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Inventory control system is a very important system that is used by the companies to control the inventory in and out in their daily transaction. How important the inventory control system for the company and influence their sales? It is the topic that will go to touch on this research. Keeping track of units of inventory and their associated costs is important to the management of the firm. Information concerning the units sold and those in inventory is an essential basis for intelligent decision about pricing, production and reordering. An inventory system is needed to keep track of this information. (Robert E. Hoskin, 1997) They have two types of inventory control system, perpetual inventory system and periodic inventory system. (Warren, Reeve, Fees, 1997)
Perpetual Inventory System
Perpetual inventory system is a system of inventory accounting in which both the revenue from sales and the cost of merchandise sold are recorded each time a sale is made, so that the record continually discloses the amount of the inventory on hand. (Warren et al., 1997)
(Hansen & Mowen. JIT (Just In Time) etc. serves as a buffer between different rates of flow associated with the operating system. in-progress goods. The cost of merchandise on hand at the end of a period is determined by a detailed listing (physical inventory) of the merchandise on hand. management must have the following: .2 Periodic Inventory System Periodic inventory system is a system of inventory accounting in which only the revenue from sales is recorded each time a sale is made. 1997) Inventory control system can be defined as the whole system of the inventory control. To be effective. 1995) Inventory is the quality of raw materials.. 1997) The several methods can be used in inventory control are FIFO (First-In-FirstOut). (Rue & Byars. and the other is to make decisions about how much and when to order. the result will be collected to elaborate and comment during the research. It was control of work in progress and finished good inventories also presents a firm with exceptional opportunities for savings. One is to establish a system of keeping track of items in inventory. However. (Warren et al. Weighted Average. LIFO (Last-In-First-Out). Requirements for Effective Inventory Management Management has two basic functions concerning inventory. This research tries to give the opinion of how effectively the company controls their inventory system and how well the inventory control system helps them to generate sales. or finished goods on hand.
• Reasonable estimates of inventory holding costs. During periods of inflation or rising prices. the earlier unit costs are . 1997) The FIFO method is used when the costs of the units sold are assumed to be in the order in which they were incurred.3 • A system used to keep track of the inventory on hand and order. The few methods used in inventory control systems are as follows: FIFO (First-In-First-Out) The first-in-first-out. • Knowledge of lead times and lead-time variability. (Robert E. This means that ending inventory units will be matched with the costs of the most recent purchases. or FIFO method matches the first costs with the first units sold. FIFO describes fairly accurately the physical flow of goods in most businesses. ordering costs and shortage costs. • A reliable forecast of demand that includes an indication of possible forecast error. Hoskin. • A classification system for inventory items.
Ending inventory. In the period of inflation. The reason for these effects is that the costs of the most recently acquired units most nearly approximate the cost of their replacement. Much of the benefit of the larger amount of gross profit is lost. A major criticism of the FIFO method is its tendency to pass through the effects of inflationary and deflationary trends to gross profit. it can be argued that the LIFO method more nearly matches current costs with current revenues. (Warren et al. is that the balance sheet will report the ending merchandise inventory at an amount that is about the same as its current replacement cost. therefore. the results are opposite of those of the other two methods. When the rate of inflation reaches double digits.4 lower than the more recent unit costs. is assigned the costs associated with the first purchases (or beginning inventory). Hoskin. however. or LIFO. as it did during the 1970’s. 1997) LIFO (Last-In-First-Out) The last-in-first-out. A criticism of using LIFO is that the . because the inventory must be replaced at everhigher prices. the more recent unit costs are higher than the earlier unit costs Thus. FIFO method yields the lowest amount of gross profit. however. Compared with other methods. method matches the last costs in with the first units sold.. the larger gross profits that result from the FIFO method are often called inventory profits or illusory profits. (Robert E. 1997) The LIFO method is used during a period of inflation or rising prices. An advantage of the FIFO method.
analysis of the effects of the various methods is restricted to a comparison of the LIFO and FIFO methods. however.no earlier and no later. Because of the need for quality and balanced production. 1997) Weighted Average Method The weighted average method computes an average cost for all the units available for sale in a given period and assigns that average cost to both the units that are sold during the period and those that remain in ending inventory. JIT has come to be closely identified with efforts to eliminate waste in all its forms. Elimination of inventory of eliminates storage and carrying costs. The weighted average method produces results on the income statement and balance sheet that are intermediate between those of LIFO and FIFO. (Warren et al. Because of this. All materials and components should arrive at a workstation when they are needed. it also eliminates the cushion against production errors. 1997) JIT (Just-In-Time) Just-in-time (JIT) is a philosophy centered on the reduction of costs through elimination of inventory.5 ending merchandise inventory on the balance sheet may be quite different from its current replacement cost. As a result.. Hoskin. high quality and balanced workloads are required in a JIT system to avoid costly shutdowns and customer ill will. (Robert E. and thus it is an .
current assets. (Warren et al. Usry.. Carter. weighs or otherwise determines quantity and the other lists the description and the quantity on the inventory count sheets. A common practice is to use teams made up of two persons. The specific procedures for determining inventory quantities and assembling the data differ among companies. The first step in this process is to determine the quantity of each kind of merchandise owned by the business. which is called stockless production. lean production or zero inventory production. an error in the physical inventory will misstate the ending inventory. 1997) Any errors in the inventory count will affect both the balance sheet and the income statement. and total assets on the balance sheet. 1994) 1. For example. Most writings on JIT concentrate on this one aspect. One person counts. The most visible aspect of JIT is the effort to reduce inventories of work in process and raw materials. A second count team may check the quantities indicated for high-cost items during the inventory-taking process. (Hammer.6 important part of many total quality management (TQM) efforts. The second count team should also check quantities of other items selected at random from the inventory count sheets.1 Problem Statement The inventory control system is an important tool in controlling the business operation. This is .
The effect of any . In addition. gross profit and net income on the income statement. The management has to make decision on which methods used is most suitable to them. current assets. the financial statements of the prior year must be corrected. (Warren et al. Other than that. The methods used may also be changed for a valid reason. errors in the physical inventory are infrequent. a computer retailer and wholesaler might use the FIFO method for its microcomputer inventory and the LIFO method for software and other inventory..7 because the physical inventory is the basis for recording the adjusting entry for inventory shrinkage. they are normally detected in the next. 1997) The preceding comparisons show the importance attached to the selection of the inventory costing method. 1997) When a company uses the perpetual inventory system. an error also taking the physical inventory misstates the cost of goods sold. total assets and stockholders equity.. when errors such as the one just described do occur. (Warren et al. The effect of misstated inventory on the financial statements used to defraud investors and others. In addition. because net income is closed to retained earnings at the end of the period. For example. Often enterprises apply one method to one class of inventory and a different method to another class. retained earnings will equal the misstatement of the ending inventory. In this case.
The few problems are stated as following.8 change in method and the reason for the change should be disclosed in the financial statements for the period in which the change occurred. but priced out at a lower value in the physical inventory . 1997) The few problems will occur in the inventory control system and it will affect the discrepancies for the system control. spillage etc • Obsolete stock not accounted for until the physical inventory is taken • Obsolete previously disposed of. but still carried in the perpetual inventory • Obsolete stock carried at full value on the books. • Stolen of raw material and finished good • Unreported delivery shortages from suppliers • Collusion with suppliers regarding invoices and receiving reports • Unreported storage and handling losses. such as breakages. (Warren et al..
. somehow the entering received goods twice will be occurred • Over-costing the perpetual inventory or under-costing the physical inventory • Failure to subtract the value of goods returned to suppliers from the perpetual inventory • The lack or poor management control to the inventory control system 1.2 Research Objective The main research objectives of the research are as follows: 1. To know how effectively the company controls its’ inventory with the inventory control system and the services provided to the customers on the sales transaction.9 • Under-reporting on the perpetual inventory of transfers from storeroom to the shop • Bookkeeping errors during recording to the business operation transaction.
To analyse the advantages or disadvantages of the inventory control system based on the Cross-tabulations and Chi-square analysis. LIFO. Just-inTime. internet. To identify whether the theoretical methods are applied in the real environment of the firm or not. 1. The secondary data obtained more sources of data compared with the primary data. textbook etc.3. the managers also hiding some information from the researcher. 3.3 Limitation of Research There are the several limitations of the research that can be identified such as: 1. e. 4. FIFO.1 Accuracy of Data Collected The primary data collected more accurate than the secondary data that collected from the journal.10 2. Some of the data collected from the primary was not very accurate because during the interviewing. Weighted Average Method. To know which method the company managed to use in adjusting it’s inventory and how effectiveness for those methods influence the company sales and record. The questionnaires distribution . Economic Order Quantity (EOQ) etc.g.
finally it can keep continue in the research.11 also cannot fully reliable because some of them were not pay full attention for the question asked in questionnaires. 1.2 Lack of experience The research of dissertation is the new project for the researcher. . The researcher has no idea in the formats and stages in the research report from the beginning but with the guidance from the supervisor. Although the primary data has some weaknesses but it was more accurate than the secondary data that collected from secondary data.3. the researcher feel difficult and lack of experience to get start in this research.