Anbessa Shoe Factory PAPER FINAL

CPU BUSINESS AND INFORMATION TECHNOLOGY COLLEGE
SCHOOL OF GRATUATE STUDIES
SUBMITTED TO CPU BUSINESS AND INFORMATION

TECHNOLOGY COLLEGE SCHOOL OF GRATUATE STUDIES IN
PARTIAL FULFILMENT OF BUSSINESS RESEARCH METHOD
ASSESMENT OF INVENTORY MANAGEMENT PRACTICE, CASE

STUDY ANBESSA SHOE FACTORY, ETHIOPIA
BY
ABEBA ALEM – EMBA2382/14
BETHLEHEM GETACHEW – EMBA2383/14
ZEHAB SHEMSU – EMBA2019/14
SARA KIFLE – EMBA2907/14
SEWAGEGNEHU TAMENE -- – EMBA2908/14
BESUFIKAD YITBAREK -- – EMBA2357/14
Submitted to: Dr. ADEM (MED)
ADDIS ABABA, ETHIOPIA

ASSESMENT OF INVENTORY MANAGEMENT
PRACTICE, CASE STUDY ANBESSA SHOE FACTORY,
ETHIOPIA
TABLE OF CONTENTS
TABLE OF CONTENTS I
AKNOWLEDGEMENT II
ABSTRACT III
ABBREVIATIONS IV
1. INTRODUCTION 1
1.1. BACKGROUND OF THE STUDY 1
1.2. BACKGROUNG OF THE ORGANIZATION 1
1.3. STATEMENT OF PROBLEM 1
1.4. OBJECTIVE OF THE STUDY 2
1.5. RESEARCH QUESTION 2
1.6. SIGNIFICANCE OF THE STUDY 4
1.7. SCOPE OF THE STUDY 4
1.8. ORGANIZATION OF THE STUDY 4
2. RESEARCH METHODOLOGIES 5
2.1. RESEARCH DESIGN 5
2.2. TARGET POPULATION 5
2.3. SAMPLE SIZE AND SAMPLING TECHNIQUE 5
2.4. METHOD OF DATA COLLECTION 5
2.5. DATA AND DATA SOURCE 6
2.6. DATA COLLECTION INSTRUMENT 6
2.7. METHOD OF DATA ANALYSIS 6
3. DATA PRESENTATION, INTERPRETATION AND ANALYSIS 7
3.1. DATA ANALYSIS 6
3.2. INTERVIEWS 6
4. SUMMARY, CONCLUSION AND RECOMMENDATION 25
4.1. SUMMARY OF THE MAJORE FINDINGS 25
4.2. CONCLUSION 26
4.3. RECOMMENDATION 27
REFERENCE
AKNOWLEDGEMENT
Completion of this work is attributed to support received from various sources which we
wish to sincerely thank. First and for most to our Almighty God for his grace, faithfulness
and guidance that enabled us to cope with challenges of academic life.
Sincere gratitude to our Teacher, Dr. Adem (PHD) for his proper and continuous guidance
throughout this research and study.
We are greatly indebted to the staff of the Anbessa shoe factory, especially Ato Habtamu
Geremew and Ato Lidetu who helped us a lot on detailed explanation and providing
information as well as data reductions.
We are very much thankful for our best friends and classmates for their meaningful support
during our research.
ABSTRACT
The study is intended to investigate the problem of the inventory management practices and
controlling system of Anbessa shoe factory. The concept and the definition of inventory
management and control system will be discussed and the factory that affects inventory
management will also be listed out. The data for the study will be collected by distributing
questionnaires to Manager and non-manager of Anbessa shoe factory employees and the
rest information will be collected through interviewing some top management of the
company. The systematic random sampling technique will also be applied. The respondents
will be expected to be selected by their identification card given from the company until the
required sample sizes will be obtained and as per the willingness of the workers. After we
get the sample size the participants will be asked to fill the questionnaires. After collecting
the properly filled data were we will analyze the data and reach a result presented in tables
and simple graphs. Finally, we will give our conclusion and recommendation at the end.
ABBREVIATIONS
S.C Share company
Pr. Ltd Co. Private Limited company
Co Company
Acct Accounting
ASSESMENT OF INVENTORY MANAGEMENT PRACTICE, CASE STUDY ANBESSA
SHOE FACTORY, ETHIOPIA
2022
1.
1
ASSESMENT OF INVENTORY MANAGEMENT PRACTICE, CASE STUDY
ANBESSA SHOE FACTORY, ETHIOPIA 2022
CHAPTER ONE
1. INTRODUCTION
1.1. BACKGROUND OF THE STUDY
In all cases resources are mostly scarce; organization that is making profit is expected to
know how to use these resources efficiently and effectively. The inventory monitoring
system of a company is accountable for these practices, in order to precede the operation of
the company throughout the production time the owners have to practice the principles &
rules to succeed on materials production and sale. Since it improves inventory management
practices within the organization, it will help to resolve utilization of resources for
unauthorized reason and also helps to maintain necessary material when it is necessary for
production and selling. It enables the interaction of different departments within the
company. For example, the marketing division will continue it selling activities if products
are available when they are demanded on the market. Accessibility of production is also
entirely dependent on timely supply of raw material and supplies.
In addition appropriate inventory management avoids unnecessary carry cost and shortage of
materials by indicating inventory level. It helps to avoid costs incurred when the price of
material increases due to shortage of material and shortage of transportation.
This study was made to asses weather the Anbessa Shoes S.C manages its inventory based on
scientific method and to know how proper inventory control maximize quality of product and
profitability. The company engages in the production of shoes it used leather, sole as a raw
material. The company imports raw materials from abroad and purchase from local market.
The reason why we selected the company for our study is easy to get information.
1.2. BACKGROUND OF THE ORGANIZATION
Anbessa shoe Share Company was established in 1935 making us the

oldest shoe manufacturing businesses in Ethiopia. We are committed to strive our local and
foreign customers by providing a wide selection of shoes made from pure leather and by
producing 4,500 pairs of shoes per day. Having started by providing to local customer needs,
2
Anbessa now has an international market base with globally renowned brands like J.Crew,
DSW, Imex, SAWA, G.H.Bass Co., Harbor etc ... Throughout the years; Anbessa has gone
through different owner ships and brands leading to today’s globally known private
company. The company has maintained its’ reputation of producing comfortable, affordable
and durable shoes and is now increasing the quality of its shoes by adding the value of
cutting edge design and style. [2]
1.3. STATEMENT OF THE PROBLEM
Flow control of materials requires a proper handling operations and physical distribution in
many stages of its production operation and after words. Inventory is a major cost centers,
materials management must ensure that materials are physically distributed at the right time
with a minimum of handling and maintaining the physical flow of materials in continuous
fashion.
An organization is a living system, both socio economic and socio technical, a coalition of
individuals and groups for maintain and improvement of interests. In such a system, the
efficiency and economy of transfer and conversion of input to output are of paramount
importance for optimum economic result.
In many organizations cost and materials constitute a large portion for production the case is
true for Anbessa Shoe factory S.C. This indicates that the inventory control management
should be given the most priority. The nature of inventory management control in Anbessa
Shoe S.C is not effective and efficient as it regards to be.
1.4. OBJECTIVE OF THE STUDY
1.4.1. General objective

In general, the objective of this research is to investigate the general inventory management
and control systems of the organization so as to provide some suggestions on that should
look like.
1.4.2. Specific objective
The specific objectives of this study are presented as follows:
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 To assess the proper treatment of special inventory recording issues to determine
accurate inventory balance to be appeared in financial report.
 To study the way that the company manage its inventory costs to formulate a business
strategy such as proper pricing that enables to generate sufficient profit and stay
competitive.
 To assess the application of cost flow assumptions and inventory system use to record
and determine inventory value and there appropriateness.
1.5. RESEARCH QUESTION
 What could be done to improve the overall effectiveness of the company

inventory practice?
 This study tries to give answer to the following basic research questions.
 Is the information system adopted by Anbessa Shoe factory S.C. adequate
for assessing inventory management practices?
 How does Anbessa Shoe factory S.C. internally control its inventory
management
system?
 How inventory management system contributes to the Anbessa Shoe
factory S.C. operational activities?
 What method or technique does Anbessa Shoe factory S.C. used in
determining material needs of its customers?
 What are the problems of inventory management system at Anbessa Shoe
factory S.C.?
1.6. SIGNIFICANCE OF THE STUDY
Doing a research has its own reason or significance in which it contributes for the
improvement of resolving problems of the company.
This study would be significance to inform the corporation about its strength and weakness
on the existing system and the possible suggestions may contribute to the company to
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manage its resources properly and correct its problems using the outputs of this paper. It also
will help us to develop research skills and, also the research paper can be used as base for
further research.
Inventory accounting system plays an important role in achieving organizational goal such as
profitability and effective and efficient use of resources by providing accurate and timely
information about inventories which covers a significant portion of company’s asset.
This research work has a significant importance to improve the efficiency of inventory
accounting system of the organization such as:
 It improves productivity and enhance just in time purchasing and manufacturing.
 It identifies major challenges for the application of inventory accounting system and
list out alternative course of actions to overcome those challenges.
 It initiates and provides direction to conduct further research and development
works.
 It helps as a reference material for those who are interested to make future study.
1.7. SCOPE OF THE STUDY
The study focused on the assessment of inventory management practices of

Anbessa Shoe factory S.C. The subject of inventory management is vast in its nature
however this study concentrated on issues related with information technology,
contribution, problems, methods and internal controls of inventory management system.
1.8. LIMITATION OF THE STUDY
The limitations occurred during the time of research study are:

1. Time and financial constraint to go sufficient days and collected the data in detail.
2. The interviewees and our time did not much.
3. Some staff members were not willing to give the required information because of
carelessness or personal reasons.
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1.9. ORGANIZATION OF THE STUDY
The study was organized into five chapters. The first chapter concerned with the Background
of the study, statement of the problem, Objectives of the Study, significance of the study,
chapter two concerned with the Literature review, chapter three methodology of the study,
Chapter four result and discussion and Chapter five conclusion and recommendation.
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CHAPTER TWO
2. LITRATURE REVIEW
2.1. INVENTORY
2.1.1. Nature of Inventories
Inventories consist of goods held for sale to customers, partially completed goods and
material and supplies to be used in production. Inventory items are acquired and sold
continuously by a merchandising enterprise or acquired, placed in production, converted to
finished product, and sold by a manufacturing enterprise (Horngren, 2011; 122).
The sale of merchandise or finished product is the primary source of revenue for most non
service business enterprise (Horngren, 2011; 177).
In retail or merchandising operation, inventories consist principally or products purchased for
resale in their existing form. A retail enterprise also may have an inventory of supplies such
as wrapping paper cartons and stationery. A manufacturing enterprise has several types of
inventories: material, parts, and factory supplies, goods in process; and finished goods
(Horngren, 2011; 233).
Material and parts are basic commodities or other products obtained directly from natural
resources or acquired from other, which will be incorporated physically into the finished
product, but their relation to the end product is indirect .Goods in process consists of partially
completed products and includes the cost of direct material , direct labor and factory
overhead. Finished goods are items that are complete and ready for sale and include the same
cost elements as those in goods in process (Horngren. etal, 2011; 236).
2.1.2. INVENTORY PROCEDURES
Two methods may be employed to ascertain the inventory quantities on hand. The periodic
system and the perpetual system. Both systems may be employed simultaneously for various
inventories, such as material, finished goods and goods in process. (Mosich, 1989; 178)
2.1.2.1. THE PERIODIC INVENTORY SYSTEM:
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Relies on a physical count of the goods on hand as base for control, management decisions
and financial accounting. Although this procedure may give accurate result on a specific
date, there is no continuing record of the inventory (Mosich, 1989; 179).
2.1.2.2. THE PERPETUAL INVENTORY SYSTEM
Requires a continuous record of all receipts and withdrawals of each items of inventory. The
perpetual record sometimes is kept in terms of quantities only. This procedure provides a
better basis for control than is obtained under the periodic system. When the perpetual
system is used, a physical count of the goods owned by the business enterprise must be made
periodically to verify the accuracy of the inventories reported in the accounting records. Any
discrepancies discovered must be corrected so that the perpetual inventory records are in
agreement with the physical count. (Mosich, 1989; 180)
2.1.3. TYPES OF INVENTORY
There are two types of inventory and those are merchandising and manufacturing.
I. Merchandise Inventory:
If you buy items from other artists and Crafters to sell in your own gallery of shop, you will
have a merchandise inventory; remember though – any items in your shop on consignment
are not part of your inventory.
II. Manufacturing inventory:
If you make your own arts and crafts, you will have a manufacturing inventory. The term
manufacturing might not seem to fit a hand craft type of business, but a quick review of the
classification within the term, will make the relationship clearer.
A manufacturing inventory consists of three different parts: raw materials, work in process
and finished goods. Using leather crafting business as our sample craft company, here are
definitions and example of the three.
a. Raw materials
Everything the crafter buys to make the product is classified as raw materials. That includes
leather, dyes, snaps and grommets. The raw material inventory only includes items that have
not yet been put into the production process.
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b. Work in process
This includes all the leather raw materials that are in various stages of development. For the
leather crafting business, it would include leather pieces cut and in the process of being sewn
together and the leather belts and purse etc. that are partially constructed. The work in
process inventory includes the cost of the labor directly doing the work and manufacturing
overhead. Manufacturing overhead is costs that are indirectly related to making the product.
c. Finished goods
Items those are ready to sell. The finished of goods inventory also consists of the cost of raw
material, labor and manufacturing overhead, now for the entire product. (Source: Maire
Loughran/Art leraft business guide. arts and crafts.about.com/ed/…/at/fourtypesin
ventory.htm)
2.1.4. COST FLOW ASSUMPTIONS
The term flow refers to the inflow of costs when goods are purchased or manufactured and to
the out flow of costs when goods are sold. The cost remaining in inventories is the difference
between the inflow and outflow of costs. During a specific accounting period, such as a year
or a month identical goods may be purchased or manufactured at different costs. Accountants
then face the problem of determining which costs apply to items in inventories and which
apply to items that have been sold. (Mosich, 1989; 203)
A major objective of accounting for inventories is the proper determination of income
through the process of matching appropriate costs against revenues.(Mosich, 1989; 199)
Cost for inventory purpose may be determined under any one of several assumptions as to
the flow of cost factors (such as first-in, first-out, average and last-in, first-out); the major
objective in selecting a method should be to choose the one which, under the circumstance,
most clearly reflects periodic income. (Mosich, 1989; 203)
The assumed flow of cost to be used in the assignment of costs to inventories and to goods
need not conform to the physical flow of goods. Cost flow assumptions relate to the flow of
costs, rather than to the physical flow of goods. The question of which physical units of
identical goods were sold and which remain in inventories is not relevant to income
measurement and inventory valuation (Mosich, 1989; 223).
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All method of inventory valuation are based on the cost principal, no matter which method is
selected, the inventory is stated at cost. In selecting an inventory valuation method (or cost
flow assumption), accountants are matching costs with revenue, and the idea choice is the
method that “most clearly reflects periodic income.”(Mosich, 1989; 247)
The most widely used method of inventory valuations are:
i. First-in, first-out method (FIFO)
ii. Last-in, first –out method (LIFO)
iii. Weighted-average method
iv. Specific identification method
A recent survey of 600 corporate annual reports indicates that FIFO was used by 366
companies; LIFO was used by 480 companies; average cost was used by 235 companies and
52 companies applied a variety of other method to the valuation of inventories. Obviously,
many of the companies include in the survey used more than one method (Mosich, 1989;
250).
i. First-in, first out method
The first in first-out method assumes a flow of costs based on the assumption that the oldest
goods on hand are sold first. This assumption about cost flow generally conforms to reality,
management usually finds it desirable to keep the oldest good moving out to customer in
order to keep fresh or new goods on hand. The method is systematic and is easy to apply it
adheres to the 14 cost principle and the cost assigned to inventories likely to be in close
harmony with the current prices being paid for inventory replacements. (Mosich, 1989; 279)
ii. Last in first-out method
The last-in first-out method assume a flow of inventory costs based on the assumption that
the most recently purchased goods are sold first, because current costs are incurred to make
current sales and to maintain adequate inventories on hand. Under this view, the latest costs
are most closely associated with current revenues thus, the latest costs are most closely
associated with current revenues thus, and the matching principle of income measurement is
carried out. In the
balance sheet, inventories under the LIFO method are valued at the earliest costs
incurred.(Mosich,1989; 290)
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iii. Weighted-average method

The weighted-average method of inventory valuation is based on the assumption that all
goods are commingled and that no particular batch of goods is retained in the inventories.
Thus the inventories are valued on the basis of average prices paid for the goods. Weighted
according to the quantity purchased at each price. (Mosich, 1989; 342)
This method produces a result, for both inventory valuation and income measurement that
lies between the results achieved under fifo and those achieved under lifo. The weighted-
average method does not produce on inventory value consistent with the current cost of the
items in inventory, by its nature it lags behind market prices. During a period of rising prices
the inventory costs tends to be below replacement costs during a period of falling prices it
tends to be above replacement cost. (Mosich, 1989; 344)
When the perpetual inventory system is used, the weighted-average method gives the result
of a moving weighted average under the perpetual system, anew weighted-average unit costs
is computed after each purchase and for their reason is known as the moving-weighted-
average method. Unit sold are priced at the latest weighted average unit cost (Mosich, 1989;
351) 15
iv. Specific identification method
At first thought one might argue that each item of inventory should be identified with its
actual cost and that the total of these among should constitute the inventory value. Although
such a technique might be possible for a business enterprise handling a small number of
items. For example, an automobile dealer, it becomes completely inoperable in a complex
manufacturing enterprise when the identity of the individual item is lost. Practical
considerations this makes a specific identification in an appropriate in most cases (Mosich,
1989; 366).
Even when specific identifications a feasible means of valuation, it may be undesirable from
a theoretical point of view. The method permits in come manipulation when there are
identical items acquired at varying price. By choosing to sell the item that was acquired at a
specific cost, management may cause material distortions in income (Mosich, 1989; 383).
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2.1.5. INVENTORIABLE AND PERIOD COSTS
The purpose of inventory accounts is to collect and store all costs that can be attached to the
product- that’s why they are called product costs. Then, in the period when the product is
sold, total product. Cost is released against income as cost of goods sold. Then, and then, is
the cost deducted from revenue.
In contrast, all non-product costs are related immediately. That’s because they can’t be
associated with specific products. Because non-product costs are realized in the time period
for which they are incurred, they are commonly referred to as period cost. Period costs are
never found in inventories (Charles, 2001; 197).
2.1.5.1. Inventoriable costs
Inventor able costs are all costs of a product that are regarded as assets when they are
incurred and then become costs of goods sold when the product is sold. For manufacturing
sector companies, all manufacturing costs are inventor able costs. Costs of direct material
issued to production from direct material inventory, direct manufacturing labor costs, and
indirect manufacturing costs create new assets,
beginning as work in process and becoming finished goods. Hence manufacturing costs are
included in work-in process inventory and in finished goods inventory (they are
“inventoried”) to accumulate the costs of creating these assets. When finished goods are sold,
the cost of manufacturing the goods sold is matched against the revenues from the sale. The
cost of goods sold includes all manufacturing costs (direct materials, direct manufacturing
labor, and indirect manufacturing costs) incurred to produce the goods sold. Finished goods
may be sold during a different accounting period than the period in which the goods were
manufactured. Thus inventorying manufacturing costs during the period when they were
manufactured and expensing the manufacturing costs of goods sold later when revenues are
recognized achieves matching of revenues and expenses (Horngren. etal, 2011; 212)
2.1.6. PRIME COSTS AND CONVERSION COSTS
Two terms used to describe costs classification in manufacturing costing system are prime
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costs and conversion costs.
i. Prime costs
Prime costs are all direct manufacturing costs. As information gathering technology
improves, companies can add more and more direct-cost categories. For example, power
costs might be 18 metered in specific areas of a plant that are dedicated totally to the
manufacture of separate product. In this case, prime costs should include direct materials,
direct manufacturing labor, and direct metered Power (assuming there are already direct
materials and direct manufacturing labor categories).
Computer software companies often have a “purchased technology” direct manufacturing
cost item. This item, which represents payments to suppliers who develop software
algorithms for product, is also included in prime costs.
ii. Conversion costs
Conversion costs are all manufacturing costs incurred to convert direct materials costs
(Horngren. etal, 2011; 144).
Some manufacturing companies use conversion costs to simplify the accounting.
They have only two classifications of costs: direct material costs and conversion costs. For
these companies, all conversion cost are indirect manufacturing costs .an example is costing
systems in computer integrated manufacturing (CIM) plants. CIM plants have very few
workers. The workers role is to monitor the manufacturing process and maintain the
equipment that produces multiple products. Costing system in CIM plants do not have a
direct manufacturing labor cost category because direct manufacturing labor costs are small
and because it is difficult to trace these costs to products. ( Horngren . etal , 2011)
iii. Period cost

Period costs are all costs in the income statements other than costs of goods sold. Period
costs are treated as expenses of the period in which they are incurred because they are
expected to benefit revenues in the current period and not expected to benefit revenues in
future period (perhaps because there is not sufficient evidence to conclude that such benefit
exists). Expensing these costs in the current period matches expenses to revenues.(Horngren.
etal, 2011; 319)
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For manufacturing-sector companies, period costs (for example, design costs and distribution
costs). For related to the cost of goods purchased for resale. Example of period costs are
labor costs of sales floor personnel and marketing costs. Because there are no inventoriable
costs for service-sector companies, all their costs in the income statement (Horngren. etal,
2011; 209).
2.1.7. SCRAP MATERIALS
These are rejections from production process, which cannot be used anymore and are to be
thrown away. Similarly, old, broken parts, rejects, cut pieces of iron sheets, angle iron,
gaskets, insulation materials etc., are generated during maintenance and repair works. These
materials are removed from the place of work and dumped in the scrap yard. Some of these
materials are very useful for small jobs or can be reprocessed for other works. (Psaxena,
2003; 58) 19
For example, damaged tyres are a good source of heat generation as they can be burnt in a
furnace. Batteries, rejected of damaged, can be a useful source; its battery case can be taken
out for making the re-conditioned battery. Similarly, shafts can be recovered from scrapped
pumps. They are likely to be in good condition for uses in repair of other pumps are period
costs.(J. Psaxena, 2003)
Accounting for scrap
Scrap is material left over when making a product, it has low sales value compared with the
value of the product no distinction is made between normal and abnormal scrap because no
cost is attached to scrap.
The only distinction made is between scrap attributable to specific job and scarp common to
all jobs. (Horngren. etal, 2011; 89)
There are two aspects of accounting for scarp:
I. Planning and control, including physical tracing.
II. Inventory costing including when and how it affects operating income.
Initial entries to scrap records are commonly in physical terms. In various industries, items
such as stamped out of metal sheets or edges of molded plastics parts are qualified by
weighting, counting or some other expedient means. Scrap records not only help measure
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efficiency, but they also help keep track of scrap and so reduces the chances of theft. Scrap
reports are prepared as source documents for periodic summaries of the amount of actual
scrap compared with the budgeted or standard amounts.
Scrap is either sold or disposed or quickly or stored for later sale, disposal or reuse a careful
tracking of scrap often extends into the accounting records. Surveys indicate that 60% of
companies maintain a distinct account for scrap costs somewhere in their accounting system
(Horngren. etal, 2011; 93).
a) Recognizing scraps at the time of its sale
When the dollar amount of scrap is immaterial, the simplest accounting is to make annotation
at the quantity of scrap returned to the store room and to regard scrap sales of a separate line
item of other revenues in the income statement. The only journal entry is:
Sale of scrap Cash or Account Receivable _____ xxxxxx
Scrap Revenues _______ xxxxx
When the dollar amount of scrap is material and the scrap is sold after it is produced, the
accounting depends on whether the scrap is attributable to specific job and common to all
jobs (Horngren. etal, 2011; 178).
b) Recognizing scraps at the time of its production
In this situation, the company inventories scrap at a conservative estimate of its net realizable
value so that production costs and related scrap revenues are recognized in the same
accounting period (Horngren. etal, 2011; 182).
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CHAPTER THREE
3. RESEARCH METHODOLOGY
3.1. RESEARCH DESIGN
This research employed a descriptive type of research design method. It contained a

qualitative and quantitative component that enables the researcher easily to assess the
inventory management system in case of Anbessa shoe factory.
3.2. TARGET POPULATION
The study focused on Anbessa Shoe factory S.C. and the target population was the
management and worker of the company in a total quantity of 250 workers. The sampling is
briefly discussed in section 3.3 below.
3.3. SAMPLE SIZE AND SAMPLING TECHNIQUES
The study target population consist members of the company’s production staff, material
store staff, finance staff, purchasing staff, cost accounting staff and the general manager in
total 30 individuals in number, among this 5 were taken from management group and the rest
from the staff group, who would be selected by using purposive sampling technique.
3.4. METHOD OF DATA COLLECTION
The research team had collected the primary data by using the questionnaire which will be
prepared by both open ended and close ended questions. 35 copies of the questionnaires were
distributed and returned with full responses. And secondary data were observed from the
company’s procedural manuals and reports.
3.5. DATA AND DATA SOURCES
In this study both primary and secondary sources of data were implemented. Primary data
was collected by semi structured questionnaires and key informant interview. The secondary
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data were gathered from different books, research findings, and other various materials that
relevant to this study.
3.6. DATA COLLECTION INSTRUMENTS
Two types of data collection systems were used in these studies which are primary data
collection method and secondary data collection method. The data collection instruments
used to gather the necessary information for the study included interviewing, questionnaires,
and reviewing recorded data of the factory, different books, research findings, and other
various materials.
3.7. METHODE OF DATA ANALYSIS
The collected data are presented, analyzed and interpreted in chapter four. The team has
implemented descriptive method of analysis. The team has classified the collected data in to
different categories based on the measurement scale used by each question of the
questionnaire and present in table form. The frequency and percentage distributions of the
respondents’ responses are identified, for each question; and such tabulated data are analyzed
and interpreted under each table.
As far as data analysis is concerned, the collected data is analyzed by using a descriptive
analysis method using percentage and tabulation.
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CHAPTER FOUR
4. DATA PRESENTATION, INTERPRETATION AND ANALYSIS
In Many Organizations Cost and Materials constitutes a large portion of for

production the case is true for Anbessa Shoe S.C. The inventory of the company
constitute Raw materials, Work in process and Finished goods inventory this indicates
that the inventory control management should be given the most priority. The nature of
inventory management in Anbessa Shoe S.C is not effective and efficient as it regards to be.
There is an escalated cost of inventory management systems. This research will try to
explore and answer the following research questions.
1. What inventory methods/systems adopted in the company?

2. To what extent does the inventory system help the Organization?
a. In minimizing costs?
b. In timely availability of raw material for production?
c. In timely availability of products t the marketing?
d. In protecting materials and products from damage and waste?
3. Is there proper protection of inventories?
4. Is there Proper procedure for transfer of materials?
5. Does the company give consideration for scrap?
6. What could be done to improve the overall effectiveness of the company inventory practice?
4.1. DATA ANALYSIS
Questionnaire was distributed for 30 employees. The respondents were from production cost
and budget, property handling and supply, and sales and distribution departments.
Respondents were selected by the method of Judgmental random sampling technique. From
the above mentioned respondents 22 of them responded the questionnaire. This constitutes a
responsible ratio of 81%. In addition to this interview was also conducted with 4 managers.
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Table 4.1.1: General information of the respondents
DESCRIPTION NO OF RESPONDENTS PERCENTAGE

SEX
MALE 15 68.18%
FEMALE 7 31.82%
TOTAL 22 100%
EDUCATIONAL BACK GROUND
1-12 10 45.46%
DEPLOMA 8 36.36%
DEGREE 4 18.18%
TOTAL 22 100
SERVICE YEAR
1-10 14 63.63%
11-25 7 31.82%
26-42 1 4.55%
TOTAL 22 100%
As indicated on table 4.1.1 the sex of the respondents 15 (68.18%) are men and 7
(31.82%) are females. About educational back ground 10 (45.46% ) are 1-12 grade, 8
(36.36%) are diploma holders and 4 (18.18%) are degree holders. The respondent’s
service years are 14 (63.63%) respondents have 1-10 service years 7 (31.82%) of
respondents have 11-25 service years and 1 (4.55%) of then have 26-42 service years.
The above respondent’s educational and service year experience was enough to answer
the research questionnaire.
Table 4.1.2: Inventory control system
Description No of respondent percent

Does the company have a systematic Yes 22 100%
Inventory control? No
Total 22 100%
19
As indicted on the above table the respondents were asked if there is a systematic
inventory control. All the respondents answered yes this indicate that there is a
systematic inventory control in the company 100% of respondents answered yes. So there
is a systematic inventory control system updated on the company
Table 4.1.3: The inventory system

What system is used your computerized 2 9.1%
company to conduct inventory? Manual 6 27.27%
Both 14 63.63%
Total 22 100%
The data on the table has shown 2 (9.1%) of respondents replied as the company used
computerized inventory, 6 (27.27%) of the participants replied the company used manual to
conduct & 14 (63.63%) of the participant replied the company used both systems and
manage inventory counting system in its own affairs it indicates the firms uses primitive
traditional time wasting techniques to manage inventory. So still the company is not
controlling its inventory cost properly. Because of this the company is better to use
computerized system of inventory control as a huge & vast company.
Table 4.1.4: The type of inventory method

What type of inventory method does the FIFO 5 22.73%
company use? LIFO
WEIGHTED- 17 77.27%
AVERAGE
TOTAL 22 100%
As indicate in table 4.1.4. 5 (27.73%) of the participants replied as the company used FIFO
method, and the other 17(77.27 %) of the respondents agreed that the company used weighted-
average method inventory cost system. The company has only used the above mentioned
inventory methods (FIFO and weighted average system) properly, as stated by most
20
participants.
Table 4.1.5: Perpetual stock records.
Description No of respondent Percent

Are perpetual stock records Raw materials yes 22 100%
maintained for? no 0
Work in yes 18 81.82%
process no 4 18.18%
Finished yes 22 100%
goods no 0
TOTAL 22 100%
As indicated on table 4.1.5, the respondents were asked whether there is a perpetual records
maintained or not. For raw material inventory all respondents answered yes, for work in
process inventory 18 (81.82% ) of the respondents answered yes and 4 (18.18%) of the
respondents answered No and for finished Goods inventory all respondents answered
yes. This indicates that perpetual stock records are properly handled.
Table 4.1.6: have enough store places

Does the company have enough store Yes 17 77.27%
places to keep the inventory? No 5 22.73%
Total 22 100%
As can be seen from table 4.1.6, showing employees response on if the company have
enough storing place to keep the inventory, that 17 (77.27%) of the respondents strongly
agreed and the rest 5 (22.73%) of them disagreed regarding the company has enough store
place to keep its inventory. Based on the data obtained above majority of the respondents
believe that the company have enough ware house in order to keep its inventory.
21
Table 4.1.7: Participants response about inventory conducted

How often inventory is conducted in Monthly
your company? Quarterly 22 100%
Half year
Yearly
TOTAL 22 100%
Table 4.1.7 state that how often the company conduct inventory, from 22 Participants all of
the respondents agree on a point the firm conducts inventory accounting yearly.22 of the
participants agree on the fact with a real sense the time gap in which the firm conducts
inventory accounting is not to vast or narrow. It shows the firm has a well-balance time
duration to provide & access the required data, concerning the durations of inventory
accounting to be conducted for internal parties & external personalities in a more
contextualized and organized manner.
Table 4.1.8: Sections involved transferring inventories to production cycle.

How many sections involved to 2 section
production cycle? 3 section
4 section
5 section 22 100%
total 22 100%
As indicated on table 4.1.8 the respondents were asked how many sections does the
company use to transfer inventories to production cycle. All the respondents answer five
sections this indicates that the transfers of inventories are on a proper way.
22
Table 4.1.9: requisition and Issuance of material

Are all requisitions and issuance of materials Yes 20 90.91%
are Recorded by the company? No 2 9.09%
Total 22 100%
As indicated on table 4.1.9 the respondents were asked whether there is a proper
record of requisition and issuance of materials or not. 20 (90.91%) of respondents
answered yes and 2(9.09%) of the respondents replied no. This shows that there is a
proper record of a material requisition of issuance.
Table 4.1.10: Material purchase requisitions

Are requisitions for additional supplies based on the Yes 18 81.82%
regular review of minimum stock and recorded No 4 18.18%
level? Total 22 100%
As indicated on table 4.1.10 the respondents were asked whether supplies requisition
on the regular review of minimum stock and recorder level or not 18 (81.82%) of the
respondents answered yes and 4 (18.18%) of respondents replied no. this indicates that
requisition for additional supplies based on the regular review of minimum stock and
recorder level.
Table 4.1.11: Written instruction

Is their detailed written instruction for receiving Yes 21 95.45%
and Inspection of Raw materials and finished No 1 4.55%
goods? Total 22 100%
23
As can be seen on table 4.1.11 the respondents were asked whether there is a
detailed written instruction for receiving and inspection of raw materials and finished
goods. 21 (95.45%) of the respondents answered yes and 1 (4.55%) of the respondents
answered No. this shows is a detailed written instruction for receiving and inspection
of inventories.
Table 4.1.12: Stock safeguards or protection

Are stocks protected by adequate physical Yes 20 90.91%
safeguards and alarm etc? To prevent un No 2 9.09%
authorized removal or theft? Total 22 100%
As can be seen on table 4.1.12 the respondents were asked if there is adequate stock
protection like physical safeguards and alarm to prevent unauthorized removal. 20
(90.91%) of the respondents answered yes and 2 (9.09% ) of respondents answered no.
This shows the company has a proper protection of stocks.
Table 4.1.13 Stock records against physical existence

Are the stock records regularly reconciled against Yes 20 90.09%
actually physical existence? No 2 9.09%
Total 22 100%
As can be seen on table 4.1.13 the respondents were asked whether the stock records
regularly reconciled against the actually physical existence 20 (90.09%) of the
respondents answered yes and 2 (9.09%) of respondents answered No this indicates
that records and physical existence reconciled properly.
Table 4.1.14 Access to Stocks

24
Is Access of stocks restricted to Yes 22 100%
Authorized employees only? No
Total 22 100%
As indicated on table 4.1.14 the respondents were asked access of inventory whether
restricted to authorized personal or not 22 (100% )respondents answered yes only for
authorized employees.
Table 4.1.15 Physical control on scrap and waste

Is there an adequate physical control Yes 17 77.27%
exercised over saleable scrape, waste No 5 22.73%
any by products? Total 22 100%
As indicated on table 4.1.15 the respondents were asked whether there is adequate control
exercised over saleable, waste and by products or not 17 (77.27%) of the respondents
answered yes and 5 (22.73%) of the respondents replied no. This indicates the company
has average adequate control over scrape, waste and by-products.
Table 4.1.16 the availability of raw materials in time

Does the raw material reach in time Yes 18 81.82%
when it is needed to the production No 4 18.18%
processes? Total 22 100%
As can be seen from table 4.1.16 indicating the availability of raw material in the right time
of production is determined the operation as well as the utilization of machine. As it
is shown in the above data, 18 (81.82%) one of the respondents were of commented
why raw material not reach in time, 4 (18.18%) of them disagreed respectively.
4.2. INTERVIEWS
25
Interviews were conducted with four department managers there are marketing department,
purchasing department, human resource department and manufacturing head department.
4.2.1 For the question asked what are the major inputs for the factory?
 All answered that the inputs of the factory are shoe upper, sole linking, PVC gruvle
and Chemicals.
4.2.2 For the question asked what are the major source of raw materials?
 All answered the source of raw materials area domestic tannery and foreign
suppliers.
4.2.3 For the question asked what type of inventory method used by the company, ..
 All answered the Company uses FIFO method. (depending our data most answer
were weighted average method)
4.2.4 For the question asked what is the classification of inventory.
 They answered the company have 3 types of inventories these are raw material
inventory, work in process inventory and finished goods inventory.
4.2.5 For the question asked what mechanism use to control the inventory.
 They all answered that in the company control begins at the moment the material
delivered to the store room, storage issuance. All activities are recorded in material
ledger and entries to issuance of materials.
4.2.6 For the questions asked what is the responsibility of the store Keeper?
 All answered that the role of the store Keeper in the companies he is
responsible for properly handling all raw materials and Manufactured products
when they are in stock prepare documents to receive and send material for
production and sale and check the availability of all raw material for production.
4.2.7 For the questions asked does the company use shelf, catalogue tag?
 For the above questions all answered, Yes.
4.2.8 For the questions how the company control its inventory level?
 They answered the company uses lead time, safety stock and recorder appoint.
Lead time is the period that covers the time between placing the order and
receiving the order. The safety stock is the quantity of material reserved for use in
the case of lead–time fluctuation occurs.
26
4.2.9 For the question asked how the company issue raw material?
 They answered the company uses material requisition store Voucher and store return
note.
4.2.10 For the question asked How many times inventory taking is made in a year?
 All answered the company physical count is made once a year.
4.2.11 For the question asked who is responsible for the taking of inventory.
 They answered inventory physical count is made by selected employees.
CHAPTER FIVE
27
5 SUMMARY, CONCLUSION AND RECOMMENDATION
The overall objective of this study is to address the inventory management practice of
Anbessa Shoe Share Company and to find out the problems related with the topic.
The method used to prepare this research is non-probability sampling technique to

pick subjects from the population and used primary data and secondary data obtained
through questionnaires, interview, observation and analysis a written documents from
the company annuals report. The method in analyzing and presenting using descriptive
analysis method like tables and figures the researcher analyzed the collected data as
follows.
5.2 SUMMARY OF THE MAJOR FINDINGS
Form to population size the researchers selected 30 employees and out of these 22 of the
respondents gave their responses.
 Most of the respondents believed that the company used weighed average
inventory system method
 Most of the respondents believed that the company has a systematic inventory
system.
 All the respondents agreed that the transfer of inventory’s passed through five
sections.
 Requisitions and issuances of materials are recorded in a proper way.
 Most of respondents are believed the requisitions for additional supplies are on
the regular review of minimum stock and reorder level.
 Most of the respondent believed that there is detailed written Instructions for
receiving and inspections of raw materials and finished goods.
 All agreed on perpetual stock records for raw materials and finished goods
inventory is in proper way and most respondent agreed that there is perpetual stock
records in work in process .
 Most of the respondent agreed that the stock records are reconciled regularly
with actual physical existence of inventories.
28
 Most the respondent agreed that the access to stock restricted only for authorized
employees.
 All agreed that stocks are protected by physicals and alarm.
 Most of the respondents believe that there is adequate physical control on sellable
scrap, waste and by products.
 Most of the respondents believe that the physical verification of inventories is
not a continuous base. But it takes place at the end of the physical year.
 Most of the respondent agreed that there is adequate physical control over high value,
fast moving and essential items.
 All the respondents agreed on there is a proper control on inventories obsolesce and
deterioration.
5.3 CONCLUSIONS
Based on the data about the current application of inventory management system in
Anbessa shoe share company that are obtained through questionnaire and review of
documents, and the analysis made on them based on the theory of inventory management
system for manufacturing companies.
 As maintained above there are some problems in the inventory control of the
factory. Luck of proper inventory control system means, cost to the company
since profit is a function of cost and revenue, increasing in cost means decrease in
profit and vice versa.
 According to the findings that, the factories inventory control mechanism is used
more by manual systems. Therefore, it is not possible for proper accounting of
inventory control system.
 According to the findings, the factory has well experienced accounting staffs
that are worked for many years their role is limited to routine application of an
already established policies and procedure. They do not participate in establishment
and implementation of policies and procedures related to inventory, this limits the
efficiency of inventory accounting system of the company.
29
 Purchasing regarding raw materials on a huge amount of money. On the other
side finished goods have not maintained as indicated and delivered to the end users.
Because of this much resources and cost wasted in inventory work.
 As mentioned above period of inventory evaluation mostly done quarterly. But as
the company is vast and huge it is impossible to ensure that appropriate inventory
management period of evaluation.
5.4 RECOMMENDATIONS
30
Based on the data analysis and the conclusion drawn above we recommend that:
 It is better that the factory participate accountants in establishment and

implementation of new policies and procedures related to inventory, since the most
accountants have many years of experience in the factory they can do well. Besides,
we have to recommend the company to make further training to its various
employees in order to effectively and efficiently making productive activities.
 It is better to the company to establish a separate cost accounting department
that is responsible to control production costs and participate in product designing
by estimating cost of each alternative product designs. Since the cost of production
have a significant effect in the overall profitability by affecting the price of the
product. Thus separate cost department will help the company to manage its
production costs effectively.
 In allocating power costs to departments the company have try to create a
cause-effect relationship that also consider power consumed for lighting and other
purposes in addition to operating production machineries and equipment’s.
 In planning for purchase the company has to consider estimated amount of
possible obsoleteness and damages in raw material and finished to avoid cost
overruns above the planned purchase to replace such obsolescence and damages.
 Most respondents mentioned that the company is using both manual . It is
better to upgrade it because it incurs a lot of costs during inventory and may not
have proper records.
 Inventories are purchased in a huge amount of money so we have to control
them properly , but the respondents still agreed that the company is not maintain
them properly.
 As the company is huge inventory must be conducted either Quarterly or half
a year basis to control costs, but the company is not making it on this
schedule so it is preferable to conduct inventory properly.
 FIFO and weighted average system is the only system used by the company. In the
future the company is suggested to use all of the methods of inventory to
have efficient and effective system.
31
32
REFERENCES
 [1] Ackah, R. and Ghansaha, E. (2016).Assessing Inventory Management on the
Performance of the Production Sector in Ghana.Dama International Journal of
Researchers (DIJR), ISSN: 2343- 6743, ISI Impact Factor: 0.878 Vol 1, Issue 7, July
2016, page 17-27.
 [2] Anichebe, N. and Agu, O. (2013). Effect of Inventory Management on
Organizational Effectiveness. Information and Knowledge Management, Vol.3, No.8,
page 92–100.
 [3] Arnold, J., Chapman, S. and Clive, L. (2008). Introduction to Materials
Management. 6th edition, New- Jersey: Pearson Prentice Hall.
 [4] Aster, M. (2016). Effectiveness of Inventory Management System: The Case of
Ethiopian Road Authority, Unpublished Master thesis St. Mary’s University, Addis
Ababa, Ethiopia.
 [5] Azeb, S. (2017). Assessment of Health Commodities Inventory Management
Practice and Challenges: The Case of Zewditu Memorial Hospital, Unpublished Master
thesis, Addis Ababa University, School of Commerce, Ethiopia.
 [6] Choi, K., Narasimhan, R., and Kim, S. (2012). Postponement strategy for
international
transfer of products in a global supply chain: A system dynamics examination.
Journal of Operations Management, 30 (3), 167-179.
 [7] Dobbler, W. and Lamar, L. (1996). Purchasing and Materials Management,
Internationa edition. New Delhi: Tata McGraw Hill.
 [8] Drury, C. (1996). Management and Cost Accounting. London: International Housan
Business Press.
 [9] Florence, N. (2015). Inventory Practices and Productivity of Large Manufacturing
Firms In Nariobi. Kenya: University of Nariobi.
 [10] Godana, B. and Ngugi, K. (2014). Determinants of Effective Inventory
Management at Kenol Kobil Limited. European Journal of Business Management, 1
(11), 341-361.
33
 [11] Keitany, P.and Wanyoike, R. (2014). Assessment of Role of Materials Management
on Organizational Performance. European Journal of Material Sciences, Vol.1, No.1,
pp.1-10.
 [12] Lau, A. and Snell, R. (2006). Structure and Growth in Small Hong Kong
Enterprises. Journalof Entrepreneurial Behavior & Research, 2 (3), 29-47.
 [13] Mohamed, et.al. (2016). a study on Relationship Between Inventory Management
and Company Performance: a Case Study of Textile Chain Store. Journal of Advanced
Management Science, Vol. 4, No. 4. Morgan, H.C. (2009).
 [14] https://africaphonebooks.resolff.com/ ethiopia/en-US/ anbesa-shoeshop #:~:text
=Anbessa% 20shoe% 20share% 20 company % 20 was,pairs %20of %20shoes % 20 per
% 20day.
34

Anbessa Shoe Factory PAPER FINAL

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CPU BUSINESS AND INFORMATION TECHNOLOGY COLLEGE

SCHOOL OF GRATUATE STUDIES

SUBMITTED TO CPU BUSINESS AND INFORMATION

ASSESMENT OF INVENTORY MANAGEMENT PRACTICE, CASE

BETHLEHEM GETACHEW – EMBA2383/14

ZEHAB SHEMSU – EMBA2019/14

SARA KIFLE – EMBA2907/14

SEWAGEGNEHU TAMENE -- – EMBA2908/14

BESUFIKAD YITBAREK -- – EMBA2357/14

Submitted to: Dr. ADEM (MED)

ADDIS ABABA, ETHIOPIA

S.C Share company

Pr. Ltd Co. Private Limited company

1.1. BACKGROUND OF THE STUDY

1.2. BACKGROUND OF THE ORGANIZATION

Anbessa shoe Share Company was established in 1935 making us the

1.3. STATEMENT OF THE PROBLEM

1.4. OBJECTIVE OF THE STUDY

1.4.1. General objective

1.5. RESEARCH QUESTION

 What could be done to improve the overall effectiveness of the company

1.6. SIGNIFICANCE OF THE STUDY

1.7. SCOPE OF THE STUDY

The study focused on the assessment of inventory management practices of

1.8. LIMITATION OF THE STUDY

The limitations occurred during the time of research study are:

1.9. ORGANIZATION OF THE STUDY

2.1.2. INVENTORY PROCEDURES

2.1.2.1. THE PERIODIC INVENTORY SYSTEM:

2.1.2.2. THE PERPETUAL INVENTORY SYSTEM

2.1.3. TYPES OF INVENTORY

2.1.4. COST FLOW ASSUMPTIONS

iii. Weighted-average method

2.1.5. INVENTORIABLE AND PERIOD COSTS

2.1.5.1. Inventoriable costs

2.1.6. PRIME COSTS AND CONVERSION COSTS

iii. Period cost

2.1.7. SCRAP MATERIALS

a) Recognizing scraps at the time of its sale

b) Recognizing scraps at the time of its production

3.1. RESEARCH DESIGN

This research employed a descriptive type of research design method. It contained a

3.2. TARGET POPULATION

3.3. SAMPLE SIZE AND SAMPLING TECHNIQUES

3.4. METHOD OF DATA COLLECTION

3.5. DATA AND DATA SOURCES

3.6. DATA COLLECTION INSTRUMENTS

3.7. METHODE OF DATA ANALYSIS

4. DATA PRESENTATION, INTERPRETATION AND ANALYSIS

In Many Organizations Cost and Materials constitutes a large portion of for

1. What inventory methods/systems adopted in the company?

4.1. DATA ANALYSIS

DESCRIPTION NO OF RESPONDENTS PERCENTAGE

Table 4.1.2: Inventory control system

Description No of respondent percent

Table 4.1.3: The inventory system

Description No of respondent percent

Table 4.1.4: The type of inventory method

Description No of respondent percent

Description No of respondent Percent

Table 4.1.6: have enough store places

Description No of respondent Percent

Description No of respondent Percent