assets e)Loans & Advances LESS:CURRENT LIABILITIES &
PROVISIONS

330,047,700

445,59,700 5,506,795 364,345,472 8,206,147 823,750,114

115,545,000 5,605,795 98,412,081 5,396,302 224,689,177

266,203,391 2,809,845 599,060,937

288,716,560 37,921,284 250,795,276 75,288,102 326,083,378 200,000

791,816,418 71,954,700 719,861,718 719,861,718 200,000

503,099,858 34,033,416 469,066,442 75,288,102 393,778,340

123,445,202 10,425,016 89,334,761 37,151,522 134,511 260,491,012

130,160,049 49,022,493 139,200,216 50,531,162 26,133,884 395,047,804

466,256,467 38,597,477 49,865,455 13,379,640 25,999,373 134,556,792

a)Current Liabilities b)provisions NET CURRENT ASSETS 4.Miscellanceous exp. (to the extent not written off of adjusted) 5.Profit and Loss a/c Total

9,205,210 19,949 9,255,159 251,565,854 4,524,799

293,592,675 1,211,532 294,804,207 100,243,598 3,444,799

284,387,465 1,191,583 285,549,048 151022256 1,080,000

16,986,906 599,060,937

16,986,906 823,750,114 224,689,177

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Balance sheet as at 31st march 2009-2010

PARTICULARS SOURCES OF FUNDS 1.SHARE HOLDERS FUNDS

2009

2010

Increase

Decrease

a)Share Capital b)Reserves and surplus 2.LOANS FUNDS a)Secured loans 3.DEFERRED TAX LIABILITY Total II.APPLICATION OF FUNDS 1.FIXED ASSETS a)Gross Block b)L:Depreciation&other funds c)Net Block d)Capital Work-in-progress Sub Total 2.INVESTMENT 3.CURRENT ASSETS,LOANS&ADVANCES a)inventories b)sundry Debtors c)Cash&Bank Balance d)Other Current assets e)Loans & Advances LESS:CURRENT LIABILITIES &
PROVISIONS

445,59,700 5,506,795 364,345,472 8,206,147 823,750,114

556,100,000 69,466,348 480,246,625 20,736,290 126,549,263

110,507,300 63,860,553 115,901,153 12,530,143 697200851

791,816,418 71,954,700 719,861,718 719,861,718 200,000

856,229,633 180,574,487 675.655,146 92,198,241 767,853,387 200,000

64,413,215 108,619,787 44,206,572 92,198,241 47,991,669

130,160,049 49,022,493 139,200,216 50,531,162 26,133,884 395,047,804

206,411,461 63,017,822 58,148,072 67,863,424 2,680,767 398,121,546

76,251,412 13,995,329 81,052,144 17,332,262 23,453,117 3,073,742

a)Current Liabilities b)provisions NET CURRENT ASSETS 4.Miscellanceous exp. (to the extent not written off of adjusted) 5.Profit and Loss a/c Total

293,592,675 1,211,532 294,804,207 100,243,598 3,444,799

37,472,685 4,517,784 41,990,469 356,131,077 2,364,799

256119990 3,306,252 25,281,738 255,887,479 1,080,000

823,750,114

126,549,263

697200851

76

BIBLIOGRAPHY

Material management Financial management Financial management Management accounting & control WWW.RAVALISPINNERS.COM WWW.GOOGLE.COM WWW.CITEFIN.COM

GOPAL KRISHNA I.M.PANDEY KHAN & JAIN S.N. MAHESWARI

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