INDO SPANISH FOODS

INDO SPANISH TASTY FOODS PRIVATE LIMITED
ABOUT THE BROAD AREA OF THE TOPIC CHOSEN

FINANCE
In our present day economy, finance is defined as the provision of money at the time
when it is required. Every enterprise, whether big, medium of small, needs finance to carry on its
operations and to achieve its targets. Finance is a source of every organization. Finance refers to
the management of flows of money through an organization. It concerns with the application of
skills in the manipulation, use and control of money.
MEANING OF BUSINESS FINANCE

Literally speaking, the term Business Finance connotes finance of business activities. It
is composed of two words i) Business, ii) Finance Thus, it is essential to understand the
managing of the two words, business & finance which is the starting point to develop the whole
concept & meaning of the term business finance.
The word Business literally means a state of being busy. All creative human activities
relating to the production and distribution of goods & services for satisfying human wants are
known as business. It also includes all those activities which indirectly help in production and
exchange of goods, such as, transport, insurance, banking and warehousing, etc. Broadly
speaking, the term business includes industry, trade and commerce.
SCOPE OF FINANCIAL MANAGEMENT

The primary objective of a finance manager is to arrange sufficient finances in order to
meet the short term long term needs. The funds are procured so that the profitability of the
business is maximized.
The finance manager should basically concentrate on the following areas:
Financial estimation
Planning of the capital structure
Selecting the right source of funds
Investment of funds
Analyzing the financial performance
Planning of profit
Ensuring liquidity
BANGALORE INSTITUTE OF MANAGEMENT STUDIES
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OBJECTIVES OF FINANCIAL MANAGEMENT

Financial management of any business firm has to set goals for and to interpret them in
relation to the objectives of the firm. Broadly there are only two alternative goals/objectives of
financial management.
Specific Objectives
a) Profit maximization
b) Wealth maximisation
General Objectives
a) Balance asset structure
b) Liquidity
c) Proper balancing of funds
d) Efficiency
e) Financial discipline
INTRODUCTION
In financial parlance, inventory is defined as the sum of the value of raw materials, fuel
and lubricants, spare parts and semi-processed materials and finished goods stock at any given
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point of time. The operational definition of inventory would be: the amount of raw materials, fuel
and lubricants, spare parts and semi-processed materials to be stocked for the smooth running of
the plants. Since these resources are idle when kept in the stores, inventory is defined as an idle
resource of any kind having an economic value.
Inventories are maintained basically for the operational smoothness which they can
affect by uncoupling successive stages of production, whereas the monetary value of inventory
serves as a guide to indicate the size of the investment made to achieve this operational
convenience.
The material management department is expected to provide this operational with a
minimum possible investment in inventories. The objectives of inventory operational and
financial, needless to say, are conflicting. The material department is involved in both stocks outs
as well as large investment in inventories. The solution lies in exercising a selective inventory
control and application of inventory control techniques.
MEANING OF INVENTORY
The term Inventory refers to the stock of raw materials, spare parts and finished
products held by a business firms. It is aggregate quantity of materials, resources and goods that
are idle at a given point of time. The resources may be of any type; for example men, materials,
machines or money, when the resources involved in materials or goods in any stage of
completion, inventory referred to as stocks. Hence, inventory refers to the stocks that a business
firm keeps to meet its future requirement of production and sales.
Inventory of an Industrial undertaking consists of:

Stocks of raw materials to be consumed in the production of goods for sale.
Work-in-progress (i.e. stock of semi-finished goods) in the process of production of
finished goods for sale.
Stock of finished goods held for sale in the ordinary course of business.
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Maintenance of stores and spares parts or production supplies.
Consumable supplies.
DEFINITION OF INVENTORY:
The term Inventory has been defined by several authors. The most popular of them are
The term Inventory includes Raw-materials, in process, finished packaging, spares and other
stocked in order to meet an unexpected demand or distribution in the further.
IMPORTANCE OF INVENTORY:
Inventories constitute the largest component of current assets in many organizations. Poor
Management of inventories therefore may result in business failures. A stock-out creates an
unproductive situation for the organization. In case of a manufacturing organization, (in stock out
ability to supply an item from inventory) could, in extreme cases, bring production process to a
half. Conversely, if a firm carries excessive inventories, the added carrying cost may represent
the difference between profit and loss. Efficient inventory control therefore, can significantly
contribute to the overall profit-position of the organization.
OBJECTIVES, NEEDS&BENEFITS OF CARRYING OR HOLDING INVENTORY:
Purchase, production and sale are not one continuous activity. There are separate
activities. So, basically there is the need to carry inventory so that the functions of
purchase, production and sale can precede it their own optimum pace or speed.
Large purchases of raw materials or finished good may be to take advantage of the
discounts offered on bulk purchases. Bulk purchases; naturally result in holding of
inventories.
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Large orders may be placed for goods to cut down the ordering costs the cost of checking,
handling and payments involved in small orders, large orders, naturally results in taking
advantage of price factor.
Holding of sufficient inventories of raw materials or finished goods becomes necessary in

times of scarcity to prevent stoppage of production or business.
Production of components in large batches will be helpful to reduce the set-up cost. This
(i.e.; the production of components in large batches) would naturally, result in holding of
large stocks of components.
Vital spares and tools are required to be kept in stock so as to avoid long spells of
production due to non-availability of important spare parts or tools.
Holding goods in the process of production (i.e.; work-in-process) is a technological

necessity. It depends mainly on the length of manufacturing process.
Sufficient stocks of finished goods are required to be held to meet the demands of the
customers, which may be uneven.
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IM.NPROLFAHE-DUTVZGYCS
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TYPES OF INVENTORIES
ANTICIPATION INVENTORIES
Such inventories carried to meet predictable changes in demand. In case of seasonal
variations in the availability of some raw materials, it is convenient and also economical to build
up stocks were consumption pattern may be reasonably uniform and predicted.
FLUCTUATION INVENTORIES
Demand fluctuates overtime and it is not possible to predict it accurately. Business firms
maintain reserve stocks to meet unexpected demand and thereby to avoid the risk of losing sales.
These safety stocks are known as Fluctuation Inventories. There is a time gap between
production and use of certain products. The goods produced in one season are held in stock for
sale and used throughout the year. When the availability of raw-material is seasonal, bulk stock
are purchased for used throughout the year.
LOT-SIZE INVENTORIES
In order to keep costs of buying, receipt, inspection, transport and handling charges low, large
quantities are brought for immediate need. It is a common practice to buy some raw material in
large quantities in order to avail quantity of discounts.
MOVEMENT OR TRANSIT OR TRANSPORTATION INVENTORIES
Raw material and finished goods one place to another, some amount of inventory is always in
transit. Longer the transportation period, greater is the amount of transport and inventories. The
average amount can be determined mathematically:
I=SxT
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Where; S = the average rate of sales (say, weekly average)
T = transit time required to move from one stage to another in a week
I = the movement of inventory needed
PRODUCTION INVENTORIES
Raw materials and other supplies, parts and components which enter into the product during the
production process and generally from part of the product.
IN-PROCESS INVENTORIES
Semi-finished, work-in-progress and partly finished products formed at various stages of
production.
M.R.O. INVENTORIES:
Maintenance, repairs and operating supplies which are consumed during the production process
and generally do not from part of the product itself (e.g.:- oils & lubricants, machinery & plants,
soaps etc.)
FINISHED GOODS INVENTORIES:
Completed finished products ready for sale.
Major Dangers of Over Investments in Inventory:
Blocking of firms funds in inventory.
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Excessive carrying costs.
Risk of liquidity.
The excessive level of inventories consumes the funds of the firm, which cannot be used for any
other purpose. The carrying costs such as the cost of storage, handling, insurance, recording and
inspection also increase in proportion to the volume of inventory. An excessive inventory carried
from a long period brings down the liquidity of the firm.
Problem of Inadequate Inventories:
1) Inadequate raw materials and work-in-progress will result in stoppage of production.
2) If the finished goods inventories are sufficient to meet the demands of the customers
regularly, the customers may shift to other competitors, which will amount to a
permanent loss to the firm. An effective inventory management should avoid both these
extreme situations namely over investment and under investment in inventories.
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MEANING OF INVENTORY MANAGEMENT:

Inventory Management covers a much wider field. The inventory management is
concerned with the entire range of functions which affects the flow, conservation and utilization,
the quality and the cost of materials. It is that aspect which is concerned with the activities
involved in the acquisition and storage of all materials directly and indirectly employed in the
production of the finished products.
These activities include material planning, programming, functions such as customer
service requirements, production scheduling, purchasing, traffic etc. Viewed in that perspective,
inventory management is broad in scope and affects a great number of activities in organisation.
Because of these numerous inter relationships, 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 step taken to maintain the stock levels or stock records refers
to inventory control.
Factory Influencing Inventory Management & 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 factor includes type of product, type of
manufacture, volume of output and others.
Type of Product:
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Among the factors influencing inventory management and control, the type of product is
fundamental. If the materials used in the manufacture of the product have a high unit value.
When purchased, a much closer control is usually in order.
If the material used in the product is in a short supply or is auctioned by the government,
this may influence the purchase of this material and stock maintained.
The manufacture of standard products as compared to custom-made items still influences
inventories. Materials needed to manufacture a standard product are easy to obtain and a close
control on the stock is not necessary. Material required to product made-to-order items needs
strict control to ensure that no items are cost in the process of manufacture. Such materials and
tools are of special and expensive type and a loss of any small part will hold up the production.
Type of Manufacture:
Besides type of product, Type of Manufactures also influences
inventory management and control. Where continuous manufacture is employed at the rate of
production is the key factor. Here inventory control is of major important ad in reality controls
the production of the product. The economic advantage in this type of manufacture is the
uninterrupted operation of the machines and assembly lines in the plant. Intermittent
manufacture, on the other hand permits greater flexibility in the control of material.
Volume: The Volume of product to be made as represented by the rate production of may have
little effect on the complexity of the inventory problems. On the other hand, the manufacture of a
large number of sarees involves the planning and control of thousands of inventory. Both the
inventory problem and the difficulty of controlling production increase in difficulty with the
number of component parts of the product and not with the quantity of products to be made.
The other factors are:-
The objectives of the company as they relate to inventories and the
level of service to be provided to customers.
The qualifications of staff personnel who will design and co-ordinate the implementation of the
system.
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The capabilities of personnel who will be responsible for managing the system on a continuing
basis.
The nature and size of inventories and their relationship to the other functions in the company,
such as manufacturing, finance, marketing etc.
The capability of present and future data processing equipment.
The potential savings that might be anticipated from improved control of inventories.
The current, or potential, availability of data that can be used in controlling inventories.
The present method for controlling inventories and for making inventory decisions.
The degree of commitment by management personnel to the development of more effective

inventory management system and the results anticipate from such a system.
INVENTORY VALUATION METHODS:
First-in, First-out (FIFO) :
Under FIFO, the cost of goods sold is based upon the cost of material bought earliest in the
period, while the cost of inventory is based upon the cost of material bought later in the year.
This results in inventory being valued close to current replacement cost. During periods of
inflation, the use of FIFO will result in the lowest estimate of cost of goods sold among the three
approaches, and the highest net income.
Last-in, First-out (LIFO) :
Under LIFO, the cost of goods sold is based upon the cost of material bought towards the end of
the period, resulting in costs that closely approximate current costs. The inventory, however, is
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valued on the basis of the cost of materials bought earlier in the year. During periods of inflation,
the use of LIFO will result in the highest estimate of cost of goods sold among the three
approaches, and the lowest net income.
Weighted Average :
Under the weighted average approach, both inventory and the cost of goods sold are based upon
the average cost of all units currently in stock at the time of reporting. When inventory turns over
rapidly this approach will more closely resemble FIFO than LIFO.
Average :
Under the average approach, both inventory and the cost of goods sold are based upon the
average cost of all units received in stock.
BENEFITS OF INVENTORY MANAGEMAENT & CONTROL:
Proper management and control of inventories will result in the following benefits to an
organization:
Inventory control ensures an adequate supply of materials, stores, etc., minimises stock-outs and
shortages, and avoids costly interruptions in operations.
It keeps down investment in inventories, inventory carrying costs and obsolescence losses to the
minimum.
It facilitates economical purchasing through the measurement of requirements on the basis of

recorded experience.
It eliminates duplication in ordering or in replenishing stocks by centralizing the source from

which purchase requisitions emanate.
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It permits a better utilization of avoidable stocks by facilitating interdepartmental transfers within

the company.
It provides a check against the loss of materials through carelessness or pilferage.
It facilitates cost accounting activities by producing a means for allocating material cost to
products, departments or other operating accounts.
It enables management to make cost and consumption comparisons between operations and
consumptions comparisons between operations and periods.
It serves as a mean for identifying and disposal of inactive and obsolete items of stores.
Perpetual inventory values provide consistent and reliable basis for preparing financial
statements.
PROCESS OF INVENTORY MANAGEMENT AND CONTROL:
As mentioned earlier, Inventory Management and Control refers to the planning for optimum
quantities of materials at all stages in the production cycle and evolving technique, which would
ensure the availability of planned inventories.
Four steps are involved in the process, they are:-
Determination of optimum inventory levels and procedures of their review and adjustments.
Determination of degree of control that is required for the best results.
Planning and design of the inventory control system.
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Planning of the inventory control organization.

1) OPTIMUM INVENTORY LEVELS:
Determination of inventory that an organization should hold is a significant but difficult task.
Too much of inventory result in locking up of working capital accompanied by increased
carrying costs (but reducing ordering costs).
Excess inventories, however guarantee uninterrupted supply of materials and

components, to meet production schedules and finished goods to meet customers demand. Too
less of inventory releases working capital for alternative uses and induces carrying costs
(increases ordering costs). But there is risk of stock-out costs.
All these and other related factors must be considered to determine a level of inventory,
which an organization should hold. An interesting aspect is that the level of inventories is not
static. What is the optimum level today may not be so tomorrow. Hence, inventory management
must plan for the review of the stock often.
2) DEGREE OF CONTROL:
The second aspect of inventory management is to decide just how much control is needed
to realise the objectives of inventory management. The difficulty is best overcome by
classification of inventory on the basis of value, popularly called ABC, VED, FSN analysis and
other methods is useful in deciding the degree of control. More importance should be given not
only to produces of high value items but also to items of high consumption.
3) PLANNING AND DESIGN OF THE INVENTORY SYSTEM:
An inventory system provides the organizational structure and the operating policies for
maintaining and controlling goods to be inventoried. The system is responsible for ordering and
receipt of goods, timing the order placement, and keeping track of what has been ordered, how
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much, and from then. Further, the system must provide follow up to enable the answering of such
questions as:
Has the vendor received the order? Has it been shipped? Are the items correct? Are the
procedures established for reordering or returning undesirable merchandise?
4) ORGANIZATIONAL ARRANGEMENT:
The last aspect of inventory management and control is to determine an organization
structure to handle inventory. Organizationally speaking, inventory control function is
assigned to materials management or production planning and control.
Attaching inventory control to material management activity is feasible in organizations
were integrated material management is in practice. There is a strong justification for such an
arrangement as inventory control is part of material activity and all material functions must be
integrated into one group.
Assigning inventory control function to production planning and control however has
advantages. Production planning and control department will be in a better position to plan its
production schedule with the knowledge of inventory under its control.
Besides, the production planning and control department will be able to issue timely
requisitions for replenishment of stocks used in the production operation. And logically speaking
it is the production department which is the user of inventories, and the same department must be
held responsible for controlling them.
Actually the nature of a firms production operation, its product, and the type of market in
which it operates determine the preference for assigning inventory function to production. An
engineering oriented company producing specialised technical products on a job-shop basis
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might well choose to emphasize production, considerations as long as analysis of total cost
justifies such a decision. Hence, inventory may report to the production division.
On the other hand, a mass producer of electronic motors light will find itself in just the
opposite situation and be compelled by relative cost consideration to integrate inventory control
with purchasing. Whatever the consideration, it may be pointed out that any inventory control
system is not once set goes automatic type but needs to be reset from time to time as the
conditions such as lead time, consumption pattern etc., keep changing.
INVENTORY CONTROL TECHNIQUES/TOOLS:

Inventory control techniques are employed by the inventory control organization within
the framework of inventory models. Inventory control techniques represent the operational
aspect of inventory management and help realize the objectives of inventory management and
control. Several techniques of inventory control are is 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.
INVENTORY CONTROL TECHNIQUES:
ABC Classification
HML Classification
VED Classification
SDE Classification
FSN Classification
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Level Setting
Two Bin System
Materials Requirement Planning
Physical Verification of Stock
Just-In-Time Technique
ALWAYS BETTER CONTROL (ABC) CLASSIFICATION:

One of the widely used techniques for control of inventories is ABC Analysis. The objectives of
ABC control is to vary the expenses associated with maintaining appropriate control according to
the potential savings associated with a proper level of such control.
ABC analysis consists of the classification of the materials into categories A, B and C on the
basis of their value. Items of high value and comparatively less in number are included in A
category. Generally, they constitute about 70% of the total value and about 15% of the total
number. Items of low value, be large in number are included in C category. Generally, they
account for above 10% of the total value and about 60% of the total number. Items of moderate
value and moderate in numbers are included in B category. They account about 20% of the total
value and 25% of the total number.
Items of A category are subject to strict with regard to purchase storage and use. Items of B
category are subject to moderate control. Items of C category are not subject to much control.
The objective of this analysis is to reduce the investment on inventory, the cost of inventory
control, and also loss of inventory.
HIGH, MEDIUM & LOW (HML) CLASSIFICATION:

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The high medium and low classification follows the same procedure as adopted in ABC
classification. Only difference is in HML classification unit value is the criterion and not the
consumption value. The items of inventory should be listed in descending order of unit value and
it is up to the management to fix limits for the three categories.
For example: - The management may decide that all units with unit value of Rs.2000 and above
will be H items, Rs.1000 to 2000 M items and less than Rs.1000 L items.The HML analysis
is useful for keeping control over consumption at department levels, for deciding frequency of
physical verification, and for controlling purchases.
VITAL, ESSENTIAL & DESIRABLE (VED) CLASSIFICATION:

While in ABC classification inventories are classified on the basis of their consumption value
and in HML analysis unit value is the basis, critically of inventories is the basis for vital,
essential and desirable categorisation.
The VED analysis is done to determine the critically of an item and its effect on production and
other services. It is specially used for classification of spare parts. If a part is vital it is given V
classification, if it is essential it is given E classification and if it is not so essential, the part is
given D classification. For V items a large stock of inventory is generally maintained, while
for D items minimum stock is enough.
SCARE, DIFFICULT AND EASY TO OBTAIN (SDE):
The SDE analysis is based upon the availability of items and is very use full in the context of
scarcity of supply. In this analysis, S refers to Scares items, generally imported, and those
which are in short supply D refers to difficult items which are available indigenously but are
difficult items to procure. Items, which have to come from distant places or for reliable suppliers
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are difficult to come by, fall into D category. E refers to items which are easy to acquire and
which are available in the local markets.
The SED classification based on problem faced in procurement is vital to lead time analysis and
is deciding o purchasing strategies.
FAST-MOVING, SLOW-MOVING & NON-MOVING (FSN):
FSN stands for fast-moving, slow-moving and non-moving. Here classification is base on the
pattern of issues from stores and useful in controlling obsolescence. To carry out FSN analysis,
the date of receipt or the last date of issue whichever is later, is taken to determine
the number of months, which have moved since the last transaction. The items are usually
grouped in periods of 12 months. FSN analysis is helpful in identifying active items, which need
to be moved regularly, and surplus items, which have to be examined further. Non-material
moving items may be examined further and their disposal can be considered.
LEVEL SETTING:
Setting up of inventory levels, such as Maximum level, Minimum level, Re-order level, Danger
level and Average stock level. The above level are calculated when a storekeeper should place an
indent for fresh stock and also to avoid over stocking of any material, at the same time to ensure
follow up sufficient materials to production process. The main purpose of fixing the levels is to
control the investment on inventories.
MINIMUM LEVEL:
This is the limit below which the stock should not be allowed to fall. It is fixed on the basis of
average consumption and average lead time required to measure the item. The main purpose of
fixing this level is to ensure adequate check for continuous production and sales.
MINIMUM LEVEL = RE-ORDER LEVEL (NORMAL CONSUMPTION INTO
NORMAL RE-ORDER PERIOD)
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MAXIMUM LEVEL:
This is the limit or level beyond which the stock of an item should not exceed. This level is fixed
for avoiding over stocking of materials and its associated risks.
MAXIMUM LEVEL = RE-ORDER LEVEL + RE-ORDER QUANTITY (EOQ)
(MINIMUM CONSUMPTION x MINIMUM RE-ORDER PERIOD)
RE-ORDER LEVEL:
It is the point fixed between maximum and minimum level at which the storekeeper has to
initiate action to obtain fresh supplies of materials.
This point will usually be slightly higher than the minimum stock to cover such emergencies is
abnormal usage or un-expected delay in supply. Re-ordering level depend on lead time, rate of
consumption and economic order quantity.
RE-ORDER LEVEL = MAXIMUM CONSUMPTION x MAXIMUM
RE-ORDER PRIEOD
DANGER LEVEL:
It is the level below the minimum level. When the stock reaches this danger level urgent action
for purchases is necessary. As normal lead time is not available it is necessary to resort to
unorthodox purchase procedure resulting in higher purchase cost.
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DANGER LEVEL = MINIMUM CONSUMPTION x EMERGENCY

RE-ORDER PERIOD
AVERAGE STOCK LEVEL:

MAXIMUM LEVEL+ MINIMUM LEVEL
2
ECONOMIC ORDERING QUANTITY (EOQ):

It can be described as the basic how much to buy model. It is shortened to EOQ and is the
oldest and widely known inventory model. It dates back to 1915. The purpose of using EOQ
model is to find that particular quantity of order which minimizes total inventory costs. EOQ is
the technique which solves the problem of the materials manager. EOQ is the order size at which
the total cost, comprising ordering cost and plus carrying cost, is the least. EOQ will be fixed at a
level where the total of ordering costs will be minimum.
EOQ can be calculated by a mathematical formula:
2 AO
C
Where: A refers to annual consumption in units

O refers to ordering cost per order
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C refers to carrying cost per unit per annum
TWO-BIN SYSTEM:
It is mainly adopted to control C group inventories. In the two bin system, stock of each item is
separated into two bins. One bin contains stock, just enough to last from the date of placing a
new order until it is received in inventory. The other bin contains a certain quantity of stock that
will be sufficient to satisfy probable demand during the period of replenishment. Stock first
issued from the 1st bin. When the 1st bin is empty an order of replenishment is made and the stock
in the 2nd bin is utilized until the ordered material is received.
MATERIAL REQUIREMENT PLANNING:
It is fairly recent technique, which has been introduced to control inventories; it is based on
computer technology, material requirement planning mainly helps in ensuring arrival of materials
exactly when it is needed for production. At the same time it reduces the length of time materials
are held in inventory. Material requirement plans and control goods on order and helps in
determining when and what specific materials will be needed to meet the previously planned
production schedules.
PHYSICAL VERIFICATION OF STOCKS:
Under this system of stock verification, materials are verified on a continuous basis. The
verification is undertaken in such a way that all materials in the store room get checked up at
least 2 or 3 times a year. The selected items of materials are counted at frequent intervals and
compared with the bin card and stores ledger. With the help of the bin card and stores ledger one
can determine the goods received, issued and stock on hand at any time. Any difference between
book entries and items of material denote discrepancies.
ANNUAL STOCK VERIFICATION:
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Under this system, all the materials kept in the stores are verified once in a year. The stock
verification is undertaken at the end of the financial year. Stock verification under this system is
undertaken by the storekeeper. During the period if annual stock taking no material is issued or
received. An advance notice is served to all the heads of the departments concerned regarding
stock verification and the staffs of the store-keeping department is assigned duties for the
purpose of verification. Arrangements are made to disposal of materials which are incapable of
being used. Reports are prepared for excessive and shortage of stocks.
JUST-IN-TIME (JIT):
The concept JIT means that virtually no inventories are held at any stage of production and that
exact number of units is brought to each successive stages of production at the right time. It is
also called Zero Inventories.
The concept JIT was started in the Motto Machi plant of Toyota in Japan, when the system has
been perfected and results achieved. The plant has a long time of trucks waiting outside with full
loads of automobile parts for the assembly line. As soon as one truck comes out from one end of
the plant, another truck gets inside. There is no warehouse for the parts. In India, the Maruti
Udyog Ltd. has adopted JIT.
USE OF BIN CARDS & STORES LEDGER:
BIN CARD:
Bin is a place, rack or cupboard where materials are stored. Each bin shall have a card to show
the position of stock in the bin. It is known as Bin card. A bin card gives bin number, description,
code number of materials and different levels of materials. It is ruled in columns to depict stock
received; goods received note number, materials issue, materials requisition number, balance of
stock on and remarks. The bin card thus indicates ready stock position of an item at any moment.
Entries are made usually by stores personnel.
STORES LEDGER:
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Stores ledger contains the same columns, which a bin card has, but in addition the amount
columns for pricing receipts and issues of materials are provided. Stores ledger shows, at any
time, the value on hand. The ledger is maintained in stores as well as cost office to provide a
cross check on the stores personnel. Entries in stores ledger are supported by goods received
note, material requisition etc.
RESEARCH DESIGN
INTRODUCTION:
Inventory management is the process of efficiently overseeing the constant flow of units into and
out of an existing inventory. This process usually involves controlling the transfer in of units in
order to prevent the inventory from becoming too high, or dwindling to levels that could put the
operation of the company into jeopardy. Competent inventory management also seeks to control
the costs associated with the inventory, both from the perspective of the total value of the goods
included and the tax burden generated by the cumulative value of the inventory.
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.
The current study is on inventory management at ISTF regarding the inventory control and the
techniques used by them to control the inventory in the organization.
REVIEW OF LITERATURE:
From the past analysis it has been reviewed that the inventory management with the use of
techniques such as FIFO, LIFO, WEIGHTED AVERAGE METHOD would give efficient
control for the use of available stock optimally.
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The company has to improve the various techniques such as ABC Analysis, JIT analysis. With
the usage of these techniques the company can reduce its cost relating to the inventory and also
control the inventory management of the organization.
The current study will be relating to inventory control technique can manage the problem in the
company and improve the control system.
STATEMENT OF THE PROBLEM:

Lots of material storages, excessive inventories, high costs and poor customer service. To find
out how much inventory should be required for fulfill the future customer demand. The problem
selected to the analysis is to study effectiveness of inventory management system at ISTF
kunigal.
OBJECTIVES:
To know the importance of inventory and its importance in manufacturing industry.
To evaluate the inventory management and control system of the company.
To evaluate the existing inventory control technique that a company followed by and to
identify the problems in inventory in managing inventory.
To decide the Economic Order Quantity (EOQ) and to decide optimum level of
the
inventory.
HYPOTHESIS:
Ho: The inventory control technique can manage the problem in the company and improve the
control system.
Page 26
RESEARCH METHODOLOGY:
Descriptive research
Descriptive research, also known as statistical research, describes data and characteristics about
the population or phenomenon being studied. However, it does not answer questions about e.g.:
how/when/why the characteristics occurred, which is done under analytic research.
Although the data description is factual, accurate and systematic, the research cannot describe
what caused a situation. Thus, Descriptive research cannot be used to create a causal relationship,
where one variable affects another. In other words, descriptive research can be said to have a low
requirement for internal validity.
AREA OF STUDY:
This study mainly concentrated on inventory management being adopted by the company. The
study is very useful to the department dealing with inventory. The study will help to find out the
best tool to maintain and to improve procedure of inventory control and also helps to minimize
monitory investment of inventory.
Page 27

The company`s purchase procedure will influence more on the level of inventory of the
company. So the study of purchase of raw materials has a vital role to understand the efficient
system of the company.
SOURCES OF DATA
PRIMARY DATA
Primary data are those data that are collected for the first time and for the purpose directly from
the field of enquiry and is original in nature.
Face to face interaction with the company officials.

Self observation
SECONDARY DATA
The secondary data will be collected from various sources such as
Companies annual report, Journals, Magazines, Interview question and Data from the internet.
TECHNIQUES OF ANALYSIS:
The data collected will be tabulated, analyzed with the financial statement, secondary data. As
well as appropriate graphs and tables and statistical tools will be used and then findings are
recorded and conclusion is drawn.
LIMITATIONS OF THE STUDY:
The study conducted at ISTF was for few weeks only, due to time constraints hence, the
finding may not be applicable through the calendar year.
Further, in order to maintain the confidentially of certain aspects a few alteration have
been made without hampering of the data
Page 28
INDUSTRY PROFILE
The food processing industry in India is one of the largest in terms of production,
consumption, export and growth prospects. Buoyed by a favorable policy environment and the
demand-push impact of a young consuming class with growing disposable incomes, India offers
significant investment opportunities in the food and agri business sector and is likely to
become a world player this business.
The Indian economy is agrarian in nature, with agriculture contributing to approximately 20

percent of the countrys GDP and providing livelihood to almost 67 percent of the population.
With a leadership position in the production of several key agricultural commodities including
cereals, fruits and vegetables and dairy products, Indias supply strength in agriculture is
immense, with a potential to emerge as the leading agro-economy of the world.
India is making an important mark in the global food arena-both as a large producer and
exporter of agricultural products and as a very large and growing market for processed foods.
Page 29

The favorable policy environment and increasing interest of corporate in agriculture and agrifood business augurs well for India. Considering the growth witnessed by the sector in the last
decade and further improvement in growth rate expected in the years to come, this sector
presents varied opportunities for investment across the entire agri-value chain.
India is an agric-rich country and the worlds second largest producer of fruits and
vegetables. According to industry estimates, the processed food market accounts for 32 percent
of the total food market which his valued at EUR 67.9 billion. The total exports of the food
processing Industry have jumped from EUR 4.7 bn in 2002-03 to bn in 2006-07. The Ministry of
Food Processing Industries (MOFPI) aims to increase Indias share in the global processed food
trade to 3 percept in the next 8 years from 1.6 percent at percent. India is well placed to take
advantage of growing food trade due to its strong agricultural base and become at-sourcing hub
for food products.
Indian processed Food Industry

In developed countries the price of processed foods and fresh foods are more or less, the
same. At times, processed foods are even cheaper than fresh food. In India, however, due to a
variety of factors processed food process are substantially higher than fresh food. Given the
objectives which are achieved by processing there is need to take measures to reduce costs and
make processed food affordable.
Page 30
With the second largest arable land area in the world and diverse agro-climatic zones
across the country, India had a production advantage with the potential to cultivate a vast range
of agricultural products. Current global consumer trend towards organic food and herbal products
also open up new export opportunities in areas where India is well positioned to compete. For
example, India produces 41 percent of world mangoes,30 percent of cauliflowers,28 percept if
tea, 23,percent of bananas, 24 percent if cashew nuts, 36 percent of green peas and 10 percent of
onions.
This strong footing in agriculture provides a large an varied raw material base for food
processing. These advantages if leveraged optimally, can lead to India becoming a leading food
supplier to the world.
At present, the Indian food-processing industry is primarily report oriented. Indias
geographical situation gives it the unique advantage of connectivity to Europe, the Middle East,
Japan, Singapore, Thailand, Malaysia, and Korea. One such example indicating Indias location
advantage is the value of tread in agriculture and processed food between India and the Gulf
region which has grown from EUR6.05 billion in 2001 to EUR 38.9 billion at the end of 2006.
Food exports to the Gulf Cooperation Council (GCC) region is estimated at EUR 2.1 billion a
year with agricultural and processed food exports from India to the UAE alone accounting for
more than EUR 218.4 million in 2004-2005.
Indian food brands are increasingly filling prime shelf-space in the U.S and Europe.
MTR Foods ready-to-eat food, Cobra Beer, Bikanervala Foods, ITC/s Kitchen of India and
Satnam overseas Basmati rice are the favorites of the Indian Diaspora spread across the world.
In fact, even foreigners have stated relishing Indian Foods and fruits, especially in the U.K. and
Page 31

the Middle East. While marine products form the largest chunk at 40 percent of Indias agri
product exports, there are several opportunities that beckon. Global trade is dominated by
horticulture, dairy and eggs, meet and cereals- areas in which India should be able to leverage its
natural; advantage. The rise of processing intensity, Investments into the horticulture supply
chain and a renewed thrust on livestock and marine products should help it garner a greater share
of world agri-trade.
Horticulture, for example, is already a focus area of companies like reliance and bharathi,
while the organic foods market is also exciting. Fiscal incentives by the government to spur agriexports are also expected to help.
According to a recent food and beverages survey conducted by FICCI, the segments
which are expected to record high growth i.e. between 10-20 percent include branded flour (atta)
(16percent), bakery items like bread, cakes (11percent), biscuits (16 percent), fruit juices , pulp
and concentrates (18 percent ) and sauces/ketchups(17 percent ). Segments like semi
processed/cooked ready-to-eat, ice- cream, Wine and sugar are expected to achieve 24 percent,
30 percent, 22 percent and 25 percent growth respectively. The market for branded foods across
different segments of the industry is growing by 15 to 20 per
Some of the key Indian initiatives and local foreign Ventures (JV) include Hershey acquiring
51 perfect stake in Godrej Foods and Beverages for EUR 37.9 million: Indian Hotels of Tata
Group acquiring Amalgam Foods and the Sumeru fast food brand: Field Fresh-Bharti Groups
50:50 joint venture with Rothschild: Snowman Frozen Food, a joint venture with the Mitsubishi
Page 32

group: local gaint Reliance setting up rural business hubs across the country to source and
process farm produce: and ITC developing its e-Choupal and Choupal Sagar model for agrisourcing.
FPI occupies a centre stage in the governments quest to increase growth of the agrisector and augment farm incomes.
COMPANY PROFILE
BACKGROUND OF THE COMPANY:Name of the company
: Indo Spanish tasty foods pvt. ltd
Year of Establishment
: 9th July 2004
Director
: Mr. Rafael Cipriano Conzalez Lazaro
Parent Company
: M\s. Conservas Franco Rjojan Spin
Size of the Company
: Small Scale Industry
Nature of the Company : Preserved vegetable export

Kind of the Company
: Private Company
Branches
: No branches
Sales
: 100% Export Oriented Unit
Competitors
: Reitzel India (P) Ltd
Products
: Gherkins, Baby corn, Chilly and Mixed vegetable
Importers
: Spain and other European countries
Page 33
Introduction to Indo Spanish Tasty Foods Private Limited

Indo Spanish Tasty Food (ISTF) is in the process of consolidating its presence in
the business of gherkins export along with chilli and baby corn versions in jars and barrels. The
company is gearing up to produce 10.000 tones of processed vegetables for the international
markets.
The cent percent Export Oriented Unit is part of Rafael Gonzalez Lazaro, a Spanish
group of companies. The India operation was set up at Kunigal in Tumkur district in Karnataka
in -2004.
The parent company in Spain has been working in gherkin space for the last 50 years.
The four- year -old ISTF also export vegetables including gherkins in barrels and jars to USA
and Canada.
World and our group wanted to be present in all the chain of gherkins production, from
Indian fields to the European supermarkets,Raface Gonzales Lazaro, chairman Indo Spanish
Tasty Food told F&B News.
Page 34

The objective of the domestic operations was it capitalizes on the Indian advantage of
being a major producer of high quality gherkins globally. ISTF plane to market India grown
gherkins for the European Markets, It has gherkin farms which have been able to produce more
than 9,000tonnes of produce in the last two Years. It expects t touch 7,000 tones by March end
and efforts are on to target 10,000 tons annually.
Under the barrel category, it has gherkins in acetic acid and alcohol vinegar, besides
chilly and baby corn .In the jars segment, chilly baby corn; bitter sweet gherkins in vinegar are
its specialties. Over 7 million jars are exported so far.
Its main growth driver is gherkins, primary because that has been the focus since the inception of
the company. The company has a turnover of is 30 crore and double the earning in a couple of
years.
Company background
On July 9, 2004 the company was established in Karnataka. The register office of the
company is situated in the state of Karnataka. The company was named as Indo Spanish Tasty
Foods private Limited.
The company is limited by shares and in incorporated under The Indian Companies Act
1956 and also under the FDI (Foreign Direct Investment ) of Government of India. The
company is also registered under the K-VAT (Karnataka Value Added Tax).In 2005 it was also
registered under CST (Central Sales Tax Act of 1957).
Indo Spanish Tasty Foods Private Limited is a 100% export oriented unit approved by the
Ministry of Commerce, Government of India, engaged in processing vegetables. It does not have
Page 35

any local trading or selling in India. It exports acidified vegetables such as gherkins, baby corns,
chilies, banderole and their combination in barrels, bottles and jars. The company receives the
olive fruits from Spin. Machineries, barrels and jars are provided by its parent company.
The company is producing only the food products. The products are consumed as pickles
by the consumers. These food products are helpful to the old aged people and also for young
aged people because it reduces indigestion.
Vision and Mission statements

Company committed to continuously improving its process, products, services and
relationships to the delight of its customers through innovation, enhanced competencies and
employee motivation with due regard to the society.
System
The system shows the flow of activities involved in the daily operations of business,
including its core process and its support systems.
Information system
It refers to section head places which emphasis on ensuring that every office worker in
the unit has a computer on his task .The modern techniques are applied on this organization is
fully computerized. In Indo Spanish Tasty Foods all the bills are computerized. The accounting
section, purchase section and HRD section are fully computerized.
HR System
Page 36

Planning personnel requirements, analyzing performance, salary and administration are
done with the help of information system. The recruitment of staff is done from internal and
external sources. The organization provides short term training for present employees for
introducing new systems or techniques.
Financial system
Financial system requires ROI, working capital, fixed capital, price, quality, capital
investment and return on sales etc. There are three types of audit done in this company such as
internal, external and statuary.
Production System
The production system of the company is fully computerized. Four different types of
produced. They are gherkins, banderilla, baby corn and chilly. They are packed in barrels and
jars.
Marketing system
Sales forecasting sales planning and sales analysis are done with the help of computer
system .The transitions are sales orders, promotion order are done under the systems. The
marketing operational control activities include the timing and training of sales force, the day to
day scheduling of sales and promotion efforts, products and customers are included in the
marketing system.
Staff
Page 37

The staff recruitment of the ISTF is done internal and external sources. The organization
provides short term training for the present employees. The company also provides off job and
on job training methods for new employees. The Company provides formal introduction program
for new employees. The company provides the PF< TA and DA. Bonus and other incentives are
also provided for the employees.
Culture
The company belongs to the concentrated team activates. The company also followed the
policy of the people, for the people and of the people. The employees are working in a freely
atmosphere. They formulate line and staff relationship from upper level to lower level.
Values
The Company gives more importance to the human beings. It provides all the facilities t
the employees in the organization. The company makes response t society through providing
employment opportunities and protecting the farmers by distributing the high quality seeds and
fertilizers.
Policies of Indo Spanish Tasty Foods Private Limited

The policies of the company are safety health and safety policy and social accountability
policy .they consistently meet customer requirements in terms of
Product quality and food safety by meeting the statutory and regulatory requirement for
the product
Page 38
Ensuring continual suitability and effectiveness of management systems by adopting

continual improvement in process, product and services
Implementing and maintaining suitable consumer communication
They are committed to ensure continual improvement of the environment and prevention
of pollution
Safety and Health policy

Indo Spanish is committed to provide all additional requirements that may be required on
customer work site. They have established measurable objectives and targets to ensure that safety
processes are continually improved so that work related injuries and health concerns are
eliminated.
Values
Indo Spanish is committed to ensure a strong positive safety culture which is fundamental
to the companys activity.
Indo Spanish is committed to provide safe and healthy work place for all he employees,
subcontractors, visitors and service providers.
An accident and injury free work place is the companys goal which is implemented
through our safety management plan.
Resources
Page 39

Indo Spanish will provide and allocate resources to maximize safe work practices and
productivity. They will actively co-operate with representative on organization safety and health
issues in the place.
Training
Indo Spanish will provide information instruction, training and supervision so that all
employees can perform their work safely. It is the responsibility of each and every employee to
actively participate in all the training activities.
Risk Management
Indo Spanishs associated personnel are responsible for identifying hazards in the work
place and addressing them by giving priority above all to reduce or eliminate the risk of
injury or harm to themselves or others.
Indo Spanish encourages all individuals take responsibility for their own safety and
accident prevention.
Social Accountable Policy (SA8000)

The management of Indo Spanish recognized the responsibility of improving right
condition for its work force and also holding itself accountable to the society it is committed to.
Understand, implement, maintain and continually improve the social management system
as per the requirements of SA 8000.
Comply with all the national and other applicable legal and other requirement that they
subscribe to , besides duly respecting the international instruments and their
interpretations
Page 40
Ensure health, safety and welfare of all the employees during and in the course of their
employment
Hygiene policy
To achieve highest level of hygiene and meeting required food quality standard by
adopting strict procedures of hygiene in production and implementation of control of presumed
norms to ensure food safety and customer satisfaction.
PRODUCT AND SERVICE PROFILE

TYPES OF PRODUCTS
1. Gherkin products
2. Bahderilla products
3. Baby corn products
4. Chilly products
TYPES OF PACKING PRODUCTS

There are two ways of packing or preserving the products. They are as follows:
1. Bulk products: It means vegetables are preserved in barrels in large quantity.
These are the raw materials to its parent company. It includes 300-400 pieces in
One barrel.
1. Jar product: Jar products are prepared for providing products to the ultimate consumers.
Vegetables will be preserved in jar as per measure of kilogram.
1. Gherkins products
Page 41

it can be classified into two types. They are:
a) Bitter Sweet gherkins for jar products: It includes120-140 pieces per kilogram.
Jar
products are very profitable t the company
b) Bitter Sweet gherkins for bulk product: It includes 40-50 pieces per kilogram.
COMPONENT MIXTURE FOR GHERKIN PRODUCTS

For jar products: gherkins, citric acid, ascorbic acid, sugar, salt, alcohol
Vinegar and spices.
For bulk product: acetic acid, salt, gherkins, calcium chloride, potassium met bisulphate
and water.
2. Banderilla products
These are the products which have all the mixture of vegetable pieces is a jar.
Type of banderilla products:a Sweet banderilla products

It includes ingredients like gherkins+ white onion red +pepper (Capsicum)+ Olive fruits
+vinegar without the mixture of chilly.
b Chilly banderilla products.

It includes ingredients like gherkins + white onion + red pepper (capsicum) + Olive frits
+ vinegar with the mixture of chilly.
3. Baby corn plant

Page 42

Baby corn products can be classified into 2 groups.
a
Bulk Product
Jar Product
4. Chilly product
a) For jar product: Chilly, Citric acid, ascorbic acid aroma sugar, salt and vinegar.
b) For bulk product: acetic acid, salt, chilly, calcium, chloride, potassium, meta
Bisulphate and water.
GROWTH PROSPECTS IN FRUIT AND VEGETABLE PROCESSING
Abundant investment opportunities in expanding domestic market and exports.

Change in export import policies and exchange rate adjustments to help in improving
export potential.
Considerable international demand for certain fresh fruits us well as processed fruit
products such as: Mango, Grapes, Banana, lichees and exotic fruits like sapotas,
pomegranates, custard apples and other tropical fruits.
Among vegetables the items having god export potential are: Onion, Potato, Okra, Bitter
gourd, Green Chilies and other seasonal vegetables.
Many non-traditional vegetables mainly processed mushrooms and gherkins and other
like, asparagus, celery, bell pepper, sweet corn, Green and lima beans and organically
grown vegetables are also increasingly being exported.
The sauces/ ketchups segment is expected to record 17 percent growth in 12, 2007-08
Page 43
FINANCE DEPARTMENT
Finance is the lifeblood & backbone of any organization without this any organization
cannot undertake any activities concerning the organization. This is fascinating subject, who
deals with end result, and these end result are measurable in terms of money. It is dynamic and
changing.
Finance deals with all the fact of business production, sales, purchasing, and personnel
etc. This has to be managed actually to yield long-term results. Finance necessary is accumulated
Page 44

for the starting of company and then at a later stage is allocated to all the facts of the business as
mentioned above as per requirement specified in the financial policy.
No organization can function without capital. It is one of the most important resource of
an organization but this financial resource is scare and each organization must make the option
use of the firms at its disposal, the finance department has an important and vital task of
arranging funds and putting them to best use so as to achieve maximum return and improve the
profitability of the organization.
HIERARCHY OF FINANCE DEPARTMENT
G.M.F
F.M
Asst. F.M
F.M
Asst. F.M
Asst. F.M
Accountan
t
Asst. F.M
Accountan
t
G.M.F: GENERAL MANAGER OF FINANCE

F.M: FINANCE MANAGER
ASST.F.M. : ASSISTANT FINANCE MANGER
THE MAJOR FUNCTIONS OF THE DEPARTMENT
Financial budgeting, timely allocation of funds
Maintenance of records required by the different departments.
Payment of wages and salaries.
Preparation of Final accounts & annuls reports
SIGNIFICANT ACCOUNTING POLICIES
COMPANY OVERVIEW
Page 45

The Company is an 100% Export Oriented Unit (EOU) approved by Ministry of Commerce,
Government of India, engaged in manufacturing/processing and export of preserved vegetables.
1.SIGNIFICANT ACCOUNTING POLICIES
a)BASIS OF PREPARATION OF FINANCIAL STATEMENTS
Financial statements are prepared on the basis of a going concern under historical cost
convention, with revenue recognized and expenses accounted on the accrual and amounts
determined as payable or receivable during the year. Further, the financial statements are
prepared in accordance with the applicable Accounting Standards and statements issued by the
Institute of Chartered Accountants of India and with the disclosure requirements of Indian
Companies Act, 1956.
b)USE OF ESTIMATES
The preparation of financial statements requires the Management to make estimates and
assumptions considered in the reported amounts of assets and liabilities including the disclosure
of contingent liabilities as on the date of financial statements and the reported income and
expenses during the reporting period. The management believes that the estimates used in
preparation of financial statements are prudent and reasonable. Future result may vary from these
estimates which shall be recognized in the period in which the results are known/ materialized.
c)FIXED ASSETS
Fixed Assets are stated at the historical cost which comprises of cost of acquisition,
manufacture and subsequent improvements thereto including freight, installation cost, duties and
taxes. Preoperative expenses, where appropriate, are capitalized till the commercial use of the
assets.
d)INTANGIBLE ASSETS
Intangible Assets are stated at cost of acquisition less accumulated amortization.
Page 46

e)DEPRECIATION AND AMORTISATION
Depreciation is provided under Straight Line Method at the rates and manner prescribed in
schedule XIV to the Companies Act, 1956 as amended from time to time. Computer Software is
amortized as per Accounting Standard 26 of Institute of Chartered Accountants of India.
f)IMPAIRMENT OF ASSETS
At each Balance Sheet date, the Company assesses whether there is any indication that an asset
may be impaired. If any such indication exists, the Company estimates the recoverable amount.
If the carrying amount of the asset exceeds its recoverable amount, an impairment loss is
recognized in the Profit and Loss Account to the extent the carrying amount exceeds recoverable
amount.
g)INVESTMENTS
Long term investments are carried at Cost. However, when there is a decline, other than
temporary, in the value of long term investment the carrying amount is reduced to recognize the
decline.
h)INVENTORIES
Inventories are valued at lower of cost and estimated net realizable value after providing for
obsolescence, if any. Cost of inventories comprises of cost of purchase, cost of conversion and
other costs including manufacturing overheads incurred in bringing them to their respective
present location and condition. Cost is determined on Weighted Average Basis.
i)REVENUE RECOGNITION
Page 47

Revenue from the sale of goods is recognized in accordance with the terms of sales. Revenue
arising on transactions from duty entitlement schemes under export and import policy is
recognized on accrual basis subject to prudence.
j)FOREIGN CURRENCY TRANSACTIONS

Foreign exchange transactions are recorded using the exchange rates prevailing on the date of the
respective transactions. Exchange differences arising on foreign exchange transactions settled
during the year are recognized in the Profit and Loss account.
Monetary current assets and liabilities denominated in foreign currencies as at the balance sheet
date are reinstated at the rates ruling at year-end and the resultant exchange differences are
recognized in the Statement of Profit and Loss.
All monetary long term assets and liabilities denominated in foreign currencies are reinstated at
the rates ruling at the year-end and resultant exchange differences arising on reporting of long
term foreign currency monetary items at the rate different from those at which they were initially
recorded during the period or reported in the previous financial statements in so far as they
related to the acquisition of depreciable capital assets is added to or deducted from the
cost of the asset and is depreciated over the balance life of the assets, in accordance with
Notification No. G.S.R 913(E) dated 29th December, 2011 issued by Ministry of Corporate
Affairs, Government of India.
k)GOVERNMENT GRANTS/SUBSIDIES
Government Grants/Subsidies are recognized as soon as the appropriate authorities sanction such
subsidies under the respective scheme or policy and it is reasonably certain that the ultimate
collection will be made. Government Grants/Subsidies, if relates to a capital expenditure, are
deducted from gross values of related assets in arriving at its book value.
Page 48

Investment subsidy not specifically related to specific fixed assets is credited to Capital Reserves
and retained till the requisite are fulfilled. Government Grants/Subsidies related to revenue are
recognized on a systematic basis in the Profit and Loss Account over the period necessary to
match them with their related costs or period of eligibility.
l)EMPLOYEES BENEFITS
Liability towards short term employee benefits like, compensated absences, which are expected
to occur in a short period in which the employees renders the related service, and performance
incentives etc., is recognized during the period when the employee renders the services.
Contributions to the Employees Provident Fund are as per statute and are recognized as
expenses during the period in which the employees perform the services.
Liability towards gratuity is determined on internal-actuarial valuation using Project Unit Credit
Method at Balance Sheet date. Actuarial gains and losses are recognized immediately in the
Profit and Loss Account.
m)BORROWING COST
Borrowing Cost attributable to the acquisition and construction of qualifying assets are added to
the cost up to the date when such assets are ready for their intended use. A qualifying asset is one
that necessarily takes substantial period of time to get ready for its intended use. All other
borrowing costs are charged to Statement of Profit and Loss.
n)EARNING PER SHARE

In determining earnings per share, the Company considers the net profit after tax and includes
the post-tax effect of any extra-ordinary items. The number of shares used in computing basic
earnings per share is the weighted average number of shares outstanding during the period.
o)PROVISION FOR CURRENT AND DEFERRED TAX
Page 49

Provision for current tax is made after taking into consideration benefits admissible under the
provisions of the Income Tax Act, 1961. Deferred tax resulting from timing difference between
taxable and accounting income is accounted for using the tax rates and laws that are enacted or
substantively enacted as on balance sheet date. Deferred tax asset is recognized and carried
forward only to the extent that there is a virtual certainty that the asset will be realized in future.
p) PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
Provisions are recognized when the Company has a present obligation as a result of past events,
for which it is probable that an outflow of resources embodying economic benefits will be
required to settle the obligation, and a reliable estimate of the amount can be made.
Provisions are reviewed regularly and are adjusted where necessary to reflect the current best
estimates of the obligation. Where the Company expects a provision to be reimbursed, the
reimbursement is recognized as a separate asset, only when the same is virtually certain.
Contingent Liabilities are not recognized but are disclosed in the notes. Contingent Assets are
neither recognized nor disclosed in the financial statements.
q)MATERIAL EVENTS
Material events occurring after the Balance Sheet date are taken into cognizance
DATA ANALYSIS AND INTERPRETATION:
INVENTORY TURNOVER RATIO:

Inventory turnover ratio establishes efficiency of the firm in selling its product. It
establishes relationship between sales and inventory of a particular period. The ratio reveals
number of times finished stock is turned over during a given accounting Period. Higher the ratio
Page 50

better it is because it shows that finished stock is rapidly Turnover. A Low stock turnover is not
desirable because it reveals that obsolete stock or the carrying of too much stock. This ratio is
calculated as follow.
Inventory turnover ratio = sales/inventory
TABLE 4.1
SHOWS THE INVENTORY TURNOVER RATIO OF ISTF 2009-2012
Particula
2009
2010
2011
2012
rs
Sales
175,796,009.
258,694,641.
373,826,449.
423,857,386.
Closing
92
40,959,736.0
34
52,695,097.0
69
50,230,003.0
25
45,241,744.0
inventory
Ratio
4.291
4.965
7.442
9.363
GRAPH 4.1
SHOWS THE INVENTORY TURN OVER RATIO OF ISTF 2009-2012
Page 51
9.36
10
9
7.44
8
7
6
4.96
4.29
5
4
3
2
1
0
2009
2010
2011
2012
ANALYSIS
The above table shows the inventory turnover ratio. Year 2008-09 is taken as
base year having 4.291 times. In 2009-10 its 4.965 times. In 2010-11 it is
7.422 times, and in the current year it is9.363 times.
There is increase in turnover time compared from base year to in current
year.
INTERPERATION
The inventory turnover is increasing over the years. There is increase in
turnover time compared from base year to in current year (2011-12).
INVENTORY CONVERSION PERIOD:
TABLE 4. 2:
Showing Inventory Conversion Period :
Page 52
PARTICULARS
2008-09
2009-10
2010-11
2011-12
INVENTORY
TURNOVER
RATIO
4.291
4.965
7.422
9.363
INVENTORY
CONVERSION
PERIOD
85.06
73.51
49.17
38.98
Note:
Inventory conversion period = 365(days in a year)/inventory turnover ratio.
GRAPH4. 2:
Showing Inventory Conversion Period :
Page 53
INVENTORY CONVERSION PERIOD

90
80
70
INVENTORY CONVERSION PERIOD RATIO
60
85.06
50
73.51
40
49.17
38.98
30
20
10
0
2009 2010 2011 2012

YEARS
ANALYSIS
The above table shows the inventory conversion period. Year 2008-09 is taken as base
year, 85.06 days, in 2009-10, 73.51 days, in 2010-11, 49.17 days, in & in current year it
is 38.98days.
INTERPETATION
The inventory conversion period shows decreasing from base year to current year on
continuously. 2010-11 & it is good for inventory management, and in the current year
2011-12 it is showing the least decreasing of the table.
1. PERCENTAGE OF INVENTORY IN CURRENT ASSETS
Page 54
Inventory generally means stock of goods involved in current assets. Current

assets is those assets which change their form and substances and which are
converted into cash during the normal operating cycle of business.
Table 3: showing the percentage of inventory in current assets for the period
2008-09 TO 2011-12
TABLE 4. 3 SHOWING PERCENTAGE OF INVENTORY IN
CURRENT ASSET
Years
Inventory
current assets
Percentage
2008-09
4.09
6.91
59.18
2009-10
5.2
9.55
54.44
2010-11
5.02
10.5
47.8
2011-12
4.52
9.5
47.57
Percentage of inventory to current assets=inventory/current assets*100

ANALYSIS
The above table shows the percentage of inventory in current assets. Year
2008-09 is taken as a base year, 59.81% in base year, 54.44% in 2009-10,
47.8 in 2010-11, and finally current having raised to 47.57 .
GRAPH 4.3 SHOWING :
Page 55

59.18
60
54.44
47.8
50
47.57
40
Inventory
30
current assets
percentage
20
10
0
2008-09
2009-10
2010-11
2011-12
INTERPERATION
It shows amount of inventory in 2008-09 there was an increase in
inventories which is locked up, there is a decrease in inventories and the
amount of inventory is locked up in current asset again.
TABLE-4.4
Page 56
RAW MATERIALS
YEAR
RS. IN CRORES
2008-09
7.62
2009-10
12.87
2010-11
2011-12
14.96
17.93
ANALYSIS:
The stock of raw materials in the 2008 is 7.62, and in the next year i.e. 2009 the
companys raw material increased and gradually. Also in the year year 2012 it again increase up
to 17.93
GRAPH-4.4
Graph representing stock raw material for four years
Page 57
STOCK OF RAW MATERIAL
WIP TURNOVER
18
16
14
12
10
8
6
4
2
0
7.62
12.87
14.96
17.93
2008-09
2009-10
2010-11
2011-12
YEARS
INTERPRETATION
. The stock has been increased from 2009 to 2012 which shows the company maintaining good
stock to avoid the shortage of raw material and to avoid wastages.
STORES AND SPARES TURNOVER:

It is the value of stores and spares inventory consumed during the year.
Page 58
TABLE 4.5 SHOWING STORES AND SPAIRS:
RS. IN
CROR
E
Years
2008-09
0.37
2009-10
0.46
2010-11
0.42
2011-12
0.77
ANALYSIS
The above table shows the stores and spares turnover ratio. Year 2008-09 is
taken as the base year. Itis 0.37crore ,in 2009-10 0.46 crore in 2010-11, its
0.42 crore and 0.77 crore in the current year. It is fluctuating over years.
GRAPH 4.5 SHOWING THE STORES AND SPARES:
Page 59
0.77
0.8
0.7
0.6
0.46
0.5
0.37
0.4
0.42
0.3
0.2
0.1
0
0
Years
2008-09
2009-10
2010-11
2011-12
INTERPRETATION
Stores and spares turnover ratio is fluctuating over the years. This shows that
there is inefficiency in managing the stores and spares inventory. But in
year 2010-11 it has decreased compared to previous year.
TABLE4.6 SHOWING RAW MATERIAL TURNOVER RATIO:
Page 60
Year
Total
Consumption
Average
Consumption
Times
2008-09
7.62
2.6
2.93
2009-10
12.87
3.5
3.67
2010-11
14.96
3.8
3.93
2011-12
17.93
4.2
4.26
ANALYSIS
The above table shows the raw material turnover ratio. Year 2008-09 is taken as the
base year having 2.93 as turn over times and there is gradual increase in
succeeding year 2009-10, 3.67 times. In 2009-10 its 3.93 times, and increased by
4.26 times in the current year .
GRAPH6 SHOWING RAW MATERIAL TURNOVER RATIO:
Page 61

4.26
4.5
3.67
4
3.5
3.93
2.93
3
year
2.5
times
2
1.5
1
0.5
0
1
INTERPRETATION
Raw material turnover ratio is increasing over one year to another year.
This shows that there is efficiency in managing the raw materials.
. WORKING CAPITAL TURNOVER RATIO

Page 62

This ratio reveals number of times working capital is turned over in a stated period. The
Ratio of sales to working capital can be judged as follows:
Working capital ratio = sales/working capital

The higher the ratio lowers the investment in working capital and greater are the profit.
However, a very high turnover of working capital is a sign of over trading and may put The
concern to financial difficulties a low working capital is not effectively used.
TABLE 7
SHOWS THE WORKING CAPITAL TURNOVER RATIO OF ISTF 20092012
Particula
2009
2010
2011
2012
rs
Sales
175,796,009.
258,694,641.
373,826,449.
423,857,386.
Net
92
31,710,746.2
34
69
57,115,333.73 55,413,901.8
25
61,035,858.7
working
capital
Ratio
3
5.543
4.529
5
6.746
6.944
ANALYSIS:
Page 63
The table shows the working capital turnover ratio it is 2008 is taken as a base year it was 5.543
and in 2009 it was 4.529 and in the current year it was 6.944.
GRAPH 6
SHOWS THE WORKING CAPITAL TURNOVER RATIO OF ISTF 20092012
6.75
6.94
7
5.54
4.53
5
4
3
2
1
0
2009
2010
2011
2012
Interpretation:
Page 64

During the period understudy ratios are not very high. This ratio is increased every year
because increase in working capital every year therefore the ratio was notably increase highest
in 2012-6.944.
Page 65
NET PROFIT RATIO:This ratio is very useful to the proprietors and prospective investors because it reveals the
overall profitability of the concern. This is the ratio of net profit after taxes to net Sales. Sales are
calculated as follows.
Net profit ratio = Net profit/sales *100
TABLE 4.7
SHOWS THE NET PROFIT RATIO OF2009-2012
Particular
2009
2010
2011
2012
s
Net profit
2,081,094.84
2,127,573.65
8,350,610.67
6,240,268.73
Sales
175,796,009.9
258,694,641.3
373,826,449.6
4
8.224%
9
2.233%
423,857,386,9
5
2
Ratio
1.183%
1.472%
ANALYSIS:
The above table shows the net profit turnover ratio 2008 is taken as a base year it was
1.183 and in 2009 it was 8.224 and in the current year it was 1.472.
Page 66
GRAPH 4.7
SHOWS THE NET PROFIT RATIO OF ISTF 2009-2012
8.22
9
8
7
6
5
4
2.23
3
2
1.47
1.18
1
0
2009
2010
2011
2012
Interpretation:
From the above chart there is increase in the net profit ratio in first two year it was
highest in 2009-8.22 & and it decreased to 1.47 in 2012.
Page 67
TABLE 8:
Showing Average Collection Period:
PARTICULARS
2008-09
2009-10
2010-11
2011-12
DEBTORS
TURNOVER
RATIO
24.839
17.188
11.547
13.725
AVERAGE
COLLECTION
PERIOD
14.69
21.23
31.60
26.59
NOTE:
Average collection period = days in a year / debtors turnover ratio
ANALYSIS:
The above table shows the average collection period 2008 is taken as a base year and it was
14.69 days and in 2009 it was 21.23 and in the current year it was 26.59.
Page 68
GRAPH 8:
Showing Average Collection Period:
AVERAGE COLLECTION PERIOD

35
30
25
31.6
26.59
21.23
14.69
20
AVERAGE COLLECTION PERIOD
15
21.23
14.69
31.6
26.59
10
5
0
2009
2010
2011
2012
YEARS
INTERPRETATION:
The average collection period has been increased from 14.69 days in 2008-09 to 21.23 days in
2009-10. The reason was to fall in the debtors turnover ratio over the years. Though its at a
satisfactory level but a higher collection period implies as inefficient collection performance
which in turn may adversely affect the liquidity or short term paying capacity of the firm out of
its current liabilities, which reduces in the next year 2010-11.
Page 69
FINDINGS
1. ISTF uses standard
norms for Inventory Management for all the materials as been
maintained.
2 Material planning is done based on orders obtained from different customers. The material
requirement plan is processed is to give exact requirements of materials to be produced.
3 Vendors are related based on their performance with respect to delivery, a quality price
standard.
4 The received material are inspected as per standard plan is finished products are tested on
100% basis no material is released is handled properly.
5
Physical verification of high value materials in holding store is conducted in accordance

with predetermined programmers.
6 All material is stored in right condition at respective locations and The Company has items,
which are slowing moving and non-moving, which are disposed off at regular intervals.
7. The scrap obtained in the process is comparatively very low.
8. As the production cycle is very high, and leads to accumulation of WIP, in turn increase
the cost, the company should flow the sub-contracting method where some part of the
work is done by other contracts and only assembling and furnishing of the product is
done. This leads to systematic and distributed work.
Page 70
9. The production layout may be changed to cellular manufacturing concept. I.e. Raw
materials fed in one end and finished products are received in another end where every
step is automatic and mechanized.
10. FIFO method is being adopted to issue the materials to production department
Page 71
SUGGESTIONS
1. To follow just in time (JIT) technique
The concept of JIT means that virtually no inventories are held at any stage of production
and that exact number of units is bought to each successive stage of production at the
right time is also called zero inventories.
2. It is found that in every ward there is A, B, C items. It is suggested keep the materials a
class items in some ward and C class items in some wards, so that it is easy to keep
attention on every ward according to their importance.
3. Method of analysis;
It is found that ABC analysis is followed to a large extent; hence it is suggested to follow
the different methods.
Page 72
CONCLUSION
The research topic inventory management and control, has a greater implication on Indian
industries. From the analysis of inventory management and control in ISTF, it is very clear that,
it has achieved greater importance in production control to a large extent, it also enhance the
arising need of the organization, in respect of inventory management and control.
The inventory management and control in ISTF is very complex function. The functions of
stores depot, its inventory control technique to achieve the effective production program,
necessitates the importance of inventory management and difficult task in todays business world
in spite of complex function, ISTF has maintained a very good system of inventory management
and control has achieved great progress in production program year to year.
Page 73

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ABOUT THE BROAD AREA OF THE TOPIC CHOSEN

MEANING OF BUSINESS FINANCE

SCOPE OF FINANCIAL MANAGEMENT

INDO SPANISH TASTY FOODS PRIVATE LIMITED

OBJECTIVES OF FINANCIAL MANAGEMENT

INDO SPANISH TASTY FOODS PRIVATE LIMITED

Inventory of an Industrial undertaking consists of:

INDO SPANISH TASTY FOODS PRIVATE LIMITED

OBJECTIVES, NEEDS&BENEFITS OF CARRYING OR HOLDING INVENTORY:

BANGALORE INSTITUTE OF MANAGEMENT STUDIES

INDO SPANISH TASTY FOODS PRIVATE LIMITED

Holding of sufficient inventories of raw materials or finished goods becomes necessary in

Holding goods in the process of production (i.e.; work-in-process) is a technological

BANGALORE INSTITUTE OF MANAGEMENT STUDIES

BANGALORE INSTITUTE OF MANAGEMENT STUDIES

INDO SPANISH TASTY FOODS PRIVATE LIMITED

BANGALORE INSTITUTE OF MANAGEMENT STUDIES

INDO SPANISH TASTY FOODS PRIVATE LIMITED

Blocking of firms funds in inventory.

BANGALORE INSTITUTE OF MANAGEMENT STUDIES

INDO SPANISH TASTY FOODS PRIVATE LIMITED

Excessive carrying costs.

BANGALORE INSTITUTE OF MANAGEMENT STUDIES

INDO SPANISH TASTY FOODS PRIVATE LIMITED

MEANING OF INVENTORY MANAGEMENT:

BANGALORE INSTITUTE OF MANAGEMENT STUDIES

INDO SPANISH TASTY FOODS PRIVATE LIMITED

Besides type of product, Type of Manufactures also influences

The objectives of the company as they relate to inventories and the

level of service to be provided to customers.

BANGALORE INSTITUTE OF MANAGEMENT STUDIES

INDO SPANISH TASTY FOODS PRIVATE LIMITED

The capability of present and future data processing equipment.

The degree of commitment by management personnel to the development of more effective

First-in, First-out (FIFO) :

Last-in, First-out (LIFO) :

INDO SPANISH TASTY FOODS PRIVATE LIMITED

It facilitates economical purchasing through the measurement of requirements on the basis of

It eliminates duplication in ordering or in replenishing stocks by centralizing the source from

BANGALORE INSTITUTE OF MANAGEMENT STUDIES

INDO SPANISH TASTY FOODS PRIVATE LIMITED

It permits a better utilization of avoidable stocks by facilitating interdepartmental transfers within

It provides a check against the loss of materials through carelessness or pilferage.

Determination of degree of control that is required for the best results.

Planning and design of the inventory control system.

BANGALORE INSTITUTE OF MANAGEMENT STUDIES

INDO SPANISH TASTY FOODS PRIVATE LIMITED

Planning of the inventory control organization.

Excess inventories, however guarantee uninterrupted supply of materials and

INDO SPANISH TASTY FOODS PRIVATE LIMITED

BANGALORE INSTITUTE OF MANAGEMENT STUDIES

INDO SPANISH TASTY FOODS PRIVATE LIMITED

INVENTORY CONTROL TECHNIQUES/TOOLS:

INDO SPANISH TASTY FOODS PRIVATE LIMITED

Two Bin System

Materials Requirement Planning

Physical Verification of Stock

ALWAYS BETTER CONTROL (ABC) CLASSIFICATION:

HIGH, MEDIUM & LOW (HML) CLASSIFICATION:

INDO SPANISH TASTY FOODS PRIVATE LIMITED

VITAL, ESSENTIAL & DESIRABLE (VED) CLASSIFICATION:

INDO SPANISH TASTY FOODS PRIVATE LIMITED