The Implication of Cost Control in Inventory Management (a Case Study of Nigeria Bottling Company Plc, Aba)

 

ABSTRACT

This is an in-depth study on the implication of cost control in inventory management. This topic is all about the importance of control of cost in manufacturing firms as a tool for efficient and effective deployment of resources in inventor. Some research problems were detected out which hinder the effective control of inventory among which are fluctuation in prices of raw material, inventory keeping and uncontrolled cost resulting to loss of profit and revenue, and increase in cost of production. The purpose of this study is to create awareness to Nigeria, firms and researchers on the implications of the cost and controlled inventory. The research methodology used include both primary and secondary data collections for the primary data, questionnaire were administered personal, interviews conducted and physical observation of events was  made. The secondary data were sourced from textbooks, journal and the data collected were analyzed and tested using percentage. Some of the research findings made by the researcher include that cost affects inventory strongly and cost of production depends on the cost of raw materials used in production, secondary uncontrolled cost causes over – stocking and under – stocking thereby creating problem in production level.

 

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THE STUDY

A business enterprise must survive, grow and prosper, cost control is the activity necessary for ensuring that these objectives are fulfilled.

Hence it is required to study the different tools and techniques used for the cost Vohra (2008). Same we need to start with understanding deeply the concept of cost. Once we understand the meaning of cost, its controllability, main area where cost arises, then we can think of how to control the cost. We can classify the cost according to their nature, behavior. Then we can easily know the cost which can be controlled.

Here more emphasis is on the controllable and Non-controllable cost, because this classification of the costs helps understanding what and how we can control, if the  cost can be controlled then what steps should be taken for controlling purpose, if cannot be controlled, what should be done. It is totally depends  upon the managerial decisions, and  it is the activity of management accounting. With the given type of industry the cost element vanes for the industry. Manufacturing industry engaged in transforming raw material into finished product with the help of machines and manpower. The contribution of material cost in the total cost is more than 70%. Hence the main focus is on raw material for this industry. Therefore, more emphasis should be given to the material cost and need to find out the possible outcomes to control cost. Temeng (2010).

Based on the above analogy, therefore the project work evaluate the cost control in inventory management in manufacturing company, with respect to Nigerian Bottling Company Plc, Aba.

1.2     HISTORY OF CASE STUDY

The Nigeria Bottling Company Plc is an authorized producer of coca-cola, Fanta-chapman, Fanta-lemon, Fanta-orange, krest tonic, spirte etc.                     It was in-corporate in Nigeria 1951 was in-corporate in Nigeria 1951 that is 64 now. Coca-cola, its main and popular product was first bottled and sold as a drink at a soda fountain in Altanta in the n and popular product was first bottled and sold as a drink at a soda fountain in Atlanta in the United State of America United State of America (U.S.A) in May 1886. The company 1886. The company and it’s products have since grown from strength to strength, and coca-cola is now produced and sold in about one hundred and it’s products have since grown from strength to strength, and coca-cola is now produced and sold in about one hundred and fifty (150) countries all over the world, where there are over one thousand (1,000) bottlers of which Nigeria Bottling Company (NBC) is one of them. The Nigeria Bottling Company (NBC) is one of the companies of the leventis group, own fifteen (15) plants and over one thousand (1,000) mini depot all over the federation of which the Aba plant is one the them. It’s Nigeria headquarters is situated in Ikeja, Lagos State.

The company has the crown product limited (CPL) which manufactures the crown corks for the drinks and Delta Glass Industry at Ugheli for its bottling manufacturing.

The Aba plants started operations, in addition to the training carried out at the branch for staff generally, by coca-cola Africa and the Leventis group training centre, the Nigeria Bottling Company NBC runs training school also at Ikeja for various categories of the staff including salesmen who help in the distribution of it’s products

Moreover, special training is regularly organized from time to time for the sales department, production and warehouse department quality controller’s etc. the Nigeria Bottling Company Plc (NBC) is managed by a plant manager while other departments like sales production and distribution have departmental heads. The above management structure is practiced by the Aba plant, the departmental heads reports to the plant manager who finally reports to the head manager at the headquarters at Lagos and also take orders from headquarters regarding the affairs of the plant.

1.3     STATEMENT OF THE PROBLEMS

The study of cost control intends to point out the problems associated with inventory management. Inventory cost controls contributes effectively to the reduction or increase of cost of production, this is because with the fluctuation in price of raw material and the scarcity of some raw material when it is required. The irregular updating of controlled levels to take account of changes together with perpetual inventory and continuous stock taking system. The difficulties in choosing an appropriate control technique or model to be applied in a firm, if there is the need to operate under circumstantial condition and to improve the system to meet the requirement of the particular organization or the type of term in one organization. This therefore creates relationship problems between cost control and inventory management. This study is to as certain the applicable cost control and models in real situation and the need to evaluate the measures used by manufacturing firms in management of inventory.

1.4     PURPOSE OF THE STUDY

This research work, implication of cost control in inventory management is aimed at having a detailed examination of cost control in Nigeria Bottling Company Plc Aba with the view of ascertaining the following.

i.        To understand the basic concepts of cost, cost control in inventory management.

ii.       To examine the tools and techniques available for cost control in inventory management.

iii.      To evaluate the cost control techniques used in manufacturing sectors.

iv.      To analysis techniques in component cost after implementing these techniques.

1.5     RESEARCH QUESTIONS

The following questions will guide the study

1.       To what degree do you understand the cost control in inventory management?

2.       To what extend do you examine the tools and techniques available for cost control in inventory management?

3.       To what level do you evaluate the cost control techniques used in your organization?

4.       To what degree do you analysis the changes in component cost after implementing these techniques?

5.       To what extend do you access the effect of cost control in inventory management?

1.6     DELIMITATION (SCOPE) OF THE STUDY

The scope of the study is on implication of cost control in inventory management with special reference to Nigerian Bottling Company Plc, Aba.

1. 7    ASSUMPTION OF THE STUDY

The study have been made under the following assumptions

1.       The sample size is the accurate representation of the entire population.

2.       There are well trained personal to handle cost control.

3.       It was assumed that the respondents would co-operate with the researcher.

 

1.8     SIGNIFICANCE OF THE STUDY

This study is of importance and benefit to Nigerian Bottling Company Plc, Aba.

Other beneficiaries are the Government and other researcher.

1.9     DEFINITION OF THE UNFAMILIAR TERMS

1.       Sample: This is a portion of population selected for study Orji (2006).

2.       Population: This refers to the number of people in a particular geographical area like a country state etc Okpara (2005).

3.       Cost control: This is something concerning, appreciating the significance of the variations from standard, getting proper explanations for the variances and finding the way of rectifying them.

4.       Cost centre: A cost that could be a location or a person or an item of equipment connected with an undertaking in which cost may be ascertained.

5.       Finished goods: This is a written list of the assets, resources, goods etc that an organization owns or that are in place.

6.       Inventory control: This is a system used in firm’s investment in inventory. This includes, the recording and monitoring of stock levels forecasting future demands and deciding when and how many to order.

7.       Lead or procurement time: This is the time interval between the perception and the fulfillment of a need. It is the time lag between the ordering decision for materials and the time at which the materials arrives and are physical ready for use.

8.       Economic order quantity (EOQ): This is a calculate reorder quantity which minimizes that balance of cost between carrying cost and ordering cost. It is the measure of the optimum quantity that must be ordered so that aggregate cost of ordering and carrying the materials will give the external order quantity that minimizes total inventory cost.

9.       Re-order level: This level of stock (usually free stock) at which a further replenishment order should be placed. The re-order level is dependent on the lead-time.

10.     Buffer stock: A stock allowance to cover errors in forecasting the lead time, or the stock level which inventory must not fall, if inventory falls below this level, there is possibility of shortage of supply, which may lead to production stoppage.

11.     Maximum Level: This is a level of inventory which indicates highest quantity or level of inventory to be store. If the materials are greater in number of higher than this level, it means there is no plan for the storage.

The level show, the mark at which if stock is added will be too much.

12.     Ordering cost: It consist of all the incurred in sending inquires, waiting purchases orders, receiving and inspecting goods, transport cost, cost of postage, telephone etc.

13.     Carrying cost: This involves the cost of storage, security obsolesce, deterioration, pilferage and other administrative cost incurred by retaining the materials. It also includes cost of insurance, freights, haulage and transportation.

14.     Shortage cost: These cite coast of running out of inventory, it includes cost of sales.

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