ABSTRACT
The
need for holding material is inherent in any business organization. The space
of the material will be properly controlled and valued so that objective of
carrying or maintaining adequate stock levels at minimum cost can be realized.
Hence,
the study of material evaluation and control in a manufacturing firm like
Rokana Industry Plc has been grouped into the following sector to enhance the
success of the work.
The
introductory chapter deals with the meaning of material cold its components in
a manufacturing organization, as well as valuation. It also cover the method of
controlling material and the dangers cold advantages inherent in each of them.
Chapter
two examines the related texts that the project written was able to come
across. In this chapter, the study looked at the central of materials and the
method employed in so doing. It further examined the need for material, various
stock and methods of material valuation.
Considering
the nature of the study, and the company a lot of data were generated. Both
primary and secondary data were used it is based on this third chapter tiled
“Research methodology†stated the source of data collected, categorizing them
into primary and secondary.
The
former was achieved through the use of such instruments as introduction,
research, designs, questionnaire design, sampling and selection, other method
used such as observation and survey. Source of data and statistical techniques
used in analyzing the data.
In
chapter four, the data collected were presented, analyzed and interpreted.
Firstly, an introduction of the method, data collection followed by the results
of the interview concluded. The data were then analyzed and interpreted.
Finally,
chapter revealed the findings of summary made from the research, recommendation
were drawn and the conclusion were based on the findings with a view to
ensuring effective material valuation and control.
TABLE OF CONTENTS
Title
Page
Approval Page
Dedication
Acknowledgment
Abstract
Table of contents
CHAPTER ONE
Introduction
1.0 Background
of the study
1.1 Statement of the problem
1.2 Objectives of the study
1.3 Significance of the study
1.4 Research question
1.5 Statement of hypothesis
1.6 Scope of the study
1.7 Limitation of the study
1.8 Definitions of professional terms
CHAPTER
TWO
Literature
2.0 Introduction
2.1 Material Controls
2.2 Material Control Methods
2.3 Need and Reason for Keeping Material
2.4 Stock level s
2.5 Material Models
2.6 Material Valuations
2.7 Store Management Techniques
2.8 Control of Stock Issue
CHAPTER
THREE
3.0 Research
Methodology
3.1 Introduction
3.2 Research Design
3.3 The Questionnaire Design
3.4 Population / Sample Design
3.5 Sources of Data
3.5.1 Primary Sources
3.5.2 Secondary Sources
3.6 Data Collection Techniques
3.6.1 The Survey
3.6.2 Observation
3.7 Method of Data Analysis
CHAPTER
FOUR
Presentation and Analysis of
Data
4.0 Introduction
4.1 Data Presentation
4.2 Data Analysis
4.3 Testing of Hypothesis
4.4 Decision Rule
4.5 Discussion on Major Data
CHAPTER
FIVE
Summary, Recommendation and Conclusion
5.0 Introduction
5.1 Summary
5.2 Recommendation
5.3 Conclusion
Bibliography
Appendix
CHAPTER ONE
INTRODUCTION
1.0 BACKGROUND
OF THE STUDY
Material
represents a major assent of most industrial and commercial organization, and
its essential that material are managed efficiently, so that materials do not
become unnecessary large.
A
firm should determine its optimum level of investment in material and to do so,
two conflicting requirements must be met.
Firstly,
it must ensure that materials are sufficient to meet the requirement for the
production and sales.
Secondly,
it must avoid holding surplus material which is unnecessary and which increase
the risk of obsolesces. The optimal level lies some where between these two
extremes.
The
study of material valuation and control measure is necessary in light of the
need for a company whose goals is to optimize or maximizes its profit, retains
the company’s goodwill and project the economy. Hence there is need to emphasis
here that appropriate description and measurement of material demand careful
attention because material is one of the most significant assets that any
organization possesses.
Material
can be defined as assent items held for sale in the ordinary course of business
or good that will be used or consumed in the production of good to be sold.
From the above definition, on can decide that material can be classified into
three classes of:
1)
stock of raw material-used for the production
department.
2)
Incomplete work (work in progress) – used to
maintain continuity within the production department.
3)
Material of finished good awaiting sales used
to satisfy customer demand.
Each
of these will normally represents a substantial par of the working capital of
the organization. An efficient company will attempt to maximize this investment
whilst at the same time ensuring that there is always sufficient to meet its
requirement.
Investment
in material refers to the monetary value of all material held in a company at
any time, which must be very carefully controlled. They quality value of each
material, which is to be held in stock, must be decided by management.
In
the course of evaluating this topic, one may ask the question, what is material
valuation and control, in an organization? The answer are not far fetched as,
this can said to means, the system designed by the organization to control its
investment in material.
This
is found to be existence at Rokana Industry plc Nigeria Nekede Owerri that
produces item like Jordan tooth brush, candle and Milo.
The
system involves the recording and monitoring of stock levels, knowing when to
place orders and how many orders to be placed.
A
critical look at the balance of most companies including Rokana Industry plc,
it will be observed that material usually forms the largest figure of their
current assets. Because of this large nature, an error in its valuation may
cause a material misstatement of the financial position and of net income.
An
error of between 15% - 25% in valuing materials may have as much effect on the
financial statement as would be the complete omission of cash.
This
is enough reason for a sound organization to place proper control over its
material. Since company needs information in material as a guide to decision
making material handling should not be placed on final and error basic rather
on scientific models designed for it.
Hence,
it is our belief that techniques for material valuation an control in any
organization when properly applied by management, irrespective of their field
of operation, would surly lead to optimality in stock holding visa-visa is the
firm wealth minimization.
1.2 STATEMENT
OF THE PROBLEM
In
principle, organizations are expected to apply the scientific models for
valuing and controlling material so as to maximize their wealth. This has been
observed is not strictly adhered to in practice due to either the nature of
business of the organization, ignorance on the part of the organization or lack
of qualified personnel to implement them.
Problem
of material valuation and control exist in almost all firms except service –
oriented organization. These problem arise from the fact that most organization
(mainly manufacturing ones) base their material control on experience,
intuition, guess work and human judgment approach other than applying the
modern scientific models like – re-order levels which removes all elements of
bins in determining stock levels.
Furthermore,
the growing realization of the new and important of material control valuation
and control because of the large capital investment associated with, it has
become necessary to control these excessive costs which include:
Carrying costs: the carrying cost is referred to
as possession costs. The carrying cost include – storage costs, material
handling cost, insurance cost, property taxes and security costs etc.
1.2.1 ORDERING
COST:
this consist of clerical processing order or production order, special
processing and receiving costs relating to the number of orders process, it is
usually represented by: - Transport cost, clerical and administrative cost.
1.2.2
STOCK OUT COST:
this is a state of being without stock. One of the basic reasons why materials
are held is to avoid these costs, which are always difficult to quality, even
though they exist. Some of these cost include; loss of future sales and
reduction in out put and consequently in profits.
Base
on all the facts highlighted above, I have thought, it wise to undertake a
research on material valuation and control in a manufacturing organization with
Rokana Industry Plc Nigeria as a case study of evaluate its system of material
valuation and control and ascertain if it is efficient and effective
1.3 OBJECTIVE
OF THE STUDY
Having
defined the problem of the research work, it is necessary to present the
specific objective, which the work intends to achieve which are:
2
To ascertain if Rokana Industry plc employs
the scientific models of material valuation and control.
3
To compare the various method of valuing
materials and highlighting their advantages and disadvantages.
4
To highlighting the benefits of effective
material control which facilitates the smooth running of a business, improves
its profitability and enable enjoy the multiplier effect of merit.
5
To evaluate the system of internal control
with respect to material.
6
To find out whether the cost incurred in
maintaining the material is economically justifiable in the light of profit
opportunities available.
1.4 SIGNIFICANCE
OF THE STUDY
Although
most exercise control over their material, the control are often not adequate
resulting in loss of material through wastages pilferages, obsolesces,
deterioration, evaporation, damages and falling prices. Because material
comprises a significant portion of the assents to many organization, their
valuation and presentation have a considerable effects in the determination and
presentation of the financial position and results of operations of these
enterprises, hence effective material control facilities the smooth running of
a business, improves its profitability and enable the organization to enjoy the
multiplier effect of its merits.
This
study is important because it make it crystal dear why it is necessary for
companies and individuals to control their material and bring to the knowledge
of manufacturing firms the numerous solutions to the problem being encountered
by various material managers.
It
is intended to produce a reliable costing information as regards the record of
material movement which will invariable create on opportunity for a more
coordinated work and profit maximization since the satisfaction of most
organization is that they achieve maximum profit using minimum cost.
To
the store managers who are accountable for material and responsible for the
stores department, this study will provide them with the necessary equipment
needed for planning, control and procurement of material.
To
other users like future researchers, prospective entrepreneur or even fellow
students it will improve to a great extent their theoretical and practical
knowledge about material valuation and control.
Finally,
in this ear where there is a great emphasis on small scale industries, the
study will be of immense help to any person who has an intention of setting up
a small scale business and for those already in business. It is aimed at giving
their proper guide towards the achievement of effective and efficient material
control.
1.5 STATEMENT
OF HYPOTHESIS
This
dissertation is designed to test the reality and correctness of the question
associated with efficient and effective material valuation and control in a
manufacturing organization like Rokana Industry plc.
The
research question can only correct when they must have been tested and provided
to be correct. Consequently, I have decided to use the questionnaire and
interview methods to test our hypothesis.
HYPOTHESIS
I
Ho: Material valuation and control in Rokana
Industry plc are not efficient and effective
HYPOTHESIS
II
Hi: material valuation and control in Rokana
Industry plc are efficient and effective.
1.6 SCOPE
OF THE STUDY
In
order to collect enough information from the area of study, the research
selected Nekede which is the headquarter of the case study Rokana Industry plc.
Consequently,
the scope of the study is to:
1) Evaluate
the system of material valuation and control operating at Rokana Industry plc.
2) Investigate
into the purpose of material control.
3) Investigate
and find out whether the company keeps appropriate internal control system in
relation to material.
4) Investigate
and find out whether the company uses the scientific models of material stock
level and economic order quantity (EOQ) etc.
1.7 LIMITATION
OF THE STUDY
The
research did not delve into all the measures and factors. Material evaluation
and control rather the study was limited to raw material only with little
mention of finished goods. This is to the limitation common to most studies.
Consequently,
the number of problem this dissertation was faced with includes.
1.7.1
FINANCE: The
financial strength of the researcher as at the period of inflationary tend was
a major set back as it made things a little bit difficult most especially in
the areas of transportation.
1.7.2
TIME CONSTRAINTS: Being
a graduating student, time was shared between this work and other academic
commitment, which created partial conflict between lecture hours and
appointments scheduled with the company under case study.
1.7.3
LACK OF ENOUGH MATERIAL: The
major limitation, which the research encountered, is lack of enough material to
cover the topic, as most books on this topic were not found in both the
institution and public libraries. Again, past literature review were not found
and this made the work to be stressful the researcher.
1.8 DEFINITION
OF PROFESSIONAL TERMS
For
better understanding and to avoid misinterpretation of this dissertation. I
have thought is necessary to explain some of the operating terms that have
unique application in this research.
1)
CARRYING COST:
this arises when stock of goods for sales productions are held. They consist of
the opportunity cost of the investment tied up in material and the cost associated
with storage. Such are space rented and insurance.
2)
CONTROL:
this is the ct of setting performances expected and monitoring actual
performance against standard.
3)
MATERIAL:
materials are items of value held for use or sale by an enterprise and usually
comprise of raw materials and suppliers used in production, work-in-progress
and finished goods.
4)
MATERIAL CONTROL:
this is a system designed to ensure that the required quantity of material is
proved at the required time the minimum capital investment. It includes such
areas as, procurement, storage, stock control, issuing and material valuation.
5)
ORDERING COSTS: the
consist of the clerical costs of preparing a purchasing order and the special
processing and receiving costs relate to the number of order processed.
6)
SAFETY MATERIAL:
this is minimum or better material that is held as a cushion against unexpected
increase in demand.
7)
STOCK OUT:
The term stock out†simply means the unavailability of finished goods in the
store, when demanded by customer or raw material when needed by the production
department for continuous or increased production to meet up with customer
demand.
8)
STORE RECORD CARD:
these are record maintained for each time of material stock showing details of
receipts. Issue and stock balance, as well as details of order placed,
allocation made and free balance available.
9)
MAKE OR BUY DECISION: this
is a situation where by an organization takes a decision of making some of
their materials in house or buying them from outside supplier.
10) FORECASTING:
this is the means of analyzing and interpreting data of post sales seasonal
variation in prices availability and demand for material. They forecasting
future trends and plan material requirement accordingly.
11) Standardization:
It
is “that which has been established as a model to which an object or action can
be comparedâ€. However one should take note that even a substitute technically
feasible. It is not always economic standardization is not necessary so use it.
The economic of standardization is not necessarily so complex.
12) VALUE
ANALYSIS AND VALUE ENGINEERING: they are close to the same
thing. They are approaches to cost saving goals that deal primarily on product
design.
13) SAFETY
STOCK: management is often f aced with uncertainties. Because of
this proper prediction usage and lead time becomes difficult.
14) LEAD
TIME: This is normally taken in receiving the delivery of
material after the order has been placed.
15) AVERAGE
COLLECTION PERIOD: this measures how long it takes from the
time the sale is made to time the cash is collected from the customer.
16) CONVENTION
PERIOD OF MATERIAL: this is the speed with which material can be
converted into cash.
17) PROCUREMENT:
This is defined as the acquisition of good and services by firm, industries,
government and their subsidiary agencies such as parastatals Uzor (2004: page
422).
18) RESEARCH:
research is a systematic investigation for the purpose of gaining new knowledge
in order words, it is any study that leads to knowledge the person undertaken
the research.
19) HYPOTHESIS: Is
a conjectural statement which a researcher make ahead of his study and which
must be subjected to test to be accepted or rejected.
20) SOURCING:
sourcing according to Baily and Farmer (1979:113) sourcing is said to be the
identification of suitable source of supply.
21) QUALITY:
This is seen as the totality of feature and characteristics of a product or a
service that bears on the ability to satisfy a state or implied needs.
22) SPECIFICATION:
specification according to Lee and Doubler (1981:48) are description of the
material ports, and components used in making a product.
23) MANAGEMENT
CONTROL: Anthony defined management control as ensuring that
resources are obtained and used effectively and efficiently in the
accomplishment of the organization objectives.
24) DATA
CONTROL: data is a series of system like number, letter of the
alphabets, sound, electric current electromagnetic warier words, mathematical
expression cheques deposit, slip test scores etc. information is anything that
produces a change in a person knowledge information is data that is processed.
25) QUESTIONNAIRE: is
consist of a set of question (or spaces) the answer of which respondents are
required to full in according to design or instructions.
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