PROJECT REPORT

ON
“INVENTORY MANAGEMENT”

AT
“HERITAGE”

BY

B.SHRAVAN NAIK
H.T. NO: 1053-15-672-040

SUBMITTED IN PARTIAL FULFILLMENT FOR THE AWARD

OF DEGREE OF

MASTER’SOF BUSINESS ADMINISTRATION

(2016-2017)

A.V.COLLEGE P.G CENTER

(Affiliated to Osmania University)

Hyderabad – 500029

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 I, the undersigned, hereby declare that the project report entitled

“(INVENTORY MANAGEMENT)” carried out at (HERITAGE). Is my

original work written and submitted by me in partial fulfillment of Master`s

Degree in Business Administration of (Osmania University). I also declare that

this project has not been submitted earlier in any other university or institution.

Date: (Candidate Name)

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 ACKNOWLEDGEMENT

I take this opportunity to extend my profound thanks and deep sense of

gratitude to the authorities of (HERITAGE). For giving me the opportunity to

under take this project work in their esteemed organization. I profusely thank

My Guide Name ()

My special thanks to our Prof. P . Bucha Reddy, Head of Department, Business

Administration and Mrs.Parvathi . For the kind encouragement and constant

support extended in completion of this project work.

I am also thankful to all those who have incidentally helped me and

support during the course of my project.

B. SHRAVAN NAIK

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 INDEX
S.No: CHAPTER PAGE NO.

1. CHAPTER-1 : INTRODUCTION 01-06

• Need of the Study

• Scope of the Study
• Objectives of the Study
• Methodology of the Study
• Limitations of the Study
2. CHAPTER-II : REVIEW OF LITERATURE 07-38

3. CHAPTER-III 68-88

• DATA ANALYSIS AND INTERPRETATION

4. CHAPTER-IV 89-93

• FINDING
• CONCLUSIONS
• SUGGESTIONS
• BIBLIOGRAPHY

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 ABSTRACT

The project work entitled Inventory Management includes detail study about

inventory, its importance and effectively it should be managed for smooth operations of

business. Inventories are assets of the firm and require investment and hence involve the

commitment of firm’s resources.

Every firm is required to manage the inventories in such a way as to get the best

returns. The objective of inventory management is to determine the optimum level of the

inventory that is the level at which the interest of all the departments are taken care of.

The inventory management seeks to maximize the wealth of the share holders by

minimizing the cost of procuring and maintaining.

The objective behind the inventory management is maintaining sufficient stock of raw

materials ensuring continuous supply to production process for uninterrupted production

schedule and minimizing the total annual cost of maintaining inventories.

Inventories are assets of the firm and hence involve the commitment of firm’s

resources; managers must ensure that the firm maintains inventories at the correct level.

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INVENTORY MANAGEMENT

.Stock, stock, beautiful stock

Piles on the fixtures and more in the dock
Some of it ancient and some of it new
Alas, and tomorrow another lot’s due.

The couplet beautifully sums up the predicament of all those who are connected with
the stock (inventory). What is this inventory? What are its functions? What can be done to
minimize this inventory? These and other relevant issues have been discussed in this chapter.

Meaning and Definition

The term inventory had been defined by several authors. The more popular of them
are: ‘the term inventory includes materials – raw, in process, finished packaging, spares and
others stocked in order to meet an unexpected demand or distribution in the future’.
Another definition of inventory is that it ‘can be used to refer to the stock on hand at a
particular time of raw materials, goods-in-process of manufacture, finished
products, merchandise purchased for resale, and the like, tangible assets which can be seen,
measured and counted. In connection with financial statements and accounting records, the
reference may be to the amount assigned to the stock of goods owned by an enterprise at a
particular time’.

Yet another definition is that the term inventory includes the following categories of
items:
1. Production Inventories: Raw material, parts and components which enter the firm’s
Product in the production process. These may consist of two general types: (a) special
Items manufactured to company specifications, and (b) standard industrial items
Purchased.
2. MRO Inventories: maintenance, repair, and operating supplies which are consumed in the
Production process, but, which do not become part of the product.(e.g. lubricating oil, soap,
machine repair parts).
3. IN-Process Inventories: Semi Finished Products Found At Various Stages In The
Production operation.

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4. Finished Goods Inventories: Completed products ready for shipment.

Merchants meant for resale is not included in the above classification of inventories.
The exclusion of merchandise is justified on the ground that a manufacturing establishment
for their conversion into finished products. A trading concern, however, buys finished goods
for resale. The present study is concerned with industrial establishments and not with trading
concerns.

INVENTORY MANAGEMENT AND CONTROL

Because of high costs involved in inventories, their proper management and control
assume considerable importance. In fact, the management of inventory is given such an
importance, that, it is often treated synonymous with materials management. Literature wise,
there are more number of books and articles written on inventory management than on
materials management.
Inventory management involves the ’development and administration of policies,
systems and procedures, which will minimize total costs relative to inventory decisions and
related functions such as customer service requirements, production scheduling, purchasing
and traffic’. Viewed in that perspective, inventory management is brad in scope and affects a
great number of activities in a company’s organization. Because of these numerous
interrelationships, inventory management stresses the need for integrated information flow
and decision making, as it relates to inventory policies and overall systems.

Inventory control, on the other hand, is defined in a narrower

sense than inventory management and pertains primarily to the administration of established
policies, systems and procedures. For example, the actual steps taken to maintain the stock
levels or stock records refer to inventory control.

Factors influencing inventory management and control

Several factors influence inventory management and control. The principal effects of
these factors are reflected most strongly in the levels of inventory and the degree of control,
planned in the inventory control system. The factors include type of product, type of
manufacture, volume of output and others.

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 Benefits of inventory management and control
Proper management and control of inventories will result in the following benefits to
an organization:
(1) Inventory control ensures an adequate supply of materials and stores, minimizes
Stock-outs and shortages and avoids costly interruptions in operations.
(2) It keeps down investment in inventories, inventory carrying costs and
Obsolescence losses to the minimum.
(3) It facilitates purchasing economies through the measurement of requirements on
The basis of recorded experience.
(4) It eliminates duplication in ordering or in replenishing stocks by centralizing the
Source from which purchase requisitions emanate.
(5) It permits a better utilization of available stocks by facilitating inter-department
Transfers with in a company.
(6) It provides a check against the loss of materials through carelessness or pilferage.
(7) It facilitates cost accounting activities by providing a means for allocating
Material costs to products, departments or other operating accounts.
(8) It enables the management to make cost and consumption comparisons between
Operations and periods.
(9) It serves as a means for the location and disposition of inactive and obsolete items
Of stores.
(10) Perpetual inventory values provide a consistent and reliable basis for preparing
Financial statements.

Inventory Control Techniques

Inventory control techniques are employed by the inventory control organization

within the frame work of one of the basic inventory models, viz., fixed order quantity system
or fixed order period system. Inventory control techniques represent the

Operational aspect of inventory management and help realize the objectives of

inventory management and control.

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 Several techniques of inventory control are in use and it depends on the convenience
of the firm to adopt any of the techniques. What should be stressed, however, is the need to
cover all items of inventory and all stages, i.e., from the stage of receipt from suppliers to the
stage of their use. The techniques most commonly used are the following:

Always better control (ABC) classification.

High, medium and low (HML) classification.
Vital, essential and desirable (VED) classification.
Scarce, difficult and easy to obtain (SDE).
Fast moving, slow moving and non-moving (FSN).
Economic order quantity (EOQ).
Max-minimum system.
Two bin system.
Materials requirement planning (MRP).
Just-in-time (JIT).
Inventory Catalogue
An inventory catalogue serves, first as a medium of communication. It enables
personnel located in many different departments to perform their jobs more effectively. A
design engineer, for example, may have a choice between using either of two standard
Parts in an experimental design; the inventory catalogue quickly tells whether either
part is carried in the inventory and may immediately be available for use in experimental
work.
A second benefit produced by an inventory catalogue accrues to the inventory control
operation staff. This benefit takes the form of more complete and correct records through the
reduction of duplicate records for identical parts. A purchasing department often buys the
same part from several different suppliers, under various manufacturers and part numbers.
Unless control requirements dictate otherwise, identical parts from all suppliers should be
consolidated on one inventory record.

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NEED OF THE STUDY:

Every industry on average spends 70% on raw materials (inventory). Therefore there
is a need to know the raw material cost and also there is great importance to understand the
inventory management system of this industry.
The study helps a log to various departments to take steps to control the inventory
process. In this competitive business world each and every business organization need
inventory management system for determining what to order, when to order, where and how
much to order so that purchasing and storing costs are the lowest possible without affecting
production and sales. Thus, inventory management control incorporates the determination of
the optimum size of the inventory-how much to be order and when after taking into
consideration the minimum inventory cost.

The overall inventory management includes design and inventory control organization with
proper accountability establishing procedure for inventory handling disposal of scrap,
simplification, standardization and codification of inventories, determining the size of
inventory holdings, maintaining record points and safety stocks, economic order quantity,
EOQ analysis and VALUE analysis and finally framing an INVENTORY MANUAL.

OBJECTIVES OF THE STUDY

1. To study the inventory management of the Heritage Foods (India) Limited,

For the past few years.

2. To analyze this Inventory management with the help of Inventory Analysis as a

principal tool.

3. To evaluate the performance of the company on the basis of these Analysis.

4. To find the trends in figures for the past years.

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SCOPE OF STUDY:

The scope of study is limited to collecting the financial data published in the
annual reports of the company with reference to the objectives stated above and an analysis
of the data with a view to suggest favorable solutions to the various problems related to
Inventory Control Management.
This particular topic is selected to the Inventory Control Management is recent
years. The study is conducted to evaluate the performance of the company with reference to
inventory control management. The project is aimed at studying by means of developing
effective ‘Inventory Control Management ’

RESEARCH METHODOLOGY

The research was carried on by collecting data from web site of

company which is a secondary source of data. The data were collected from leading web sites
which are meant exclusively for tracking market data. The theoretical part explained in this
project was collected from text books written by famous authors who are well known for
their writing skills and who have an ocean of experience in the teaching field.

DATA SOURCE
There are mainly two important sources through which the whole data is gathered.
1. Primary Data: The data of this project is collected by the information gathered from
integrated materials management.

2. Secondary Data: The secondary data is collected in this project is from the various
department of IMM and various manuals of the company with prescribed format have also
been made use of collection of data and analysis. The financial data relating to the
organizations has been collected for the year’s 2011 to 2015 and analyzed by using the
technique of inventory analysis.

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LIMITATIONS OF THE STUDY

1. Heritage Foods (India) Limited is a manufacturing company and produces

Three types of products namely
_ DAIRY _RETAIL
2. Heritage Foods (India) Limited has also international markets and hence huge tons
should
Be stored in advance.
3. Because of this they purchase raw materials monthly depending upon Demand
4. It charges high cost when we make orders monthly, in means of transport cost. Storage
cost, ordering cost, inventory charges, and other expenditures.
5. My conclusion is to make orders annually to avoid UN Necessary Expenditure.

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 REVIEW OF LITERATURE
Inventory is the stock of goods a company uses as raw materials for the process of
production. So there is no doubt in the fact that purchasing inventory - the raw materials - is
pretty much a certainty for the business to operate. There are two basic schools of thought
governing inventory purchase. You can purchase a high amount, fewer times over a year,
avail the economies of scale and then store it in your warehouse. The disadvantage here is
that the company will face warehousing costs, risks of spoilage and wastage and the risk of a
fall in projected demand and therefore a loss. Alternatively, you can buy fewer amounts;
reduce the risk of loss but which means that you have to make your trip to the market more
often. The inventory turnover is the financial management tool which helps the finance
manager establishes the way things stand presently and if there needs to be a change in the
way the company is going about with its policy.

Explaining Inventory Turnover:

The term inventory turnover goes by a number of names like inventory turns, stock turns,
stock turnover, depending on which part of the world you live in. But the basic premise of the
concept remains the same: to find out how many times the inventory 'turns over' within a
specified period. The specified period is a year. Turning over means how many times it
comes into the warehouse of the business and leaves it for the process of production. This
ratio is calculated with the turnover formula in days which supplies the details regarding the
stock turnover.

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If the turnover ratio is high, which means that your policy involves buying more times over a
period and consuming, there are a chain of events associated. Purchasing inventory involves
two other costs other than the cost of purchase itself: the cost of holding the inventory
(warehousing) and the cost of delivery. So if you buy less inventory, more times a year, then
you incur a higher delivery cost for the period, because you have to go fetch the stuff a lot
more times. At the same time, you need not have a pretty big warehouse and hence that cost
is lower. Thirdly, having a low inventory means reduced risk of spoilage and wastage and
that lesser company money is locked up in the process.

Purchasing more inventory means reduced aggregate delivery cost since the shipment
perhaps comes only once or twice a year. Warehousing costs will be higher because there is a
lot more stuff to store and hence needs a lot more space. And while there are chances of
losses due to spoilage and the money is locked up, this can be compensated for by the
benefits of economies of scale.

So the desired level of turnover really depends on the company policies. If the business uses a
bulk of foreign made raw materials in its production, it makes little sense to order a tiny
shipment every week or month. Then again, if the raw materials are like to be spoiled, then
there is no option trying to store them for a longer time.
The investment in inventories constitutes the most significant part of current assets / working
capital in most of the undertakings. Thus, it is very essential to have proper control and
management of inventories.
The purpose of inventory management is to ensure availability of materials in
sufficient quantity as and when required and also to minimize investment in inventories.
Meaning and Nature of Inventory:
In accounting language, inventory may mean the stock of finished goods only. In a
manufacturing concern, it may include raw materials, work- in – progress and stores etc.
Inventory includes the following things:
a) Raw Material: Raw material from a major input into the organization. They are
required to carry out production activities uninterruptedly. The quantity of raw
materials required will be determined by the rate of consumption and the time
required for replenishing the supplies. The factors like the availability of raw
materials and Government regulations etc., too affect the stock of raw materials.

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b) Work in progress: The work in progress is that stage of stocks which are in
between raw materials and finished goods. The quantum of work in progress
depends upon the time taken in the manufacturing process. The quantum of work
in progress depends upon the time taken in the manufacturing process. The greater
the time taken in manufacturing, the more will be the amount of work in progress.

c) Consumables: These are the materials which are needed to smoother the process
of production but they act as catalysts. Consumables may be classified according
to their consumption add critically. Generally, consumable stores doe not create
any supply problem and firm a small part of production cost. There can be
instances where these materials may account for much value than the raw
materials. The fuel oil may form a substantial part of cost.
d) Finished goods: These are the goods, which are ready for the consumers. The
stock of finished goods provides a buffer between production and market, the
purpose of maintaining inventory is to ensure proper supply of goods to
customers.
e) Spares: The stock policies of spares fifer from industry to industry. Some
industries like transport will require more spares than the other concerns. The
costly spare parts like engines, maintenance spares etc., are not discarded after
use, rather they are kept in ready position for further use.
All decisions about spares are based on the financial cost of inventory on such spares
and the costs that may arise due to their non – availability.

BENEFITS OF HOLDING INVENTORIES

Although holding inventories involves blocking of a firm’s and the costs of storage
and handling, every business enterprise has to be maintain certain level of inventories of
facilitate un – interrupted production and smooth running of business. In the absence of
inventories a firm will have to make purchases as soon as it receives orders. It will mean loss
of time and delays in execution of orders which sometimes may cause loss of customers and
business.
A firm also needs to maintain inventories to reduce ordering cost and avail quantity
discounts etc.
There are three main purpose of holding inventories.

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1. The transaction motive: This facilitates continuous production and timely execution
of sales order.

2. The precautionary motive: Which necessitates the holding of inventories for

meeting the unpredictable changes in demand and supplies of materials

3. The speculative motive: Which induces to keep inventories for taking advantage of
price fluctuations, saving in re–ordering costs and quantity discounts

RISK AND COSTS OF HOLDING INVENTORIES

The holding of inventories involves blocking of firms funds and incurrence of capital
and other costs.
The various costs and risks involved in holding inventories are:
Capital costs: Maintaining of inventories results in blocking of the firm’s financial
resources. The firm has therefore to arrange for additional funds to meet the cost of
inventories.
The funds may be arranged from own resources or from outsiders. But in both the
cased, the firm incurs a cost. In the former case, there is an opportunity cost of investment
while in the later case; the firm has to pay interest to t he outsiders.
1. Storage and Handling Costs: Holding of inventories also involves costs on
storage as well as handing of materials. The storage of costs include the rental of
the godown, insurance charges etc.
2. Risk of Price decline: There is always a risk of reduction in the prices of
inventories by the supplies, competition or general depression in the market.
3. Risk of Obsolescence: The inventories may become absolute due to improved
technology, changes in requirements, change in customer tastes etc.
4. Risk Determination in quality: The quality of materials may also deteriorate
while the inventories are kept.
Objects of Inventory Management
Definition of Inventory Management: Inventory Management is concerned with the
determination of optimum level of investment for each components of inventory and the
operation of an effective control and review of mechanism.
The main objectives of inventory management are operational and financial.

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 The operational objective mean that the materials and spares should be available in
sufficient quantity so that work is not disrupted for want of inventory.
The financial objective means that inventory should not remain idle and minimum
working capital should be locked in it.

The following are the objectives of inventory management:

1. To ensure continuous supply of materials, spares and finished goods so that
production should not suffer at any time and the customers demand should also be
met.
2. To avoid both over – stocking and under – stocking of inventory.
3. To maintain investment in inventories at the optimum level as required by the
operational and sales activities.
4. To keep material cost under control so that they contribute in reducing the cost of
production and overall costs.
5. To eliminate duplication in ordering or replenishing stocks. This is possible with the
help of centralizing purchases.
6. To minimize losses through deterioration, pilferages, wastages and damages.
7. To ensure perpetual inventory control so that materials shown in stock ledgers should
be actually lying in the stores.
8. To ensure right quality goods at reasonable prices. Suitable quality standards will
ensure proper quality of stocks. The price – analysis, the cost analysis and value –
analysis will ensure payment of proper prices.
9. To facilitate furnishing of data for short – term and long – term planning and control
of inventory.

TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT

A proper inventory control not only helps in solving the acute problem of liquidity but
also increases profit and causes substantial reduction in the working capital of the concern.
The following are the important tools and techniques of inventory management and
control.

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1. Determination of stock levels:
Carrying of too much and too little of inventory is detrimental to the firm. If the
inventory level is too little, the firm will face frequent stock outs involving heavy ordering
cost and if the inventory level is too high it will be unnecessary tie up of capital.
An efficient inventory management requires that a firm should maintain an optimum
level of inventory where inventory costs are the minimum and at the same time there is no
stock out which may result in loss or sale or shortage of production.
a) Minimum stock level:
It represents the quantity below its stock of any item should not be allowed to fall.
Lead time: A purchasing firm requires sometime to process the order and time is also
required by the supplying firm to execute the order.
The time in processing the order and then executing it is known as lead time.
Rate of Consumption: It is the average consumption of materials in the factory. The
rate of consumption will be decided on the basis of past experience and production plans.
Nature of materials: The nature of material also affects the minimum level. If a
material is required only against the special orders of the customer then minimum stock will
not be required for such material.
Minimum stock level can be calculated with the help of following formula.
Minimum stock level – Re – ordering level – (Normal consumption x Normal re – order
period)

b) Re – ordering Level:

When the quantity of materials reaches at a certain figure then fresh order is sent to
get materials again. The order is sent before the materials reach minimum stock level.
Re – ordering level is fixed between minimum level maximum level.

c) Maximum Level:
It is the quantity of materials beyond which a firm should not exceeds its stocks. If the
quantity exceeds maximum level limit then it will be over – stocking.
Overstocking will mean blocking of more working capital, more space for storing the
materials, more wastage of materials and more chances of losses from obsolescence.

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 Maximum stock level – Reordering Level + Reorder Quantity – (Maximum
Consumption x Minimum reorder period)

d) Danger Stock Level:

It is fixed below minimum stock level. The danger stock level indicates emergency of
stock position and urgency of obtaining fresh supply at any cost.
Danger Stock level = Average rate of consumption x emergency delivery time.
e) Average Stock Level:
This stock level indicates the average stock held by the concern.
Average stock level = Minimum stock level + ½ x reorder quantity.
2) Determination of Safety Stocks:
Safety stock is a buffer to meet some unanticipated increase in usage. The demand for
materials may fluctuate and delivery of inventory may also be delayed in such a situation the
firm can be facing a problem of stock out.
In order to protect against the stock out arising out of usage fluctuations, firms usually
maintain some margin of safety stocks.
Two costs are involved in the determination of this stock that is opportunity cost of
stock outs and the carrying costs.
If a firm maintains low level of safety frequent stock outs will occur resulting into the
larger opportunity costs. On the other hand, the larger quantity of safety stocks involves
carrying costs.
3) Economic Order Quantity (EOQ):
The quantity of material to be ordered at one time is known as economic ordering
quantity.
This quantity is fixed in such a manner as to minimize the cost of ordering and
carrying costs.
Total cost material = Acquisition Cost + Cost + Carrying Costs + Ordering Cost.
Carrying Cost:
It is the cost of holding the materials in the store.
Ordering Cost:
It is the cost of placing orders for the purchase of materials.
EOQ can be calculated with the help of the following formula
EOQ = 2CO / I
Where C = Consumption of the material in units during the year

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 O = Ordering Cost
I = Carrying Cost or Interest payment on the capital.

4) A – B – C – Analysis: (Always better control analysis):

Under A – B – C Analysis. The materials are divided into 3 categories viz., A, B and
C.
Almost 10% of the items contribute to 70% of value of consumption and this category
is called ‘A’ category.
About 20% of the items contribute about 20% of value of category ‘C’ covers about
70% of items of materials which contribute only 10% of value of consumption.

5) VED Analysis: (Vitally Essential Desire)

The VED analysis is used generally for spare parts. Spare parts classified as Vital (V),
Essential (E) and Desirable (D).
The vital spares are a must for running the concern smoothly and these must be stored
adequately. The ‘E’ type of spares is also necessary but their stocks may be kept at low
figures. The stocking of ‘D’ type spares may be avoided at times. If the lead time of these
spares is less, then stocking of these spares can be avoided.

6) Inventory Turnover ratio:

Inventory turnover ratios are calculated to indicate whether inventories have been
used efficiently or not.
The inventory turnover ration also known as stock velocity is normally calculated as
sales / average inventory of cost of goods sold / average inventory.
Inventory conversion period may also be calculated to find the average time taken for
clearing the stocks. Symbolically.
Inventory Turnover Ratio = Cost of goods sold
__________________________
Average inventory at cost
(Or)
Net sales
= ________________________
(Average) Inventory
And,

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 Inventory conversion period = Days in a year
______________________
Inventory Turnover ratio

7) Classification and Codification of Inventories:

The inventories should first be classified can then code numbers should be assigned
for their identification. The identification of short names are useful for inventory
management not only for large concerns but also for small concerns. Lack of proper
classification may also lead to reduction in production.
Generally, materials are classified accordingly to their nature such as construction
materials, consumable stocks, spares, lubricants etc. After classification the materials are
given code numbers. The coding may be done alphabetically or numerically. The later
method is generally used for coding.
The class of materials is assigned two digits and then two or three digits are assigned
to the categories of items divided into 15 groups. Two numbers will be category of materials
in that class.
The third distinction is needed for the quality of goods and decimals are used to note
this factor.
8) Valuation of inventories – Method of valuation:
FIFO method
LIFO method
Base Stock method
Weighted average price method

CRITERIA FOR JUDGING THE INVENTORY SYSTEM

While the overall objective of the inventory system is to minimize the cost to the firm
at the risk level acceptable to management, the more proximate criteria for judging the
inventory system are:
Comprehensibility
Adaptability
Timeliness

Area of improvement:

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 Inventory management in India can be improved in various ways. Improvements
could be affected through.

Effective Computerization: Computers should not be used merely for accounting purpose
but also for improving decision making.
Review of Classification: ABC and FSN classification must be periodically reviewed.
Improved Coordination: Better coordination among purchase, production, marketing and
finance departments will be help in achieving greater efficiency in inventory management.

Development of long term relationship:

Companies should develop long term relationship with vendors. This would help in
improving quality and delivery.
Disposal of obsolete / surplus inventories:

Procedures for disposing obsolete / surplus inventories must be simplified.

Adoption of challenging norms:

Companies should set benchmarks with global competitors and use ideals like JIT to
improve inventory management.
Inventory cost – an overall view:
Introduction:
In financial parlance, inventory is defined as the sum of the value of the raw
materials, fuels and lubricants spare parts maintenance consumable semi – processed
materials and finished goods stock at any giving point of time. The operational definition of
inventory would be amount of raw materials, fuel and lubricants, spare parts and semi –
processed materials to be stock for the smooth running of the plant / industry.

Need of Inventory:
Inventories are maintained basically for the operational smoothness which they can be
affected by uncoupling successive stages of production, whereas the monetary value of the

22
inventory serves as a guide to indicate the size of the investment made to achieve this
operational convenience. The materials management departments’ primary function is to
provide this operational convenience with a minimum possible investment in inventories.
Materials department is accused of both stock outs as well a large investment in inventories.
The solution lies in exercise a selective inventory control and application of inventory control
techniques. Inventories build to act as a cushion between supply and demand. It is sufficient
to take care of the requirements of demand till the next supply arrives. It is sufficient to take
care of probable delays in supply as well as probable variations in demand.
The size of the inventory depends upon the factors such as size of industry internal
lead time for purchase, supplier’s lead time, vendor relations availability of the materials,
annual consumption of the materials. Inventory coat can be controlled by applying Modern
Techniques viz., ABC analysis, SDE, ESN, HMC, VED etc. These techniques can be used
effectively with the help of computerization.

What is meant by inventory cost:

A. The total value of stores and spares and capital spares.
B. Stores in transit and under inspection and
C. Stock of finished products.
Normally, there are certain problems in maintaining optimum level of
Inventory. Problems of inventory can be resolved by the cost implications. Costs which are
relevant for consideration are discussed in the following lines;
Basically there are four costs for consideration in developing and inventory model.
1. The cost of placing a replenishment order.
2. The cost of carrying inventory.
3. The cost of under stocking and
4. The cost of over stocking.
The cost of ordering and inventory carrying cost are viewed as the supply side costs
and help in the determination of the quantity to be ordered for each replenishment.
The under stocking and over stocking costs are viewed as the demand side costs and
help in the determination of the amount of variations in demand and the delay in supplies
which the inventory should withstand.
Whenever an order placed for stock replenishment, certain costs are involved, and, for
most practical purpose it can be assumed that the cost per order is constant. The ordering cost
may vary depending upon the type of items, for example raw material like steel against

23
production component like castings in steel plants, support materials in the case of Steel
industry.
The cost ordering includes:
1) Paper work costs, typing and dispatching an order.
2) Follow up costs the follow up, the telephones, telex and postal bills etc.,
3) Costs involved in receiving of the order, inspection, checking and handling in the
stores.
4) Any set up cost of machines charged by the supplier, either directly indicated in
quotations or assessed through quotations of various quantities.
5) The salaries and wages of the purchase department.

Cost of Inventory carrying:

This cost in measured as of the unit cost of the item. This measure gives basis for
estimating what is actually costs a company to carry stock.
This cost includes:
1) Interest on capital.
2) Insurance and tax charges.
3) Storage costs – labor costs, provision of storage area and facilities like bins, racks
etc.,
4) Transport bills and hamali charges.
5) Allowance for deterioration or spoilages.
6) Salaries of stores staff.
7) Obsolescence.
The inventory carrying cost varies and a major portion of this is
Accounted for by the interest on capital.
Under stocking cost:
This cost is the cost incurred when an item is out of stock. It includes cost of lost
production during the period of stock out and the extra cost per unit which might have to be
paid for an emergency purchase.
Over stocking cost:
This cost is the inventory carrying cost (which is calculated per year) for a specific
period of time. The time varies in different contexts – it could be the lead time of
procurement of entire life time of machine. In the case of one time purchases, over cost
would be = Purchase Price – Scrap Price.

24
INVENTORY VALUATION AND COST FLOWS:
What is the cost of inventory?
One can readily visualize the determination of inventory quantities by physical count
or by use of perpetual inventory records. When this quantity is determined, it must be
multiplied by a unity cost in order to determine the inventory value that is used on financial
statements.
Trade and quantity discount are to be excluded from unit cost since these discount
exist for the purpose of defining the true invoice cost of merchandise. Cash discounts, on the
other hand, have been considered as a reward for early payment and as a penalty for late
payment. The “reward” has often been interpreted as a loss rather than as a part of unit cost.
Thus it would not be difficult to find difference of opinion as to whether invoice cost includes
or excludes cash discount.
When the “current repla Automobial cost” of material on hand at the close of a year is
less than the actual cost, the inventory value is reduced to replaAutomobial cost (current
market price). Thus the acceptable basis inventory valuation is the “lower of cost or market”
or more properly the “lower of actual cost or replaAutomobial cost”.
The determination of inventory values is very important from the point of view of the
balance sheet and the income statement since costs not included in the inventory (the balance
sheet) are considered to be expensive and are thus included in the income statement.

Valuation of inventories – methods of determination:

Although the prime consideration in the valuation of inventories is cost, there are a
number of generally accepted methods of determining the cost of inventories at the close of
an accounting period. The most commonly used methods are first – in first out (FIFO)
average, and last – in first – out (LIFO). The selection of the method for determining cost for
inventory valuation is important for it has a direct bearing on the cost of goods sold and
consequently on profit. When a method is selected, it must be used consequently and cannot
be changed for year to year in order to secure the most favorable profit for each year.

THE FIFO METHOD (FIRST – IN FIRST – OUT METHOD)

25
 Under this method it is assumed that the materials or goods first received are the first
to be issued or sold. Thus, according to this method, the inventory on a particular date is
presumed to be composed of the items which were acquired most recently.
The value inventory would remain the same even if the “perpetual inventory system”
is followed.
Advantage:- The FIFO method has the following advantages.
1) It values stock nearer to current market prices since stock is presumed to be
consisting of
2) The most recent purchases.
3) It is based on cost and, therefore, no unrealized profit enters into the financial
accounts of the company.
4) The method is realistic since it takes into account the normal procedure of
utilizing or selling those materials or goods which have been longer longest in
stock.
Disadvantages:- The method suffers from the following disadvantages.
1) It involves complicated calculations and hence increases the possibility of clerical
errors.
2) Comparison between different jobs using the same type of material becomes
sometimes difficult. A job commenced a few minutes after another job may have
to bear an entirely different charge for materials because the first job completely
exhausted the supply of materials of the particular lot.
The FIFO method of valuation of inventories is particularly suitable in
The following circumstances.
I. The materials or goods are of a perishable nature.
II. The frequency of purchases is not large.
III. There are only moderate fluctuations in the prices of materials or goods
purchased.
IV. Materials are easily identifiable as belonging to a particular purchase lot.
The LIFO method (Last – in – First – Out method)

This method is based on the assumption that last item of materials or goods purchased
are the first to be issued or sold. Thus, according to this method, inventory consists of items
purchased at the earliest cost.
Advantages: - This method has the following advantages:

26
 1) It takes into account the current market conditions while valuing materials issued
to different jobs or calculating the cost of goods sold.
2) The method is base on cost and, therefore, no unrealized profit or loss is made on
account of use of this method.
The method is most suitable for materials which are of bulky and non – Perishable
type.

Base Stock Method:

This method is based on the contention that each enterprise maintains at all times a
minimum quantity of materials or finished goods in its stock. This quantity is termed as base
stock. The base stock is always valued at this price and it’s carried forward as a fixed asset.
Any quantity over and above the base stock is valued in accordance with any other
appropriate method. As this method aims at matching current costs to current sales, the LIFO
method will be most suitable for valuing stock of materials or finished goods other than the
base stock. The base stock method has advantage of charging out material / goods at actual
cost. Its other merits or demerits will depend on the method which is used for valuing
materials other than the base stock.
Weighted average price method:
This method is based on the presumption that once the materials are put into a
common bin, they lose their identity. Hence, the inventory consists of no specific batch of
goods. The inventory is thus priced on the basis of average priced on the quantity purchased
at each price.
Weighted average price method is very popular on account of its being based on the
total quantity and value of materials purchased besides reducing number of calculations. As a
matter of fact the new average price is to be calculated only when a fresh purchase of
materials is made in place of calculating it every now and then as is the case with FIFO,
LIFO methods. However, in case of this method different prices of materials are charged
from production particularly when the frequency of purchases and issues/sales in quite large
and the concern is following perpetual inventory system.
Valuation of inventories – impact on the flow of costs:
As should be quite evident, the different methods of calculating inventory values will
all have their impact on the flow of costs through the balance sheet into the income statement.
The dollars that are paid to acquire inventory are always divided between the balance sheet
(inventories) and the income statement (cost of goods sold), there is no other place to put

27
them. Thus if the different methods of calculating inventory produce differing inventory
values, they will also produce differing cost of goods sold figures, and the differing cost of
goods sold figures will naturally produce differing profit figures.
In order show the impact of inventory valuation on cost flows, the preceding exhibits
are summarized. Each method produces a different figure for the transfer of raw materials to
work in process. These differences appear small, but the only reason for this is that the dollar
amounts have been kept small to make the illustration workable.
With the transfer of materials to work in process, the cost flow or transfer with have
its impact on the work in process inventory and the transfer of completed merchandise to
finished gods. Ultimately when goods are sold; the varying methods of valuing inventories
will have their impact on cost of goods sold and these profits. The effects of the cost flows on
cost of gods sold and profits can be accentuated further it the differing methods of valuing
inventories are applies to work in process and finished goods.

Evaluation of methods – What causes the differences?

The differences in inventory values and flows for each of the method illustrated result
from only one factor, that it, changing purchases prices or unit costs. If purchase prices had
remained stable or unchanged, each method would have produced the same inventory value
and cost flow.
Cost flows and inventory are exactly the same under stable prices. With a falling price
level, the LIFO method produces the highest cost flow and the lowest inventory. With a
falling price level, the LIFO method produces the lowest cost flow and highest inventory. The
cost flow under LIFO follows the price level, LIFO produces larger cost flows when prices
are rising and smaller cost flows when prices are falling. A final item to consider is that the
average method produces results which fall between the extremes of LIFO and FIFO.
Evaluation of methods – can we justify the differences?
The best method of inventory valuation might be “specific identification”, that is, the
units in inventory should be identified with the specific invoices and thus specific unit costs
to which they apply.
Fortunately, the FIFO method constitutes a very useful approximation to the specific
identification method if one can reasonably assume that the actual flow of materials is first-in
first-out. This assumption is not unreasonable and thus we have stated the main argument for
the FIFO inventory scheme, that is, the physical flow of materials would match the flow of
costs under the first – in first – out method.

28
 When the units in inventory are identical, interchangeable and do not follow any
specific pattern of physical flow, the average cost system would seen to appropriate.
The primary difference between the FIFO and average methods is centered on the
physical flow since both methods could involve identical and interchangeable units. The
FIFO method fits a first-in first-out physical flow. The average method fits a system which
has no specific pattern of physical flow. Finding a situation where there is no specific pattern
of physical flow should be quite difficult because of the fact that most inventory items are
subject to deterioration by instituting a person would attempt to reduce such deterioration and
any reasonable person would attempt to reduce such deterioration by instituting a physical
flow approximating first-in-first-out. The major reason for the use of the average method is
something other than the lack of specific physical flow.
Ordinarily the LIFO method cannot be justified on the basis of the physical flow of
materials. Under conditions of changing prices, the advocate of LIFO says that the only
method which matches costs and revenues is the LIFO method. The LIFO method assumes
that the latest item is the first item out, and thus the current costs of materials are matched
with the other hand, assumes that the first item in is the first item out, and thus the non-
current costs of matching current costs with current revenues is the essence of the argument
for the LIFO method.
As can be seen by the above comments, there is no one best method of valuing
inventories. The method chosen should fit the situation. A physical flow pattern comparable
to FIFO would force one to consider the FIFO method. The lack of a discernible physical
flow pattern would force one to consider the average method. Concentration on cost flows, as
distinct from physical flows, would force to consider the LIFO method especially where there
appears to be a discernible trend towards rising prices (or falling prices) as has been the case
in our economy during recent years.
Inventories valued at standard cost:
A very useful method of valuing inventories is at a standard cost. With a standard cost
system is no need of spending a great deal of time and money tracing unit cost through
perpetual inventory record.
PERPETUAL INVENTORY CARD UNDER A STANDARD COST
SYSTEM
Perpetual inventory Plant: …………………… Standard cost:……………………
Location:……………………………………… Order Quantity:………..………...

29
 Order Point: …………………..…
Available
Date Description On order Received Issued
On order On hand

As shown above, there is need only for physical quantities since the inventory values
is the physical quantity multiplied by the standard cost. With the cost and value columns
disposed off, a perpetual inventory card can include additional data such as quantities on
order, quantities reserved, and quantities available. These additional data are very useful for
inventory and production control purpose. On the basis of a few calculations concerning into
inventories on a FIFO, a LIFO, or an average cost basis.
Inventory of Obsolescence:
Absolvent inventories cannot be used or disposed off at values carried on the books. Frequent
reviews should be made of all inventories, and when obsolescence is indicated a request for
revaluation should be prepared for approval by management. The difference between original
and obsolete value should be recorded by a change to operating account. Inventory
obsolescence, and a credit to inventory. If the material is scrapped, this will be for the full
inventory value or used in areas where it will be work less than its
Original value, the entry would be only for the amount of write down. Some companies carry
a solvage inventory and transfer to it materials which may be sold or used at reduced values.
Where this is done, the entry would be:
Dr. Solvage inventory
Dr. Inventory Obsolescence’s. Raw Material inventory or Supplies inventory.
Inventory cost in relation Ultra Tech Cements shall to classifieds follows:
Inventory can be classified as capital and revenue certain items through titled as
capital in nature. Hence, due care is to be take whole drawing the material.
Materials which are to be imported from other countries have to be planned well in
advance nearly about 24 months are to initiate the proposals for procurement.
Similarly some of the items do not require any lead time some they are available in
the local market.

30
 Automobile is highly energy intensive industry, the inputs like power and Steel are
the major part of the variable cost since Government controls the Steel & fuel sector, and
increase is rates adversely effects the Automobile industry.
Ultra Tech Cements has its own power plant and through which it saves energy
consumption. By this the cost since Government controls the sector, any increase rates
adversely affects the Cement industry.
Inventory cost of any organization also adversely affects by retaining obsolete / scraps
and inventory costs can be reduced by management with an advance planning of procurement
of materials, periodical reviews of existing spares with reference to the fast consumption,
ascertaining the information regarding the availability of spares in other areas. Holding of
extra inventory will be an additional financial burden to the company due to payment of
interest charges on the materials purchased, diminishing value of materials purchased,
diminishing value of materials by keeping them in stores for a log time, handling charges,
spare rent etc.,
PURCHASE DEPARTMENT
PURCHASE ENQUIRY
Ms.
Sl.
Material Code Department Quantity Unit When Required
No.

ACTIVITY: FLOATING ENQUIRIES:

FLOW CHART:
• Checking indented items and equipment name.
• Taking previous supplier’s information from previous supply. If new equipment /
item, information to be taken from concerned department or from competitors /
journals / yellow pages.
• Prepare enquiry to approved sub – contractors through enquiry format.

31
 • If emergency requirement, send the enquiries through fax / e-mail.
• Enter the details of enquiries sent in order processing form.

PURCHASE DEPARTMENT
ORDER PROCESSING FORM
Material
Sl. Indent
Code Description Size Qty 1 2 3 4 5 6 Remarks
No. Ref
No.

ACTIVITY: PREPARATION OF ORDER PROCESSING FROM

FLOW CHART:
• Receiving quotation against enquiries sent.
• Enter price and other of the quotation received from sub – contractors in the order
processing from.
• Mention the earlier purchase details of indented items against each item in the
order processing form if available.
• Put up the processing from with enquiry and quotations to head (purchase).
• Examine order processing from with decide the sub – contractor to whom
purchase order to be placed.
PURCHASE DEPARTMENT
PURCHASE ORDER
Indent Item
Sl. No. Description Qty Rate Unit Amount
No. Code

32
ACTIVITY: PREPARATION OF PURCHASE ORDER
FLOW CHART:
• Prepare purchase order after finalization of price and other technical terms
mentioning the following details.
1. Material code
2. Indent number
3. Material specification & part number
4. Quantity
5. Rate
6. Payment and other terms & conditions
• Stipulation of terms of test certificate / ibr / manufacture’s certificate where
applicable.
• Fill in and attach the purchase order review proforma to purchase order.
• Send the prepared purchase order to head (purchase) and competent authority for
approval.
• Send the purchase order to identified approved sub – contractor.
• Send the purchase order copies to store and concerned departments.
• Enter the details of purchase order in purchase order register.

PURCHASE DEPARTMENT
AMENDMENT / CANCELLATION OF ORDER

Price / Quantity Amended Price /

Material Code Material
as per Order Quantity

33
ACTIVITY: ORDER AMENDMENT, ORDER FOLLOW UP AND INFORM THE
SUPPLIER FOR THE REJECTIONS / DAMAGES / SHORTAGES:
FLOW CHART:
• Issue of amendments in case of modification to purchase order.
• Review the pending order and follow up the pending order for breakdown
requirement.
• Send regular reminders to suppliers against pending purchase order every month.
• Receive shortage / excess / damages report from stores for the material received.
• Information the supplier for the rejections / damage / excess / shortage.

PURCHASE DEPARTMENT

ACTIVITY: IMPORTS:
FLOW CHART:
• Receipt of indents for import items from stores department.

• Taking previous / item, information to be taken from concerned department or

from competitors / journals / Yellow pages.

• Send enquiry to overseas supplier.

• Receiving quotations against enquiries sent.

• Enter price and other terms of the quotations received from overseas supplier in

the order processing form.

• Examine order processing form and decide the sub – contractor to whom purchase

order to be placed.

34
 • Prepare purchase order after finalization of price and other technical terms

mentioning the following details.

1) Material code

2) Indent number

3) Material specification & part number

4) Quantity

5) Rate

6) Payment

7) Insurance and other terms and conditions.

• Send the prepared purchase order to head (purchase) and competent authority for

approval.

• Send the purchase order to overseas supplier.

• Send the purchase order copies to stores and concerned departments.

• Prepare IC documents and submit to bank for onward transmission to overseas

supplier.

• Receive shipping documents from overseas supplier and send same to clearing

agents for collection of the material.

STORES DEPARTMENT

ACTIVITY: RECEIPTS AND UNLOADING MATERIAL

• Receiving of Goods through Trunk / Personnel Delivery.

• Entry of vehicle at Gate Office.

• Stamping on Dispatch Advise / Delivery challan by Gate Office.

• Checking of challans / Dispatch Advise with purchase order.

• Unloading of Goods at allotted place or in case of urgency direct at works site

35
 • All safety precautions are taken while unloading of material like workers should

wear safety shoes, helmets, leather head gloves, noise respirator, nose mask.

• Training is given to workers for unloading Heavy & Bulky material by using

chain pulley Blocks, Wire Rope Ceilings, Fork Lift. After UIL receipt

acknowledgement given to driver maintaining Lorry receipts register.

STORES DEPARTMENT

Activity: preparation of receipt and approval book for general material / d.c. enter of block,

repair and stationary material manually in register

• Sorting of Delivery challans as below:

a) General

b) Stationery

c) Repairs

d) Block

• Checking with P.O. and mentioning Material Code, Party Code, Indent No.

Department Name on each & every challans.

• Creation of D.C. entry in system for general materials.

• Preparation of identification tags for General Materials through system.

• Preparation of Receipt & Approval Book for General materials.

• Manual entry of block, stationery, repairs materials.

• Preparation of intimations for block, stationery, repairs materials.

STORES DEPARTMENT

ACTIVITY: PHYSICAL VERIFCATION OF GOODS:

36
 • All D.C. handed over to stores assistant physical verification like measuring,

counting and tallying with D.C.’s Quantity / Description of the materials by the

Stores Assistant.

• Identification tags to be attached to the verified material. Shortage / Excess /

Damages if any found to be noted on challans and inform to section incharge.

• Preparation of Shortage / Excess / Reports if any sending to parties under copy to

purchase / bills sections.

STORES DEPARTMENT

ACTIVITY: APPROVAL OF MATERIAL AND PREPARATION OF GOODS

RECEIPT NOTES:

• Intimation is be sent to all the concerned departments. Showing materials to

concern person.

• Taking approval of the material in receipt & approval book.

• Preparation general material in receipt & approval book.

• Preparation general material GRN’s through system and stationery / block /

repairs GRNs manually.

• Forwarding true copy to issue section of GRN for general material forwarding true

copy to issue section of GRN for General material forwarding true copy of block /

Repair / Stationery GRN to issue section and copy to purchase department.

STORES DEPARTMENT

ACTIVITY: REJECTED MATERIALS

37
 • Rejected materials kept in allotted area of rejected materials.

• Packing of rejected materials.

• Preparation of gate passes for rejected materials.

• Sending back to suppliers through our Hyderabad Office.

• Sending consignee copy to party vides Register Letter for booking of Register

goods to party’s other than.

STORES DEPARTMENT

ACTIVITY: EXCISE GATE PASSES

• Sending duplicate for transport copy of excise invoice from suppliers delivery

challans.

• Mentioning A.B. Sl. No. and named of concerned department.

• Duplicate for transport copy of excise invoice over to bills section for sending the

same to Excise Department.

• Corresponding with supplier. If the Excise Invoice is not found with delivery

challans.

STORES DEPARTMENT

ACTIVITY: RECEIPTS OF MEDICINES

• Physical verification of Medicines as per Invoices.

• Verification of expiry date on medicines.

• Verification of MRP.

• Sending shortage / excess note if any found.

• Taking approval of Medical Officer.

38
 DATA ANALYSIS

MATERIAL ANNUAL CONSUMPTION OF DAIRY

MATERIAL ANNUAL CONSUMPTION OF DAIRY FOR THE YEAR 2011-2012.

39
Item total qty avg qty per month purchasing cost od ct inventory ct
A3NKOS-1001 70 8 29.48 13.62 3.62
A3NKOS-1002 1,800 200 30.22 13.99 3.65
A3NKOS-1010 10,700 1189 30.71 14.26 3.67
A3NKOS-1032 22,230 2470 31.21 14.51 3.68
A3NKOS-1033 11,690 1299 31.7 14.76 3.7
A3NKOS-1034 8,300 922 32.17 15.01 3.61
A3NKOS-1035 56,700 6300 32.67 15.29 3.64
A3NKOS-1036 9,130 1014 32.83 15.56 3.78
A3NKOS-1044 6,810 757 33.77 16.08 4.2
A3NKOS-1050 6,030 670 37.58 18.19 4.21
A3NKOS-1051 13,360 1484 30.54 13.41 4.23
A3NKOS-1052 6,810 757 30.9 13.62 4.28
A3NKOS-1064 60 7 31.25 13.79 4.33
A3NKOS-1065 1,780 198 32.09 14.21 4.39
A3NKOS-1104 4,280 476 32.84 14.59 4.43
A3NKOS-1106 1,890 210 33.64 14.97 4.49
A3NKOS-1125 20 2 34.43 15.38 4.54
A3NKOS-1126 5,110 568 35.21 15.75 4.26
A3NKOS-1137 2,710 301 35.98 16.16 4.3
A3NKOS-1142 190 21 35.85 16.54 4.36
A3NKOS-1145 20,460 2273 37.41 17.32 4.48
A3NKOS-1146 36,430 4048 38.13 17.7 4.5
A3NKOS-1164 2,070 230 39 18.11 4.56
A3NKOS-1218 55,220 6136 39.73 18.49 4.59
A3NKOS-1242 26,770 2974 40.5 18.88 4.66
A3NKOS-1273 156,580 17398 41.22 19.27 4.66
A3NKOS-1282 1,360 151 42.02 19.66 4.68
A3NKOS-1302 1,410 157 42.56 19.97 4.46
A3NKOS-1328 6,400 711 42.75 20.06 4.51
A3NKOS-1343 6,990 777 42.76 20.45 4.55
A3NKOS-1345 29,600 3289 42.56 20.31 4.61

40
A3NKOS-1347 13,420 1491 43.28 20.68 4.69
A3NKOS-1349 51,660 5740 44.04 21.08 4.73
A3NKOS-1361 88,650 9850 46.58 22.45 4.76
A3NKOS-1368 39,900 4433 47.32 22.84 4.8
A3NKOS-1417 49,200 5467 48.08 23.23 4.89
A3NKOS-1432 30,280 3364 48.76 23.62 4.94
A3NKOS-1439 980 109 50.3 24.41 4.94
A3NKOS-1444 11,000 1222 51.73 25.18 4.67
A3NKOS-1445 19,170 2130 51.19 24.86 4.76
A3NKOS- 6,070 674 55.94 27.91 4.96
A3NKOS- 2,950 328 61.75 28.88 2.92
A3NKOS-1576 5,970 663 68.07 32.41 3.02
A3NKOS-1577 4,980 553 16.2 6.5 3.08
A3NKOS-1585 113,690 12632 17.29 7.05 3.11
A3NKOS-1601 25,670 2852 18.19 7.48 3.06
A3NKOS-1602 12,080 1342 18.58 7.68 3.29
A3NKOS-1603 24,100 2678 14.13 4.92 3.71
A3NKOS-1604 19,830 2203 21.17 8.94 3.94
A3NKOS-1605 13,010 1446 32.67 15.33 3.97
A3NKOS-1606 5,550 617 37.2 17.73 3.78
A3NKOS-1607 3,150 350 37.77 18.02 3.82
A3NKOS-1609 10,710 1190 37.6 18.23 3.89
A3NKOS-1612 60 7 38.63 18.78 3.95
A3NKOS-1689 28,670 3186 40.09 19.54 4.05
A3NKOS-1690 4,540 504 41.18 20.12 1.67
A3NKOS-1711 9,630 1070 43.36 21.31 2.68
A3NKOS-1727 2,350 261 31.89 16.43 2.06
A3NKOS- 700 78 31.89 16.43 2.42
A3NKOS-1863 1,160 129 25.74 15.03 2.06
A3NKOS-1869 2,060 229 25.58 12.67 2.21
A3NKOS-1885 890 99 28.22 14.77 2.24
A3NKOS-1894 11,420 1269 31.62 16.7 1.46

41
A3NKOS-1941 19,660 2184 33.26 17.69 2.46
A3NKOS-1984 23,230 2581 34.15 18.66 2.39
A3NKOS-1991 9,260 1029 37.47 19.92 2.28
A3NKOS-2016 6,560 729 35.86 19.2 2.41
A3NKOS-2019 10,890 1210 32.9 17.45 1.79
A3NKOS-2099 88,780 9864 30.99 15.97 2.61
Total 500000 13000 200 100 300
__________________________________________
EOQ √ 2 * ANNUAL DEMAND * OREDRING COST
= _______________________________________

PURCHASING COST * INVENTORY CARRING CHARGES

________________
= √ 2 * 500000 *100
__________________
200 * 300

= 16.666(tons)

TOTAL COST = AD * C+ AD * OC + Q * C * I
__ __
2 2

AD = ANNUAL DEMAND
OC = ORDERING COST
C = PURCHASING COST
I = INVENTORY CARRING CHARGES.
= 500000 * 200 + 500000 * 100 + 16.666 * 200 *300
______ ____
2 2
= 1299980 (CRORES)

MATERIAL ANNUAL CONSUMPTION OF DAIRY FOR THE YEAR 2012-2013

42
 Item total qty avg qty per month purchasing ct od ct inventory cost
A1NPOS-3845 800 89 21.22 15.45 2.13
A1NPOS-3847 575 64 24.8 10.34 2.02
A1NPOS-3848 1,050 117 23.94 11.95 2.85
A1NPOS-3864 66,425 7381 49.65 11.65 2.45
A1NPOS-3866 1,375 153 30.74 25.5 2.04
A1NPOS-3869 66,300 7367 24.47 14.24 2.74
A1NPOS-3879 500 56 29.44 11.96 3.01
A1NPOS-3886 14,400 1600 44.73 14.07 2.23
A1NPOS-3888 2,625 292 31.81 22.09 2.27
A1NPOS-3892 2,000 222 27.62 15.45 2.93
A1NPOS-3893 8,050 894 33.37 13.81 2.71
A1NPOS-3897 2,925 325 26.3 15.43 1.84
A1NPOS-3900 14,500 1611 21.32 11.45 1.94
A1NPOS-3923 16,340 1816 24.33 10.39 2.48
A1NPOS-3934 4,500 500 40.73 12.09 3.87
A1NPOS-3935 2,175 242 53.2 20.69 3.97
A1NPOS-3936 2,525 281 57.06 25.67 3.54
A1NPOS-4275 40,025 4447 114.32 27.87 2.49
A1NPOS-4288 14,825 1647 31.89 63.12 2.57
A1NPOS-4419 9,380 1042 35.52 16.02 2.61
A1NPOS-4420 175,300 19478 38.23 17.06 3.07
A1NPOS-4421 4,820 536 46.82 18.59 2.32
A1NPOS-4491 2,775 308 22.47 23.16 2.29
A1NPOS-4500 18,410 2046 23.12 10.43 3.7
A1NPOS-4527 10,750 1194 40.52 10.91 1.82
A1NPOS-4591 62,425 6936 39.74 19.43 3.45
A1NPOS-4743 175 19 43.85 20.39 2.29
A1NPOS-4758 1,825 203 26.04 20.96 3.34
A1NPOS-4863 10,625 1181 40.61 12.74 3.52
A1NPOS-4981 2,450 272 45.31 20.25 3.49
A1NPOS-5277 36,790 4088 46.11 21.75 3.51

43
A1NPOS-5279 43,540 4838 47.35 22.26 3.59
A1NPOS-5313 3,350 372 51.95 23.03 3.66
A1NPOS-5589 131,870 14652 54.47 25.67 3.42
A1NPOS-5590 520 58 39.26 27.09 1.79
A1NPOS-5591 925 103 11.44 18.71 1.77
A1NPOS-5594 240 27 12.9 5.33 16.2
A1NPOS-5598 1,100 122 33.64 6.27 4.89
A1NPOS-5601 13,610 1512 75.46 4.69 9.75
A1NPOS-5604 3,625 403 30.1 16.04 13.22
A1NPOS-5798 1,030 114 117.62 8.97 1.79
A1NPOS 2,650 294 10.34 61.27 2.18
A1NPOS-6020 725 81 15.5 4.7 1.92
A1PKOS-5601 1,180 131 11.38 7.53 1.45
A1PKOS-7269 8,200 911 7.39 5.09 1.42
A1PKOS-7271 7,750 861 6.39 3.11 0.87
A1PKOS-7479 68,500 7611 2.58 2.61 1.5
A1PKOS-7605 50 6 4.85 0.71 1.55
A1PKOS-7742 12,950 1439 5.31 1.69 0.94
A1PKOS-7743 17,200 1911 2.64 1.72 1.45
A1PKOS-7908 4,950 550 6.12 0.77 1.42
A1PKOS-7909 7,625 847 6.04 2.52 1.47
A1PKOS-7924 110,850 12317 8.39 2.61 2.9
A1PKOS-9214 13,910 1546 18.64 4.02 1.09
A1PKOS-9215 23,450 2606 4.49 9.32 1.46
A1PKOS-9341 3,950 439 8.37 1.84 0.97
A1PKOS-9414 1,250 139 9.33 4.01 1.47
A1PKOS-9484 4,400 489 14.25 4.81 1.08
A1PKOS-9534 146,925 16325 2.77 7.7 1.22
A1PKOS-9548 146,300 16256 24.04 0.78 0.94
A1PKOS-9568 625 69 3.19 13.55 1.09
A1PKOS-9598 130 14 3.99 1.13 0.95
A1PKOS-9704 19,370 2152 3.92 1.51 1.14

44
A1PKOS-9756 600 67 5.98 1.56 0.94
A1PKOS-9778 3,225 358 3.07 2.71 1.93
A1PKOS-9779 4,400 489 10.13 1.04 1.43
A1PKOS-9826 1,250 139 8.33 4.68 1.09
A1PKOS-9974 1,405 156 5.05 4.02 0.94
A1PKOS-9988 175 19 2.81 2.04 0.95
A1PKOS-9989 2,525 281 3.25 0.88 1.45
A1SKOS-7486 16,625 1847 7.52 1.01 2.22
A1SKOS-7499 70,450 7828 15.8 3.5 1.09
A1SKOS-7665 2,600 289 4.59 8.12 3.7
A1SKOS-7666 7,750 861 20.99 1.89 1.76
A1SKOS-7724 750 83 12.12 10.04 1.45
A1SKOS-7725 2,250 250 10.63 6.21 1.09
A1SKOS-7833 10,600 1178 3.5 5.47 1.08
A1SKOS-7881 2,500 278 3.48 1.16 0.95
A1SKOS-7882 3,300 367 2.4 1.21 0.94
A1SKOS-7883 7,200 800 2.18 0.58 0.94

TOTAL = 350000

________________________________________

45
EOQ √2 * ANNUAL DEMAND * OREDRING COST
= _______________________________________

PURCHASING COST * INVENTORY CARRING CHARGES

_________________
= √ 2 * 350000 *992.90
__________________
1935.22 * 200
= 21.53(tons)

TOTAL COST = AD * C+ AD * OC + Q * C * I
__ __
2 2

AD = ANNUAL DEMAND
OC = ORDERING COST
C = PURCHASING COST
I = INVENTORY CARRING CHARGES.

= 350000 * 1935.22 + 300000 * 992.90 + 21.53 *1935.22 * 200

______ ____
2 2

= 17500000+27000000+6300000

= 86792728(CRORES)

FOR THE YEAR 2013 -2014

46
 Items total qty avg qty per month purchasing ct od ct invent cost
A1NKOS-7025 225 19 12.83 27.1 2.59
A1NKOS-7026 50,300 325 13.71 28.8 2.69
A1NKOS-7073 56,350 211 14.89 30.93 2.75
A1NKOS-7122 65,500 339 16.08 32.82 2.72
A1NKOS-7123 2,375 264 23.33 45.77 3.23
A1NKOS-7152 1,254 2718 10.48 23.52 2.67
A1NKOS-7177 1,5475 5589 7.95 18.09 2.2
A1NKOS-7178 56,350 6261 17.72 35.32 1.82
A1NKOS-7179 65,500 7278 18.11 36.04 1.85
A1NKOS-7181 2,850 317 19.96 39.13 1.89
A1NKOS-7249 3,900 433 26.47 50 2.07
A1NKOS-7254 900 100 31.85 59.85 2.16
A1NKOS-7270 5,850 650 32.81 61.55 2.38
A1NKOS-7285 7,675 853 51.66 92.44 2.79
A1NKOS-7286 15,325 1703 25.73 48.64 2.06
A1NKOS-7288 8,200 911 16.52 34.07 1.87
A1NKOS-7296 200 22 17.64 35.09 1.88
A1NKOS-7417 225 25 19.62 33.93 0.83
A1NKOS-7418 1587 25 17.45 33.22 1.78
A1NKOS-7421 625 69 34.14 63.01 2.3
A1NKOS-7456 16,125 1792 28.35 55.79 2.59
A1NKOS-7457 9,990 1110 61.72 114.97 2.68
A1NKOS-7458 16,975 1886 67.21 121.74 2.85
A1NKOS-7459 31,300 3478 24.68 44.76 1.73
A1NKOS-7460 5,350 594 25.14 48.7 2.07
A1NKOS-7487 23,800 2644 29.78 55.26 1.97
A1NKOS-7488 85,590 9510 27.94 56.39 2.6
A1NKOS-7490 55,450 6161 50.39 89.11 1.9
A1NKOS-7493 28,950 3217 52.97 93.48 1.92
A1NKOS-7494 1,150 128 34.45 64.18 2.37
A1NKOS-7495 187,800 20867 33.24 62.1 2.38

47
A1NKOS-7496 14,700 1633 32.6 59.87 2.13
A1NKOS-7497 23,600 2622 39.84 72.12 2.32
A1NKOS-7498 25,050 2783 41.91 75.65 2.31
A1NKOS-7625 13,575 1508 42.8 77.72 2.62
A1NKOS-7627 39,525 4392 49.36 88.54 2.7
A1NKOS-7757 21,050 2339 0.91 7.58 1.88
A1NKOS-7842 3,875 431 2.61 5.27 0.65
A1NKOS-7847 5,000 556 4.02 7.68 0.76
A1NKOS-7851 56,200 6244 9.32 17.47 1.73
A1NKOS-7872 5,050 561 4.81 9.17 0.81
A1NKOS-7877 33,900 3767 13.55 23.76 0.94
A1NKOS-79002 5,855 651 1.38 3.34 0.56
A1NKOS-7915 400 44 1.04 2.79 0.66
A1NKOS-7917 4,400 489 4.68 9.43 1.23
A1NKOS-7918 18,000 2000 2.24 4.79 0.73
A1NKOS-7919 11,200 1244 0.88 2.53 0.66
A1NKOS-7920 8,600 956 1.8 3.87 0.6
A1NKOS-7921 10,300 1144 2.26 4.65 0.62
A1NKOS-7922 175 19 0.73 2.16 0.6
A1NKOS-7923 2,600 289 10.04 19.81 2.52
A1NKOS-7925 10,350 1150 1.41 3.39 0.65
Total 1136551 5214 1200 150 200

_______________________________________
EOQ √2 * ANNUAL DEMAND * OREDRING COST
= _______________________________________

PURCHASING COST * INVENTORY CARRING CHARGES

________________
= √2 * 1136551 *150

48
 __________________
1200 * 200

= 15.38 (tons)

TOTAL COST = AD * C+ AD * OC + Q * C * I
__ __
2 2
AD = ANNUAL DEMAND
OC = ORDERING COST
C = PURCHASING COST
I = INVENTORY CARRING CHARGES.

= 2 * 1200 +1136551 * 150 + 249440 * 1200* 200

_______ ______
2 2

= 965878 (CRORES)

MATERIAL ANNUAL CONSUMPTION OF DAIRY FOR THE YEAR 2014-2015

Items total qty avg qty per month purchasing ct od ct inventory ct

49
A1NKOS-9529 139,350 15483 30.26 4.34 0.74
A1NKOS-9530 132,300 14700 30.83 4.57 0.7
A1NKOS-9536 9,400 1044 31.4 2.32 0.72
A1NKOS-9537 31,750 3528 31.81 4.04 0.75
A1NKOS-9538 17,500 1944 32.03 4.89 0.67
A1NKOS-9583 550 61 35.36 0.86 0.69
A1NKOS-9584 0 0 35.93 0.38 0.65
A1NKOS-9587 225 25 36.46 12.57 0.62
A1NKOS-9591 475 53 37.45 0.88 0.62
A1NKOS-9600 89,775 9975 37.7 1.6 0.68
A1NKOS-9603 100 11 35.92 4.45 0.68
A1NKOS-9338 4,175 464 155.07 3.12 3.06
A1NKOS-9343 100 11 10.5 11.56 0.58
A1NKOS-9375 1,400 156 9.5 1.03 0.65
A1NKOS-9376 175 19 18.34 2.53 0.62
A1NKOS-9389 3,275 364 19.66 1 0.63
A1NKOS-9413 108,800 12089 20.96 1.54 0.62
A1NKOS-9443 4,275 475 21.77 0.85 0.62
A1NKOS-9451 12,400 1378 21.97 0.55 0.61
A1NKOS-9452 45,000 5000 22.33 0.39 0.57
A1NKOS-9453 8,000 889 22.87 0.42 0.64
A1NKOS-9454 12,250 1361 23.53 1.95 0.55
A1NKOS-9455 22,750 2528 24.3 0.11 0.56
A1NKOS-9473 87,875 9764 23.92 0.18 0.55
A1NKOS-9475 14,350 1594 24.49 0.06 0.67
A1NKOS-9476 14,025 1558 25.02 0.09 0.55
A1NKOS-9487 34,775 3864 25.64 0.09 0.62
A1NKOS-9488 32,675 3631 26.2 0.79 0.63
A1NKOS-9503 8,350 928 26.82 1.19 0.66
A1NKOS-9504 7,925 881 27.43 3.76 0.62
A1NKOS-9505 120,875 13431 27.87 1.11 0.62
A1NKOS-9506 12,075 1342 27.98 0.99 0.66

50
A1NKOS-9520 106,675 11853 28.54 1.24 0.67
A1NKOS-9527 71,550 7950 29.11 3.54 0.62
A1NKOS-9528 64,675 7186 29.68 0.86 0.65
A1NKOS-9606 32,600 3622 36.44 4.37 0.93
A1NKOS-9613 2,660 296 36.86 6.35 0.7
A1NKOS-9614 5,400 600 37.81 0.86 0.62
A1NKOS-9615 6,925 769 38.73 1.9 0.64
A1NKOS-9617 2,100 233 39.69 1.94 0.62
A1NKOS-9636 100 11 40.59 2.1 0.98
A1NKOS-9663 650 72 41.51 8.54 0.73
A1NKOS-9692 84,675 9408 42.43 4.45 0.8
A1NKOS-9741 5,980 664 42.49 8.53 1.22
A1NKOS-9745 16,175 1797 43.39 11.4 0.84
A1NKOS-9746 16,025 1781 44.32 10.83 0.79
A1NKOS-9766 52,550 5839 45.21 0.75 0.85
A1NKOS-9789 73,830 8203 49.81 0.88 0.63
A1NKOS-9814 2,500 278 50.22 0.71 0.63
A1NKOS-9815 1,325 147 50.7 1.12 0.67
A1NKOS-9872 7,710 857 50.88 2.65 0.62
A1NKOS-9221 33,130 3681 9.62 0.09 0.54
A1NKOS-9226 300 33 10.96 0.09 0.58
A1NKOS-9238 17,695 1966 97.81 0.83 0.65
A1NKOS-9272 46,120 5124 47.95 0.12 0.54
A1NKOS-9273 35,700 3967 148.33 0.09 0.73
A1NKOS-9274 36,075 4008 14.28 1.1 0.63
A1NKOS-9275 25,860 2873 11.52 1.34 0.61
A1NKOS-9276 26,950 2994 69.35 1.02 0.75
A1NKOS-9277 9,800 1089 157.57 6.42 1.47
A1NKOS-9284 850 94 11.07 4.63 0.58
A1NKOS-9286 175 19 46.75 1.21 1.17

TOTAL = 7, 85,735
_________________________________________

51
 EOQ √ 2 * ANNUAL DEMAND * OREDRING COST
= _______________________________________
PURCHASING COST * INVENTORY CARRING CHARGES
_________________
= √ 2 * 785735 *164.17
__________________
2384.94* 45.27
= 14.87 (tons)

TOTAL COST = AD * C+ AD * OC + Q * C * I
__ __
2 2

= 785735 * 2384.94+785735 * 164.17 + 14.87 * 2384.94 * 45.27

______ ______
2 2

= 193923(CRORES)

AD = ANNUAL DEMAND I = INVENTORY CARRING CHARGES.

OC = ORDERING COST
C = PURCHASING COST

MATERIAL ANNUALCONSUMPTION OF DAIRY FOR THE YEAR 2015-2016

Item total qty avg qty per month purchasing ct od ct inventory ct
A1VKOS-7106 16,200 1789 2.63 4.24
6.02
A1VKOS-7500 13,450 1483 5.34 3.65
2.27

52
A1VKOS-7613 12,900 1422 2.7 3.75
1.63
A1VKOS-7620 590 66 3.55 3.87
6.65
A1VKOS-7676 2,050 228 2.44 3.95
20.33
A1VKOS-7677 2,360 262 1.97 3.67
7.93
A1VKOS-7707 28,800 3200 6.63 3.59
12.3
A1VKOS-7746 26,000 2889 1.71 3.62
8.88
A1VKOS-7844 9,100 1011 4.3 3.67
9.19
A1SKOS-7883 7,200 800 9.73 4.31
39.37
A1SKOS-9340 7,650 850 2.93 4.33
4.63
A1SKOS-9343 800 89 6.86 4.96
2.57
A1SKOS-9391 2,850 317 23.24 4.24
25.13
A1VKOS-7845 7,730 859 1.12 3.72
9.46
A1VKOS-7889 150 17 1.27 3.38
9.76
A1VKOS-7935 74,200 8244 1.04 3.42
10.16
A1VKOS-9394 50 6 6.4 3.45
10.46
A1VKOS-9583 250 28 1.08 3.48
10.76
A1VKOS-7845 7,730 859 1.12 3.72
9.46
A1VKOS-9671 6,025 669 2.36 3.52
11.04
A1VKOS-9672 950 106 3.01 3.58
11.34
A1VKOS-9710 164,700 18300 7.09 3.62
11.65
A1VKOS-9817 59265 14 7.84 3.62
11.93
A1VKOS-9897 59385 17 6.66 3.47
1.24
A1SKOS-7486 16,625 1847 1.4 4.15
0.31
A1SKOS-7499 70,450 7828 1.07 4.27
1.57
A1SKOS-7665 2,600 289 2.34 4.62
1.84
A1SKOS-7666 7,750 861 6.24 4.31
2.48
A1SKOS-7724 750 83 6.07 4.76
7.13
A1SKOS-7725 2,250 250 3.07 4.45
25.94
A1SKOS-7833 10,600 1178 3.29 4.32
9.01
A1SKOS-7881 2,500 278 2.63 4.37
4.53
A1SKOS-7882 3,300 367 11.63 4.96
2.79

_________________________________________

53
EOQ √ 2 * ANNUAL DEMAND * OREDRING COST
= _______________________________________

PURCHASING COST * INVENTORY CARRING CHARGES

_______________
= √ 2 * 635489 * 300
______________
150 * 127

= 200.15(tons)
TOTAL COST = AD * C+ AD * OC + Q * C * I
__ __
2 2
AD = ANNUAL DEMAND
OC = ORDERING COST
C = PURCHASING COST
I = INVENTORY CARRING CHARGES.

= 635489 * 150 + 635489 *300 + 200.15 *150 *127

______ _______
2 2

= 55650.76 (CRORES)

GRAPHICAL PRESENTATION OF DAIRY

TOTAL COST
1 2 3 4 5

8%
5%

41% 54

30%
INTERPRETATION

1. The total cost incurred in HERITAGE FOODS PVT LTD for the last five years is high.

2. When compared to Total cost of present

3. So placing order annually is Suggestible.

MATERIAL ANNUAL CONSUMPTION OF RETAIL FOR THE YEAR 2012-2013

Item total qty avg qty per month purchasing ct od ct inventory ct
I3010-C161 36 4 72.8 81.91 8.11
I3010-C162 364 40 73.6 82.6 8.15
I3010-C196 8 1 133.65 95.56 9.39

55
I3010-C200 196 22 135.44 96.25 9.44
I3010-C210 231 26 136.63 96.92 9.51
I3010-C220 49 5 137.95 97.59 9.97
I3010-C225 100 11 139.2 98.26 10
I3010-C230 27 3 140.33 99.63 10.05
I3010-C235 25 3 141.59 100.31 10.08
I3010-C238 113 13 142.74 100.97 10.13
I3010-C240 34 4 143.98 101.65 10.19
I3010-C242 13 1 145.23 102.32 10.21
I3010-C246 17 2 145.51 103.01 10.24
I3010-C250 105 12 146.68 103.68 10.3
I3010-C258 3 0 147.91 104.42 10.52
I3010-C260 47 5 150.65 105.11 10.55
I3010-C268 102 11 151.87 106.45 10.59
I3010-C290 36 4 107.14 10.68
I3010-C36 511 57 153.03 107.81 10.75
I3010-C37 383 43 154.31 109.16 10.81
I3010-C38 308 34 155.5 110.53 11.58
I3010-C39 278 31 156.69 111.88 11.93
I3010-C40 425 47 157.91 113.24 11.64
I3010-C41 132 15 159.65 113.91 11.72
I3010-C42 430 48 160.86 114.59 11.8
I3010-C43 335 37 162.06 115.94 11.84
I3010-C44 300 33 163.28 117.3 11.8
I3010-C45 356 40 164.51 117.98 12
I3010-C46 500 56 165.74 118.66 16.41
I3010-C47 707 79 166.93 119.48 16.48
I3010-C48 786 87 168.13 121.88 16.61
I3010-C49 213 24 169.36 123.93 16.72
I3010-C50 622 69 170.55 125.28 16.93
I3010-C51 854 95 173.41 129.7 17.1
I3010-C52 742 82 174.63 133.15 17.18

56
I3010-C53 517 57 176.04 135.9 17.45
I3010-C54 846 94 177.26 136.6 17.59
I3010-C55 1,002 111 178.47 137.26 19.17
I3010-C56 1,154 128 179.68 140 18.8
I3010-C57 1,144 127 180.9 133.54 20.21
I3010-C58 1,609 179 182.12 153.82 19.28
I3010-C59 530 59 183.33 142.93 19.51
I3010-C60 1,850 206 186.48 160.67 20.25
I3010-C61 793 88 187.72 164.11 21.16
I3010-C62 1,648 183 188.91 166.2 21.27
I3010-C63 1,514 168 190.12 167.56 21.42
I3010-C64 1,173 130 191.29 168.94 21.62
I3010-C65 1,449 161 192.57 171.7 21.92
I3010-C72 3,195 355 203.87 26.34 5.58
I3010-C73 1,629 181 206.24 27.01 5.64
I3010-C74 1,885 209 208.68 27.69 5.78
I3010-C75 2,626 292 212.33 28.34 5.32
I3010-C76 2,113 235 214.41 28.99 5.44
I3010-C77 1,404 156 214.77 29.66 5.54
I3010-C78 3,085 343 217.17 30.99 5.67
I3010-C79 1,338 149 219.59 31.67 5.72
I3010-C80 3,639 404 220.81 33.02 5.79
I3010-C81 1,441 160 221.84 33.68 5.87
I3010-C82 2,868 319 223.63 34.36 5.94
I3010-C83 1,653 184 236.71 35.05 5.56
I3010-C84 2,196 244 240.22 35.72 5.62
Total 291703 5200 9000 `3674 450

_____________________________________
EOQ √ 2 * Annual demand * Ordering cost
= __________________________________

Purchasing cost * Inventory carrying charges

57
 ______________
= √ 2 * 291703 * 3674
_______________
9000 * 450

= 8429(tons)

TOTAL COST = AD * C+ AD * OC + Q * C * I
__ __
2 2

AD = ANNUAL DEMAND
OC = ORD ERING COST
C = PURCHASING COST
I = INVENTORY CHARGES

= 291703 * 9000 + 291703 * 3674 + 8429 * 9000 * 450

______ ____
2 2
= 29, 50, 35,102

Actual cost = 31000000

MATERIAL ANNUAL CONSUMPTION OF RETAIL FOR THE YEAR 2013-2014

Item total qty avg qty per month purchasing ct od ct inventory

I1004-2375 36,489 4054 15.77 34.3 4.69

58
I3001-A100 4,840 538 16.08 34.58 4.7
I3001-A102 1,043 116 16.39 34.88 4.99
I3001-A103 103 11 16.65 35.16 5.02
I3001-A104 416 46 17.01 35.72 5.03
I3001-A105 1,252 139 17.34 36.26 5.05
I3001-A106 343 38 17.56 36.57 5.05
I3001-A107 198 22 17.93 36.83 5.09
I3001-A108 463 51 18.24 37.13 5.1
I3001-A109 51 6 18.53 37.41 5.32
I3001-A110 561 62 18.87 37.96 5.35
I3001-A112 4,095 455 18.87 38.24 5.37
I3001-A113 49 5 19.49 38.52 5.39
I3001-A114 129 14 20.15 38.8 5.41
I3001-A115 280 31 20.41 39.1 5.45
I3001-A116 292 32 20.85 39.66 5.49
I3001-A117 59 7 23.1 40.22 5.9
I3001-A118 442 49 56.16 40.77 5.94
I3001-A119 0 0 56.68 41.35 5.98
I3001-A120 515 57 57.25 41.9 6.01
I3001-A122 136 15 58.3 42.47 7.2
I3001-A124 406 45 58.81 43.06 3.21
I3001-A125 119 13 59.28 49.59 3.3
I3001-A126 107 12 60.36 6.04 2.74
I3001-A128 668 74 60.83 6.32 2.8
I3001-A130 504 56 61.35 6.61 2.86
I3001-A131 39 4 61.75 6.88 2.92
I3001-A132 166 18 62.27 7.16 2.98
I3001-A134 44 5 63.31 7.45 3.05
I3001-A136 823 91 63.79 7.74 3.11
I3001-A140 120 13 64.32 8.01 3.18
I3001-A144 209 23 65.28 8.31 3.22
I3001-A146 125 14 65.84 8.57 3.28

59
I3001-A148 58 6 8.85 3.32
I3001-A150 46 5 66.37 9.14 2.95
I3001-A156 76 8 66.84 9.46 3
I3001-A158 63 7 67.36 9.69 3.03
I3001-A160 2 0 67.86 9.99 3.06
I3001-A18 18 2 69.37 10.27 3.09
I3001-A19 1,109 123 70.33 10.56 3.14
I3001-A20 1,364 152 70.89 10.84 3.17
I3001-A21 2,211 246 71.34 11.11 3.2
I3001-A22 2,087 232 71.9 11.41 3.24
I3001-A23 7,608 845 72.4 11.69 3.32
I3001-A24 5,543 616 73.39 11.95 3.12
I3001-A25 5,520 613 74.25 12.23 3.18
I3001-A26 8,206 912 74.77 12.51 3.2
I3001-A27 8,004 889 75.28 12.81 3.24
I3001-A28 11,672 1297 75.82 13.08 3.27
I3001-A29 7,536 837 76.79 13.38 3.3
I3001-A30 11,308 1256 77.84 13.65 3.33
I3001-A31 6,646 738 78.8 13.95 3.37
I3001-A32 10,630 1181 80.52 14.23 3.39
I3001-A33 5,228 581 81.54 14.52 3.23
I3001-A34 8,272 919 82.54 14.77 3.26
I3001-A35 9,993 1110 83.62 15.05 3.29
I3001-A36 10,194 1133 96.81 15.34 3.31
I3001-A37 7,516 835 17.57 15.64 3.33
I3001-A38 11,025 1225 18.29 15.91 3.37
I3001-A39 11,161 1240 17.22 16.19 3.4
I3001-A40 11,415 1268 17.84 16.47 3.41
I3001-A41 7,368 819 18.46 16.74 3.43
I3001-A42 12,259 1362 19.09 17.04 3.46
I3001-A43 8,607 956 19.7 17.3 3.51
I3001-A44 9,220 1024 20.31 17.6 3.52

60
I3001-A45 7,659 851 20.98 17.89 3.57
I3001-A46 8,292 921 21.21 18.17 3.59
I3001-A47 6,390 710 21.81 18.45 3.39
I3001-A48 10,168 1130 22.4 18.74 3.42
I3001-A49 6,892 766 23.05 19.02 3.44
I3001-A50 6,760 751 22.42 19.31 3.45
I3001-A51 7,416 824 22.99 19.59 3.49
I3001-A52 7,701 856 23.57 19.89 3.52
I3001-A53 5,255 584 24.15 20.16 3.63
I3001-A54 5,764 640 24.68 20.44 3.64
I3001-A55 8,552 950 25.21 20.74 3.72
I3001-A56 9,834 1093 25.81 21.01 3.75
I3001-A57 9,211 1023 26.34 21.29 3.76
I3001-A58 8,555 951 26.87 21.58 3.78
I3001-A59 5,126 570 27.52 21.86 3.8
Total 187000 1200 870 650 250

________________________________________
EOQ √2 * ANNUAL DEMAND * OREDRING COST
= _______________________________________

PURCHASING COST * INVENTORY CARRING CHARGES

______________
= √ 2 *187000 * 650
_______________
870 * 250

= 890( tons)

TOTAL COST = AD * C+ AD * OC + Q * C * I
__ __
2 2

61
AD = ANNUAL DEMAND
OC = ORDERING COST
C = PURCHASING COST
I = INVENTORY CARRING CHARGES.

=187000 * 870 + 187000 * 650 + 890 * 870 * 250

______ ____
2 2
= 123, 63, 90,012

MATERIAL ANNUAL CONSUMPTION OF RETAIL FOR THE YEAR 2014-2015

Item total qty avg qty per month purchasing ct or ct inventory ct
I3001-C116 4,041 449 61.28 17.45 34.07

62
I3001-C117 1,711 190 62.19 34.14 35.09
I3001-C118 5,156 573 27.42 28.35 33.93
I3001-C119 264 29 36.63 61.72 33.22
I3001-C120 7,920 880 37.2 67.21 63.01
I3001-C121 192 21 37.71 24.68 55.79
I3001-C122 3,767 419 38.29 25.14 114.97
I3001-C123 410 46 38.82 29.78 121.74
I3001-C124 5,175 575 38.71 27.94 44.76
I3001-C125 1,135 126 39.22 50.39 48.7
I3001-C126 3,213 357 39.74 52.97 55.26
I3001-C127 86 10 40.28 34.45 56.39
I3001-C128 3,667 407 40.78 33.24 89.11
I3001-C130 4,204 467 41.28 32.6 93.48
I3001-C131 61 7 41.85 39.84 64.18
I3001-C132 2,810 312 42.5 41.91 62.1
I3001-C133 15 2 43.12 42.8 59.87
I3001-C134 2,395 266 43.64 49.36 72.12
I3001-C135 603 67 44.17 0.71 75.65
I3001-C136 4,225 469 1.72 77.72
I3001-C138 1,753 195 44.7 2.53 88.54
I3001-C139 14 2 45.23 0.91 2.51
I3001-C140 4,524 503 45.74 2.61 5.31
I3001-C141 34 4 46.28 4.02 7.33
I3001-C142 1,892 210 46.82 9.32 7.58
I3001-C144 4,715 524 47.44 4.81 5.27
I3001-C145 449 50 47.99 13.55 7.68
I3001-C147 1,521 169 48.53 1.38 17.47
I3001-C148 1,746 194 49.04 1.04 9.17
I3001-C149 12 1 49.58 4.68 23.76
I3001-C150 6,237 693 50.11 2.24 3.34
I3001-C151 13 1 51.14 0.88 2.79
I3001-C152 1,598 178 51.66 1.8 9.43

63
I3001-C153 32 4 52.2 2.26 4.79
I3001-C154 1,132 126 52.92 0.73 2.53
I3001-C155 12 1 53.46 10.04 3.87
I3001-C156 1,128 125 54.01 1.41 4.65
I3001-C158 1,746 194 54.51 0.58 2.16
I3001-C160 1,564 174 53.64 0.5 19.81
I3001-C161 18 2 54.17 0.34 3.39
I3001-C162 1,663 185 55.16 2.29 2.08
I3001-C163 33 4 85.49 0.49 1.93
I3001-C164 792 88 87.1 0.62 1.5
I3001-C165 1,153 128 88.74 16.86 4.77
I3001-C166 414 46 90.32 6.36 1.86
I3001-C167 6 1 91.87 6.37 2.21
I3001-C168 885 98 93.43 4.02 29.54
I3001-C169 83 9 94.97 4.43 11.4
I3001-C170 2,741 305 96.66 3.96 12.85
I3001-C172 508 56 98.65 7.41 7.66
I3001-C173 1,749 194 100.21 16.89 8.33
I3001-C174 85 9 101.77 1.47 7.64
I3001-C175 309 34 45.5 13.86 13.76
I3001-C176 139 15 47.04 3.63 28.49
I3001-C178 340 38 47.97 3.98 3.45
I3001-C180 1,834 204 47.98 1.16 23.41
I3001-C182 419 47 50.76 0.74 6.87
I3001-C184 179 20 51.58 4.87 7.52
I3001-C185 1,067 119 53.21 1.32 2.95
I3001-C186 87 10 54.88 4.02 2.25
I3001-C188 63 7 56.53 0.49 8.99
I3001-C190 930 103 58.26 0.78 3.24
I3001-C192 99 11 59.02 1.36 7.61
I3001-C193 50 6 58.81 1.58 1.87
I3001-C194 13 1 58.19 4.15 2.46

64
I3001-C195 1,631 181 60.33 1.89 3.26
I3001-C196 40 4 61.94 0.76 3.58
I3001-C198 124 14 62.89 1.36 7.69
I3001-C200 755 84 63.69 3.7 4.23
I3001-C202 34 4 64.57 0.59 2.36
I3001-C204 690 77 65.39 331.3 3.28
I3001-C205 388 43 66.21 1.06 7.91
I3001-C206 65 7 67 4.72 2.03
I3001-C208 66 7 67.79 8.34 32.26
I3001-C210 827 92 68.61 0.42 2.69
I3001-C215 328 36 70.23 0.69 8.75
I3001-C218 28 3 70.97 0.98 15.82
I3001-C220 396 44 71.81 2.23 1.7
I3001-C36 1,073 119 73.4 1.34 2.31
I3001-C37 17 2 74.22 1.25 2.64
I3001-C38 692 77 76.6 1.43 4.67
I3001-C39 292 32 78.17 1.34 3.22
I3001-C40 900 100 79.96 0.4 3.06
I3001-C41 526 58 80.82 4.68 3.4
I3001-C42 795 88 81.63 6.35 3.24
I3001-C43 626 70 82.4 7.69 1.68
I3001-C44 954 106 83.22 5.67 8.66
I3001-C45 591 66 82.72 4.18 11.22
I3001-C46 1,037 115 9.63 6.17 13.62
I3001-C47 777 86 10.04 0.27 10.05
I3001-C48 1,591 177 10.44 5.38 7.71
I3001-C49 649 72 10.9 7.79 10.93
I3001-C101 181 20 20.37 16.08 27.1
I3001-C102 5,459 607 20.64 23.33 28.8
I3001-C103 1,781 198 20.93 10.48 30.93
I3001-C104 4,026 447 21.21 7.95 32.82
I3001-C105 9,175 1019 21.23 17.72 45.77

65
I3001-C106 3,563 396 21.8 18.11 23.52
I3001-C107 717 80 22.07 19.96 18.09
I3001-C108 7,924 880 22.38 26.47 35.32
I3001-C109 625 69 21 31.85 36.04
I3001-C110 9,832 1092 22.73 32.81 39.13
I3001-C111 142 16 25.1 51.66 50
I3001-C112 7,410 823 56.16 25.73 59.85
I3001-C113 258 29 57.18 16.52 61.55
Total 2222450 3901 3900 120.81 220.51

_______________________________________
EOQ √2 * ANNUAL DEMAND * OREDRING COST
= _______________________________________

PURCHASING COST * INVENTORY CARRING CHARGES

____________________
= √2 * 22, 22,450 *120.81
__________________
3900 * 220.51

= 1300(tons)

TOTAL COST = AD * C+ AD * OC + Q * C * I
__ __
2 2

AD = ANNUAL DEMAND
OC = ORDERING COST
C = PURCHASING COST
I =INVENTORY CHARGES

= 222450 * 3900 + 222450 * 220.51 + 1300 * 3900 * 220.51

66
 _______ _____
2 2

= 42, 94, 50,001

Actual cost = 51, 00, 34,736

MATERIAL ANNUAL CONSUMPTION OF RETAIL FOR THE YEAR 2015-2016

Item total qty avg qty per month purchasing cost od ct inventory ct

67
I3010-B104 2,200 244 13.98 11.69 2.73
I3010-B105 3,765 418 14.32 13.15 2.75
I3010-B106 1,564 174 14.31 14.34 2.75
I3010-B107 605 67 14.78 14.6 3.34
I3010-B108 2,275 253 14.98 14.6 3.42
I3010-B109 569 63 14.55 14.13 3.46
I3010-B110 2,795 311 15.8 14.51 3.51
I3010-B111 272 30 15.96 14.88 3.55
I3010-A34 4,413 490 22.49 66.95 6.84
I3010-A35 4,266 474 22.49 67.64 6.87
I3010-A36 4,908 545 22.63 68.3 2.84
I3010-A37 5,131 570 22.9 68.99 2.89
I3010-A38 5,617 624 22.13 6.08 2.95
I3010-A39 4,323 480 23.55 6.35 3.02
I3010-A40 4,867 541 22.47 6.6 3.07
I3010-A41 4,065 452 23.58 6.85 2.61
I3010-A42 5,606 623 22.84 7.09 2.65
I3010-A44 4,214 468 24.03 7.71 2.74
I3010-A45 4,333 481 24.29 8.52 2.36
I3010-A46 3,460 384 23.53 8.18 2.39
I3010-A47 2,626 292 23.86 7.94 2.42
I3010-A48 4,249 472 24.16 8.17 2.45
I3010-A59 1,668 185 26.72 10.8 2.62
I3010-A60 3,527 392 27.46 11.03 2.64
I3010-A61 1,442 160 27.46 11.22 2.67
I3010-A62 3,584 398 28.06 11.45 2.7
I3010-A63 1,831 203 28.06 11.69 2.72
I3010-A64 2,609 290 29.6 11.93 2.75
I3010-A65 2,513 279 28.87 13.15 2.83
I3010-A66 2,395 266 30.38 14.57 3.34
I3010-A67 1,307 145 29.36 15.31 3.42
I3010-A68 2,231 248 30.02 14.13 3.46

68
I3010-A69 1,352 150 14.51 3.51
I3010-A70 3,143 349 30.22 14.88 3.55
I3010-A71 1,115 124 30.6 15.24 3.66
I3010-A72 3,858 429 31.76 15.62 3.34
I3010-A73 697 77 32.13 15.97 3.38
I3010-A74 2,658 295 32.53 16.35 3.44
I3010-B100 5,395 599 13.83 10.57 2.59
I3010-B101 630 70 13.85 10.8 2.62
I3010-B103 678 75 13.94 11.22 2.72
I3010-B112 2,617 291 16.24 15.24 3.66
I3010-B113 223 25 16.54 15.62 3.34
I3010-B114 1,938 215 16.82 15.97 3.38
I3010-B115 1,315 146 16.93 16.35 3.44
I3010-B116 1,698 189 17.09 16.71 3.48
I3010-B117 342 38 17.12 17.08 3.51
I3010-B118 1,550 172 17.26 17.44 3.56
I3010-B119 202 22 17.61 17.82 3.61
I3010-B120 2,692 299 10.85 18.17 3.62

TOTAL 429051 320 150.34 550.7 60.10

_______________________________________
EOQ √2 * ANNUAL DEMAND * OREDRING COST
= _______________________________________

PURCHASING COST * INVENTORY CARRING CHARGES

________________
= √2 * 429051 *60.10
_________________
150.34 * 550.7

= 2935(TONS)
TOTAL COST = AD * C+ AD * OC + Q * C * I

69
 __ __
2 2
AD = ANNUAL DEMAND
OC = ORD ERING COST
C = PURCHASING COST
I = INVENTORY CHARGES

= 429051 * 150.34 + 429051 * 60.10 + 2935 * 150.34 * 550.7

______ ____
2 2
= 7,30,425,625

Actual cost was = 8,54,256,587

70
 total cost of RETAILfrom 2010-2014

90000000 816900376
80000000
70000000
60000000
total cost

50000000 429450001
40000000
295035102
30000000
20000000
73024200
10000000
1 1 1 1 1 1
0
1

no of years

INTERPRETATION

4. The total cost incurred in HERITAGE FOODS PVT LTD ltd for the last five years is
high.

5. When compared to Total cost of present

- So placing order annually is Suggestible.

Findings

71
 1) All the Years are not showing sample profits. This is because of raw material
prices have been continuously under pressure due to persistent mismatch between
supply and demand.
2) In purchase department for want of any item it should go through several
processes. This may include receiving indents, floating enquiries, preparation of
order processing form, preparation of purchase order and order follow up inform
the supplier. Most of the time was spent in accounts payable.
3) In this type of process, it requires more number of employees and supplier should
also wait for until the accounts are matched.
4) This process takes an input, adds value to it and provides an output to an internal
or external customer.

CONCLUSIONS

Though HERITAGE FOODS PVT LTD ltd is doing good in manufacturing many products or
items it was found that a little rectification has to be made
They are

1. Order is placed monthly or quarterly

2. It may cost heavy expenditure for placing order so many times
3. Cost will be beard each time an order is placed
4. So it is suggestible that order should be placed annually depending on demand
5. Storage facilities should be modified
6. A stores manager should be appointed separately to look after product at hand
7. Separate department of research should be placed
8. Especially for inventory of goods

Suggestion

72
There are many recommendations on purchase of inventory goods depending upon demand ,
they are

1. Company may try to order annually rather than monthly depending upon demand for
the products.

2. Total cost incurred when purchases are made annually is less than the total cost
incurred when orders placed monthly.

3. Company should make orders at one stretch.

4. When orders are made at one time in bulk, then suppliers may provide special
discounts.

5. Reduction of transport facilities is noticed when orders in a bulk.

6. Ordering cost, inventory carriage cost may not be euchred.

BIBLIOGRAPHY

73
 References for the project development were taken from the following books.
R.K. SHARMA SHASHI K.GUPTA : Management accounting

PRASANNACHANDRA : Financial management

Theory and practice

S.N MAHESHWARI : Financial management

I.M PANDAY : Financial management

Annual Reports of HERITAGE FOODS PVT LTD., (2011-2015)

www.google.com
www.wikkipedia.com
www.heritage.com
www.inventoryindia.com

74