Different Inventory Management Model
- July 9, 2018
- Posted by: RSIS
- Category: Management
International Journal of Research and Scientific Innovation (IJRSI) | Volume V, Issue VI, June 2018 | ISSN 2321–2705
Different Inventory Management Model
Laveena Vaz & Dr. Akshay Damani
Russell Square International College, Mumbai, Maharashtra, India
I. INVENTORY
Inventory is the most important asset of the organization. It consists of more than 50% of the total working capital. Inventory consists of raw materials, work-in-process and completely finished goods which are company’s current asset that are ready or will be ready for sale. Inventory is one of the most important assets as it is the main source of revenue generation.
In other words it is the value of the goods & raw materials held by a firm to support the production process or for service activities like repair or maintenance or for sale to the ultimate consumer.
Definitions Accounting Standard (AS) 2
The following terms are used in this Standard with the meanings specified:
Inventories are assets:
1) held for sale in the ordinary course of business;
2) in the process of production for such sale; or
3) in the form of materials or supplies to be consumed in the production process or in the rendering of services.
Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
Inventories encompass goods purchased and held for resale.
Measurement of Inventories
Inventories should be valued at the lower of cost and net realizable value.
(http://www.mca.gov.in/Ministry/notification)
Reasons for keeping stock
1. Time – The time lags from supplier to user at every stage of production & distribution, requires the firm to keep certain amounts of stock to use in this lead time.
2. Seasonal Demand: demands changes with time, i.e. seasonal demand but production is done before hand. This lead to stock accumulation, consider for example how umbrellas used only in rainy season are produced months before consumption. This leads to stock accumulation.
