ST.

MARY’S UNIVERSITY
SCHOOL OF BUSINESS
DEPARTMENT OF ACCOUNTING

AN ASSESSMENT OF THE PRACTICE OF INVENTORY

MANAGEMENT AND CONTROL SYSTEM IN THE CASE OF
YES PURIFIED MINERAL WATER FACTORY

BY
GENENE TADESSE
MAHABUUB ABDILAAHI
FEVEN KETEMA

SMU
MAY 2016
ADDIS ABABA
 AN ASSESSMENT OF THE PRACTICE OF INVENTORY
MANAGEMENT AND CONTROL SYSTEM IN THE CASE OF
YES PURIFIED MINERAL WATER FACTORY

A SENIOR RESEARCH SUBMITTED

TO THE DEPARTMENT OF ACCOUNTING
SCHOOL OF BUSINESS
ST. MARY’S UNIVERSITY

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR

THE DEGREE OF BACHELOR OF ARTS IN ACCOUNTING

BY
GENENE TADESSE RAD/1318/06
MAHABUUB ABDILAAHI RAD/1845/04
FEVEN KETEMA RAD/1312/06

SMU
MAY 2016
ADDIS ABABA
 ST. MARY’S UNIVERSITY

AN ASSESSMENT OF THE PRACTICE OF INVENTORY

MANAGEMENT AND CONTROL SYSTEM IN THE CASE OF
YES PURIFIED MINERAL WATER FACTORY

BY
GENENE TADESSE
FEVEN KETEMA
MAHABUUB ABDILAAHI

SCHOOL OF BUSINESS
DEPARTMENT OF ACCOUNTING
APPROVED BY THE COMMITTEE OF EXAMINERS

DEPARTMENT HEAD SIGNATURE

ADVISOR SIGNATURE

INTERNAL EXAMINER SIGNATURE

EXTERNAL EXAMINER SIGNATURE

Acknowledgment
First of all, we would like to thank our God for His help to complete this work successfully.
Next we would like to thank and heartfelt appreciation goes to Mr. Abdu Yimer, Our research
advisor for his wholehearted and unreserved comments, advice and simulating guidance. We
would also convey our deepest thank to his assistance and provision of related study materials
starting from proposal, interview schedule up to the completion of the research work.

We would like to thank all staff members of Yes Purified Mineral Water Factory for their support
in filling the questionnaires.

Finally, we would like to thank our friends and all others, who provide moral and ideal supports
to us in successfully completion of this work.

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Abstract

The focus point of this paper is inventory management and control system of origin Purified
Mineral Water Factory. The main objectives of the paper are to assess identify the inventory
control system, the challenges of inventory management and control system of the origins
Purified Mineral Water Factory. We used primary and secondary data to collect information
about the factory and analyzed this information by using descriptive method. We also used
judgmental or purposive sampling technique. The main findings of the paper are the factory uses
ABC and VED classification system to classify its inventory. The factory’s main challenges
regarding to the inventory are lack of skilled man power, wastages of inventory item and with
respect to the security of inventor, the factory allows only store keepers have the access to
inventory.

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 Table of Contents
Acknowledgement……………………………………………………………………….……..….i

Abstract..…………………………….……………………………………………………….……ii

Table of Contents ..................................................................................................................... iii

List of Table ...............................................................................................................................iv

Acronyms………………………………………………………………………………………….v

CHAPTER ONE…………………………………………………………………….…...……....1

INTRODUCTION…………………………………………………………………………….....1

1.1 Background of the Study…………………………………………………….………………. 1

1.2 Background of Organization ……………………………………………….…………………3

1.3 Statement of the Problem…………………………………………….………………………..4

1.4 Research Question…………………………………………………………………………….5

1.5 Objective of the Study ………………………………………………………………………..5

1.5.1 General Objective………………………………………………………………………5

1.5.2 Specific Objectives…………………………………………………………………… .5

1.6 Significance of the Study……………………………………………………………………...5

1.7 Scope of the Study…………………………………………………………………………….6

1.8 Research Design and Methodology…………………………………………………………...6

1.8.1 Research Design………………………………………………………………………….6

1.8.2 Type of Data sources…………………………………………………………………….6

1.8.3 Method of data Collection……………………………………………………………….7

1.8.4 Population and Sampling Techniques……………………………………………………7

1.8.5 Data Analysis Method……………………………………………………………………7

1.9 Limitation of the Study………………………………………………………………………..7

1.10 Organization of the Paper........................................................................................................8

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CHAPTER TWO ...................................................................................................................... 9

LITERATURE REVIEW ......................................................................................................... 9

2.1 Theoretical Literature Review ............................................................................................... 9

2.1.1Nature and Definition of an Inventory ............................................................................... 9

2.1.2 Merchandising Companies Compared with Manufacturing Companies ............................. 9

2.1.3 Classification of Inventories ........................................................................................... 10

2.1.4 Concept of Inventory Management ................................................................................. 10

2.1.5 The Need for Inventory Management ............................................................................. 11

2.1.6 Activities of Inventory Management ............................................................................... 11

2.1.7 Information to Inventory Management for Inventory Analysis ........................................ 12

2.1.8 Selective inventory Management and control analysis .................................................... 16

2.1.9 Economic Order Quantity ............................................................................................... 18

2.1.10 Material Requirement Planning (MRP) ......................................................................... 19

2.1.11 Just-In Time (JIT) ......................................................................................................... 19

2.1.12 Internal Control of Inventories ...................................................................................... 20

2.1 13 Errors, Frauds and Control Activities ............................................................................ 21

2.2 Empirical Literature Review ................................................................................................ 22

CHAPTER THREE..……………………………………………………………………...……24
DATA PRESENTATION, ANALYSIS AND INTERPRETATION...............................…...24
3.1 characteristics of the study population ........................................................................................ 24

3.2 Analysis of the findings of the study……………………………………………………...…26

3.2.1 Inventory Management and Practice……………………………………………..…..…26

3.2.2 Purpose of Inventory management and controlling system ........................................... 27

3.2.3 Types of Accounting for inventory system ................................................................... 28

3.2.4 Inventory Analysis Techniques ................................................................................... 28

3.2.5 Types of Inventory Costing Method and Their Purpose................................................ 29

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 3.2.6 Inventory Cost ........................................................................................................... 30

3.2.7 Inventory Parameter Level ......................................................................................... 30

3.2.8 Parameters of Inventory ............................................................................................. 31

3.2.9 Material Requirement Planning (MRP) ...................................................................... 32

3.2.10 Economic Order Quantity (EOQ) ............................................................................. 32

3.2.11 Possible Sources of Problems and Wastages of Inventory ....................................... 33

3.2.12 Wastage of Inventory Items ..................................................................................... 33

3.2.13 Internal Control Over Inventory ............................................................................... 34

3.2.14 Type of Inventory management and control system.................................................. 34

3.2.15 Establishment of Clear Lines of Responsibilities in the Factory ............................... 35

3.2.16 Routine Procedures of the Factory ........................................................................... 36

3.2.17 Restriction of Inventory Accesses to Authorized Personnel in the Factory ............... 36

3.2.18 Insurance Coverage in the Factory ........................................................................... 37

3.2.19 How Much Different Department Work Together Satisfy its Objective .................... 37
3.2.20 General Improvement in Relation with Inventory .................................................... 38

3.2.21 Evaluation of Inventory Control Practice in General ................................................ 38

3.2.22 Comments on Suggestion......................................................................................... 39

CHAPTER FOUR....................................................................................................................... 40

SUMMARY, CONCLUSION AND RECOMMENDATIONS ……………………………..40

4.1 Summary of Findings ………………………………………………………………………..40

4.2 Conclusions…………………………………………………………………………………..43

4.3 Recommendations……………………………………………………………………………44

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List of Table
Table 3.1:Gender characteristics of respondents ………………………………………………..24

Table 3.2: Age group of Respondents……………………………………………………………25

Table 3.3: Education Levels of Respondents …...……………………………………………….25

Table 3.4: Years of service …………………………...…………………………………………26

Table 3.5: The implementation of inventory management and controlling systems …………....26

Table 3.6: The purpose of maintaining inventory management and controlling system ………..27

Table 3.7: Type of accounting for inventory system..……………………………………….…..28

Table 3.8: Type of inventory analysis..…………………………………………………………..29
Table 3.9: Respondents responses about the inventory costing method…..…………………......29
Table 3.10:Inventory cost ………………………………………………………………………30
Table 3.11: Factor Determining Inventory Level …………………………………………...…..31
Table 3.12: Response of Parameters of Inventory…………………………………………..…...31

Table 3.13: Source of Problem in Inventory Management Response...……………………....…33

Table 3.14: Wastage of Inventory Items Response..……………………………………...……..33

Table 3.15: Reason for implement and internal control of inventory..…………………………..34

Table 3.16: The inventory management and controlling system of the organization.…….……..34

Table 3.17: Response About of Clear Lines of Responsibilities..…………………………….....35

Table 3.18: Response about Factory’s Routine Procedures..…………………………………….36
Table 3.19: Response about Restriction of Inventory Access ……………………………...…..36
Table 3.20: Response about Insurance Coverage..…………………………………………..…..37
Table 3.21: Response about Cooperation of Different Departments ………………………........37
Table 3.22: Response Regarding Improvement of Inventory..…………………………………..38
Table 3.23: Response of Evaluation of Factory’s Inventory Control Practice in General ……...38

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Acronyms
ABC Activity based costing,

EOQ Economic Order Quantity

FIFO First In First Out

JIT Just-In-Time

LIFO Last In First Out

MRO Maintenance, Repair and Operating

MRP Material Requirement Planning

VED Vital, Essential and Desirable Items

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 CHAPTER ONE
INTRODUCTION
1.1. Background of the Study
The term ‘inventory’ refers to the stockpile of production a firm is offering for sale and the
components that make up the production. The inventory means aggregate of those items of
tangible personal property which are held for sale in ordinary course of business, and in process
of production for such sales. They also are to be currently consumed in the production of goods
or services to be available for sale.

It can be defined also as an expandable physical articles held for resale for use in manufacturing
a production or for consumption in carrying on business activity such as merchandise, goods
purchased by the business which are ready for sale.
Inventory control goes back further than writing there were simpler inscription in Egypt and
Babylonians warehouses and granaries, with pictures that represented the inventory owner and
numbers representing amounts in stock and taxes due. The urge to make flow of goods and a
service more efficient is perhaps identical with the urge of civilization itself. The world’s earliest
known writing (5300 years) described inventory owners, amounts and suppliers. (Dreyer, 2009)

Inventory control involves the procurement, care and disposition of materials. There are three
kinds of inventory that are of concern to managers. These are finished goods which are being
manufactured for sale by the business which are ready for sale. The second is materials, articles
such as raw materials, semi-finished goods or finished parts, which the business plans to
incorporate physically into the finished production and the third is Supplies, the article which
will be consumed by the business in its operation but will not physically as they are a part of the
production.
Inventory control is concerned with the acquisition, storage, handling and use of inventories so
as to ensure the availability of inventory whenever needed, providing adequate provision for
contingencies, deriving maximum economy and minimizing wastage and losses.

1
Hence Inventory control refers to a system, which ensures the supply of required quantity and
quality of inventory at the required time and at the same time prevent unnecessary investment in
inventories. It is one of the most vital phases of material management. Reducing inventories
without impairing operating efficiency frees working capital that can be effectively employed
elsewhere. Inventory control can make or break a company. This explains the usual saying that
“inventories” are the graveyard of a business.
The focus and objective of the inventory management and control system is to maintain on
optimum level of the inventory and its investment. Many of the businesses today have succeeded
in making plans and improvements for their inventory system and management. (www.against
world control. Blogspot.com, 2012).

Generally, inventory management and control system are worked by using accounting system of
the company to accomplish its goals. Though, might include a few changes in methods and work
outs depending on business motivation, goals and future accomplishments. The simplest method
for inventory management system is periodic inventory system. This method is visual methods
where the purchase person would review the stock daily to look for items and observe whether
they are scarce, overload, or if there are any improvement to be done. Another method, puerperal
inventory methods, allows managers to keep daily records of the inventory which include the
quantity or the total amount of items in stock, withdrawals, sales and deposits to ensure the
amount of cash flow projection and make sure that there are no mistakes in orders and receipts to
avoid customer negative feedback and turn over. The ABC classification inventory management
control system is also well known and best control system that works effectively. In this method,
items are classified separately in groups according to the annual cost of items used and the ranks
of usage. (www.against world control. Blogspot.com, 2012).

Hence, the purpose of this study is to assess the practice of inventory management and control
system of the Yes of purified mineral water in the case of Yes Water Company.

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1.2. Background of Organization
Yes water Factory is one of the popular and fast growing Purified Mineral water factory,
Purified mineral water factory is the leading company in providing the best purified mineral
water to the customer. The entity has gained recognition in very short span of time in
manufacturing Yes purified mineral water. It was established in 2010, in Oromia region,
Alemgena town along the Addis- Butajira road exactly 21 kilometer from the capital city of
Ethiopia with the motto “Yes Natural mineral water for a better Life.” It is engaged in
industrially processed and bottled water for local and export market.
The head office of the company and location of the Factory Site is 24 Km from the center of
Addis Ababa from Oromia Region, special Zone Sebeta Town, Wechecha Mountain near to
Alemgena town . The location is strategic for production, market and distribution as it is situated
in an area where the basic infrastructure such as Asphalt Road, Electricity, Water and Telephone
lines are already in place.
This Company was registered under the Ethiopian law of Investment Proclamation No.
280/2002 Registration No. EIA- IP/022089/05 on 15 January 2013 to manufacture bottled water
and other non alcoholic beverages. The company was established by two shareholders with
subscribed and fully paid up capital of Birr 444,000,000, denominated in to 222,270 ordinary
shares of ETB 1,000 per value.

Addis Ababa Yes started the development by building factories on a 20,000 square meter sized
plot of land with all its needs facilities. The plant operates in two shifts. If has created an
employment opportunity for more than 130 employees, 80 permanent and 60 contract workers.
The rated capacity of the plant is 50,000 bottles per hour. They also offer a wide range of product
size to customers. This includes Yes purified mineral water in 0.5, 1, 1.5, 2.0 litters bottle and 5
gallon returnable poly carbonate jar.

Additionally, it is the leading high tax payer company in Ethiopia in the sector. Regarding the
manufacturing sector, industrial zone preparation is one of the strategic intervention measures
adopted by the City Industrial zone for the promotion of the sector and all manufacturing
projects are assumed to be located in the developed industrial zones.

3
The objective of the Company is to manufacture and sell natural/ bottled water and other non
alcoholic beverages; and, undertake all such other activities incidental to and allied thereto or
necessary for the successful achievements of the above purpose of the company.

Yes Water factory has a vision of produce high international standard natural pure drinkable
packed water which is the best for the life for domestic and international market. Its mission is
also a serving all age groups high international standard natural pure drinkable packed water in
accordance with demand: 70% for local and 30% for export markets.

1.3 Statement of the Problem

A successful business relies on many factors, one of which is a reliable inventory management
system. Inventory management consists of everything from accurate record-keeping to shipping
and receiving of products. Inventory management is properly maintained then the company’s
supply chain running smoothly and efficiently. (www.barcodesinc.com, 2013)
However, through observation and personal contact with the employees of the organization, the
following are some of the problems with inventory systems on Yes purified mineral water
factory:
 Unqualified employees in charge of inventory: like other companies Yes mineral
water put people in charge of their distribution who either don’t have enough
experience or enough knowledge.
 Not identifying shortages a head of time: it happens all the time. A business needs a
number of products or materials but discover that they don’t have enough in stock and
must re-order.
 Items in stock get misplace.

Therefore, the study has assessed the inventory management and control system of Yes purified
mineral water factory.

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1.4 Research Question
The study attempts to address the following questions on Assessment of the practice of inventory
management and control system on Yes purified mineral water in Alemgena sub-city.
 How the Yes purified mineral water factory accurately and completely record the
inventory physical flow?
 What are the methods that the company follows for proper authorization of goods to be
ordered or sold?
 What are the problems of inventory management and control system?
 What is the inventory management practice and control system looks like?

1.5 Objective of the Study

1.5.1 General Objective
The general objective of the study is to assess the inventory management and control system in
Yes purified mineral water factory.
1.5.2 Specific Objectives
In addition to the above general objective the study has the following specific objectives:
 To assess whether the inventory physical flows are accurately and completely
recorded.
 To assess the goods to be ordered or sold in the factory follow proper
authorization.
 To assess the problem of inventory management and control system.
 To assess the inventory management practice and control system.
1.6 Significance of the Study
The study has the following significance or importance.
• The paper provides for us is to know deep and vast knowledge about
inventory management and internal control system.
• It provides recommend to Yes purified mineral water about their inventory
control system.
• It will be useful for other companies as one reference in their effort about their
inventory control system.

5
 • Other researchers who undertake study on inventory control may use this study or
paper as one source of references.

1.7 Scope of the Study

Yes purified mineral water company has abroad and best activity which performed in Alemgena
sub-city.
The scope of this study has focused on Assessment of the practice of inventory management and
control system of Yes Water Company at Alemgena sub-city.
1.7.1 Geographical scope
The study has conducted in Alemgena sub-city Yes purified mineral Water Company. As all Yes
purified mineral water Company are working almost in Alemgena sub-city, the result of the study
can represent all picture of the country.
1.7.2 Subject scope
Inventory management and control system is very important for Yes Water Company. It enables
the business to meet or exceed expectations of the customers by making the products readily
available.
The study includes ABC analysis, Raw materials, In-process or semi-finished goods, Finished
goods and then later by checking those determinants against the profitability of the company.

1.8 Research Design and Methodology

1.8.1 Research Design
This research used a descriptive study to generate adequate information about the major
challenges in the internal control over inventory.
Descriptive study was concerned with describing the characteristic of a popular or a group.

1.8.2 Type of Data sources

In order to achieve the stated objectives, the relevant data have been collected through the
following data sources.
Primary Data
The primary data was collected from primary sources by the use of interview, surveying and
questionnaires.

6
.
Secondary Data
Secondary data on the other hand was gathered through review of available relevant materials, such
as published and unpublished documents inside the company.
1.8.3 Method of Data collection
The data was gathered through interaction of discussions and survey questionnaires’ with the
executives working in the division. The researcher also used a combination of structured
questionnaires and interviews. The main instrument of data collection to be used was the
questionnaire.
1.8.4 Population and Sampling Techniques
Out of the available departments in the enterprise, the purchasing department, finance
department and store department was taken as the major focus of attention in the study.
Responsible individuals for various positions have been contacted for the required data and
information necessary for the study by using judgmental sampling method.

Among the selected departments, there are 53 employees; out of these employees, 30 employees
were selected by using systematic random sampling to give equal chance for each department.
The selected samples are available for researchers’ questioners to collect data.
1.8.5 Method of Data Analysis
After all the necessary data has been collected, it was classified, summarized and analyzed using
a descriptive analysis technique.
Accordingly, frequent count has been conducted and percentage was computed and presented in
the table.
1.9 Limitation of the Study
The limitations that have been encountered in this assessment were the following: Some of these
are described as follows; shortage of time, unavailability of secondary data source and the
distance of company for the research are the main problems.

7
 1.10 Organization of the Paper
This research has four chapters. First chapter deals with introduction which consists of
background of the study, background of the organization, statement of the research problem,
research question, objective of the study, research design and methodology, significance of the
study, scope of the study, and research limitation. Chapter two presents literature reviews. Third
chapter deals with data analysis and interpretation. Finally, the fourth chapter presents summary,
conclusion and recommendation.

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 CHAPTER TWO
LITERATURE REVIEW
2.1 Theoretical Literature Review
This research is intended to assess the practice of inventory management and controlling system
in the case of yes water factory. In addition this part defined and look at the theories which is
written about each dependent and independent variables including the inventory management
and control system of Yes Water factory.

2.1.1 Nature and Definition of an Inventory

The term inventory refers to any resource that has a certain value, which can be used at a future
occasion when the demand arises. Alternatively, inventory may be defined as stock of items kept
on hand by an organization to be used to meet customer demand. For many firms inventory is the
largest current asset. Inventory is usually thought in terms of stock of material or idle good that
are held by an organization for use sometime in the future. Inventory also includes partially
finished products at different stages of a manufacturing process, raw materials and components,
resources, finished products, labor or cash.
(Bhat, 2003: 567)

In an organization, the importance of inventory can be recognized for the following reasons:
i. Inventories are represent resources acquired at a cost, there by locking up substantial
working capital
ii. Inventories allow for smooth flow of production process by ensuring that adequate supply
of raw materials, components and manufacturing items are available to the production
process.
iii. Inventories serve as buffers against uncertain and fluctuating usages and reduce stock –
out – situations. Therefore avoiding production hold Ups and loss of customer good will.
2.1.2 Merchandising Companies Compared with Manufacturing Companies
Most merchandising companies purchase their inventory from other business organization in a
ready- to-sell condition. So, its cost of goods sold simply the purchase price of the product it
sells.

9
In Merchandise Company, the operating cycle consist of the following transaction: (Meigs,
Bettner, and Whittington 1996:201)
i. Purchase of merchandise;
ii. Sales of merchandise; and
iii. Collection of account receivable from customer
iv. A manufacturing company, however, produces the good that it sells. As a
consequence, its cost of goods sold consist of various manufacturing costs, including
the cost of material, wages earned by production workers, and variety of other costs
related to the operation a production facility.
2.1.3 Classification of Inventories
Inventories are classified in the following ways: (Dobler, Lawer and Butt, 1984: 238);
2.1.3.1 Production Inventories:- include raw materials, parts and components which enter the

firms product in the production process. These may consist of two general types:
I. Special items manufactured to company specification, and
II. Standard industrial items purchased “of the shelf”

2.1.3.2 Work In Process Inventories:- is the stock of items currently being transformed into
final product found at various stages in the production operation.
2.1.3.3 MRO Inventories: MRO (Maintenance, Repair and Operating) include supplies which
are Consumed in the production process but which do not become parts of
the produce (e.g. lubricating oil, soap, Machine, repair parts).
2.1.3.4 Finished Goods Inventories: These are completed products ready for shipment.

2.1.4 Concept of Inventory Management

Inventory management is the process of efficiently overseeing the constant flow of units into and
out of an existing inventory. This process is usually involves controlling the transfer in of units in
order to prevent the inventory form becoming too high, or dwindling to levels that could put the
operation of the company in to Jeopardy.
Competent inventory Management also seeks to control the costs associated with the inventory,
both from the perspective of the total value of the good included and the tax burden generated by
the cumulative value of the inventory. (www.barcodesinc.com, 2014)

10
 Balancing various tasks of inventory management means paying attention to three key aspect of
any inventories. The first aspect has to do with time.
In terms of materials acquired for inclusion in the total inventory, this means understanding how
long it takes for a supplier to process an order and execute a delivery. The second is calculating
what is known as buffer stock is also key to effective inventory management. Essentially, buffer
stock is additional units above and beyond the minimum number required to maintain production
level. The third is inventory management has to do with keeping accurate records of finished
goods that are ready for shipment.

2.1.5 The Need for Inventory Management

The following are some of the benefit of inventory management. (Hilton, 1994);
i. Inventory management can help business be more profitable by lowering their cost of
goods sold and/or by increasing sales.
ii. Conduct and inventory management that answers the following questions:
 What is your inventory turnover (the number of times the inventory is rotated in a
year) performance?
 If you can improve your inventory turnover performance, how much will your gross
profit increase?
 How accurate are your records?
 Are you losing (and sales revenue) because your inventory records are not accurate
enough – they show you have some in stock but actually, none?
iii. Inventory management can improve customer service.
iv. Inventory management can reduce inventory cost.
v. Inventory management can increase productivity.
vi. Inventory management can prevent poor inventory record accuracy.

2.1.6 Activities of Inventory Management

The inventory control is mainly concerned with the following activities: (Chunawalla, 2004: 537);
2.1.6.1 Planning the Inventory: on the basis of the production schedule prepared from the
sales forecasting in continuous production and customer order is intermittent production the
periodic requirements of the inventories are planned in advance.

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2.1.6.2 Procurement of Inventories: The inventories are procured from the selected supplier
according to the planned requirements. This is done through the determination of inventory
needs, contacting the suppliers, comparing their quotations, selecting the suppliers, and placing
the purchase order with the selected suppliers.
2.1.6.3 Receiving and Inspecting of Inventories: the incoming materials are received,
verified with the purchase order and packing slip and are inspected to the verification of
the quality.
2.1.6.4 Storing and Issuing the Inventory: as noted above, the inventories are procured in
advance of their use. They are stored till they are issued to the respective production
departments. The stored inventories are issued to the respective production departments
department against the authorized material requisition.
2.1.6.5 Recording the Receipt and Issues of Inventories: Inventories are properly recorded
in the bin card and attached to each bin (i.e., the container in which the inventories
stored) and in the stock ledger. At the end of each transaction, the entries are made in
the receiving or issuing columns and the balance is struck.
2.1.6.6 Physical Verification of Inventories: At the end of specified period the physical
quantities of the inventories are verified with the book balance and the discrepancies are
ascertained. The discrepancies analyzed and the reasons for the inventory losses are
located.
2.1.6.7 Follow up Functions: inventory control also involves the analysis of the excessive
usage of the inventories. It tries to find out the reason for such excessive consumption of
raw materials and parts.
2.1.6.8 Material Standardization and Substitution: inventory control also aims to
standardize the materials and to search for cheaper substitute. Value engineering is
popular control technique which searches for cheaper substitutes.

2.1.7 Information to Inventory Management for Inventory Analysis

The following are the type of information required for an inventory analysis:
2.1.7.1 Reviewing the Inventory Accounting System or Policies: there are two types of
policies (systems) for the inventory management regarding to review the inventories.
These are:

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 I. Periodic Inventory System: in case of this system the quantity and value of inventory is
found out only at the end of accounting period after having a physical verification
(examination) of the units in hand.
The system does not provide information regarding the quantity and value of
material in hand on continuous basis. The cost of material used is obtained by
adding the total balance of inventories during the period to value of inventory in
hand in the beginning of the period and subtracting the value of inventory at the
end of the period. (Macheshwari, 2000:67)
II. Perpetual Inventory System:- in contrast to the periodic inventory system, the perpetual
inventory system uses accounting records that continuously disclose the amount of the
inventory. A separate account for each type of inventory is maintained in a subsidiary
ledger. The balances of the accounts are called the book inventories of the items on hand.
( Warren, 1984:352)

2.1.7.2 Identify the Costs Associated With the Inventory

Costs of inventories are consists three basic costs. These are;
i. Ordering costs and acquisition costs; which are costs associated with the placement of an
order for the acquisition or replenishment of stock of inventory. Ordering cost per year vary
with the number of orders placed a year. Costs incurred each time an order is made can
include requisition cost, purchase orders transportation and shipping, receiving, inspection,
handling and placing in storage, accounting, and bill payment and auditing cost.
(Bhat,2003:570)
ii. Carrying (Holding) Costs; it includes all expenses incurred by finals because of the
volume of inventory carried. As inventory increases so do these costs. They can be
broken down in to three categories: (Arnold, 2007:246)
a. Capital Cost: money invested in inventory is not available for other uses and
as such represents a lost opportunity costs. The minimum cost would be the
interest last by not investing the money at the prevailing interest rate, and it
may be much higher depending on investment opportunities for the firm.
b. Storage Cost: storing inventory requires space, workers and equipment. As
inventory increases, so do these costs.
c. Risk Costs: the risk in carrying inventory are:

13
 • Obsolescence: loss of product value resulting from a model or style
change or technological development
• Damage: inventory damaged while being held or moved.
• Pilferage: good last, strayed, or stolen.
• Deterioration: Inventory that rots or dissipates in storage or whose shelf
life is limited.
iii. Shortage costs or stock out costs; this occurs when customer demand cannot met because of
insufficient inventory on hand. Shortage may result in permanent loss of profit. Shortages can
also cause customer dissatisfaction and a loss of good will which may result in permanent
loss of customer and future sales.

In some instances delayed deliveries to customer due to shortages may result in

specified penalties the form of price discounts or rebates. When demand is internal,
shortage can cause work stoppages in the production process and creates delays
resulting in downtime costs and cost of lost production. (Bhat, 2003: 570)
The objective of inventory management is to employ an inventory control system that will
indicate how much should be ordered and when orders should be placed in order to minimize the
sum of the three costs, i.e. ordering costs, carrying costs and shortage costs.

2.1.7.3 Selecting Appropriate Cost Flow Assumptions

A major objective of inventory management is the proper determination of income through the
process of matching appropriate costing against revenue. It requires assigned of proper cost to
inventory as well as good sold, however, it should be noted that assigning of such costs need not
confirm to the physical flow of good. (Macheshwari; 2000: 679)
The various methods for assigning historical costs to inventory and goods sold are being
explained below.
I. Specific Identification: according to this method each item of inventory is identified with
its cost. The total of various costs so identified constitute the value of inventory. This
method is generally used when the material or good have been purchased for a
specific job customer. Such materials or goods when received are earmarked for the
job or customer for whenever demanded (Macheshwari; 2000: 679)

14
 This method is best suited to inventories of high priced, low volume items. This is the
only method exactly parallels the physical flow of the inventory. If each items in the
inventory is unique. As in the case of valuable paintings, custom Jewelry, and most real
estate, specific identification method is clearly the logical choice. (Meigs, Bettner, and
Whittington, 1996: 472)
The specific identification method has an institute appeal, because it assigns actual
purchase costs to the specific units of merchandise sold or in inventory.
However, when the unit of inventories is identical (or nearly identical), the specific identification
may produce misleading statements by implying differences in value which-under current market
condition-do not exist.
II. First in First out (FIFO) Method:- this method of costing inventory is based on the
assumption that costs should be charged against revenue in the order in which they were
incurred, hence the inventory remaining is assumed to made up of the most recent costs. (Fess
and Warren, 1984:356).
Over the last 50years, we have lived in an inflationary economy which means that
most prices tend to rise over time. When purchase costs are rising, the FIFO method
assigns lower (order) cost to the cost of goods sold and the higher (More recent) costs
to the cost of goods sold remaining in inventory. (Meigs, Bettner, and Whittington,
1996:472)
III. Last In First Out (LIFO) Method:
This method is based on the assumption that last items of material or goods purchase are
the first to be issued or sold. Thus, according to this method inventory consists of items
purchased at the earliest cost. This methods emphasis matching principle current cost are
properly matched against current revenue. This is the matching principles income
measurement is carried out. (Macheshwari, 2000:682)

Income tax consideration, however, provide the principal reason for the popularity of the
LIFO method. Remember that LIFO Method assigns the most recent inventory purchase
costs to the cost of goods sold. In the common situations rising prices, these “most
recent” costs are also the highest costs. By reporting a higher CGS than results form the
other inventory valuation methods, the LIFO method usually results in lower taxable
income.

15
 In short, if inventory costs are rising, a company can reduce the amount of if income tax
obligations by using the LIFO method in its income tax returns. (Meigs, Bettner, and
Whitting ton, 1996:474)
VI. Weighted Average Method
This method of inventory valuation is based on the assumption that all goods are
commingled and that no particular batch of goods is retained in the inventories. Thus, the
inventories are valued on the basis of average prices paid for the goods, weighted according
to the quantity purchased of each price, (Mosich.1989:413).

Identical items will have the same accounting values only under this method. The method
properly recognized that when a customer buys a good it is not necessary to know exactly
which good the customer selected for the bin in order to measure the cost of good sold.
Therefore, weighted average method avoid the short coming of specific identification
method it is not necessary to keep track of the specific items sold and of those still in
inventory.(Meigs, Better, and Whittington, 1996:472)

As discussed in the earlier sections, the method of valuation of issues is independent of the
method of valuation of inventories, which is a part of balance sheet of the company. The
various factors considered in the selection of the method of valuation of inventories are:
(Saxena, 2003);
 Nature of inventory
 Trends of price fluctuation.
 Inventory Turnover
 Value of the inventory
 Tax laws.
2.1.8 Selective inventory Management and control analysis
Selective inventory management and control analysis are based on the principle that it is
impossible to manage and control every items in inventory holdings in the same way and skill so
as to meet the two broad objectives of inventory control, i.e., to reduce investment in inventories,
and also to avoid stock outs and shortages.

16
Selective inventory management and control analysis, therefore concentrates on those items
where it is justified either due to essentiality or amount of money involved. In other word, the
approach is to evaluate a tradeoff between the cost of inventories as against cost of control
(Sharma, 1999: 532).

Were some of the common analysis used for exercising selective control techniques are being
discussed.

2.1.8.1 A-B-C Control Analysis

It is difficult and very costly to give equal attention to all the items of inventory. A-B-C
analysis is meant for relative inventory control in which maximum attention can be given
to items which consume more money and a fair attention can be given to medium value
items, while the attention for low value can be reduced to routine procedure only. Thus,
we see that control policies for A, B and C items based on two principles, namely
i. To keep capital tied up inventories as low as practicable; and
ii. To ensure that all the material would be available when required. (Sharma, 1999: 532)

The A-B-C analysis is an effective tool for controlling raw material, components and
consumable stores inventories, in the normal course of business. It should be reviewed
periodically so that changes in price and consumption are taken in to account. The
predictability would depend on the pattern of fluctuations. (Kumar and Ghosh 2003:184)

2.1.8.2 V-E-D Analysis

This analysis is categories items according to their criticality and its effect on production
and other services. It is specially used for the classification of maintenance spares.
The “V” in V-E-D stands for “Vital” items without which production would come to a
half. ”E” stands for “Essential” item for want of which temporary losses in or dislocation
of production occurs. “D” denotes “Desirable” items – all other items which are
necessary but do not cause any immediate loss in production.
The stock out of desirable items may entail nominal expenditure in procurement and
cause minor disruption for a short duration. (Ghosh 2003:185)

17
2.1.9 Economic Order Quantity
EOQ the calculating method used to determine the best level of inventory for production while
being the most cost effective for holding and ordering EOQ, as it is referred to, has been around
since the rise of modern manufacturing processes back in the early 20th century. The first model
for calculating EOQ was designed in 1913 by F.W.Harris. (www. Askdeb.com, 2014)

EOQ is attempts to minimize the costs of ordering and holding inventory; it attempts to minimize
total inventory cost by answering the following two questions:
i. How much should I order? (EOQ)
ii. How often should I place each order? (Cycle time). ( Hilton, 1994:407)
The following are the basic Assumptions of EOQ model:
 Demand is known with certainty.
 Demand is relatively constant over time. No stock out are allowed
 Orders are delivered at once.
 All costs are assumed to be known and constant.
 All orders are placed independently or no joint orders. (Hilton, 1994:407)
The formula of EOQ is as follows:
TC= K(D )+ HC(Q)+DC
Q 2

2 x Dx k 𝐶𝐶𝐶𝐶
EOQ = � Or EOQ= √2
HxC 𝐼𝐼

Where As: K= order cost per year H= Carrying Cost Per unit
D= annual demand in units C= Cost of individual item
EOQ= Economic order quantity TC= Total Annual Inventory Cost
(Optimal recorder quantity) Q= Reorder Quantity
As long as the data used for the calculation is accurate, this formula is a good method for
determining EOQ.
However, many inventory management systems are plugged with inaccurate data,
Miscalculations, such as exaggerated costs are common mistakes. (WWW.askedb.com,2014)

18
2.1.10 Material Requirement Planning (MRP)
MRP is a computer based information system designed to handle ordering and scheduling of
dependent demand inventories (e.g, raw materials component parts, and sub assemblies). A
production plan for a specified number of finished products is translated in to requirements for
component parts and raw materials working backward form the due date, using lead time and
other information to determine when and how much to order.
Hence, requirements for end items generate requirements for lower level components, which are
broken down by planning period (e.g. weeks). So that ordering, fabrication, and assembly can be
scheduled for timely completion of end items while inventory levels are kept reasonably low.
MRP is as much a philosophy as it is a technique, and as much as approach to scheduling as it is
to inventory control. (Stevenson, 1999: 619)
MRP offers number of benefits for typical manufacturing or assembly type of information,
including:
 How level of in process inventory.
 The ability to keep track of material requirements.
 The ability to evaluate capacity requirements generated by a given master
schedule.
 A means of allocating production time.
2.1.11 Just-In Time (JIT)
JIT refers to a production system in which both the movement of goods during production and
deliveries from suppliers are carefully timed so that at each step of the process the next (usually,
small) batch arrives for processing just as the preceding batch is completed thus the name, just in
time. The result is a system with no idle items waiting to be process, and no idle workers or
equipment waiting for items to process.
JIT phenomenon is characteristics of lean production systems, which operate with very little
“fat” (e.g. excess inventory, extra workers, and wasted space). JIT pertains to the timing of the
flow of parts and materials through the system, and the timing of services. Companies that
employees the JIT or lean production approach typically enjoy a competitive advantage over
companies that use a more traditional approach: they have lower processing cost, fewer
defectives, greater flexibility, and are able to bring new or improved products to the market more
quickly.

19
The ultimate goal of JIT is a balanced system, that is, one that achieves a smooth, rapid flow of
materials through the system. The degree to which the overall goal is achieved depends on how
well certain supporting goals are achieved. Those goals are:
 Eliminate disruptions.
 Make the system flexible.
 Reduce set up times and lead times
 Minimize inventory
 Eliminate waste.

2.1.12 Internal Control of Inventories

The term internal control has been defined as the Whole system of control, financial or
otherwise, established by the management in order to carry on business of the company in an
orderly manner, lifeguard its asset and secure as far as possible the accuracy and reliability of its
record. The simple word it means a number of checks and internal controls on various activities
of the business. (Saxena, 2003: 44)

Internal control over inventories is safeguard the inventory and properly reporting it in the
financial statements. These internal controls can be either preventive or detective in nature. A
preventive control is designed to prevent error or misstatements from occurring. A detective
control is designed to detect an error or misstatement after it has occurred. (Warren, Reeve and
Fess, 2005:35).

The need for internal control is common to all organizations. Internal control is all measures
taken by management to ensure that the organization:
i. Operates efficiently and effectively,
ii. Produce reliable financial information’s and
iii. Complies with applicable laws and regulations.

In short, internal control consists of those measures designed to keep the business on track.
(Meigs, Bettner, and Whittington, 1996:305)

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2.1.13 Errors, Frauds and Control Activities
For each major transactions cycle, controller considers the error or frauds that occur and then
identify control activities that could serve either to prevent or to detect the errors or frauds. In
view of the concept of reasonable assurance, a controller must have a general understanding of
how employees could make errors or intentionally commit and conceal frauds. The risk of
undetected error or frauds could be affected by number of situations that need exist only
occasionally to result in materials misstatements, such as;
 Transactions are not authorized
 Transactions are approved but do not confirm to what is authorized
 Inventories and other tangible assets, blank forms, or accounting records are
exposed to unauthorized access.
 Inventories and other tangible assets written off are exposed to unauthorized use or
disposal.
 Accounting policies are not formally authorized and documented, or financial
presentation does not confirm to authorize policies. (Ricchiute, 1998:245)

Any of these situations could present opportunities for intentional frauds and therefore should be
considered by a controller when evaluating control effectiveness. But to commit and conceal a
fraud, an employee would need access both to asset and to records: accesses to assets are needed
to commit a fraud, and accesses to records are needed for concealment. After considering the
types of error or frauds that could occur, a controller next consider control activities that
management has implemented to detect or prevent the errors or frauds.
One of the control activities is test of control. The purpose of test control is testing the
effectiveness of the design or the operation of an internal control policy or procedures. Test of
control address three questions:
i. Were the necessary control activities performed?
ii. How were they performed? And
iii. By who were they performed?

21
2.2. Empirical Literature Review
In 2007, Arega Asfaw, Behailu Taddesse, Berhanu Mehari, Eshetu Gizaw, and Tadu Berta was
worked a research paper on the tittel of “inventory management and controlling system in Meta
abo Brewery Share company”. And also in 2009, Gizaw Bekurtsion and mohammed Abera
worked a research paper on the title of “An assessment of inventory management system on
ALSAM trading PLC.” Both of the papers are aiming for partial fulfillment of the requirement
for the BA degree in Accounting from St. Mary University.

The objectives of the Former (2007) paper are to discuss the nature, aim and challenge of
inventory management and control system and also evaluate the controlling mechanisms of
obsolete inventory. The objectives of the latter (2009) paper are identify the inventory items that
the enterprise maintain, the proper presentation of inventory in the financial statement, and
providing recommendations on the identified problems.

As we discussed in chapter one, our objectives are assess the overall inventory management and
control system in Yes mineral water, assess the inventory physical flows are accurately and
completely record, assess the accounting principles used to measure and analyze the inventory
and etc. Our objectives are wider and provide good and detailed knowledge and information
about the company than the above two research papers in terms of mentioning and explaining the
overall management and accounting principle.
In the data analysis and interpretation’s part, they used semi-structured personal interview,
personal observation and questionnaires as a primary source. Their secondary sources are the
cost records, and other published and unpublished documents inside the company.
The data analysis methods used are descriptive analysis and other statistical tools such as tables,
percentages and ratio.
As we discussed in chapter one, our methodologies are totally the same as the papers we mention
in the above.
Based on the data collected by the above researchers from primary and secondary data sources,
the conclusions in the former (2007) worked paper on the Meta Abo brewery share company was
storage of raw materials not in good conditions, there is no timely disposal of obsolete spare
parts, chemicals, label papers, corks, etc.

22
Serviceable and non serviceable bottles and plastic bottles cases are not sort out, there is no EOQ
for raw material and other inventories, and the company does not collect data on inventory
carrying cost. The conclusion arises in the latter (2009) worked paper on ALSAM Trading PLC
was that ALSAM Trading PLC used periodic inventory system, the inventory assumption of the
firm excluded goods in transit, and the inventory cost assumption of the company is weighted
average inventory method.

In the former (2007) paper the scope of the conclusion was very narrow and mostly concerned in
raw material inventories. Other inventory types like work in process inventories and finished
goods inventories are ignored. And also their objectives are nature, aim and challenge of
inventory management and control; however, in the conclusion part the researchers only focus on
the challenge of inventory management and control. In the conclusion part, the researchers are
only mention and explain the weak and negative side of the company.
In the latter (2009) paper, there is a difference arises between their objectives and conclusions;
one of their objectives is identify the inventory items the company maintains.
However, in conclusion part the researcher does not mention about the inventory items ALSAM
trading PLC maintain. So, there is a gap between the objectives and conclusions of the paper.

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 CHAPTER THREE
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
This chapter presents the output of data analysis. The presentations are in form of tables and
statements. The presentation is according to the objectives of the study.
3.1 characteristics of the study population
The background information of respondents was deemed necessary because the ability of the
respondents to give satisfactory information on the study variables greatly depends on their
background. The background information of respondents solicited data on the samples and this
has been presented below categorized into; gender, education levels, position held, age and
length of service in the organization.
Accordingly, structured questionnaires were prepared and distributed to 30 employees, of which
26 questionnaires were returned.
3.1.1 Gender characteristics of respondents
The study examines and describes the gender details of respondents in this study and a detail of
their respective gender is presented in table 3.1 below.
Table 3.1 Gender characteristics of respondents
Gender Frequency Percentage
Male 18 69.23%
Female 8 30.77%
Total 26 100
(Source: Researcher Survey)
The findings represent the views of the two sex groups about assessment of the practice of
inventory management and control system in Yes purified mineral water company. This was
necessary for the study to get a balanced picture of the respondents’ views. Table 3.1, above
reveals that that 18(69.23%) of the respondents were males and 8(30.67%) were female.
Accordingly, there are low levels of employment of females in this company.

24
3.1.2 Age characteristics of respondents
The study obtained details about the age groups of the respondents for purposes of understanding
their age and possibly the experience they possess in their respective positions.
Table 3.2: Age group of Respondents
Age Frequency percentage
18-25 yrs 4 15.38%
26-30 yrs 12 46.16%
33-40 yrs 4 15.38%
Above 40 yrs 6 23.08%
Total 26 100%
(Source: Researcher survey)
From the description above it is clearly evident that, the majority of the respondents are in the
age between 26-30, followed by above 40, 18-25 and 33-40 respectively.
Therefore, it can be concluded that the majority of the respondents are in the productive age of
their life and reasonably experienced.

3.1.3 Education characteristics of respondents

Details about the education levels of respondents were obtained as presented in the table below.
Table 3.3: Education Levels of Respondents
Qualification Frequency Percentage

Certificate 3 11.54%
Diploma 7 26.92%
First degree 10 38.46%
Second degree 6 23.08%
Other 0 0%
Total 12 100%
(Source: Researcher survey)

In table 3.3 above, it can be revealed that majority of respondents who are also the employees
show that they hold certificate, diploma, degree, second degree and in the order of 11.54%,
26.92%, 38.46% and 23.08% respectively.
Thus, the respondents are adequately qualified persons academically.

25
 3.1.4 Respondents Years of Service
The respondents’ years of service were deemed important to evaluate the level of experience the
respondents have in the organization. Details from the survey are given as shown on the table
below.
Table 3.4: Years of service
Number of years Frequency Percentage
1-5 years 16 61.54%
6-10 years 7 26.92%
11-15 years 3 11.54%
Above 15 years 0 0%
Total 26 100%

(Source: Researcher survey)

From Figure 3.4 above it is evident that majority of the respondents have served in the
organization for between 1 to 5 years with a representation percentage of 61.54%. The left
respondents have served 6 to 10 years which equally 26.92% and 11 to 15 years are 11.54%
and no one has above 15 years work experience.
Thus, the numbers of years of service demonstrate the experience and continuity with the
internal controls which have been put in place.

3.2 Analysis of the findings of the study

3.2.1 Inventory Management Practice and control system
Table 3.5: The implementation of inventory management and controlling systems
Respondent
Item
Response Number Percentage
Does the organization implement inventory Yes 25 96.15%
management and controlling system? No 1 3.85%
Total 26 100%

(Source: research survey)

As shown on the table 3.5, the respondents were asked about the implementation of the inventory
management and controlling system, 25(96.15%) of the respondent responses that,
implementation of inventory management and controlling system does exist in organization and

26
other 1(3.85%) of the respondent said that the system doesn’t exist at all.
In common practice usually the marketing, sales and operations departments work out the initial
forecasting figures according to the demand and production capacity and later on judgmental
adjustments are implemented to achieve the optimum production and inventory levels.
Due to, to ensure the accuracy of the Inventory System, every effort of company taken to
implement processes that maintain inventory data with a minimum work effort from personnel.

3.2.2 Purpose of Inventory management and controlling system

Table 3.6: The purpose of maintaining inventory management and controlling system
Purpose of inventory management. Respondents
Total
Yes % No % # %
Safeguarding of asset against theft 26 100 - - 26 100
To protect fraud 26 100 - - 26 100
Maximize profit 26 100 - - 26 100
To dispose scrap 25 96.15 1 3.85 26 100
To determine maximum and minimum stock 24 92.31 2 7.69 26 100
Other specified - - - -
(Sources: researcher survey)
From the table 3.6, the majority of respondent responses that considered safeguarding of asset
against theft, protect against fraud and other specified to maintain inventory in efficient and
effective ways are the main purpose of maintaining inventory management and controlling
system respectively.

Consequently, the company maintained strong inventory management and controlling system
which enables them to protect their asset and other resource against theft, fraud and to determine
maximum and minimum level of stock.

27
 3.2.3 Types of Accounting for inventory system

Table 3.7: Type of accounting for inventory system

Inventory system Respondents
# %
Periodic inventory system 26 100
Perpetual inventory system - -
Total 26 100
(Sources: Researchers survey)
Regarding to the accounting for inventory system, as it can be seen on table 3.7, all of
respondents 26(100%) have knowledge about the firm use the periodic inventory system.
Under a periodic inventory system, the quantity of inventory on hand is determined, as its name
implies, on the periodically. All acquisitions of inventory during the accounting period are
recorded to purchases account at the end of accounting period added to the cost of the inventory
on hand at the beginning of the period to determine the total cost of the goods available for sales
during the period.

Therefore, the organization uses periodic inventory system to manage and record its inventory.
The reasons behind the use of this system by Yes purified mineral water are for inventory
valuation and for financial reporting purpose where a physical count of the inventory is
performed at specified interval.

3.2.4 Inventory Analysis Techniques

Inventory analysis is the technique for determining the optimum level of inventory.
The firm holds inventory analysis for developing internal control system. Also it attempts to keep
firms’ inventory level as effectives and efficient as possible, while maintaining an adequate
safety stock.

28
Table 3.8: Type of inventory analysis
Type of inventory Respondents Total
analysis Yes No
# % # % # %
A-B-C Analysis 26 100 - - 26 100
V-E-D Analysis - - - - - 100
(Sources: Researcher Survey)
According to table 3.8, 26(100%) of the respondents respond that company use A-B-C analysis
to issue its inventory from stores. As the firm used to determine amount of expansive good that
obsoletes easily they use A-B-C analysis since goods frequently enter and out of the store.
Accordingly, the company uses ABC analysis techniques for inventory analysis and to determine
the optimum level of inventory.

3.2.5 Types of Inventory Costing Method and Their Purpose

Table 3.9: Respondents responses about the inventory costing method
Inventory costing method Respondents
# %
First in First Out (FIFO) Method 1 3.85
Last In First Out (LIFO) Method - -

Weighted Average Method 25 96.15

Total 26 100
(Source: questionnaires and interview)
The process of determining the cost of inventory is referred to as valuating the inventory to
determine the number of units on hands. Inventory costing method is that the firm uses its
inventory to determine the amount of expense recognized for cost of goods sold on the financial
statements as well as the value of inventory recognized on the balance sheet. Here there are three
most common inventory costing method. These are FIFO, LIFO and Weighted Average costing
methods.
With regard to type of inventory costing method from the table 3.9, 25(96.15%) of the
respondent said that the company uses weighted average method and 1(3.85%) of the respondent
response the company uses First in First out (FIFO) method.

29
 All respondents response that LIFO is not used in Yes purified mineral Water Factory.
In First in first out costing method the material received first will be issued first. But last in first
out method, material received last will be issued fist. Under weighted average method material
issued is priced at the weighted average cost of material in stock.
WAC = Value of material/Quantity in stock
To sum up, the organization stabilizes its cost by using weighted average costing method when
price rapidly fluctuates and also free from objection by income tax authority.

3.2.6 Inventory Cost

Table 3.10: Inventory cost
Are the following inventory costs determined Respondents Total
in Yes purified Mineral Water company? Yes No
# % # % # %
Order cost 26 100 26 100
Carrying cost 26 100 26 100
Shortage cost 26 100 26 100
(Sources: Researcher survey)

From table 3.10, all 26(100%) of the respondent responses that all inventory cost are determined
in the company. The procurement or acquisition cost contributes to the cost of generating and
processing order and related paper work. It is the expenses related to the information processing
of purchase requisition and purchase order. The factory’s carrying (holding) cost is the cost that
is in incurred as a result of maintaining stock items. Shortage cost is little more than a guess,
although it is usually possible to specify a range of such costs.
Therefore, to establish the correct quantity to order from vendors or the size of lots submitted to
the Yes purified mineral water factory, productive facilities involves a search of three individual
costs.
3.2.7 Inventory Parameter Level
3.2.5.1 Factor Determining Inventory Level
The highest peak of inventory level in the company is reached when a new shipment is received.
The lowest level is experienced when usage, during the lead time, is greater than planned or
when deliveries are late to the factory.

30
Safety stocks are influenced by uncertainties of demand and lead time of the factory and
protected against a stock out from the factory.
Table 3.11: Factor Determining Inventory Level
Basic reasons To keeping Respondent
an inventory Yes No Total

# % # % # %
lead time 25 96.15 1 3.845 26 100
Safety stock 26 100 - - 26 100
Storage space 24 92.31 2 7.69 26 100
Availability of supply 26 100 - - 26 100
(Sources: Researcher survey)
From the table 3.11, of respondent responses safety stock and availability of supplies are the
main factor that determine inventory level, 25(96.15%) respondent responses the requires
Lead time to maintain certain amount of inventory and 24(92.31%) of respondent responses
storage space is the basic reason for keeping inventory.
Therefore, this used to know that company uses safety stocks, lead times and supply to manage
its optimal inventory.
3.2.8 Parameters of Inventory
Table 3.12: Response of Parameters of Inventory
Respondent
Item Number Percentage
Response
Does your inventory system being used in your Yes 26 100%
company provide a determined inventory parameter No 0 0%
such as safety stock maximum stock and average
inventory for stock? Total 26 100%
(Source: Researchers survey)

In table 3.12, 100% (26) of the respondent replied that they use a pre determined inventory
parameter level.
In every factory safety stock level should decided very carefully as low level may lead to stock
out position and higher level mean blockage of capital and also every factory has maximum
stock.

31
It designated the upper limit of the inventory and largest quantity which in the interest of the
economy should generally kept in stores.
All in all, the inventory being used in Yes purified mineral company was used to provide
determined inventory parameter such as safety stock, maximum stock, and average inventory
stock.

3.2.9 Material Requirement Planning (MRP)

Through questionnaires, Yes purified mineral water factory use MRP system to create a schedule
for identifying specific parts and material required to produce end items, the exact number
needed, and dates when order for these material should released and be received or completed
within the production cycle. The main purpose of the company’s MRP system is to control
inventory levels. Assign operating priorities for items and plan capacity to load the production
system, the objectives of MRP in Yes purified mineral water factory are to improve customer
service, minimize inventory investment, and maximize production operating efficiency
In short, material requirement planning is one of the biggest systems used to control inventory
level in this company.

3.2.10 Economic Order Quantity (EOQ)

Through the questionnaires, quantity to be ordered in Yes purified mineral water factory at one
time is known as order quantity and should be determined with good care.
In the factory, if it’s small, a number of orders will have to be placed in a year involving costs in
terms of clerical labor, material handling, etc. Also there will be loss in terms price and transport
costs.

Economic order quantity (EOQ) is that, the size of the order which gives maximum economy in
purchasing any material and ultimately contributes towards maintaining the material at the
optimum level and at minimum cost. Large orders avoid these losses and will leads to economy
in transport costs and price concession. But there will be costs in terms interest payments for the
money locked up and in terms of storing costs an order should be large enough to enable the
factory to earn proper discounts and to take advantage of bulk transport but it should not be too
large to involve to heavy payment of interest.

32
Consequently, the company used the economic order quantity (EOQ) to balance opposing costs
and know maximum economy in purchasing any material and ultimately contributes towards
maintaining the material at the optimum level and at minimum cost.

3.2.11 Possible Sources of Problems and Wastages of Inventory

Table 3.13: Source of Problem in Inventory Management Response
Respondent
Item
Response Number Percentage
What are source of Lack of skilled man power 26 100%
problem in inventory Limitation of capital - 0%
management Policies procedures and principles of the
- %
organization regarding inventory control
Total 26 100%
(Source: Researcher survey)
As indicated in the above table 3.13, the majority of respondent believe that inventory
management problem arises due to lack of skilled man power. .
As a result, significant factor affecting overall performance of inventory management and control
system of Yes purified mineral water company is lack of skilled man power.

3.2.12 Wastage of Inventory Items

Table 3.14, Wastage of Inventory Items Response
Respondent
Item
Response Number Percentage
How often wastage of inventory your Frequent 4 15.38%
company? Less Frequent 21 80.77%
Infrequent 1 3.85%
Total 26 100%
(Source: Researcher survey)

According to table 3.14, 15.38% (4) of the respondents replied that wastage of inventory item in
the company is frequent. 80.77% (21) and 3.877% (1) of the respondents indicates that wastage
of inventory item is less frequent and insignificant respectively.

Accordingly, Yes purified mineral water factory recognizes less level wastage of inventory items.

33
3.2.13 Internal Control system over Inventory
There are many reasons for the organization to implement inventory management and control
system.
Table 3.15, Reason for implement and internal control of inventory
The reason behind internal control and Respondents
implementing inventory management Total
Yes % No % # %
To reduce wastage 26 100 - - 26 100
To protect fraud 26 100 - - 26 100
To avoid inventory abuse 26 100 - - 26 100
Its country policy 23 88.46 3 11.54 26 100
To reduce inaccuracy 26 100 - - 26 100
(Source: Researchers survey)
On table 3.15, about all majority of respondent response that inventory management and internal
control system of a company is reducing wastage of inventory, response protecting fraud,
response to avoid inventory abuse and reducing inaccuracy is among the major reasons for the
organization to implement inventory management and controlling system.
To sum up, the main reason why the company control inventory is to reduce wastage, to reduce
inaccuracy, protect from fraud and other safety for inventory management system.

3.2.14 Type of inventory management and control system

Table 3.16: The inventory management and controlling system of the organization
Inventory controlling Respondents
system Number Total
# % No % # %
Manual system 26 100 - - 26 100
Computerized system 26 100 - - 26 100
(Source: Researcher survey)
As shown on the table 3.16, all respondent responses that firms used manual and computerized
system to manage and control its system.

34
With regard to inventory management and controlling system, most business organization used a
manual or computerized system in order to handle and control their inventory. Choosing one of
the above systems depends up on the nature and the size of the firm.
Manual systems consist of journals and ledgers on paper and recording of firm’s transaction by
using a manual system takes time and might be inaccurate. But,
Computerized accounting systems consist of accounting software, computer files, computers,
and related peripheral equipment such as printers. Computerized system makes for considerable
simplification of the work involved speedy operation and ensure very great accuracy.
Therefore, the company uses both manual and computerized system to maintain a record for each
item in inventory.

3.2.15 Establishment of Clear Lines of Responsibilities in the Factory

Table 3.17: Response About of Clear Lines of Responsibilities
Respondent
Item
Response Number Percentage
Is there any clear lines of responsibilities Yes 25 96.15%
are established in your company
No 1 3.85%
Total 26 100%
(Source: Researchers survey)

According to table 3.17, 96.15% (25) of the respondents are answers that there is clear lines of
responsibilities are established in their company. 3.85% (1) of the respondents replies that there
are no clear lines of responsibilities.
The information managers’ use may range from broad, long-range planning data to detailed
explanations of why actual costs varied from cost estimates. Managerial accounting information
has related to the part of the company for which the manager is responsible.
For example, a production manager wants information on costs of production but not of
advertising. The manager Involve planning for the future For instance, a budget would show
financial plans for the coming year.

35
 Thus, the study indicates that, the majority of the respondents are replied that there is clear lines
of responsibilities are established in the Yes purified mineral water factory.

3.2.16 Routine Procedures of the Factory

Table 3.18: Response about Factory’s Routine Procedures
Respondent
Item
Response Number Percentage
Is there a routine procedure for processing Yes 24 92.31%
each type of transaction in your company? No 2 7.69%
Total 26 100%
(Source: Researchers survey)
In table 3.18, 92.31% (24) of the respondent replied that there are routine procedures for
processing each type of transaction in their factory. The rest 7.69% (2) of the respondents
answers that there is no routine procedures.

Accordingly, the majority response is towards the present of routine procedures for processing
each type of transactions in Yes purified mineral water control system and check balance.

3.2.17 Restriction of Inventory Accesses to Authorized Personnel in the Factory

Table 3.19: Response about Restriction of Inventory Access
Respondent
Item
Response Number Percentage
Is access to inventory restricted to Yes 26 100%
authorized personnel in your factory? No - 0%
Total 26 100%
(Source: Researchers survey)
According to table 3.19, 100%(26) of the respondents response that in Yes purified mineral water
factory access to inventory is restricted to only for authorized personnel.
Thus, this implies that the factory has effectiveness and efficiency of operation.

36
 3.2.18 Insurance Coverage in the Factory
Existence of insurance for all inventory items helps to minimize or transfer the risks faced on
inventory items.
Table 3.20: Response about Insurance Coverage
Respondent
Item
Response Number Percentage
Is insurance coverage maintained and Yes 26 100%
periodically reviewed for all inventory in No 0 0%
your factory? Total 26 100%
(Source: Researchers survey)
The above table 3.20 shows a question asked to know if each inventory items are insured and
periodically reviewed in Yes purified mineral water factory.
The entire respondents respond that the factory’s inventory has insurance coverage and the
premium is renewed annually.

Therefore, the insurance coverage maintained and periodically reviewed for all inventory is one
of the mechanisms to protect or respond to risks that inventory items face.

3.2.19 How Much Different Department Work Together Satisfy its Objective
Table 3.21: Response about Cooperation of Different Departments
Respondent
Item
Response Number Percentage
How do you explain the purchasing Excellent 0 0%
production and marketing departments’ Very Good 1 3.85%
cooperation’s to satisfy its objective? Good 25 96.15%
Poor 0 0%
Total 26 100%
(Source: Researchers survey)

37
As indicated in table 3.21, 3.85% (1) of the respondent replied that the cooperation of different
departments are very good the other 96.15% (25) of the respondent answer that the cooperation
of different departments are good. None of the respondents are replied excellent and poor.
Accordingly, the cooperation of yes Water Company with other department in the case of
purchasing production and other exchange to perform its objective is good.

3.2.20 General Improvement in Relation with Inventory

Table 3.22: Response Regarding Improvement of Inventory
Respondent
Item
Response Number Percentage
Does your company show improvement in Yes 24 92.31%
relation with inventory control in the past No 2 7.69 %
two years? Total 26 100%
(Source: Researchers survey)
From the table, 3.22, 92.31 % (24) of the respondents respond that there is improvement in
relation with inventory control. 7.69 % (2) of the respondents says that there is no improvement
in inventory control.
Thus, the company shows the improvement of inventory control in the past two years.

3.2.21 Evaluation of Inventory Control Practice in General

Table 3.23: Response of Evaluation of Factory’s Inventory Control Practice in General
Respondent
Item
Response Number Percentage
How do you evaluation your factory Excellent 0 0%
inventory control practice in general? Very Good 1 3.85%
Good 25 96.15%
Poor 0 0%
Total 12 100%
(Source: Researchers survey)

The factory has improved compared to past on the basis of inventory managements. In the above
table 3.23, the respondents were asked to evaluate the practice the factory undertakes to control
inventories and 3.85 %( 1) respondents replied that the factory has been doing quite remarkable
very good.

38
The other 96.15 %( 25) of the respondents have said it is been doing well in the practice of
controlling inventories.
As a result, the company knows improvement inventory management control system and as well
the practice.

3.2.22 Comments on Suggestion

Each respondents were asked if they could comments on the overall inventory management
practices in the factory; some have suggested that the company recruit additional workers, so that
the work could be faster, develop a new system around store areas, try to change the policies that
this factory follows, and the last but not the least, some workers concentrated on strengthening
the purchasing department.

39
 CHAPTER FOUR
SUMMARY, CONCLUSION AND RECOMMENDATIONS
4.1 Summary of Findings
The objective of this study is to assess the practical of inventory management and control system
of Yes purified mineral water factory and to find out the problems related with inventory
management and control system.
The method applied to gather relevant data analyzing and presentation was questionnaires filled
by sample population selected based on convenient.
The research analysis can be summarized as follows.

 Of the respondents, 69.23% (18) of the respondents are male and 30.77% (8) are
female.
 61.54% (16) of the respondents are between the ages 18-32 years and the other
38.46% (10) are the ages above 32 years.
 All of the respondents are certificate and above level.
 Due to, to ensure the accuracy of the Inventory System, every effort of company
taken to implement processes that maintain inventory data with a minimum work
effort from personnel.
 From analytical table, the purpose of inventory management of this company is not
focus on giving emphasis on providing services to the customers rather to maximize
its profit.
 The study indicated that all 100% (26) respondents respond that Yes purified mineral
water factory classify its inventory by A-B-C classification and A-B-C is effective
tool for the factory to control raw materials and operating supplies
 The study confirmed that, all of the respondents, 100% (26) answer that, Yes purified
mineral water factory use periodic inventory system to manage its inventory. The
reason is for inventory valuation and for financial reporting purpose.
 According to the analysis, all of the respondents, 25(96.15%) believe that Yes
purified mineral water factory uses weight average inventory valuation technique.
The reason behind the use of this system are;

40
 • For stabilizing different costs related to the mineral waters
• Free from objection by income tax authority
• Most acceptable method of pricing testis
 The study indicated that, majority of respondents believe that in Yes purified mineral
water factory, the amount of inventory is determined by a number of factory’s, such a
lead time, factory stock, storage space and availability of supply.
 As confirmed by the study, all 100% (26) respondents respond that in Yes purified
mineral water factory there are three major costs that are relevant and which should
be determined are ordering (procurement), carrying and storage costs.
 As indicated in the study, 100% (26) of the respondents replied that Yes purified
mineral water factory use a predetermined inventory parameter level such as factory
stock, maximum stock and average inventory stock.
 As indicated in the analysis, all 100% (26) respondent answers that Yes purified
mineral factory use MRP system to create a schedule for identifying the specific parts
and material required to produce end items. The exact number needed and dates when
order for these materials should be released and be received or completed within the
production cycle.
 As indicted in the study, all 100% (26) respondents respond that Yes purified mineral
water factory use EOQ for determining inventory level with good care.
 As indicated in the analysis 100% (26) of the respondents believe that inventory
management problem is due to lack of skilled man power.
 The study indicates that, 80.77% (21) of the respondent replied that wastage of
inventory item in Yes purified mineral water factory is less frequent.
 The research study indicates the main reason why the company control inventory is to
reduce wastage, to reduce inaccuracy, protect from fraud and other safety for
inventory management system.
 Analytical table shows, the company uses both manual and computer system to
control and record each item in inventory.
 The study indicates that, 96.15% (25) of the respondents are replied that there is clear
lines of responsibilities are established in the Yes purified mineral water factory.

41
 As indicated in the study, 92.31% (24) of the respondents replied that there are
routine procedures for processing each type of transaction in the factory.
 According to the study, 100 % (26) of the respondents respond that in Yes purified
mineral water factor access to inventory is restricted to only for authorized personnel.
 According to the study, the entire 100% (26) respondents respond that the factory’s
inventories have insurance coverage and the premiums reviewed annually.
 As indicated in the study, 96.15% (25) of the respondents answered that the
cooperation of different department are good.
 According to the study, 92.31 % (24) of the respondent respond that there is
improvement in relation with inventory control.
 According to the study, 96.15 %( 25) of the respondents have said it has been doing
well in the practice of controlling inventories.

42
4.2 Conclusions
Based on the above summary of the paper, it is possible to take some concluding remarks as
follows;
 As for the level or the requirement of inventory is concerned, the factory has no
problem in fulfilling the minimum level.
 The method of company follows for proper authorization goods to be ordered or sold
is periodic inventory system.
 The major problem affecting the overall performance of inventory management and
control system of Yes purified mineral water factory is lack of skilled man power.
 The major parameters that determine the effectiveness and efficiency of inventory
usage in Yes purified mineral water factory or safety stock, maximum stock and
average inventory for stock.
 In Yes purified mineral water factory, there is less level wastage of inventory items.
 There are routine procedures for processing each type of transactions in Yes purified
mineral water factory. This helps the factory for effective internal control system and
check and balance.
 The company uses both manual and computerized system in order to record
accurately and completely inventory physical flow.
 Yes purified mineral water factory have insurance coverage and the premium
reviewed annually so, this is one of the mechanisms to protect or respond to risks that
the inventory items face.
 In order to minimize the theft of inventory, the factory formulates a regulation that
restricts the employees not get in to the store unless they are the store keepers.
 In Yes purified mineral water factory, there are problems in related to the process of
purchasing department. These problems are poor in supply, violation proper timing
and lack of cost effectiveness.
 Yes purified mineral water factory shows improvement forwards the inventory
control in the past two years. This improvement is mainly due to the establishment of
purchasing department.

43
4.3 Recommendations
Based on the conclusions, the following points are forwarded as a recommendation.
 Start up business without much money, periodic inventory system is much better.
However, as business grow and large, the perpetual inventory system is appropriate.
So Yes purified mineral water factory could be use perpetual inventory system.
 One of the inventory management problems is lack of skilled man power. This
problem could be eliminated through be giving effective training about the inventory
as a whole for the existing workers and/or by hiring competent employees.
 The inventory management problem is factory’s policies procedures and principles.
This problem also should be eliminated by awarding its employees about the overall
factor’s policies, procedures and principles.
 Wastages of inventory items in the factory are significant amount. So, productivity
improvement department work hard to eliminate or reduce wastages of inventory
items.
With respect to physical security of the inventory, even though only store keepers have the access
to the ware house and issue materials wanted for other employees of the factory. So, the
company should set proper rules of inventory control system.

44
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Viena Rusch Inc., Austria.

Bhat, K. Shrindhara, (2003) Production and Material Management, (1st edition) Himalaya

Publishing House, Mumbai, India.

Chunawalla, S.A., (2004) Production and Operational Management, Himalya Publishing

House, Mumbai, India.

Dobler, Donald W., Lamer, J.R. and Burt, D.W., (1984) Purchasing and Materials

Management, (4th editions) Mc Graw Hill Publishing Company, Newyork, USA.

Dreyer, Dr. Gunter, (2009) History of Inventory Management, Germany, Institute of

Archeology, March 13, 2009

Fess and Warren, (1987) Principle of Accounting (16th edition).

Hilton, Ronald W., (1994) Managerial Accounting, Mc Graw Hill Publishing Company, New

York, USA.

Kumar, Prem and Ghosh, Asit K., (2003) Production Management, Anmol Publications PVT.

LTD., New Delhi, India.

Lockard, Robert, (2012) Brief History of Inventory Management,Word Press Com. February

6.,2014.

Macheshwari, N.s., (2000) Advanced Accounting, (6th edition) Viras Publishing House Pvt.

LTD. Company, India.

Meigs, Robert F., Meigs, Mary A., Bettner, Mark and Whittington, Ray, (1996) Accounting: The

Basis for Business Decisions, (10th edition) Mc Graw Hill Companies Inc., USA.
Mosich, A.N, (1989) Intermediate Accounting, Mc Graw Hill Book Company, USA.

Ricchiute, David N., (1998) Auditing and Assurance Service, South western College

Publishing, Cincinnati, Ohio, USA.

Saxena, J.P., (2003) Warehouse Management and Inventory Control, Vikas Publishing House

Pvt.LTD, Delhi, India.

Schroeder, Roger G., (1989) Operations Management: Decision Making in the Operation

Function, (3rd edition) McGraw Hill Publishing Company Boston, USA.

Sharma, S.C., (1999) Production Management, (First edition) Khanna Publishers, New Delhi,

India.

Stevenson, William, (1999) Production/operations Management, (6th edition)McGraw-Hill

companies, Boston, USA.

Warren, Carl S., Reeve, James M. and Fess, Philip E., (2005) Accounting, (21st Edition)

Thomson, South Western, Singapor, Malysia.

www.askdeb.com,inventorymanagement/Economic Order Quantity, USA, Jan19, 2014

www.barcodesinc.com,About Inventory Management, Chicago, USA, Jan.21, 2014

www.againstwordcontorl.blogspot.com, Inventory Management Control System, December

20, 2013.
 St. Mary’s University
Faculty of Business
Department of Accounting
Questionnaires
Dear respondent
This questionnaire is used to collect information about “An Assessment of the practice of
Inventory Management and Control System in the case of Yes Water PLC.” The purpose of this
study is to assess, the significance of inventory management and control system that is used by
your company. The researchers will use the data gathered through this questionnaire for
academic purpose and this study is purely academic and respondents are assured that whatever
information is provided will be highly confidential.
You are kindly requested to complete the questionnaire honestly and with the utmost truth. Your
response to these questions will be essential to fulfill this research.

Note:
• There is no need to write your name.
• Please give your response either by tick () or within the space provided.
• If you think two and more than two possible answers in one question then tick all of
them.

Part One: Personal information

1.1. Sex Male  Female 
1.2. Age  18-25  33-40  26-3  41 and above
1.3. Education Background
Certificate  Diploma  First Degree  Second Degree
If other, please specify _

1.4. Years of service experience in current position.

 1-5  6-10 11-15 16 and above
Your position:
Part Two: Issues Concerning Inventory Management and Control
2.1 Does your company implement inventory management and controlling system?
 Yes  No
2.2 If your answer for question number 2.1 is yes, how company implement inventory
Management and control system? _____________________________________________
______________________________________________________________________________
___________________________________________________________________
2.3 For what purpose do you implemented inventory management and controlling system?
 Safeguard of asset against theft  To protect fraud  To maximizing profit
 To dispose of scrap  To determine maximum and minimum stock
If any other, please specify__________________________________________
2.4 Do you think there are problems in the process of the purchasing department?
Yes  No
If yes, please specify what they are

2.5 What kind of accounting system the company use to manage its inventory?
Perpetual Inventory System Periodic Inventory System
If other, please specify _ __
2.6 Please explain why and how selected system in question number 2.5 could be appropriate?

2.7 What type of inventory management and control analysis is used to classify items found
in the stock?
 Based on ABC classification, items in terms of price or cost
VED classification, items according to their criticality
SED classification, items based on availability position
MNG classification, items based on their mobility
If other, please specify _ __
2.8 What type of cost follows assumption does your company use?
Specific identification FIFO Method LIFO Method
 Weighted Average Method
If other, please specify _ ___
2.9 Please explain why and how selected cost follows assumption in question number 2.8
could be appropriate?

2.10 What are the costs relevant to your company’s inventory?

Ordering and acquisition costs Carrying or holding cost
Shortage or stock out costs
If other, please specify _
2.11 Does your inventory system being used in your company provide a determined inventory
parameter such as safety stock, maximum stock and average inventory for stock items?
Yes  No
2.12 What are the factors determining inventory level in your company?
Lead time Storage space Safety stock Availability of supply
2.13 Does your company use Material Requirement Planning (MRP) for handling the order and
schedule of dependent – demand inventory?
Yes  No
2.14 Does your company uses Economic Order Quantity (EOQ) to know how much level of
inventory is needed?
Yes  No
2.15 What are source of problem in inventory Management?
Lack of skilled manpower Limitation of capital
Polices, procedures and principles of the organization regarding inventory control
If other, please specify
2.16 How often wastage of inventory items in your company?
Frequent Less frequent Infrequent
2.17 If your answer for question number 2.16 is “frequent”, please explain why? And the
measures used to minimize this wastage?
2.18 Does your company use the systematic of management and control over inventory?
 Yes No
2.19 If your answer for question number 2.18 is yes, what types recording system used to control
inventory in your company?
 Manual system  Computerized system

2.20 What are the reasons for implement inventory management and controlling system?
 To reduce wastage  To protect fraud  because it is country’s policy
 to avoid inventory abuse To reduce inaccuracy  All
If any, please specify._________________________________________________
2.21 Is there any clear lines of responsibilities are established in your company?
Yes  No
If No, why

2.22 Is there routine procedures for processing each type of transaction in your company?
Yes  No
If No, why

2.23 Is there any restriction of inventory access to authorized personnel in your company?
Yes  No
If No, why? _____________________________________________________
2.24 Is insurance coverage maintained and periodically reviewed for all inventory in your
company?
Yes  No
If No, why
2.25 How do you explain the purchasing, production and marketing departments’ cooperation’s
to satisfy company’s objective?
Excellent Very Good Good Poor
2.26 If your answer in question number 2.25 is “poor”, please explain why
__
2.27 Does your company show improvement in relation with inventory control system in the past
2 years?
Yes  No
2.28 If your respond for question No. 2.27 is yes, please specify? _

__________________
2.29 How do you evaluate your company inventory control practice in general?
Excellent Very Good Good Poor
2.30 List any further comments, suggestion or solution you may have in your company about the
overall inventory management and control practice?_
 St. Mary’s University
Faculty of Business
Department of Accounting
Interview Questions
1. The inventory system the company uses to record inventory item accurately?
2. What is the internal control of this company look like?
3. What inventories are constituted in each inventory type?
4. How the factors (lead time, safety stock, storage space, availability of supply)
determining inventory level in your factory?
5. What costs are constituted in each cost relevant to your factory’s inventory?
6. How do you exampling MRP and EOQ in your factory?
7. What are the conditions and reasons behind the selection of cost follow assumption to the
factory?
8. How do you eliminate wastage of inventory items in your factory?
9. What are the guidelines towards the segregation of duties?
DECLARATION
We, the undersigned, declare that this essay/project is our original work; prepared under the
guidance of Ato Abdu Yimer. All source of materials used for the manuscript have been dully
acknowledged.

Declared By: signature

Genene Tadesse RAD/1318/2006 ___________
Mahabuub Abdilahi RAD/1845/2004 ___________
Feven Ketema RAD/1312/2006 ___________

Date of submission _____________________________

Advisor’s Declaration
The paper has been submitted for examination with my approval as the University advisor.

Name:

Signature:

Date: