CHAPTER –I

INTRODUCTION
1.1 Background of the Study

Inventory management involves keeping track of a company's stocked

goods. It monitors their weight, dimension, amounts and location. This helps
business owners know when it's time to replenish product, or buy more
materials to manufacture them. Effective inventory management is essential
for ensuring a business has enough stock on hand to meet customer demand.
If inventory management is not handled properly it can result in a business
either losing money on potential sales that can't be filled or wasting money
by stocking too much inventory.

Inventory management involves planning of the optimum level of inventory

and control of inventory cost supported by an appropriate organization
structure which is staffed by trained persons and directed by top
management. It involves both financial dimension as well as physical
dimension and these dimensions are interrelated and cannot be looked in
isolated (Jain & Narang, 2011).

Inventory can be defined as a stock of any kind item reserved in the store for
a certain period. It constitutes the most significant components of the current
assets. Inventory is stock of the product a company is manufacturing for
sales and component that makes up the product. The various forms of
inventory or raw material, work-in-process and finished goods. Fourth types
of inventory, supplies are also maintained by a firm. Both excessive
inventory increase the firms fund and decrease profit. It is also increase
carrying cost and therefore also may run the risk of liquidation. Inadequate
level of inventory holds up production and may affect the company's ability
to meet delivery commitment.

An undertaking neglecting the management of inventory will be

jeopardizing its long run profitability and may fail ultimately. Hence
optimum level of inventory should be determined on the basis of trade off
between cost and benefits associated with the level of inventory. In this

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competitive word, profit can be determined only by reducing cost. So cost
should be minimized and production should be maximized.

Thus, Management should pay adequate attention to the inventory

management to reduce the cost of production. Inventory should be
maintained in appropriate quantity so as to avoid both under stock and over
stock. The aim of inventory management to maintain optimum level of
inventory for the smooth production and sales. Based on above basic
concept of inventory management. The study is directly concerned with the
inventory management of Gorkha Brewery Private Limited.

1.1.1 Introduction of Gorkha Brewery Pvt. Ltd.

Gorkha Brewery was established in 1989 as a joint venture between the

Khetan Group and the Carlsberg Group. In 2010, Carlsberg Group bought
majority of the Gorkha Brewery shares and took over the management.
Gorkha Brewery has one of the most advanced production sites in South
Asia with its state of the art brewing facility and technical expertise. Its
register office has situated at Hattisar Kathmandu, Nepal.

Gorkha Brewery Pvt. Ltd., part of the Carlsberg Group, presents an

opportunity for qualified individuals to team up in our existing workforce.
The extraordinary success of the company is the result of excellence in every
arena and adding that extra bit every time are the talented and dynamic
people who work with the company.

This is an invitation to people who have a passion for excellence and seek
opportunity to explore their skills.

The company is the market leader in Nepal with more than 70% market
share and today Gorkha's product portfolio includes mainstream, premium,
local premium and strong beers.

Gorkha Brewery is SAIL'22 strategy was launched in March 2016 with the
ambition to make the Carlsberg Group a successful, professional and
attractive brewer in our markets. The key strategic choices of SAIL'22 are
grouped under the headings "Strengthen the core", "Position for growth" and
"Create a winning culture". Delivering on these choices will in turn enable

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us to deliver enhanced value for our shareholders. SAIL'22 was co-
developed by the top leadership team in the Carlsberg Group in order to
leverage the Company's vast knowledge base, support a team-based culture
and secure a fast implementation.

1.2 Statement of the problems

The main research question to be answered for this study is to examine the
inventory management of Gorkha Brewery Private Limited and the basic
purpose in accounting for inventories is the proper determination of net
income through the matching of appropriate inventory cost against revenue.
Inventories present problem of considerable magnitude for both the
accountant and management. Both must seriously consider such inventory
problems as valuation control, safeguarding and cost allocation. All of these
problems are especially critical in view of the materiality if inventories in
the typical firm and the fact that inventories directly affected both the
income statement and balance sheet. These Factors have caused the
accounting profession to give particular attention to the problems related to
inventories (Khan & Jain 2011).

The suitable adaptation of inventory level is crucial for an organization. It

should be balance in such a way that should neither be excessive nor
inadequate. The excessive inventory results unnecessary tie up of the firm's
funds and loss of liquidity whereas in-adequacy of inventory causes either
product holds up or failure to meet the demand of customer. Now questions
arise whether or not Gorkha Brewery Private Limited following inventory
management tools and techniques. The study tries to answer the following
research questions.

i. What inventory management techniques does this company use?

ii. What are the relation between inventory and sales?
iii. What is the impact of inventory management on the profitability of
the company?

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1.3 Objectives of the study

The main objectives of this study to identify the problem underlying in

inventory management of Gorkha Brewery Private Limited. In order to meet
the main objectives the following specific objectives are as follows:
i. To examine the inventory management techniques of Gorkha
Brewery Pvt. Ltd.
ii. To analyze the relationship of sales and inventories of GBPL.
iii. To assess the impact of inventory management on profitability of
Gorkha Brewery Pvt. Ltd.
1.4 Rationale of the Study

A firm can't achieve its goal unless inventories are controlled effectively and
capital is allocated properly. Proper inventory management helps to increase
the profit of an organization. Inventory management is one of the most
important functions in an organization. Without effective and efficient
inventory Management, no organization can achieve its goals. A slight
change in the cost of inventories will bring a great change in the firm's
profitability. Reduction in the material cost may result in high profit.

Most of Nepalese manufacturing organizations are suffering from poor

inventory management. Gorkha Brewery Pvt. Ltd. has different type of
product thus deal with diversified product group to meet everyday need of
domestic consumers. Being a manufacturing company, it spends a lot of
time, money and efforts in inventory management. Therefore, the researcher
is very much interested to examine its inventory management system of
GBPL. So, this topic is chosen for the study, It is hoped that the study may
help to solve the problem faced by GBPL, to eliminate the obstacles
presently traced in inventory management. This study will be useful to
owner of HDBL, Investors, and Stakeholders etc.

1.5 Review of Previous Studies

Gaire, (2017) has studied a research work on the topic of "Inventory

management: A case study of Royal Drug Ltd." The main objective of his
study is to identify the problem underlying in inventory management and
control system of RDL. Other objectives of his study are:

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 i. To assess the types of inventory maintained in RDL.
ii. To examine the Techniques begin employed to manage the
inventory in RDL
iii. To suggest proper inventory model to RDL bases on analysis.
iv. To find out inventory position of RDL.

On the basis of study conducted by Mr. Gaire the following findings. The
company should define its objective and goals clearly.

i. The company follow all the quantative techniques and model such as
EOQ model, ABC analysis model so that total inventory can be
reduce.
ii. Ledger cards can also be used to manage inventory in simple way.
iii. General Manager should be professional on and he should not be
changed frequently due to political interface.

Bhandari, (2017) has studied a research work in the topic of "Inventory

Management and Control: A case study of Unilever Nepal Ltd." The main
objective of her study tries to focus on the need of comprehensive inventory
management and control to improve the performance the identity how far
they are in conformity with primary principle and concepts of UNL. Other
objectives of her study are:

i. To analyze present position of inventory management.

ii. To examine the technique being employed to manage the inventory
by this enterprise.
iii. To assess the types of inventory maintain and in this enterprises.

The major findings were as follows:

i. It was necessary to maintain a suitable level of inventory i.e. using

EOQ model, for procurement.
ii. Essential and most necessary of ABC analysis for inventory
management for the company.
iii. The company has not been used properly top find the necessary
operation because of lack of adequate data without scientific tools
and techniques.
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Above studies conducted earlier have now needed to carry a study to assess
the recent development in inventory management. This study covers the data
of five years from FY 2013/14 to FY 2017/18. Nobody of the earlier studies
had focused on role of inventory in overall profit planning of the
organization although inventory and different components of profit planning
like production planning, purchase planning etc. are closely related to each
other. Moreover, this study has not been done by previous researcher ad
separately. Thus, to fill the gap, this study has been conducted. Thus this
study has been milestone in the field of inventory management and control
of Gorkha Brewery Pvt. Ltd.

1.6 Research Methods

Research methodology is the process of arriving at the solution of a problem

through a planned and systematic dealing with the collection, analysis and
interpretation of the facts and figures. The objectives of the study are to
analyses the inventory management of GBPL.

i) Research Design

Research design is the plan structure and strategy of investigation

conceived. So as to obtain answer to research question and control variance
to achieve of the study, description and analytical research design have been
used.

ii) Population and sample

The total numbers of manufacturing industries in Nepal are population to

this study because research work is related with inventory management of
manufacturing industry in Nepal. But due to the various limitations such as
time, financial resource, availability of data etc. constrained the study, for
this reason, only one manufacturing company Gorkha Brewery Pvt. Ltd. is
convenience research method of the research work.

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iii) Nature and Sources of Data

Information is life blood of any research. Both primary and secondary

information have been used in this study. Primary information's are used on
questionnaire, informal interview as well as unstructured dialogues and
discussion with the official of Gorkha Brewery Pvt. Ltd. The required data
and information for analysis are directly collected from the annual reports
of GBPL, direct contact to GBPL corporate offices.

iv) Data gathering procedure

The secondary data are directly obtained from various sources mentioned
above for the purpose of data analysis is taken from official records,
websites. The researcher had to visit the head office of Gorkha Brewery
Pvt. Ltd. and get data from the records.
v) Tools for Analysis
Research means to investigate or to search or to study again and again about
a phenomenon understudy. Variable mean the quantitative factor under
consideration which posse's different numerical value. Thus, research
variable means to search or investigate repeatedly about quantitative factor
which posses many numerical values. This research has been conducted by
using the following different tools i.e. financial & statistical tools;
1. Statistics Tools
To analyze the collected facts and figure, various according tools are used
to effectiveness of inventory management and control whatever necessary.
The technique included the financial and statistical tools like: graphs,
Percentage, correlation and the inventory management techniques applied in
this study are EOQ, inventory turnover ratio and ABC analysis.

a) Mean
Average is statistical constants, which enable us to comprehend in a single
effort of the whole. It represents the entire data by a single value. It
provides the gist and gives the bird's eye view of the huge mass of unwieldy
numerical data. It is calculated as:

X=
∑X
N

Where,
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X = Arithmetic Mean
N = Numbers of observation
∑ X = Sum of observation
b) Standard Deviation
The standard deviation is the square root of mean squared deviations
from the arithmetic mean and is denoted by S. D. or a. It is used as
absolute measure of dispersion or variability. It is calculated as:
σ =√ ∑ ¿ ¿ ¿ ¿
Where,
σ = Standard Deviation
X = Mean

c) Coefficient of Variation
The co-efficient of variation (C.V.) is the relative measure based on the
standard deviation and is defined as the ratio of the standard deviation to the
mean expressed in percentage, it is independent of units. Hence, it is a
suitable measure for comparing variability of two series with same or
different units. A series with smaller C.V. is said to be less variable or more
consistent or more homogeneous or more uniform or more stable than the
other and vice versa. It is calculated as:
σ
CV =
X
Where,
σ = Standard deviation
X = Mean

d) Coefficient of Correlation
This analysis identifies and interprets the relationship between two or more
variable, in the case of highly correlated variable, the effect on one variable
may have effect on other correlated variable. Under this topic, Karl Person's
coefficient has been used to find out the relationship between the different
variables. The formula for computing Person's correlation coefficient (r)
using direct method is as follows:
Nεxy−εx . εy
r=
√ Nε x 2−¿¿ ¿
Where,
y = Dependent variables x= Independent variables
r = Correlation coefficient N = No. of time period

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 e) Probable Error
As mentioned, probable error is the coefficient of correlation that supports in
finding out about the accurate values of the coefficients. It also helps in
determining the reliability of the coefficient.
The correlation coefficient for a population is usually based on the knowledge
and the sample relating to the correlation coefficient. Therefore, probable error
is the easy way to find out or obtain the correlation coefficient of any
population. Hence, the definition is:
1−r 2
Probable Error =  0.675 × √ N
Here,
r = correlation coefficient
N = Total number of observations.

2. Financial Tools
This ratio is calculated to measure the acceleration or retardation of ay variable
to the company in each year. This helps the bank to identify the degree how the
variable is moving in each year. It also helps the organization to take the
suitable direction. It is calculated in following way:
Amount of this year− Amount of last year
Annual Precentage change=
Amount of last year

ABC analysis
1.7 Limitations of the study
This study attempts to find out the problems and impact on the profitability
of Gorkha Brewery Pvt. Ltd. Therefore the following limitation of the study:

i) This study was concentrated on the area of inventory management

of Gorkha Brewery Private Limited only.
ii) The comprehensibility and accuracy of the study have been based
on the data provided by the management and various published
document of GBPL.
iii) This study has been covers a span of only five financial years
covering from 2013/14 to 2017/18.

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 CHAPTER - II
RESULTS AND ANALYSIS

The main objective of this study is to examine the present practice of

inventory management system in GBPL. To achieve the said objective,
collected data are analyzed in this chapter by applying inventory
management tools and technique.

2.1 Data Presentation

The researcher had made analysis and diagnosis of the collected data to
provide the suggestions and recommendations to the GBPL.

i) Relation between Inventory and Current Assets

Table 2.1: Relation between inventory and current Assets
(Rs in Millions)
FY Inventory Current assets Ratio (%)
2013/14 355.66 681.10 52.22
2014/15 174.80 478.97 36.49
2015/16 152.59 707.86 21.56
2016/17 222.91 869.30 25.64
2017/18 278.01 1069.69 25.99
Average 236.79 761.38 32.38
Source: Annual report of GBPL
From the above table, it is observed that the inventory to current assets ratio
during the study period is 52.22 percent in FY 2013/14, 36.49 percent in the
FY 2014/15, 21.56 percent in FY 2015/16, 25.64 percent in FY 2016/17 and
25.99 percent in the FY 2017/18.
Similarly average inventory in an overall study period is Rs 236.79 millions,
average current assets in an overall study period Rs. 761.38 millions and
average percentage of inventory in an overall study period has been 32.38
percent. The result shows that the inventory and current assets ratio is

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decreasing over the study period. The graphic presentation of level inventory
and current assets is as follows.
Figure 2.1: Level of Inventory and Current Assets
1200 Inventory Current Assets

1000

800
Rs. In Millions

600

400

200

0
2013/14 2014/15 2015/16 2016/17 2017/18
Fiscal Year

Source: Table No 2.1

From above presentation (Table as well as graphic presentation), it is
observed that the share of inventory on total current assets is highest in FY
2013/14 i.e. 52.22 percent and lowest in FY 2015/16 i.e. 21.56 present. The
result shows that the company has not been adopting an appropriate
inventory policy because inventory level is not stable.

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ii) Proportion of Raw Materials on total Inventory
Table 2.2: Proportion of Raw Material on Total Inventory
(Rs in Millions)
FY Raw Materials Inventory Ratio (%)
2013/14 161.64 355.66 45.45
2014/15 76.87 174.80 43.98
2015/16 71.04 152.59 46.56
2016/17 114.34 222.91 51.29
2017/18 149.44 278.01 53.75
Average 114.66 236.79 48.21
Source: Annual report of GBPL
Raw Materials
Note: Percentage of raw materials to inventory = Inventory

Average:
∑ of the figure of overall study period
No . of the period

GBPL has been using different type of chemicals and perfumes: that
constitute the major portion of raw material on total inventory in GBPL.
From the above table, It is observed that, the raw material on total inventory
during the study period is 45.45 percent in FY 2013/14, 43.98 Percent FY
2014/15, 46.56 Percent in the FY 2015/16, 51.29 percent in the FY 2016/17
and 53.75 Percent in the FY 2017/18.

Figure 2.2: Proportion of Raw Materials to Total Inventory

Raw Materials Inventory

400 350 300 250 200 150 100 50 0
Rs. In Millions

2013/14 2014/15 2015/16 2016/17 2017/18

Fiscals Years

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Source: Table No.2.2

iii) Proportion of packaging Material on Total Inventory

Table 2.3: Proportion of Packaging Material on Total Inventory
(Rs in Millions)

FY Package Material Inventory Ratio (%)

2013/14 50.64 355.66 14.24

2014/15 25.56 174.80 14.62
2015/16 13.80 152.59 9.04
2016/17 26.11 222.91 11.71
2017/18 28.08 278.01 10.10
Average 28.84 236.79 11.94
Source: Annual report of GBPL
Packaging Material
Note: Percentage of Packaging material to inventory = Inventory
From the above table, it is observed that share of Packaging material on total
inventory during the study period is 14.24 percent in the FY 2013/14, 14.62
percent in the FY 2014/15, 9.04 percent in the FY 2015/16, 11.71 percent in
the FY 2016/17 and 10.10 percent in FY 2017/18.
Where as the average percentage of packaging material in total inventory in
overall study period in 11.94 percent. Similarly, average inventory in overall
study period is 236.79 millions and average packaging materials in overall
study period Rs. 28.84 millions.

Figure 2.3: Proportion of Packing Materials on Total Inventory

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 400 Packing Material Inventory
350
300
Rs. in Millions
250
200
150
100
50
0
2013/14 2014/15 2015/16 2016/17 2017/18
Fiscal Years

From above analysis, it is observed that Packing materials of the company

are fluctuating during the study period. Such fluctuating in inventory
position is not considered as good from the point of view of inventory
management. Fluctuation in demand and sales of company products, lack of
appropriate inventory policy and ineffective demand forecast are the main
reasons of such fluctuation.

iv) Proportion of Work In Progress Materials to Total Inventory

Table 2.4: Proportion of WIP Materials to Total Inventory
(Rs. in Millions)
FY WIP Materials Inventory Ratio (%)

2013/14 15.00 355.66 4.22

2014/15 7.62 174.80 4.36
2015/16 4.86 152.59 3.19
2016/17 6.68 222.91 3.00
2017/18 4.24 278.01 1.52
Average 7.68 236.79 3.26
Source: Annual report of GBPL
GBPL has been using to produce the final product. The smaller portion of
WIP on total inventory is used by the company. From the above table, It is
observed that the portion of WIP material total inventory during the study
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period 4.22 percent in FY 2013/14, 4.36 percent in the FY 2014/15, 3.19
percent in the FY 2015/16, 3.0 percent in the FY 2016/17 and 1.52 percent
in FY 2017/18. Whereas the average Percentage of WIP materials in total
inventory in overall study period is 3.26 percent. Simalilary, average
inventory of WIP materials in overall study period is Rs. 7.68 millions.
The graphic presentation of level of WIP material on total inventory is as
follows:

Figure 2.4: Level of Work in Progress Materials to Total Inventory

400
WIP Materials Inventory
350
300
Rs. in Millions

250
200
150
100
50
0
2013/14 2014/15 2015/16 2016/17 2017/18
Fiscal Year

From above analysis, it is observed that WIP materials of the company are
fluctuating during the study period. Such fluctuating in inventory position is
not considered as good from the point of view of inventory management.
Fluctuation in demand and sales of company products, lack of appropriate
inventory policy and ineffective demand forecast are the main reasons of
such fluctuation.
v) Proportion of Finished Goods in Total Inventory
Table 2.5: proportion of Finished Goods in Total Inventory
(Rs. in Millions)
FY Finished Goods Inventory Ratio (%)

2013/14 106.00 355.66 29.80

2014/15 49.97 174.80 28.59

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2015/16 53.85 152.59 35.29
2016/17 67.16 222.91 30.13
2017/18 89.33 278.01 32.13
Average 73.26 236.79 31.19
Source: Annual report of GBPL
From above table, it is observed that the portion of finished goods on total
inventory during the study period is 29.8 percent in FY 2013/14, 28.59
percent in the FY 2014/15. 35.29 percent in the FY 2015/16. 30.13 percent
in the FY 2016/17 and 32.13 percent in the FY 2017/18.
Figure 2.5: Level of Finished Goods in Total Inventory
Finished Goods Inventory
400
350
300
250
Rs. In millions

200
150
100
50
0
2013/14 2014/15 2015/16 2016/17 2017/18
Fiscal Years

From above analysis, it is observed that Finished Goods materials of the

company are fluctuating during the study period. Such fluctuating in
inventory position is not considered as good from the point of view of
inventory management. Fluctuation in demand and sales of company
products, lack of appropriate inventory policy and ineffective demand
forecast are the main reasons of such fluctuation.
vi) Proportion of Net profit on Total Inventory
Table 2.6: Proportion of Net Profit on Total Inventory
(Rs. in Millions)

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 FY Net Profit Inventory Ratio (%)

2013/14 98.65 355.66 27.74

2014/15 94.52 174.80 54.07
2015/16 102.34 152.59 67.07
2016/17 106.54 222.91 47.80
2017/18 132.45 278.01 47.64
Average 106.90 236.79 48.86
Source: Annual report of GBPL
From above table, it is observed that the portion of net profit on total
inventory during the study period is 27.74 percent in the FY 2013/14, 54.07
percent in the FY 2014/15, 67.07 percent in the FY 2015/16, 47.80 percent
in the FY 2016/17 and 47.64 percent in the FY 2017/18.

Figure 2.6: Level of Net Profit in Total Inventory

Net Profit Inventory
400

350

300

250
Rs. In Millions

200

150

100

50

0
2013/14 2014/15 2015/16 2016/17 2017/18
Fiscal Years

From above analysis, it is observed that Net Profit of the company is

fluctuating during the study period. Such fluctuating in inventory position is
not considered as good from the point of view of inventory management.
Fluctuation in demand and sales of company products, lack of appropriate
inventory policy and ineffective demand forecast are the main reasons of
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such fluctuation.

A) Selective Inventory Control (ABC Analysis)

As the term ABC implies always better control which states that a fewer
items of high investment value should be paid more attention than a bulk of
items having low value and having a low investment in capital. Category 'A'
includes the most important items and recognized for special attention.
Category 'B' includes lesser important items and category 'C' consists of the
least important and few value items.

The classification of items into A, B and C categories is based upon the

product value and usage date. 'A' item includes 15 percent of items and 70
percent of total value of items. B items include 30 percent of the items and
20 percent of total value of items. 'C' items include 55 percent of items and
10 percent of total inventory value.
According to ABC analysis concept, the term of inventory of GBPL is
categorized as A, B and C on the basis of product value and usage rate. The
value items having more than Rs. 1 Lakh per tones fall under category 'A'.
The items having value form Rs. 50.000 to Rs. 100,000 per tones fall under
category 'B' and the items having value to Rs. 50.000 per tones fall under
category 'C'.

i) ABC Analysis Concept

According to ABC analysis concept, the items of inventory of GBPL are

categories as 'A'. 'B' and 'C' group on the basis of the usage value.

Table 2.7: ABC Classification of Overall Study Period

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 FY 2013/14 2014/15 2015/16 2016/17 2017/18 Average
Categories
% of % of % of % of % of % of % of % of % of % of % of % of
Items Cost Items Cost Items Cost Items Cost Items Cost Items Cost
A Items 14.6 51 33.4 62.3 17.1 49.3 16 12 29.9 27.6 22.2 40.44

B Items 15.4 24.7 29.7 25.6 31.1 33.7 34.7 38.6 32.8 53 28.74 35.12

C Items 70 24.3 36.9 12.1 51.8 17 49.3 49.4 37.3 19.4 49.06 24.44

Source: Annual Report of GBPL

The above table shows that under 'A' category average percentage of total
unit is 22.2% and average percentage of total cost is 40.44% during the
study period. The per ton cost of inventories in 'A' items is more than Rs. 1
lakh. Therefore, 'A' group involved the largest investment and would be
under highest control by management. It should rather keep a more rigorous
control and the most sophisticated control techniques should be applied in
'A' items then another items.
Sprit is categorized under 'B' items, average percentage of total units is 28.74
and average percentage of total cost is 35.12% of overall study period.
Therefore in 'B' group involve normal inventory control is exercised. The 'B'
group stands mid way. It deserves less attention than 'A' but more than 'C'. It
can be controlled by employing less sophisticated techniques.
Chemicals are categorized under 'C' items. The table above shows that under
'C' items average percentage of total units is 49.06% and average percentage
of total cost is 24.44% of Overall study period. In case of 'C' items, simple
control will be sufficient.
The categories selected the concept that it is uneconomical to spend the
same cost of supervision to all items. Inventories are checked physically
once every six months or every year to determine new order to place. Based
on this consideration the selective inventory control system of the company
is analyzed. In the above table it is clearly seen the percentage of total cost
of 'B' items is comparatively high but per ton cost is less than 'A' items and
more than 'C' items. In order to minimize the inventory cost 'A' items should
be paid more attention than 'C'. 'B' lies in between times 'A' and 'C'. It
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requires neither careful nor simple but a moderate control system is adequate
for this items.

B) Coefficient of Correlation Analysis

Co-efficient of co-relation shows the relationship between two or more than

two variables. It measures that the two variables are positively or negatively
co-related. For this purpose, Karl Pearson's co-efficient of correlation has
been taken and applied to find out and analyze the relationship between
inventory and net profit, sales and inventory, sales and gross profit,
inventory and net profit using Karl Person's coefficient of correlation, value
of coefficient of determination (r2), probable error (P.E.) and (6 P.E.) are
also calculated and value of them are analyzed.

i) Correlation Coefficient between Inventory & Net Profit

In this analysis, inventory is independent variable (X) and net profits are
dependent variable (Y). The main objectives of computing "r" between these
two variables is to justify whether inventory are significantly used as net
profit in proper way or not.
Table 2.8: Correlation between Inventory and Net Profit
r r2 PE 6 PE
0.25 0.0625 0.419 2.516
Source: Appendix-A

From the above table, it is found that coefficient of correlation between

Inventory and net profit of Gorkha Brewery Pvt. Ltd is 0.25. It is shows that
GBPL has the low positive degree relationship between these two variables.
Moreover, the coefficient of determination of GBPL is 0.0625. It refers that
6.25 percent variance in inventory are affected by net profit. The correlation
coefficient of is insignificant because the correlation coefficient is less than
the relative value of 6PE.

ii) Correlation Coefficient between Sales & Net Profit

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In this analysis, sales are independent variable (X) and net profits are
dependent variable (Y). The main objectives of computing "r" between these
two variables are to justify whether sales are significantly used as net profit
in proper way or not.
Table 2.9: Correlation between Sales and Net Profit
r r2 PE 6 PE
0.396 0.157 0.377 2.263
Source: Appendix-B

From the above table, it is found that coefficient of correlation between sales
and net profit of Gorkha Brewery Pvt. Ltd. is 0.396. It is shows that GBPL
has the low positive degree relationship between these two variables.
Moreover, the coefficient of determination of GBPL is 0.157. It refers that
15.7 percent variance in sales are affected by net profit. The correlation
coefficient of is insignificant because the correlation coefficient is less than
the relative value of 6PE.

iii) Correlation Coefficient between Sales & Gross Profit

In this analysis, sales are independent variable (X) and gross profits are
dependent variable (Y). The main objectives of computing "r" between these
two variables are to justify whether sales are significantly used as gross
profit in proper way or not.
Table 2.10: Correlation between Sales and Gross Profit
r r2 PE 6 PE
0.48 0.2304 0.344 2.065
Source: Appendix-C
From the above table, it is found that coefficient of correlation between sales
and gross profit of Gorkha Brewery Pvt. Ltd. is 0.48. It is shows that GBPL
has the moderate positive degree relationship between these two variables.
Moreover, the coefficient of determination of GBPL is 0.2304. It refers that
23.04 percent variance in sales are affected by gross profit. The correlation
coefficient of is insignificant because the correlation coefficient is less than
the relative value of 6PE.

iv) Correlation Coefficient between Sales & Operating Expenses

21
In this analysis, sales are independent variable (X) and operating expenses
are dependent variable (Y). The main objectives of computing "r" between
these two variables is to justify whether sales are significantly used as
operating expenses in proper way or not.

Table 2.11: Correlation between Sales and Operating Expenses

r r2 PE 6 PE
0.897 0.804 0.087 0.524
Source: Appendix-D

From the above table, it is found that coefficient of correlation between sales
and operating expenses of Gorkha Brewery Pvt. Ltd. is 0.897. It is shows
that GBPL has the high degree positive relationship between these two
variables. Moreover, the coefficient of determination of GBPL is 0.804. It
refers that 80.4 percent variance in sales are affected by operating expenses.
The correlation coefficient of is significant because the correlation
coefficient is greater than the relative value of 6PE.

v) Correlation Coefficient between Inventory & Gross Profit

In this analysis, inventory is independent variable (X) and gross profits are
dependent variable (Y). The main objectives of computing "r" between these
two variables is to justify whether inventory are significantly used as gross
profit in proper way or not.

Table 2.12: Correlation between Inventory and Gross Profit

r r2 PE 6 PE
0.011 0.00012 0.447 2.683
Source: Appendix-E

From the above table, it is found that coefficient of correlation between

inventory and gross profit of Gorkha Brewery Pvt. Ltd is 0.011. It is shows
that GBPL has the very low positive degree relationship between these two
variables. Moreover, the coefficient of determination of GBPL is 0.00012. It
refers that 0.1 percent variance in inventory is affected by gross profit. The
correlation coefficient of is insignificant because the correlation coefficient
is less than the relative value of 6PE.
22
2.2 Major Findings of the Study

The major findings out of the analysis of the inventory management of

GBPL are as follows:

i. The average value of inventory is 236.79 million during the study

period. The positive deviation an average inventory to current
assets ratio is 32.38 percent. However, the result shows that the
inventory and current assets ratio is decreasing over the study
period.
ii. It is observed that the raw material on total inventory during the
study period is 45.45 percent in the FY 2013/14, 42.98 percent FY
2014/15, 46.56 percent in the FY 2015/16, 51.29 percent in the FY
2016/17 and 53.75 percent in the FY 2017/18.
iii. The average percentage of packaging material in total inventory in
overall study period is 11.94 percent. Similarly, average inventory
in overall study period is 236.79 millions and average packaging
materials in overall study period is Rs. 28.84 millions.
iv. It is observed that the portion of WIP material total inventory
during the study period 4.22 percent in the FY 2013/14, 4.36
percent in the FY 2014/15, 3.19 percent in the FY 2015/16, 3.0
percent in the FY 2016/17 and 1.52 percent in the FY 2017/18.
Whereas the average percentages of WIP materials in total
inventory in overall study period is 3.26 percent. Similarly,
average inventory of WIP materials in overall study period is Rs.
7.68 millions.
v. From above table, it is observed that the portion of finished goods
on total inventory during the study period is 29.8 percent in the FY
2013/14, 28.59 percent in the FY 2014/15, 35.29 percent in the FY
2015/16, 30.13 percent in the FY 2016/17 and 32.13 percent in the
FY 2017/18. Whereas the average percentage of finished goods
inventory in total inventory in overall study period is 31.19
percent. Similarly, average inventory of finished goods in overall
study period is Rs. 73.26 millions.

23
vi. The average percentage of net profit in total inventory in overall
study period is 48.86 percent. Similarly, average inventory of net
profit in overall study period is Rs. 106.9 millions.
vii. It is clearly seen the percentage of total cost of 'B' items is
comparatively high but per ton cost is less than 'A' items and more
than 'C' items. In order to minimize the inventory cost 'A' items
should be paid more attention than 'C'. 'B' lies in between times 'A'
and 'C'. It requires neither careful nor simple but a moderate
control system is adequate for this items.
viii. From the above table, it is found that coefficient of correlation
between Inventory and net profit of Gorkha Brewery Pvt. Ltd. is
0.25. It is shows that GBPL has the low positive degree
relationship between these two variables. Moreover, the coefficient
of determination of GBPL is 0.0625. It refers that 6.25 percent
variance in inventory are affected by net profit. The correlation
coefficient of is insignificant because the correlation coefficient is
less than the relative value of 6PE.
ix. It is found that coefficient of correlation between sales and net
profit of Gorkha Brewery Pvt. Ltd. It is 0.396. It is shows that
GBPL has the low positive degree relationship between these two
variables. The correlation coefficient of is insignificant because the
correlation coefficient is less than the relative value of 6PE.
x. Coefficient of correlation between sales and gross profit of Gorkha
Brewery Pvt. Ltd. is 0.48. It is shows that GBPL has the moderate
positive degree relationship between these two variables. The
correlation coefficient of is insignificant because the correlation
coefficient is less than the relative value of 6PE.
xi. The relation between sales and operating expenses of Gorkha
Brewery Pvt. Ltd. is 0.897. It is shows that GBPL has the high
degree positive relationship between these two variables. The
correlation coefficient of is significant because the correlation
coefficient is greater than the relative value of 6PE.
xii. It is found that coefficient of correlation between inventory and
gross profit of Gorkha Brewery Limited is 0.011. It is shows that
GBPL has the very low positive degree relationship between these
24
two variables. The correlation coefficient of is insignificant
because the correlation coefficient is less than the relative value of
6PE.

25
 CHAPTER-III
SUMMARY AND CONCLUSION
3.1 Summary
The problems identification of the problems and setting objectives of the
study which is to identify the inventory management system of Gorkha
Brewery Private Limited. In this study an attempt has been made to identify
the inventory position of GBPL, to know the relationship between sales,
inventories, current assets, gross profit, operating expenses, etc. To assess
the inventories on profit of GBPL and suggests over the better practice of
inventory management of GBPL.
Therefore, all these function lead to increase total cost of the company. All
the collected data are analyzed on the basis of inventory management with
the help of ABC analysis. It is observed that the portion of WIP material
total inventory during the study period 4.22 percent in the FY 2013/14, 4.36
percent in the FY 2014/15, 3.19 percent in the FY 2015/16, 3.0 percent in
the FY 2016/17 and 1.52 percent in the FY 2017/18.
Whereas the average percentages of WIP materials in total inventory in
overall study period is 3.26 percent. Similarly, average inventory of WIP
materials in overall study period is Rs. 7.68 millions. It is observed that the
portion of finished goods on total inventory during the study period is 29.8
percent in the FY 2013/14, 28.59 percent in the FY 2014/15, 35.29 percent
in the FY 2015/16. 30.13 percent in the FY 2016/17 and 32.13 percent in the
FY 2017/18. Whereas the average percentage of finished goods inventory in
total inventory in overall study period is 31.19 percent. Similarly, average
inventory of finished goods in overall study period is Rs. 73.26 millions.
The average percentage of net profit in total inventory in overall study
period is 48.86 percent. Similarly, average inventory of net profit in overall
study period is Rs. 106.9 millions.

3.2 Conclusion

GBPL is a manufacturing company Nepal. Therefore, required raw material

(chemicals and sprits) and WIP materials are imported from India. Inventory
constitutes the higher proportion then that of other items of current assets.
The average value of inventory is satisfactory during the study period. The

26
raw materials on total inventory during the study period also good positions.
Similarly, it is observed that the average portion of finished goods on total
inventory during the study period is around above thirty percent and average
inventory of finished goods in overall study period is more than one third
millions.

The net profit in total inventory in overall study period is satisfactory and
inventory of net profit in overall study period is over the hundred millions.

The relation between sales and gross profit to study is in increasing trend.
Which indicates company's profitability is growing i.e. profitability is round.
The relation between sales and operating expenses are to study the
profitability i.e. operating profit of the company. The average packaging
material turnover ratio is higher in the second last of the study period and
ratio is lower in starting periods over the study periods. It is clearly seen the
percentage of total cost of 'B' items is comparatively high but per tone cost is
less than 'A' items and more than 'C' items. In order to minimize the
inventory cost 'A' items should be paid more attention than 'C'. 'B' lies in
between times 'A' and 'C'. It requires neither careful nor simple but a
moderate control system is adequate for this items.

It is found that coefficient of correlation between Inventory and net profit of

Gorkha Brewery Limited is low positive degree relationship between these
two variables. The correlation coefficient of is insignificant because the
correlation coefficient is less than the relative value of 6PE.

27
 BIBILIOGRAPHY

Agrawal , G. R. (2009). Inventory Management and Control Techniques.

CEDA. T.U. Paper Presented in Training Work Shop on Project

Analysis and Management.

Bhandari, P. R. (2017) Inventory management: A case study of Unilever

Nepal Limited. Kathmandu: An Unpublished BBS Report Submitted
to T.U.

Gaire, A. K. (2017). Inventory management: A case study of Royal Drug

Ltd. Kathmandu: An Unpublished BBS Report Submitted to T.U.

Jain, S. P. and Narang, K. L. (2011). Cost Accounting. New Delhi: Kalyani

Publishers.

Joshi, P. R. (2010). Research Methodology. Kathmandu: Buddha Academic

Publishers and Distributors Pvt. Ltd.

Khan, M.Y. and Jain, P.K. (2012). Financial Management. New Delhi: Tata
McGraw Hill Co. Ltd.

Laughin, E.J. (2000). Financial Management. Kansas State University.

Pandey, I.M. (2010). Financial Management. New Delhi: Vikas Publishing,

House Pvt. Ltd.

Pradhan, R.S. (2009). Research in Nepalese Finance. Kathmandu: Buddha

Academic Publisher and Distributors Pvt. Ltd.

28
 Appendix A
Correlation between Inventory and Net Profit
FY Inventory( Net Profit X2 Y2 XY
X) (Y)
2013/14 355.66 98.65 126490.69 9731.82 35085.40
2014/15 174.80 94.52 30553.85 8934.03 16521.77
2015/16 152.59 102.34 23284.65 10473.48 15616.38
2016/17 222.91 106.54 49687.17 11350.77 23748.43
2017/18 278.01 132.45 77289.34 17543.00 36822.37
ƩX= ƩY= ƩX2= ƩY2= ƩXY=
1183.96 534.50 307305.71 58033.10 127794.35
Source: Annual report of GBPL
Correlation between Inventory (x) Net profit (y) is 'r'.

NƩXY − Ʃx . Ʃy
r=
√ NƩ X 2−¿ ¿ ¿
r =0.25
r 2=0.0625

1−r 2
PE=0.6745
√N

PE=0.419

6 PE=2.516

29
 Appendix B
Correlation between Sales and Net Profit

FY Sales (X) Net X2 Y2 XY

Profit
(Y)
2013/14 1540.99 98.65 2374650.18 9731.82 152018.66
2014/15 1236.05 94.52 1527819.60 8934.03 116831.45
2015/16 1244.57 102.34 1548954.48 10473.48 127369.29
2016/17 1524.90 106.54 2325320.01 11350.77 162462.85
2017/18 1481.56 132.45 2195020.03 17543.00 196232.62
ƩX= ƩY= ƩX2= ƩY2= ƩXY=
7028.07 534.50 9971864.31 58033.10 754914.87
Source: Annual report of GBPL

Correlation between Sales (x) Net profit (y) is 'r'.

NƩXY − Ʃx . Ʃy
r=
√ NƩ X 2−¿ ¿ ¿
r =0.396
r 2=00.157

1−r 2
PE=0.6745
√N

PE=0.377

6 PE=2.263

30
 Appendix C
Correlation between Sales and Gross Profit
FY Sales (X) Gross X2 Y2 XY
Profit (Y)
2013/14 1540.99 387.39 2374650.18 150073.80 596969.66
2014/15 1236.05 360.97 1527819.60 130297.32 446173.51
2015/16 1244.57 485.92 1548954.48 236122.04 604766.31
2016/17 1524.90 672.51 2325320.01 452264.19 1025504.25
2017/18 1481.56 657.93 2195020.03 432865.83 974755.96
ƩX= ƩY= ƩX2= ƩY2= ƩXY=
7028.07 2564.72 9971864.31 1401623.17 3648169.68
Source: Annual report of GBPL
Correlation between Sales (x) Gross profit (y) is 'r'.

NƩXY − Ʃx . Ʃy
r=
√ NƩ X 2−¿ ¿ ¿
r =0.48
r 2=0.2304

1−r 2
PE=0.6745
√N

PE=0.344

6 PE=2.065

Appendix D

31
 Correlation between Sales and Operating Expenses
FY Sales Operating X2 Y2 XY
(X) Exp. (Y)
2013/14 1540.99 1724.73 2374650.18 2974707.37 2657797.85
2014/15 1236.05 1406.38 1527819.60 1977913.14 1738359.71
2015/16 1244.57 1344.33 1548954.48 1807234.44 1673118.02
2016/17 1524.90 1614.84 2325320.01 2607714.04 2462472.26
2017/18 1481.56 1492.29 2195020.03 2226938.40 2210921.62
ƩX= ƩY= ƩX2= ƩY2= ƩXY=
7028.07 7582.59 9971864.31 11594507.39 10742669.45

Source: Annual report of GBPL

Correlation between Sales (x) Operating Expenses (y) is 'r'.

NƩXY − Ʃx . Ʃy
r=
√ NƩ X 2−¿ ¿ ¿
r =0.897
r 2=0.804
1−r 2
PE=0.6745
√N

PE=0.087
6 PE=0.524

Appendix E
Correlation between Inventory and Gross Profit

32
 FY Inventory Gross X2 Y2 XY
(X) Profit (Y)
2013/14 355.66 387.39 126490.69 150073.80 137778.59
2014/15 174.80 360.97 30553.85 130297.32 63095.84
2015/16 152.59 485.92 23284.65 236122.04 74148.63
2016/17 222.91 672.51 49687.17 452264.19 149905.73
2017/18 278.01 657.93 77289.34 432865.83 182909.58
ƩX= ƩY= ƩX2= ƩY2= ƩXY=
1183.96 2564.72 307305.71 1401623.17 607838.37
Source: Annual report of GBPL
Correlation between Inventory (x) Gross profit (y) is 'r'.

NƩXY − Ʃx . Ʃy
r=
√ NƩ X 2−¿ ¿ ¿
r =0.011
r 2=0.00012
1−r 2
PE=0.6745
√N

PE=0.447
6 PE=2.683

33
 Appendix F
Questionnaires of HDL for the Purpose of Study on inventory
management
1. The inventory management and control system followed by GBPL
are:
A. Inventory management through ABC analysis [ ]
B. Perpetual inventory management system (physical checking) [ ]
C. Determination of optimal stock level (EOQ) [ ]
D. If other, please specify:……….
2. In application of ABC analysis specify the name of inventories (raw
materials, work in progress, finished goods and spare parts) according
to purchasing cost, manufacturing cost and selling price.
(High cost low price)
S.N. Raw Material Work in Progress Finished goods Spare parts
1
2
3
4
5
6
7
3. For determining economic order quantity, which and how much
components and the expenses were incurred as ordering and carrying
cost?
Ordering Cost:
S.N. Components of Costs Amount (Rs)

34
Carrying cost:
S.N. Component of Cost Amount (Rs.)
A
B
C
D
E
F
4. what are the purchasing procedure of Gorkha Brewery Private
Limited?
A. Centralize and Purchasing [ ]
B. Decentralized Purchasing [ ]
5. The store control technique used by Gorkha Brewery Private Limited.
A. Bin Card [ ]
B. Store ledger [ ]
6. What are the methods used by Gorkha Brewery Private Limited for
valuation of inventories?
A. Weighted average cost method [ ]
B. First in first out method (FIFO) [ ]
C. Last in last out method (LIFO) [ ]
D. Special identification method [ ]
E. Average cost method [ ]
F. Latest purchase price [ ]
7. Please specify the problem faced by the Gorkha Brewery Private
Limited company while managing inventories?

35