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INTRODUCTION

Finance is the life-blood of modern business economy. We cannot imagine a business without finance in the modern world. It is the basis of all economic activities, no matter, the business is big or small. The problem of finance and that of financial management is to be dealt within every organization. The problem of finance is equally important to government, semi-governments and private bodies, and to profit and non-profit organizations. It is therefore, essential to clearly understand the meaning of financial management, its scope and goals. Financial Management is that specialized function of general management which is related to the procurement of finance and its effective utilization for the achievement of common goal of the organization. Finance function for the sake of convenience may broadly be classified into groups i.e., executive finance function and incidental finance function. Executive finance functions include all those financial decisions of importance which require specialized administrative skill. We have already discussed the executive finance functions in the foregoing paragraphs. Now we shall discuss the various incidental finance functions. The objectives or goals or financial management are: (a) Profit maximization (b)Return maximization and (c) Wealth maximization.

Material is a very important factor of a production. It includes physical commodities used to manufacture the final product. It is the inventorial and does not get waste and exhaust with the passage of time as labor is wasted with the passage of time whether in used or not. The other feature of material is that, is firm, where as other elements of cost like labor and other services cant be easily varied once they are established. From this it can be concluded that material is most flexible on controllable input. It is the first and most important element of cost. Materials account for nearly 60 per cent of the cost of production which is clear from analysis of financial statements of a large number of private and public sector organizations.

According to the Indian association of materials management: Indian


industries of 64 paisa in a rupee are spent on materials by Indian industries, 16 paisa on labor and the rest of 1 rupee of cost is spent on over heads. Importance of material control lies in the fact that any saving made in the cost of materials will go a long way in reducing the cost of production and improving the profitability of the concern. Studies by experts in this field have highlighted the facts that if an organization can affect 5% saving in material cost, it would be as good as increasing the production or sales by about 36%. Proper control of material is necessary from the time orders for purchasers of materials are placed with suppliers until they have been consumed the object of material control is to attack material cost on fronts, so that the cost of material may be reduced. In other words, efforts are to be made to reduce the cost of materials when it is purchase, stored and used. Before coming to the discussion of material control, we may clear that purchase of materials will include both direct and indirect materials. Direct materials and indirect materials are both treated as stores items, where as stock of finished goods id not treated as a stores item, direct

and indirect materials purchased for stock purpose to be issued to different jobs, works orders of departments as and when required. On the other hand, finished goods are treated as stock. We may also refer to the commonly used term Inventory which includes the stock not only of raw materials but also stores and spares, work-in-progress and finished goods. The stock materials are only a part of the inventory held by a manufacturing unit. The investment in inventories constitutes the most significant part of current assets/ Working capital most of the undertaking. Thus, it is very essential to have proper control and management of inventories. The purpose of inventory management is to ensure availability of materials in sufficient quantity as and when required and also to minimize investment in inventories.

, spares and finished goods so that production should not suffer at any time and the customers demand should also be met

InventoryManagement:

Every enterprise needs inventory for

smooth running of its activities. It serves as a link between production and distribution process. There is generally a time lag between the recognition of a need and its fulfillment. The greater the time lag, the higher requirements for inventory. It also provides a question for future price fluctuations. the investment in inventories constitutes the most significant part of current assets/ Working capital most of the undertaking. Thus, it is very essential to have proper control and management of inventories. The purpose of inventory management is to ensure availability of materials in sufficient quantity as and when required and also to minimize investment in inventories. Reasons to hold inventory is meet variations in customer demand- meet increases unexpected demand, Smooth seasonal or cyclical demand. Pricing related- Temporary price discounts, Hedge against price

Take advantage of quantity discounts. Process & supply surprises -Internal upsets in parts of or our own processes, External delays in incoming goods and transit.

Objectives of inventory management: The following are the objectives of inventory management: To ensure continuous supply of materials. To avoid both over-stocking and under-stocking of inventory. To maintain investment in inventories at the optimum level as To keep material cost under control so that they contribute in To eliminate duplication in ordering or replenishing stocks .This To minimize losses through deterioration, pilferages, wastages, To ensure perpetual inventory control so that materials shown in To ensure right quality goods at reasonable prices. Suitable

required by the operational and sales activities. reducing the cost of production and overall costs. is possible with the help of centralizing purchases. and damages. stock ledgers should be actually lying in the stores. quality standards will ensure proper quality of stocks. The priceanalysis, the cost-analysis and value analysis will ensure payment of proper prices. To facilitate furnishing of date for short- term and long term planning and control of inventory.

Scope of the Study:


Inventory management is one of the key areas in finance. It plays main and important role in the organization.

The study concentrates on the methods and techniques are


followed by the Krishna Engineering Works ltd., is for its management. To ensure continuous supply of materials, spares and finished goods so that production should not suffer at any time and the customers demand should also be met. To avoid both over-stocking and under-stocking of inventory.

The present study also concentrates on

Need of the Study:


It seems that one of the important problems faced by public enterprises id ineffective control measures especially out dated and unused inventory control measures. Therefore, it is felt quite appropriate to make a micro study of Inventory control methods and policies of the Krishna Engineering Works Ltd. So as to find out the responsible factors that caused for high inventory cost. It assists in the assessment of financial needs internal and external resources for meeting them. It assesses the efficiency and effectiveness of financial institutions in mobilizing individual corporate savings. It also prescribes various means for such mobilizations of savings into desirable investment channels. It assists the management while investing the funds in profitable projects by analyzing the viability of that project through capital budget techniques. It permits the management to safe guards the interests of shareholders by utilizing the funds procured from different sources and it also regulates and controls the funds to get maximum us.

Objectives of the Study:


1. To study the profile of the Krishna Engineering works limited. 2. To examine the various approaches of inventory management models. 3. To analyze the data of inventory to known the optimum size of order at required time. 4. To analyze and interrupt the inventory ratios to known the performance levels of inventory management. 5. To offer a suitable suggestion to strengthen the management of inventory.

Methodology of the Study:


Methodology is a systematic procedure of collecting information in order to analyze and verify a phenomenon. The collection is done through two principle sources viz. Primary data Secondary data 1) Primary Data: It is the information collected directly without any reference. In this study it was mainly through interviews with concerned officers and staff, either individually or collectively. Some of the information had been verified of supplemented conducting personal with observation. 2) Secondary data: The secondary data was collected from already published source such as Pamphlets, annual reports, returns and international records. The data includes: Methodology under study has been collected from the annual reports of Krishna Engineering works Ltd., in house

magazines, Publications, books, Journals on Management and Websites.

Limitation of the Study:


The study was conducted with the data available and the analysis was accordingly. The analysis is made on the basis of secondary data. Time is the main constraint in completing the study with in the stipulated period allowed. It became difficult to analyze and study the performance of Krishna Engineering works Ltd. The availability of data pertaining to 5 years is one of the constraints. As there is more dependency on secondary data realistic conclusion may not be possible to be made. Presentation of the Study: The presentation Contains the 6 chapter namely CHAPTER-I: Introduction CHAPTER-II: Profile of the Engineering Industry CHAPTER-III: Profile of Krishna Engineering Works Limited CHAPTER-IV: Theoretical Frame Work of Inventory Management CHAPTER-V: Data analysis and Interpretation. CHAPTER-VI: Summery, Findings, Suggestions.

4TH

Every enterprise needs inventory for smooth running of its activities. It serves as a link between production and distribution process. There is generally a time lag between the recognition of a need and its fulfillment. The greater the time lag, the higher requirements for inventory. It also provides a question for future price fluctuations. the investment in inventories constitutes the most significant part of current assets/ Working capital most of the undertaking. Thus, it is very essential to have proper control and management of inventories. The purpose of inventory management is to ensure availability of materials in sufficient quantity as and when required and also to minimize investment in inventories. Reasons to hold inventory is meet variations in customer demand- meet increases unexpected demand, Smooth seasonal or cyclical demand. Pricing related- Temporary price discounts, Hedge against price Take advantage of quantity discounts. Process & supply surprises -Internal upsets in parts of or our own processes, External delays in incoming goods and transit. Meaning and Nature of Inventory: In accounting language, inventory may mean the stock of finished goods only. In manufacturing concern, it may include raw materials, work-in-process and stores etc. Inventory includes the following things: Raw Material: Raw material form a major input into the

organization. They are required to carry out production activities uninterruptedly. The quantity of raw materials required will be determined by the rate of consumption and the time required for replenishing the supplies. The factories like the availability of raw

materials and government regulations etc, to affect the stock of raw materials. a) Work in Progress: The work in progress is that stage of stocks

which are in between raw materials and finished good. The quantum of work in progress depends up on the time taken in the manufacturing process. Together the time taken in manufacturing, the more will be the amount of work in progress. b) Consumables: These are the materials which are needed to

smoother the process of production. These materials do not directly enter production but they act as catalysts. Consumables may be classified according to their consumption and critically. Generally, consumable stores do not create any supply problem and firm a small part of production cost. There can be instances where these materials may account for much value than the raw materials. The fuel oil may form a substantial part of cost. Finished goods: These are the goods which are ready for he

c)

consumers. The stock of finished goods provides a buffer between production and market. The purpose of maintaining inventory is to ensure proper supply of goods to customers. D) Spares: The stocking policies of spares differ from industry to industry. Some industries like transport will require more spares than the other concerns. The costly spare parts like engines, maintenance spares etc are not discarded after use, rather they are kept in ready position for further use. All decisions about spare are base o the financial cost of inventory on such spares and the costs that may arise due to their non-availability.

Benefits of Holding Inventories: Although holding inventories involves blocking of a firm's funds and the costs of storage and handling, every business enterprise has to be maintaining certain level of inventories to facilitate uninterrupted production and smooth running of business. In the absence of inventories a firm will have to make purchases as soon as it receives order. It will mean loss of time and delays in execution of orders which sometimes may causes loss of customers and business. A firm also needs to maintain inventories to reduce ordering cost and avail quantity discounts etc. There are three main purposes of holding inventories. i. The Transaction Motive: which facilitates continuous production

and timely execution of sales orders ii. The Precautionary Motive: Which necessitates the holding of

inventories for meeting the unpredictable changes in demand and supplies of materials iii. The Speculative Motive: which induces to keep inventories for

taking advantage of price fluctuations, saving in re-ordering costs and quantity discounts Risk And Costs Associated With Inventories: The holding of inventories involves blocking of a firm's funds and concurrence of capital and other costs. The various costs and risk involved in holding inventories are: i. Capital Costs: Maintaining of inventories results in blocking of

the firms financial resources. The firm has therefore to arrange for additional funds to meet the cost of inventories. The fund may be arranged from own resources of firm outsiders. But in both the case, the firm incurs a cost. In the former case, there is an opportunity cost of investment while in the later case; the firm has to pay interest to the outsiders. ii. Storage and handling costs: Holding of inventories also involves cost on storage as well as handling of materials. The storage of costs includes the rental of the go down, insurance charges etc. iii. Risk of price decline: There is always a risk of reduction in the prices of inventories by the suppliers in holding inventories. This may be due to increase market suppliers, competition or general depression in the market. iv. to Risk of obsolescence: The inventories may become obsolete due improved technology, change in requirements, change in

customer tastes etc. v. Risk determination in quality: The quality of materials may also deteriorate while the inventories are kept. Objectives of Inventory Management: The following are the objectives of inventory management: To ensure continuous supply of materials, spares and finished

goods so that production should not suffer at any time and the customers demand should also be met. To avoid both over-stocking and under-stocking of inventory. To maintain investment in inventories at the optimum level as To keep material cost under control so that they contribute in

required by the operational and sales activities.

reducing the cost of production and overall costs. To eliminate duplication in ordering or replenishing stocks To minimize losses through deterioration, pilferages, .This is possible with the help of centralizing purchases. wastages, and damages. To ensure perpetual inventory control so that materials shown To ensure right quality goods at reasonable prices. Suitable in stock ledgers should be actually lying in the stores. quality standards will ensure proper quality of stocks. The priceanalysis, the cost-analysis and value analysis will ensure payment of proper prices. To facilitate furnishing of date for short- term and long term planning and control of inventory. Tools and Techniques of Inventory Management: A proper inventory control not only helps in solving the actual problem of liquidity but also increase profits and causes substantial reduction in the working capital of the concern. Determination of Stock Levels: Carrying of too much and too little of inventory is determined to the firm. If the inventory level is too little, the firm will face frequent stock outs involving heavy ordering cost and if the inventory level is too high it will be unnecessary tie up of capital. An efficient inventory management requires should maintain an optimum level of inventory where inventory costs are the minimum and at the same time there is no stock out which may result in loss or shortage of production. A) Minimum Stock Level:

It represents the quantity below its stock of item should not be allowed to fall. Lead-time: A purchase firm requires some time to process the order time is also required by the supplying firm to execute the order. The time taken in processing the order and then executing it is known as lead time. Rate of Consumption: It is the average consumption of materials in the factory. The rate of consumption will be decided on the basis of past experience and production plans. Nature of Material: The nature of material also affects the minimum level. If a material is required for such material. Minimum stock level can be calculated with the help of following formula. Minimum stock level = Re ordering level (Normal consumption x normal re order period.) b) Re Ordering Level: When the quantity of materials reaches at a certain figures then fresh order is sent to get material again. The order is sent before the materials reach minimum stock level. Re ordering level is fixed between minimum level and maximum level. Re-ordering level = Maximum consumption x Maximum Re-order period. c) Maximum Level: It is the quantity of materials beyond which a firm should not exceed its stocks. If the quantity exceeds minimum

level limit then it will be overstocking. Overstocking will mean blocking of more working capital, more space for storing the materials, more wastage of materials and more chances of losses from obsolescence. Maximum Stock Level = Re-ordering Level + Re-order Quantity (Minimum consumption x Minimum Re-order period) d) Danger Stock Level: It is fixed below minimum stock level. The danger stock level indicates emergence of stock position and urgency of obtaining, fresh supply at any cost. Danger stock level = Average Rate of consumption x emergency delivery time d) Average stock level: This stock level indicates the average stock held by the concern. Average stock level = Minimum stock level + x Re-order quantity. Determination of Safety Stocks: Safety stock is a buffered to meet some unanticipated increase in usage. The demand for materials may fluctuate and delivery of inventory may also be delayed and in such a situation the firm can face a problem of stock out.In order to protect against the stock out arising out of usage fluctuation, firms usually maintain some margin of safety stock. Two costs are involved in the determination of this stock that is opportunity cost of stock outs and the carrying costs. If a firm maintains low level of safety frequent stock outs will occur resulting into the larger

opportunity costs. On the other hand, the larger quantity of safety stock involves carrying costs. Economic Order Quantity (EOQ): The quantity of material to be ordered at one time knows an economic ordering quantity. This quantity is fixed in such a manner as to minimize the cost of ordering and carrying costs. Total cost off material = Acquisition cost + carrying costs + ordering cost. Carrying Cost: It is the cost of holding the materials in the store. Ordering Cost: It is the cost of placing order for the purchase of materials. EOQ can be calculated with the help of the following formula EOQ = 2 CO/I Where during a year O = Ordering Cost I = Carrying cost or interest payment on the capital. C = Consumption of the material in units

A-B-C Analysis: (Always Better Control Analysis) Under ABC analysis, the materials are divide into 3 categories viz.. A, B and C Almost 10 per cent of the items contribute to 70 per cent of value of consumption and this category is called 'A' category. About 20 per cent of the items contribute about 20 per cent of value of consumption and this knows as category 'B' materials. Category 'C' covers about 70 per cent of items of materials which contribute only 10 per cent of value of consumption JIT Analysis (Just In Time): The goal of just in time analysis is

manufacturing is not new. The basic desired for continued reduction material resources requirements is quiet common. The means by which goal of JIT is now being accomplished is considered to be new. The primary goal of JIT is to achieve zero inventories within an organization as well as throughout entire supply chain. JIT the key theme is to work without buffer stock/with minimal buffer stock. Inventory Turnover Ratio: Inventory turnover ratios is calculated to indicate whether inventories have been used efficiently or not. The inventory turnover ratio also knows as stock velocity is normally calculated as sales/ average inventory of cost of goods sold/average inventory. Inventory conversion period may also be calculated to find the average time taken for clearing the stocks. Symbolically Cost of goods sold Inventory Turnover Ratio = -----------------------------------

Average inventory at cost (Or) Net Sales = ---------------------------------Inventory (Average) And, Days in a year --------------------------------Inventory Turnover Ratio Classification and codification of Inventories: The inventories should first be classified and then code numbers should be assigned for their identification. The identification of short names is useful for inventory management not only for large concerns but also for small concerns. Lack of proper classification may also lead to reduction in production. Generally, materials are classified accordingly to their nature such as construction materials, consumable stocks, spares, lubricants etc, after classification the materials are given code numbers. The coding may be done alphabetically or numerically. The later method is generally used for coding. The class of materials is assigned two digits and then two or three digits are assigned to the categories of items divided into 15 groups. Two numbers will be category of materials in that class. The third distinction is needed for the quality of goods and decimals are used to note this factor Valuation of Inventories- Methods of Valuation:

Inventory conversion period =

FIFO method, LIFO method, Base Stock method, Weighted average price method Criteria For Judging The Inventory System: While the overall objective of the inventory system is to minimize the cost to the firm at the risk level acceptable to management, the more proximate criteria for judging the inventory system are Comprehensibility Adaptability Timeliness

Areas of improvement: Inventory management in India can be improved through. Effective Computerization: Computers should be used merely for accounting purposes but also for improving decision making. Review of Classification: ABC & FSN classification must be periodically reviewed. Improved Co-ordination: Better co-ordination among purchase, production, marketing and finance department will help in achieving greater efficiency in inventory management. Development of Long Term Relationships: Procedures for disposing obsolete/surplus inventories must be simplified. in various ways. Improvements could be affected

Adoption of Challenging Norms:


improve inventory management.

Companies

should

set

benchmarks with global competitors and use ideas like JIT to

Valuation of inventories Methods of Determination: Although the prime consideration in the valuation of inventories is cost, there are a number of generally accepted methods of determining the cost of inventories at the close of an accounting period. The most commonly used methods are First-in-first-out (FIFO) average, and Last-in-first-out (LIFO). The selection of the method for determining cost of inventory valuation is important for it has a direct bearing on the cost of goods sold and consequently on profit. When a method is selected, it must be used consistently and cannot be changed from year to year in order to secure the most favorable profit for each year. 1) The FIFO Method (First-In-First-Out Method): Under this method it is assumed that the materials or goods first received are the first to be issued or sold. Thus, according to this method the inventory on a particular date is presumed to be composed of the items, which were acquired most recently.

Advantages:
1.

The FIFO method has the following advantages

It values stock nearer to current market prices since stock is

presumed to be consisting of the most recent purchases. 2. It is based on cost ad; therefore, no unrealized profit enters

into the financial accounts of the company. 3. The method is realistic since it takes into account the normal

procedure of utilizing or selling those materials or goods, which have been longest in stock. Disadvantages: disadvantages 1. It involves complicated calculations and hence increases the The method suffers from the following

possibility of clerical errors. 2. Comparison between different jobs using the same type of

material becomes sometimes difficult. A job commenced a few minutes after another job may have to bear an entirely different charge for materials because the first job completely exhausted the supply of materials of the particular lot. The FIFO method of valuation of inventories is particularly suitable in the following circumstances i. ii. iii. iv. The materials or goods are of a perishable nature. The frequency of purchases is not large. There is only moderate fluctuation in the prices of materials Materials are usually identifiable as belonging to a particular

or goods purchased. purchase lot. 2) THE LIFO Method: (Last-In-First-Out)

This method is based on the assumption that last time of material or goods purchased are the first to be issued or sold. Thus, according to this method inventory consists of items purchased at the earliest cost. Advantages: This method has the following advantage. 1. It takes into account the current market conditions while

valuing materials issued to different jobs or calculating the cost of goods sold. 2. The method is based on cost and therefore no unrealized The method is most suitable for materials which are of a bulky and non-perishable type. 3) Base Stock Method: This method is based on the contention that each enterprise maintains at all time a minimum quantity of materials or finished goods in its stock. This quantity is termed as base stock. The base stock is deemed to have been creating out of the first lost purchased, therefore it is always valued at this price and is carried forward as a fixed asset. Any quantity over and above the base sock is valued in accordance with any other appropriate method. As this method aims at matching current costs to current sales, the LIFO method will be most suitable for valuing stock of materials or finished good other than base stock. The base stock method has the advantage of charging out Materials/goods at actual cost. Its other merits or demerits will depend on the method which is used for valuing materials other than the base stock. profit or loss is made on account of use of this method.

Weighted Average Price Method: This method is based on the presumption that once the materials are put into a common bin, they lose identity. Hence, the inventory consists of no specific batch of goods. The inventory is thus priced on the basis of average prices paid for the good, weighted according to the quantity purchased at each price. Weighted average price method is very popular on account of its being based on the total quantity and value of materials purchased besides reducing number of calculations. As a matter of fact the new average price is to be calculated only when a fresh purchase of materials is made in place of calculating it very now and then as is the case with FIFO, LIFO methods. However, in case of this method different prices of materials are charged from production particularly when the frequency of purchases and issues/sales is quite large and the concern is following perpetual inventory system.

Inventories Valued at Standard Cost:

A very

useful method of valuing inventories is at standard cost. With a standard cost system there is no need for spending a great deal of time and money tracing unit cost through perpetual inventory record Table no:4.1 Acquiring Raw Materials From The Store Room

Recognized Stores need for requisition materials in production Notifies storeroom clerk of need

Materials are sent to work place Requisition is recorded in 1. Requisition summary used to general ledger entry record

transferring R.M's to WIP 2. 3. by Perpetual inventory records. Departmental responsibility costs cost cost centers for records and to

used to accumulate materials costs determine 4. Job individual used a job when shop

production process. sheets is of manufacturing individual jobs Journal Entry: To record total of requisition summary Dr. Work in process Cr. Raw materials inventory The first step is the recognition of the fact that materials are needed for production. Workers, foreman and production control personnel are usually the people that recognize the need for material. The store requisition is prepared in order to obtain materials from the storeroom. The stores requisition is the basic document behind general and subsidiary ledger entries charging materials to work in process. The general Ledger entry resulting from stores requisitions is simply a transfer of materials from the raw materials inventory to the work in process inventory. Such an entry is as follows: Dr. Work in Process Cr. Raw materials inventory.

variety and costs must be kept by

Store Requisition: The stores requisition is the document that is used to notify the stores room that materials are to be released for production. For control purposes it is best to have the foreman and /or specified production control personnel requisition the materials. In some plants the production control department may issue stores requisition at the same time that production schedules are issued. The foreman in such cases might be restricted only to the issuance of the requisition for materials required in excess of estimated or standard quantities. This excess stores requisition is usually a distinct form which might require a supervisor's signature as well as foreman's signature. Waste of material can't be hidden for long when excess stores requisitions are used.

Recording the Stores Requisition The General Ledger:


The stores requisition is recorded in the general ledger and in various subsidiary ledgers. Among the usual subsidiary ledgers are the perpetual inventory cards, departmental cost records, and job cost sheets. Table No: 4.2 Stores Requisition Summary in Krishna Engineering Works Internal Indent document No:ST/F/1506 Revision No: 02, Dated 01-05-2000 Page No: 1 of 1 Section: Date: S.No Unit:

Computer S.NO 1. 2. 3. 4. 5. 6. Code No.

Description of the Material antity

Qu Purpose

Indenter Signature

Approd

Received

In the general ledger, stores requisition are recorded by a transfer from raw materials inventory (a credit) to work in process (a debit) Each stores requisition is not the subject of a general ledger entry. The stores requisition for a month are totaled, and this total is the subject of the above general ledger entry. Ordinarily each stores requisition is recorded in a requisition summary, which is totaled each month to determine the dollar amount of the general ledger entry. A requisition summary shown above provides departmental distinctions as well as distinction between direct and indirect materials. When the general ledger contains only one work in process account and one factory overhead account the monthly entry from the requisition summary would be: Dr. Work in process (for direct materials)

Dr. Factory overhead (for indirect materials) Cr. Raw materials inventory. When the general ledger contains departmental account the monthly entry from the requisition summary would be: Dr. Work in process I Dr. Factory overhead - I Dr. Work in process II Dr. Factory Overhead II Cr. Raw materials inventory Recording the store requisition a subsidiary ledger: The 3 subsidiary ledgers in which stores requisitions might be recorded are the perpetual inventory cards, departmental cost records, and job cost sheets. Perpetual inventory are very useful for inventory control purposes, whereas departments cost records are valuable aids in a accounting for each area of responsibility In addition, departmental cost records are indispensable aids in calculating unit costs when production is of continuous process nature for example a canning factory. Stores requisition can be recorded individually in subsidiary ledgers, or if summarizations are possible requisitions can be recorded in summary form. The perpetual inventory cards are to be useful aids in controlling inventories, the stores requisitions must be recorded there in at least once each week or even daily for critical major materials. Departmental cost records can take many different forms. However, if they are to be complete, direct materials, direct labour and factory overhead must be a part of such records.

The job cost sheet contains complete information on the costs pertaining to a job. Direct labour direct material, other direct charges, and factory overhead are all included on a job cost sheet. Other direct charge includes such items as special tools and dies which can be and are worthwhile tracing to individual jobs. Factory overhead per job is usually estimated in terms of direct labour costs or direct labour hours. This estimate is called the Applied factory overhead per the job. Table no: 4.3 Local Purchase Of Indent Of Krishna Engineering Works Limited

Local purchase indent

Document No : PR/F/0611 Revision No : 02, Dated 1-11-2004 Page No : 1 of 1 Section: Specification Required Qty Comments of Quality & Qty

UNIT-I Date: Sl. Description of No the Material

M/D S.No: Purpose

Required By Section Head

Forwarded By Assistant Materials

Approved By Manager Manager (Admin) / GM (F & M)

A shown above, there is need only for physical quantities since the inventory value is the physical quantity multiplied by the standard cost. With the cost and value columns disposed off, a perpetual inventory card can include additional data such as quantities on order, quantities reserved, and quantities available. These additional data are very useful for inventory and production control purposes. On the basis of a few calculations concerning actual units cost, inventories at standard cost could easily be converted into inventories on a FIFO, a LIFO or an average cost basis. Obsolescent inventories cannot be used or disposed off at values carried on the books. Frequent reviews should be made of all inventories and when obsolescence is indicated a request for revaluation should be prepared for approval by management. The difference between original and obsolete value should be recorded by a charge to an operating account. Inventory obsolescence, and a credit to inventory. If the material is scrapped, this will be for the full inventory of the material. If it is anticipated that the material can be sold at reduced value or used in areas where it will be worthless than its original value, the entry would be only for the amount of write down. Some companies carry a salvage inventory and transfer to its materials which may be sold or used at reduced values.

Date Analysis And Interpretation


In the Krishna International Ltd inventory consists of raw materials, consumables and spares cylinder liners and automobile parts. The various components of inventory over a period of 5 years from 2006-2011 presented in the following table.

Table no 5.1 Components Of inventory of Krishna Engineering works Ltd, From the year of 2006-2007 to 2010-2011
(Rs in Crores) Year Consumabl Raw Cylinder es & Materials liners Spares 3.6 9.04 AutoMobile Parts 0.81 Total

2006-2007 3.78

17.24

2007-2008 7.05

5.62

10.02

0.53

23.24

2008-2009 1.02

9.86

12.46

0.56

33.09

2009-2010 9.82

11.67

8.86

0.22

30.58

2010-2011 1.01

14.78

7.69

0.07

32.74

Source: Data Compiled from Annual Reports of Krishna Engineering works Ltd.

Figure 5.1
35 30 25 20 15 10 5 0 2006-07 2007-08 2008-09 2009-10 2010-11 TT O AL

Analysis: Table 5.1 shows that the 2,8 inventory of Krishna Engineering works Ltd was recorded at Rs33,09,43,634/-. During the year 2008-2009 and it is decreased to Rs30,58,24,872 in the year 2009-2010 For the year 2009-2010 because of low demand of the finished products of cylinder liners in the inventory reduced to 30.58 from 33.09 in the year 2008-2009

Table - 5.2 Componential Analysis of Krishna Engineering works Ltd, From the year of 2006-2007 to 2010-2011 (Rs in Crores)
Year Raw Materials Consumab Cylinder les &Spares liners Automobil e parts 2006-2007 21.92 20.91 52.44 4.73 100.00 Total

2007-2008 30.36

24.19

43.13

2.32

100.00

2008-2009 30.84

29.8

37.65

1.71

100.00

2009-2010 32.11

38.17

28.99

0.73

100.00

2010-2011 31.13

45.15

23.5

0.22

100.00

Source: Data Compiled from Annual Reports of Krishna Engineering works Ltd.

Figure 5.2 Componential Analysis


60 50 40 30 20 10 0 2006-072007-082008-09 2009- 2010-11 2010 R AW ME E IAL TR CONS UMAB S& S E LE PAR S CYLIND RLINE S E R AUT O-MOB P T ILE AR S

Analysis:

The table 5.2 shows that the maintenance of raw materials

in the inventory increased from 21.92 per cent in the year 2007-2008 to 31.13 in the year 2010-2011. Because of price fluctuations the raw

materials purchased in large quantities. The maintenance of cylinder liners decreased from 52.44 per cent in the year 2006-2007 to 23.5 per cent in the year 2010-2011. Because of low orders. In this company the cylinder liners are maintained on the basis of purchase orders of the customers.

Table no 5.3 Trend Analysis of Krishna Engineering works Ltd, From the year of 2006-2007 to2010-2011 (Rs in Crores)
Trend cent per

Year

Inventory

2006-2007

17.24

100.00 134.80

2007-2008

23.24

2008-2009 2009-2010 2010-2011

33.09 30.58 32.74

191.93 177.37 189.90

Source: Data Compiled from Annual Reports of Krishna Engineering works Ltd.

Figure 5.3 Trend Analysis

200 150 100 50 0 2006-07 2007-08 2008-09 2009-10 2010-11 T E D% RN

Analysis:

The table 5.3 shows that the investment on inventory

raised from 134.80 per cent in the year 2007-2008 to 189.90 per cent in the year 20010-2011.the ratio in 2006-2007 is 100 per cent and increased upto 2009-2010 and reduced in 2009-2010 and

increased in 2010-2011. Because this company made investment on inventory on the basis of demand of the customers

Inventory Turnover Ratio:

This ratio indicates the number of

times the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage its inventory. A higher inventory turnover ratio is preferable which means finished goods sold at faster rates which increase profits. This ratio is calculated by applying the following formula. Net sales Inventory turnover ratio = Average inventory cost TABLE 5.4 Inventory turnover Ratio of Krishna Engineering works Ltd, From the year of 2006-2007 to 2010-2011 Year Net sales Avg stock 4.25 Ratio 8.37 Change 0.93

2006-2007 35.63

2007-2008 45.42

5.26

8.63

0.26

2008-2009 62.57

6.26

9.99

1.36

2009-2010 64.85

6.78

9.55

-0.44

2010-2011 70.36

8.24

8.53

-1.02

Source: Data Compiled from Annual Reports of Krishna Engineering works Ltd.

Figure 5.4

Inventory Turn over Ratio


10.5 10 R ati o 9.5 9 8.5 8 7.5 200607 200708 200809 Year 200910 201011 Ratio

Analysis: The table 5.4 shows that the inventory turnover ratio increased from 8.37 in the year 2006-2007 to 9.99 in the year

2009-2010.because of increased sales in the year. Although the sales are increased in the year in the year 2010-2011 the inventory turnover ratio decreased from 9.99 in the year 20072008 to 8.53 because of increase in the average stock maintained by the company.

Inventory Conversion Period:

It may also be of interest to see

average time taken for clearing the stock. This can be possible by calculating inventory conversion period. This period calculating by dividing the number of days by inventory turn over this formula may be as.

Table
2011

5.5

Inventory

Conversion

Period

of

Krishna

Engineering works Ltd, From the year of 2006-2007 to 2010Rs in Crores

Year

Net Sales

Avg Stock Ratio

ICP

2006-2007 2007-2008

35.63 45.42

4.25 5.26

8.37 8.63

43 41

2008-2009 2009-2010 2010-2011

62.57 64.85 70.36

6.26 6.78 8.24

9.99 9.55 8.53

36 37 42

Source: Data Compiled from Annual Reports of Krishna Engineering Works Ltd

Figure: 5.5

44 42 40 38 36 34 32 2006-07 2007-08 2008-09 2009-10 2010-11 ICP

Analysis: The table 5.5 shows that the inventory conversion period was decreased from 43 days in the year 2006-2007 to 36 days during the year 2009-2010. This indicates that the stock has been very quickly converted into sales Although increased sales in the year 2010-2011 the inventory conversion period increased from 36 days in the year 2009-2010 to 42 days. Because of high

2006-07 2007-08 2005-06 2004--05

average stock maintained by the company. Its not a good practice.

Percentage of inventory over total assets:


Total assets=Current assets+ Fixed Asset

Table 5.6 Percentage of Inventory Over Total Assets of Krishna Engineering works Ltd, From the year of 2006-2007 to 20102011

Rs in Crores

Year

Inventory

Total Assets Ratio

2006 2007 17.24

23.99

72.00

2007 2008 23.24

30.3

77.00

2008 2009 33.09

43.08

77.00

2009 2010 30.58

51.68

59.00

2010 2011 32.74

57.44

57.00

Figure 5.6

Percentage of Inventory over Total Assets


100.00 80.00 R ati o 60.00 40.00 20.00 10.00 2006 2007 2007 2008 Year 2008 2009 2009 2010 Ratio

2010-11

Analysis: The table 5.6 shows that the percentage of inventory


over total assets reduced from 77 per cent in the year 2007-2008 to 57 per cent in the year 2010-11. This because in the year 2010-2011 although the assets are increased the inventory is kept very high

Current Ratio:

In order to know the current ratio the

percentage of current assets to current liabilities to calculated and which is presented in the following table. Current ratio = Current assets Current liabilities

Table5.7
From the Rs in Crores

Current ratio of Krishna Engineering works Ltd, year of 2006-2007 to 2010-2011.

Year

Current Assets 13.22

Current Liabilities 8.02

Current Ratio

2006 2007

1.61

2007 2008

17.47

8.02

2.17

2008 2009

25.33

14.82

1.70

2009 2010

30.80

17.94

1.71

2010 2011

31.62

21.09

1.49

Figure 5.7 Current Ratio


2.5 2 1.5 1 0.5 0 2006-07 2007-08 2008-09 2009-10 2010-11 CUR E TT IO R N AT

Analysis: From the table 5.7 it can be understand that the current
ratio is 2.17 in the year 2007-2008. Because the current assets and current liabilities are not properly maintained that year. The current ratio should be between 1-2 per cent. The ratio of 2008-2009 and

2009-2010 is 1.50.And for 2010-2011 is reduced from previous years.

Proprietary Ratio:

This ratio establishes the relationship between

share holder funds and total Assets. Proprietary Ratio = Share holder funds Total Assets

Table 5.8

Proprietary ratio of Krishna engineering works ltd,

From the year of 2006-2007 to 2010-2011

Year

Shareholder Funds

Total Assets Ratio

2006 2007

10

23.99

0.41

2007 2008

12

30.3

0.39

2008 2009

12.02

43.08

0.28

2009 2010

12.02

51.68

0.23

2010 2011

12.02

57.44

0.21

Source: Data compiled from annual reports of Krishna Engineering works Ltd.

Figure 5.8

0.5 0.4 0.3 0.2 0.1 0 2006-07 2007-08 2008-09 2009-10 2010-11 PR PR T R R IO O IE O Y AT

Analysis: The table 5.8 shows that the proprietary ratio decreased
from 0.41 in the year 2006-2007 to 0.21 in the year 20102011.The ratio for 2009-2010 is 0.25 and for the year 2009-2010 is 0.22. The proprietary ratio reduced in that year as the company raised only little funds from the share holders

Investment Employment Ratio:

This ratio establishes the

relationship between the investment and total assets Investment Investment employment ratio = Total Assets X 100

Table 5.9 Investment employment ratio of Krishna engineering works ltd, From the year of 2006-2007 to 2010-2011
Rs in Crores Total Assets 23.99

Year

Investment

Ratio

2006 2007

1.96

8.17

2007 2008

4.66

30.3

15.40

2008 2009

4.96

43.08

11.53

2009 2010

4.71

51.68

9.12

2010 2011

4.97

57.44

8.67

Source: Data compiled from annual reports of Krishna Engineering works Ltd.

Figure 5.9

16 14 12 10 8 6 4 2 0 2006-07 2007-08 2008-09 2009-10 2010-11

Analysis: The table 5.9 shows that the investment employment ratio increased from 8.17 per cent in the year 2006-2007 to 15.40 per cent in the year 2007-2008. The ratio is reduced by 2.5 per cent from 20082009 to 2009-2010 Again the investment employment ratio reduced to 8.67 per cent in the year 2010-2011.because of increase total assets and investments.

Economic Order Quantity: EOQ = 2 A*O C A =Annual consumption O = ordering cost C = carrying cost Table 5.10: EOQ Analysis of Krishna engineering Works Ltd, From the year 2006-2007 to 2010-11. Year 2006-07 2007-08 2008-09 2009-10 2010-11 Annual consumption 1842.23 1714.29 2138.26 3461.73 4115.15 Ordering cost 36610.31 37415.79 30965.59 43201.71 34858.17 Carrying cost 641.49 524.34 723.60 792.70 714.23 EOQ 458.5 494.6 427.7 614.2 633.7

Source: Annual Reports of the Krishna engineering works Limited 2006-11.

Figure 5.10:

Analysis:

Economic order quantity of Krishna Engineering Works Limited

during the period of 2006-07 to 2010-11 in the year 2010-11 is 633.7, this is

the highest economic order quantity value. Lowest economic order quantity value in the year 2008-09 is 427.7.In the year 2006-07 is 458.5, in the year 2007-08 is 494.6, in the Year 2007-08 is 427.7, in the year 2009-10 is 614.2 and in the year 2010-11 is 633.7 were recorded.

3rd

Krishna Engineering Works is one of the leading manufacturers, exporters and suppliers of Plastic Packaging & Converting, Textile Processing , Paper Industries, Tyre - Cord & Technical Textiles Machinery from India. We provide a whole range of products & machineries for all the industries that can be used from inception of raw material to the end product / output for the customer. Krishna Engineering Works is a company incorporated by experts having vast experience of 25 years in the Engineering industries of Plastic Packaging - Converting, Textile Processing and Tyre - Cord machineries. Our founders have a deep technical & marketing knowledge in these industries. The company takes regular participation in national, international conference, exhibitions, etc. to continuously update itself with latest technological advances and make available to the market our latest products. The advisory technical committee of the company consists of various experts from CIPET & other prestigious institutes so that the company is continuously upgraded with new technological developments and the machines are made of latest technological developments. This expertise for the machines allows our customer to produce maximum output with minimum cost & maintenance. Krishna Engineering Works provides import substitute technology for the industries and also we tie up with International companies and also engage in Joint Ventures to produce premium quality machines.

Nature of Business: Krishna Engineering Works are successful


manufacturers of above machineries with great performance & quality assurance with customer satisfaction. We confirm the assurance of the quality of machineries and its components as they are being manufactured in our own factory, which is well equipped with all necessary top quality technically skilled personnel, raw materials & machineries. From raw materials to finished components are carried out up to final stage of assembly with total inspection to ensure export quality. Also in the final stage of the machine, continuous trial is taken to satisfy ourselves before being dispatched to our customers. We use state of the Art Technology with computerized drawing designs.

Our focus is not only on order fulfillment but also promoting a cordial relation with our customers forever to get the best results with installation and after sales services. Thus our primary focus is customer satisfaction with long-term relationship. We rest assure that all orders would be executed with full satisfaction. We would like to request you to register our name as a leading manufacturer of above machineries and send us your valuable inquiries and orders.

Exports and Imports: Krishna Engineering Works is one of the Leading


Manufacturers & Exporters of Flexible Packaging, Converting, Textile Processing & Printing & Tyre-Cord Machinery from India. The Company was incorporated 15 years ago by Mr. Bharat Pathak with vast experience of 25 Years in the field of Packaging, Textile, Paper & Tyre Cord Industry. Joining the Company in 2007, his son Vimal Pathak is an MBA & has 4 years experience travelling around every corner of the world. The company has changed its focus tremendously from Domestic to International Market since last 2 Years which can be visible by its Exports Sales. The main objective of the company is to promote Engineering solutions with Up-todate International Technology to Customers rather than selling Machinery. The Company is targeting Exports up to 80% of total sales in 2009 end, which is now 45% of total sales. The main reason behind this is the focus & efforts of capturing International markets like Europe, US, Latin America etc. With due respect, the company never considers the machinery

manufacturers from China & other low cost manufacturers from India as their competitors as the companys sole objective is to be competitive & more importantly superior with European, American & other International Machinery manufacturers. The results are immediately visible as the company has already exported to Europe, South East Asia, and Middle East & most importantly received applauding recommendations from European Customers which has stringent norms & parameters for Machinery.

The Company has added advantage of its strategic Industrial location in Ahmedabad. All the suppliers are located near by the Factory premises which give added advantage of cost effective products with continuous eye on the Quality Parameters of all the materials for the end product. The Company enjoys very healthy and friendly personal relations with all its suppliers. The Company always believes in the policy of adding members to the companys family in the form of Customers. Here also the company enjoys personal, friendly & very healthy relation with all its Customers. This is possible due to continuous feedback and prompt After Sales Service to all our customers irrespective of the value of purchase. The company gives equal attention to all Domestic as well as International Customers. The Companys other benefit is that all the materials from Web Aligner to Rubber Rolls to Textile Spares, etc. are prepared in-house. Hence the companys has costing & quality advantage. The company has 25 Products in Packaging & Converting category, 24 Products in Textile Category, 20 in Paper & 20 in Tyre-Cord & wants to expand more. The company offers the machinery which can be used from inception of the raw material to end use. The company is planning to set up its own factory for production of Films, Roto Flexo Jobs, Textile Processing Unit, Paper Lamination Unit, etc. This is done to understand vigorously & perfectly regarding the day to day problems faced by customers & to make engineering solutions to resolve them. This will make the company

extremely trust worthy and the customers can understand that it is always possible for a company to offer all the products under one roof, specifically when the company is always expanding its knowledge base.

Product Profile: Krishna Engineering Works is a company engaged in


manufacturing of machinery for Plastic Packaging & Converting, Textile Processing ,Paper Industries, Tyre - Cord & Technical Textiles Machinery. We cater all the industries with equal ease & satisfaction. We provide a whole range of products & machineries for all the industries that can be used from inception of material to the end product / output for the customer.

Quality Policy: Krishna Engineering Works is a company dedicated to


provide premium Quality machineries for our customers of Plastic Packaging C Converting, Textile Processing and Tyre - Cord industries. Our Quality Policy is about providing excellent Quality machines to our customers which gives maximum output with minimum cost and maintenance. The machines are made exactly as per the technical requirements of the customer so as to produce desired results. Our Quality Policy means 100% Customer Satisfaction and passing & approval of machines according to our high Quality Standards. We confirm the assurance of the quality of machineries and its components as they are being manufactured in our own factory, which is well equipped with all necessary top quality technically skilled personnel, raw materials & machineries. From raw materials to finished components are carried out up to final stage of assembly with total inspection to ensure export quality. We use state of the Art Technology with computerized drawing designs. All machines are made with equal excellent quality for domestic as well as international customers. The machines are manufactured keeping in mind high International Standards like ISO and other International Inspection bodies & agencies.

Our focus is not only on order fulfillment but also promoting a cordial relation with our customers forever to get the best results with installation and after sales services. Thus our primary focus is customer satisfaction with long-term relationship. We rest assure that all orders would be executed with full satisfaction. We would like to request you to register our name as a leading manufacturer of above machineries and send us your valuable inquiries and orders. In the final stage of the machine, continuous trial is taken to satisfy ourselves before being dispatched to our customers. We invite our customers at our premise to take trial of their machines and only after their approval and inspection, we dispatch the machine. So that the customer has just to install the machine and start using it after erection.

Carrier: Krishna Engineering Works offers careers which provide longterm stability, experience & expertise. You can apply in the field of production, marketing & office executives. Future International exposure & opportunity would be given to suitable candidates in our own branches abroad.

The Engineering Industry fitness equipment manufacturing industry consists of about 100 companies with combined annual revenue of about $3 billion. Major compa- nies include Cybex International, ICON Health & Fitness, Life Fitness, Nautilus, and Precor. The industry is concentrated: the top five companies account for more than 50 percent of revenue. Demand is driven by consumer income and demographic trends. The profitability of individual companies depends on unique product designs and effective marketing. Large companies have some advantages in brand recognition, but small companies can compete effectively by building unique products. Major products are motorized treadmills, stationary bikes, stair climbers, rowing machines, and elliptical "cross-trainers," collectively called aerobic exercisers; and weightlifting machines "strength training", and traditional weightlifting equipment "free weights" and benches. In addition, there are a large number of ancillary products. This equipment allows individuals to exercise by themselves in a limited space. The two major market segments for fitness equipment are the home and the institutional exercise equipment market (including health clubs, corporations, apartments, and hotels). The home market is by far the largest and has grown significantly in the past decade. Products are made and marketed separately for the two segments.

Products for home use are mainly treadmills and exercise bikes. Cost is a primary consideration, so home equipment isgenerally built with lighter materials, as it is rarely used more than one hour per day. Products sold to fitness clubs include a wide range of equip- ment, with treadmills, exercise bikes, and stair climbers being among the most popular. Weightlifting machines and "free weights" appeal predominantly to men. Since a typical club owns dozens of pieces of fitness equipment, initial cost is a major consideration, but since equipment in a club is used very intensively, durability is even more important. A club treadmill or exercise bike may be used more than 12 hours per day, 7 days a week. Accordingly, equipment sold to clubs is more sturdily built and costs more than that sold to the home market. However, consumers are beginning to demand equipment that is similar in feel to the sturdier equipment in use at commercial gyms.

Most fitness equipment consists of a mechanical portion that provides resistance to a muscular activity, and an electronic portion that interfaces with the user that allows resistance adjustment and provides a wide variety of information about the amount of exercise the user gets. Treadmills consist basically of a motor and a wide belt stretched between two rollers and supported by a deck. Because they absorb greater force from individuals running on them, treadmills must be built more sturdily than bikes and stairsteppers. Exercise bikes, ellipticals, and stair climbers use sprocket chains, pulleys, ratchets, and a variety of resistance mechanisms. Weightlift- ing machines consist mainly of levers, pulleys, and weights. Although large companies may have more than one production facility, most manufacturers have a single production plant that includes metal fabrication, plastics molding, and welding and painting operations. Handling metals, plastics, and paints means that environmental issues have to be addressed. Manufacturers hold patents on various features of their equipment, and new fitness equip- ment is constantly being developed to build more efficient machines that produce better results or desirable features.

Recent Developments: corporate profits, an indicator of the ability of


corporations to purchase fitness equipment for employees, jumped 26.4 per cent in the third quarter of 2010 compared to the same period in 2009. manufacturers' shipments of miscellaneous durable indicator of demand for fitness equipment, rose 6.3 percent in January 2011 compared to 2010. goods, an

retail sales for sporting goods, hobby, book, and music stores, a potential measure of fitness equipment demand, increased 2.9 percent in the first two months of 2011 compared to the same period in 2010. Think space, budget and goals before you design a home gym The Patriot-News, 20 February, 2011, 529 words With so many options for staying fit, getting a great workout doesn't have to mean spending money on a gymmembership or expensive equipment. With increasingly hectic lifestyles, home gyms are more popular than ever. Convenience is the ... Fitness equipment being installed at S.A. parks San Antonio Express-News, 24 February, 2011, 622 words Now, working out in San Antonio's parks will be even easier for residents hoping to get a health boost. Fourteen parks and five libraries either have received or are getting outdoor fitness equipment stations. Earlier this week, city ... Fitness machine firm on a steady jog // Octane Fitness of Brooklyn Park is having a smooth, stable run despite the recession, hiring nine people last ... Star-Tribune, 28 February, 2011, 1121 words Special to the Star Tribune When fitness industry veterans Dennis Lee and Tim Porth founded Brooklyn Park-based Octane Fitness, they didn't set out to build a better elliptical trainer. They wanted to make the best, the sturdiest, ... Cybex Loses $66 Million Product Liability Case - A jury handed down a $66 million verdict against fitness equipment manufacturer Cybex International in December 2010, according to Penton Insight. The suit was brought by a physica therapy assistant who was injured when a Cybex weight machine fell on her, making her a quadriplegic. Product liability is an ongoing concern for fitnes s equip- ment manufacturers. Under the ruling, Cybex is responsible for 95 percent of the award, though it may collect 20

percent from Amherst Orthopedic, where the accident occurred. Cybexs available insurance coverage for the claim is less than $4 million. The company plans to appeal the verdict. CRITICAL ISSUES: Demand Subject to Fashion - Fitness equipment manufacturers have had to contend with relatively rapid changes in consumer preferences. The popularity of various equipment types has changed over the years: exercise bikes were once the most popular aerobic fitness equipment, followed by rowing machines. Now treadmills and elliptical trainers are the mainstays of most gyms. Manu- facturers must combat workout boredom with new features and new designs. Technology Knowledge - Technology development is a driving force in the fitness equipment industry. Consumers demand enhance- ments through systems that reduce impact, monitor heart rate, and deliver better performance metrics. While mechanical expertise is necessary, new

experiential and operations technologies will drive future growth. Fitness equipment manufacturing is dominated by large companies such as ICON that have more capital to allocate to R&D, which leads to quicker and more dramatic improvements in product design. Other Business Challenges: Competition from Imports - Foreign sports equipment makers, especially from China, have taken a greater share of the market. The high labor content of exercise equipment favors manufactu ers with low labor costs. Despite a drop in demand for imported equip- ment due to the recession of the late 2000s, foreign competition will likely rebound as the economy strengthens. Strong Dependence Upon Distributors - Most equipment for the consumer market is sold through sporting goods chains like Sports Authority or mass merchants like Sears and Kmart. However, because fitness equipment is bulky, these large customers may carry only a limited selection. Online retailing has become an important sales source, along with sales through television infomercials.

Dependence on Access to Fitness Clubs - While the retail at-home equipment market is an important demand driver for fitness equipment, new products are frequently introduced first into fitness clubs. New technology is frequently tested in the commercial marketplace, prov ding critical information about popularity and effectiveness. It then often migrates into the consumer retail market at a more affordable p ice point. Raw Materials Costs - The profitability of manufacturers is dependent upon the price and availability of raw materials. Companies are vulnerable to commodity price flu tuations as well as disruptions in the supply chain. Additionally, steel and other metals, electronic components, and plastics and other molded parts may be sourced from a single supplier, further pressuring the supply chain. Business Trends: Specialized Equipment - Fitness equipment manufacturers are producing more specialized equipment for separate fitness market segments. Manufacturers often produce models for distinct market segments: commercial health clubs, low-supervision facilities, and home use. Some homeowners with home gyms are providing a market for heavyduty equipment that mimics commercial gym equip- ment. Partnerships with Clubs - Manufacturers have a high stake in club member satisfaction and strive to provide the equipment that boosts retention. Some manufacturers partner with clubs, spas, and other commercial businesses to help set up and maintain their facilities. Manufacturers provide input into customer needs and offer turnkey systems and solutions. Health Club Membership Increasing - Many people find that the variety of equipment and social setting of a health club make exercising easier than if done at home. About 30,000 health clubs and other recreational sports facilities operate in the US. Employ- ment in health clubs is expected to grow more than 25 percent between 2006 and 2016, according to the B reau of Labor Statistics. Older Population Growing Rapidly - More physically active than their parents, baby boomers are turning to fit ess equipment that is less stressful on their bodies than running or playing tennis. Older members tend to gravitate toward machines a d classes that are easier on the aging body, such as the treadmill, recumbent bike, free weights, yoga, Pillates,, and low-impa

t aerrobiic . Manufac turers must start targeting special equipment that provides a safe exercise program to prevent falls for elderly Americans. Used Equipment Sales - To capitalize on the vast numbers of Americans who buy new fitness equipment according to the latest exercise trends and end up not using it, fitness equipment retailers are offering buybacks, tradeins, and con ignments of older equip-ment. Some retailers also offer commercial trade-ins, allowing fitness centers to keep the r equipment up-todate. The impact of this emerging trend on manufacturers is uncertain, as those selling use equipment are also m st likely to continue to buy the newest equipment, while those who buy used equipment are less likely to buy high-end new equipment. Industry Opportunities: Improved Electronics - To differentiate their products among competitors, manufacturers have added electronic features that engage the user. With prices already in the thousands, adding a few hundred dollars to add cutting-edge electronics can only help sales of treadmills and exercise bikes. Elaborate electronic displays showing exercise statistics are now standard on most aerobic fitness products like treadmills, exercise bikes, and stair climbers. New models have Internet connections, built-in audio guides, and display screens. Increasing Obesity Among America s - With a greater number of overweight Americans, demand for fitness equipment should stay high during the nex decade. Treadmills are the equipment of choice for those trying to lose weight, because the exercise can be started at a low level. Manufacturers can reach o t to sedentary adults by using advertising images and equipment designs appealing specifically to them. Private Communities Offer Fitness Amenities - Upscale apartment complexes and gated communities offer high tech workout equipment and wellness centers complete with professional staff. The square footage allotted to fitness amenities is a selling point to residents, with more communities offering indoor and outdoor spas, aquatic centers, and sports facilities. Community planners are positioning their communities for youthful-minded residents pursuing an active lifestyle.
GROWTH OF THE INDUSTRY

The Indian auto components industry has an estimated production of US$ 10 billion. The spiraling demand from domestic and international auto

companies has seen this sector emerging as one of the fastest growing manufacturing sectors in India and globally. The Auto components industry is predominantly divided into five segments: Engine parts Drive Transmission & Steering Parts Suspension & Brake Parts Electrical Parts Body and chassis According to the ACMA (Auto Components Manufacturers Association of India), the sector is set to grow at a CAGR of 15 per cent till fiscal 2012. This sector is now working towards an open market. A large number of joint ventures with leading global manufacturers have already been set up in the auto-components sector. And with India estimated to have the potential to become one of the top five auto component economies by 2025, the pace is expected to pick up even further. Moreover the automotive components industry is perceived as a lucrative sector with tremendous potential for foreign direct investments. The year 2006-2007 saw the auto components sector soar with exports touching the US$ 3 billion mark and investments continuing unabated. The ACMA estimates the global sourcing of components from the country to double from US$ 2.95 billion to US$ 5.9 billion in 2008-2009, and touch US$ 20 billion in seven years owing to the huge and growing markets both within India, and overseas. Domestic Investments: The market is so large and diverse that a large number of players can be absorbed to accommodate buyer needs. The sector not only has global players looking to invest and expand but leading domestic component companies are also pumping in huge sums into expanding operations: Foreign Investments: India enjoys a cost advantage with respect to casting and forging as manufacturing costs in India are 25 to 30 percent lower than their western counterparts. Seeing the growing popularity of India in the automotive component sector (a whopping US$ 530 million in terms of foreign direct investment), the Investment Commission has set a target of attracting foreign investment worth US$ 5 billion for the next five years to increase India's share in the global auto components market from the existing 0.4 per cent to 3-4 per cent.

List of tables
S.No 1 2 3 4 5 6 Table No 4.1 4.2 4.3 5.1 5.2 5.3 Particulars Acquyring Raw Materials From The Store Room Stores Requisition Summeary In Krishna Engineering Works Local Purchase Of Indent Of Krishna Engineering Works Components Of I Nventry Of Krishna Engineering Works Componential Analysis Of Engineering Works Trend Analysis Of Krishna Engineering Works Page .No

7 8 9 10 11 12 13

5.4 5.5 5.6 5.7 5.8 5.9 5.10

Inventry Turn Over Ratio Of Krishna Works Inventry Conversion Period Of Krishna Engeineering Works Persantage Of Inventry Over Total Assets Of Krishna Engineering Works Current Ratio Of Krishna Engineering Works Proprietory Ratio Of Krishna Engineering Works Invest Ment Employment Ratio Of Krishna Engineering Works Economic Order Contity Of Krishna Engineering Works

List of figures:
S.No 1 2 3 4 Figure .No 5.1 5.2 5.3 5.4 Particulars Component Of Inventory Componential Analysis Trend Analysis Inventory Turn Over Ratio Page .No

5 6 7 8 9 10

5.5 5.6 5.7 5.8 5.9 5.10

Inventory Conversion Period Persentage Of Inventory Over Ratio Total Assets Current Ratio Proprietry Ratio Investment Employement Ratio Economic Order Quantity

Finance is the life-blood of modern business economy. We cannot imagine a business without finance in the modern world. It is the basis of all economic activities, no matter, the business is big or small. The problem of finance and that of financial management is to be dealt within every organization. The problem of finance is equally important to government, semi-governments and private bodies, and to profit and non-profit organizations. It is therefore, essential to clearly understand the meaning of financial management, its scope and goals. Financial Management is that specialized function of general management which is related to the procurement of finance and its effective utilization for the achievement of common goal of the organization. Finance function for the sake of convenience may broadly be classified into groups i.e., executive finance function and inciden Every

enterprise needs inventory for smooth running of its activities. It serves as a link between production and distribution process. There is generally a time lag between the recognition of a need and its fulfillment. The greater the time lag, the higher requirements for inventory. It also provides a question for future price fluctuations. the investment in inventories constitutes the most significant part of current assets/ Working capital most of the undertaking. Thus, it is very essential to have proper control and management of inventories. The purpose of inventory management is to ensure availability of materials in sufficient quantity as and when required and also to minimize investment in inventories. Reasons to hold inventory is meet variations in customer demand- meet unexpected demand, Smooth seasonal or cyclical demand. Pricing related- Temporary price discounts, Hedge against price increases Take advantage of quantity discounts. Process & supply surprises -Internal upsets in parts of or our own processes, External delays in incoming goods and transit.

The following are the objectives of inventory management: To ensure continuous supply of materials. To avoid both over-stocking and under-stocking of inventory. To maintain investment in inventories at the optimum level as To keep material cost under control so that they contribute in To eliminate duplication in ordering or replenishing stocks .This

required by the operational and sales activities. reducing the cost of production and overall costs. is possible with the help of centralizing purchases.

To minimize losses through deterioration, pilferages, wastages, To ensure perpetual inventory control so that materials shown in To ensure right quality goods at reasonable prices. Suitable

and damages. stock ledgers should be actually lying in the stores. quality standards will ensure proper quality of stocks. The priceanalysis, the cost-analysis and value analysis will ensure payment of proper prices. To facilitate furnishing of date for short- term and long term planning and control of inventory.
tal finance function

6. To study the profile of the Krishna Engineering works limited. 7. To examine the various approaches of inventory management models. 8. To analyze the data of inventory to known the optimum size of order at required time. 9. To analyze and interrupt the inventory ratios to known the performance levels of inventory management. 10. To offer a suitable suggestion to strengthen the management of inventory.

Methodology is a systematic procedure of collecting information in order to analyze and verify a phenomenon. The collection is done through two principle sources viz. Primary data

Secondary data 1) Primary Data: It is the information collected directly without any reference. In this study it was mainly through interviews with concerned officers and staff, either individually or collectively. Some of the information had been verified of supplemented conducting personal with observation. 2) Secondary data: The secondary data was collected from already published source such as Pamphlets, annual reports, returns and international records. The data includes: Methodology under study has been collected from the annual reports of Krishna Engineering works Ltd., in house magazines, Publications, books, Journals on Management and Websites.

Most fitness equipment consists of a mechanical portion that provides resistance to a muscular activity, and an electronic portion that interfaces with the user that allows resistance adjustment and provides a wide variety of information about the amount of exercise the user gets. Treadmills consist basically of a motor and a wide belt stretched between two rollers and supported by a deck. Because they absorb greater force from individuals running on them, treadmills must be built more sturdily than bikes and stairsteppers. Exercise bikes, ellipticals, and stair climbers use sprocket chains, pulleys, ratchets, and a variety of resistance mechanisms. Weightlift- ing machines consist mainly of levers, pulleys, and weights. Although large companies may have more than one production facility, most manufacturers have a single production plant that includes metal fabrication, plastics molding, and welding and painting operations.

Handling metals, plastics, and paints means that environmental issues have to be addressed. Manufacturers hold patents on various features of their equipment, and new fitness equip- ment is constantly being developed to build more efficient machines that produce better results or desirable features.

Demand Subject to Fashion - Fitness equipment manufacturers have had to contend with relatively rapid changes in consumer preferences. The popularity of various equipment types has changed over the years: exercise bikes were once the most popular aerobic fitness equipment, followed by rowing machines. Now treadmills and elliptical trainers are the mainstays of most gyms. Manu- facturers must combat workout boredom with new features and new designs. Technology Knowledge - Technology development is a driving force in the fitness equipment industry. Consumers demand enhance- ments through systems that reduce impact, monitor heart rate, and deliver better performance metrics. While mechanical expertise is necessary, new

experiential and operations technologies will drive future growth. Fitness equipment manufacturing is dominated by large companies such as ICON that have more capital to allocate to R&D, which leads to quicker and more dramatic improvements in product design. Competition from Imports - Foreign sports equipment makers, especially from China, have taken a greater share of the market. The high labor content of exercise equipment favors manufactu ers with low labor costs. Despite a drop in demand for imported equip- ment due to the recession of the late 2000s, foreign competition will likely rebound as the economy strengthens. Strong Dependence Upon Distributors - Most equipment for the consumer market is sold through sporting goods chains like Sports Authority or mass merchants like Sears and Kmart. However, because fitness equipment is bulky, these large customers may carry only a limited selection. Online

retailing has become an important sales source, along with sales through television infomercials.

Krishna Engineering Works is one of the leading manufacturers, exporters and suppliers of Plastic Packaging & Converting, Textile Processing , Paper Industries, Tyre - Cord & Technical Textiles Machinery from India. We provide a whole range of products & machineries for all the industries that can be used from inception of raw material to the end product / output for the customer. Krishna Engineering Works is a company incorporated by experts having vast experience of 25 years in the Engineering industries of Plastic Packaging - Converting, Textile Processing and Tyre - Cord machineries. Our founders have a deep technical & marketing knowledge in these industries. The company takes regular participation in national, international conference, exhibitions, etc. to continuously update itself with latest technological advances and make available to the market our latest products : Krishna Engineering Works is a company engaged in manufacturing of machinery for Plastic Packaging & Converting, Textile Processing ,Paper Industries, Tyre - Cord & Technical Textiles Machinery. We cater all the industries with equal ease & satisfaction. We provide a whole range of products & machineries for all the industries that can be used from inception of material to the end product / output for the customer. Krishna Engineering Works is a company dedicated to provide premium Quality machineries for our customers of Plastic Packaging C Converting, Textile Processing and Tyre - Cord industries. Our Quality Policy is about providing excellent Quality machines to our customers which gives maximum output with minimum cost and maintenance. The machines are made exactly as per the technical requirements of the customer so as to produce desired results. Our Quality Policy means 100% Customer Satisfaction and passing & approval of machines according to our high Quality Standards.

Raw materials Work in process (semi finished goods) Finished goods

INVETORY CONTROL TECHNIQUES

Selective inventory control 1. ABC Analysis 2. XYZ Analysis 3. VED classification. 4. FSN classification 5. SOS classification. 6. S-D-E Analysis

Inventory management techniques 1.EOQ (Economic Order Quantity A. Ordering Cost. B. Carrying Cost. 2.System of Re-ordering.

The fourth chapter deals with the changes in Inventory Management in Krishna Engineering Work . Inventory Turn Over ratio Inventory Holding Period Finished Goods Turn Over ratio Working Capital Turn Over ratio Cost of goods Sold Ratio&

EOQ Analysis

FINDINGS
Findings drawn from the study of Krishna Engineering Works Ltd

1.
2.

In the year 2009-2010 inventory reduced to 30.58% to 33.09% in the year

2009-2010 due to low demand of cylinder liners. The finished goods maintained by the company decreased year by year .i.e

from 52.44% in the year 2006-2007 to 23.5% in the year 2010-2011. As this company maintained cylinder liners on the basis of dealers and industrial users. purchase orders of their

2.

The trend analysis shows that investment on inventory raised from 134.80%

in the year 2007-08 to 189.90% in the year2010-2011. Because as this company made investment on inventory on the basis of demand of the customers.

3.

Although the sales are increased in the year 2010-2011. The inventory

turnover ratio decreased from 9.99% in the year 2007-2008 to 8.53% in the year 2010-2011 because increase in average stock.

4.

Although increased sales in the year 2010-2011 the inventory conversion

period increased from 36 days in the year 2009-2010 to 42 days. Because they are investing huge amounts on procuring raw materials, consumables & spares.

5.

The percentage of inventory over total asset reduced from 77% in the year

2007-2008 to 57% in the year 2010-2011 this is because this company increasing fixed assets for the expansion of factory in that year.

6.

The current ratio from the year 2009-2010 is 1.71% and it was decreased to

1.49% in the year 2010-2011 due to increase of sundry creditors.

SUGGESTIONS
1.
I suggested that the company should make proper arrangements, so that the demand for the product should be in an increasing trend but not in a decreasing trend. 2. The company should maintain inventory on the basis of purchase orders

from their dealers or industrial users through Re-order level technique. 3. analysis. 4. Due to increase an average stock the inventory turnover ratio has been It is good sign for the company. I suggest the company to maintain trend

decreased. I suggest the management to take care about stock that should be maintained.

5.
6.

I suggest the company to reduce the conversion period as it has

increasing the year 2010-2011. It is not good for the company. Due to expansion, percentage of total assets towards inventory has been

reduced. As expansion is the good sign for the growth of the company. 7. I suggest the company to reduce the sundry creditors of the company to

improve the current ratio.

Conclusion:

The liquidity position of the firm is appears to be satisfactory .Average current ration in 5 years in 5 years 2.24 to exceeds the standard ration 2:1.Average quick ration in 5 years 1.52 to exceeds the standards of 1:2