impact of inventory on E.O.Q

1. A
Research Report
on
“To study the impact of cost of inventory(raw material
cost,holding cost,ordering cost) with reference to E.O.Q
Model on profitability and sales of roulunds braking (i)pvt
ltd. For last 4 years(2009-2012)”
Presented by:
Rahul Chawla

2. CONTENT
Introduction
Theoretical framework
Research objectives
Research methodology
Hypothesis development and testing
Sample and sampling design
Analytical tools
Statistical tools
Limitation of the study
Findings of the study

3. Company Profile
Roulunds braking (india)pvt ltd. Is a company
registered under the companies act, 1956 having its
work at livaspur p.o bahalgarh disst. Sonipat.
Roulunds Braking (India) is leading manufacture of
brakes lining and brakes pads in India.

4. Roulunds braking global presence

6. Product Produced

7. MAJOR CUSTOMER
 GM
 DELPHI
 LAND ROVER
 TATA
 AFFINA
 ACDELCO
 BAER-BRAKE SYSTEM
 SUZUKI
 SAAB
 FORD

8. INTRODUCTION OF
INVENTORY
INVENTORY SOFTWARE:
There is very powerful software in Roulunds braking (i)pvt ltd for inventories of
the various items. This software holds all the transactions of the stocks. So this
software helps much in maintenance of stocks. It makes very easy to account
persons to maintain the transactions of inventories.
There are six different menus in this software these are as follows:
Data entry
Queries
Reports
Processing
Calculator
Exit
.

9. Concept of inventories
Inventory refers to the holding of raw materials. Work-in-progress
and finished good held by a firm at any time. Inventory turns over
at frequent intervals and thus can be expected to convert in cash
rather quickly.
Types of inventory:
1. Inventory of raw materials.
2. Inventory of work-in-progress.
3. Inventory of finished goods.
4. Inventory of consumables.
5. Inventory of spares.

10. THEORETICAL FRAMEWORK
CONSTRUCT OF THE STUDY:
“Study the Impact of cost of inventory (raw material cost, holding cost and ordering
cost) on profitability and sales, using EOQ and ABC analysis.”
INDEPENDENT VARIABLE:
COST OF INVENTORY
• HOLDING COST
• ORDERING COST
• RAW MATERIAL COST
DEPENDENT VARIABLE:
• SALES
• PROFIT(PAT)

11. RESEARCH OBJECTIVES
•To see the impact of holding cost of inventory on net profits.
•To see the impact of ordering cost of inventory on net profits.
•To see the impact of raw material cost of inventory on net profits.
•To see the impact of ordering and holding cost of inventory on sales.
•To see the impact of raw material cost of inventory on sales.
•To observe the effectiveness of company’s inventory management system.
•To study the company’s EOQ2 model in order to know the buying and carrying cost
of company.

12. Research methodology
PURPOSE OF THE STUDY Descriptive
TYPE OF INVESTIGATION Causal
STUDY SETTING Non contrived
TIME HORIZON Cross-Sectional
Time Period 2009-12

13. Hypothesis Development And Testing
NULL HYPOTHESIS:
There is no significant impact of cost of inventory on sales.
ALTERNATE HYPOTHESIS:
There is significant impact of cost of inventory on sales.
NULL HYPOTHESIS:
There is no significant impact of cost of inventory on net profits.
ALTERNATE HYPOTHESIS:
There is significant impact of cost of inventory on net profits.

14. T-TEST
T –test is small sample test. It was developed by William
gusset in 1908. For applying t-test, the value of t-test, the
value of t-statistics computed. For this, the following formula
is used:
T=deviation from population parameter standard error of
sample statistics

15. Cost of inventory and net profit for
the year
One-Sample Test
Test Value = 0.05
95% Confidence Interval of the
Difference
t df Sig. (2-tailed) Mean Difference Lower Upper
inventorycost 8.805 3 .003 5235.68750 3343.4220 7127.9530
Profits 4.478 3 .021 298.94250 86.4837 511.4013
Interpretation:
As calculated value of t>significant value which means that null hypothesis is
rejected and alternate is accepted i.e. there is significant impact of cost of
inventory on net profits.

16. Analytical tools
USE OF CONTROL RATIOS
Inventory turnover ratio helps management to avoid capital being
locked up unnecessarily. This ratio reveals the efficiency of stock
keeping.
Inventory turnover ratio =Cost of materials consumed / Cost of
average stock held during the period
Where,
Cost of average stock = [Cost of opening stock + Cost of closing
stock] / 2, Inventory turnover ratio = Days during the period
/Inventory turnover ratio.

17. Sales and cost of inventory
One-Sample Test
Test Value = 0.05
95% Confidence Interval of the
Difference
T df Sig. (2-tailed) Mean Difference Lower Upper
inventorycost 8.805 3 .003 5235.68750 3343.4220 7127.9530
Sales 3.741 3 .033 19940.70500 2976.1875 36905.2225
Interpretation:
As calculated value of t>significant value which means that null
hypothesis is rejected and alternate is accepted i.e. there is significant
impact of cost of inventory on sales.

18. STOCK/INVENTORY TURNOVER RATIO:
SALES / STOCK
STOCK TURNOVER RATIO
20
18
16
14
12
Axis Title
10
8
6
4
2
0
2008-09 2009-10 2010-11 2011-12
STOCK TURNOVER RATIO 4.52 7.71 19.02 14.45

19. INTERPRETATION:
The Stock turnover ratio shows how long goods are kept in store
before being sold. In the year 2009-2010, 2010-2011, 2011-2012
the ratio is good which indicates efficient sales performance.
However in the year 2008-2009 it is very low i.e. 4.52 shows that
stock does not sell quickly and remains in the godown for a long
time.

20. NET PROFIT RATIO: PAT / SALES *100
NET PROFIT RATIO
1.75
1.7
1.65
Axis Title
1.6
1.55
1.5
1.45
2008-09 2009-10 2010-11 2011-12
NET PROFIT RATIO 1.71 1.56 1.72 1.64

21. INTERPRETATION:
Net profit ratio is slightly fluctuating it was 1.71% in 2008-
2009, 1.56% in 2009-2010, 1.72% in 2010-2011 and 1.64% in
2011-12. This ratio express the cost price effectiveness of the
operation. A high net profit margin would ensure adequate return
to the owners as well as enable to with stand adverse economic
conditions when selling price is decline, cost of production is
rising and demand for product is falling.

22. GROSS PROFIT RATIO: GROSS
PROFIT / NET SALES *100
GROSS PROFIT RATIO
7
6
5
Axis Title
4
3
2
1
0
2008-09 2009-10 2010-11 2011-12
GROSS PROFIT RATIO 6.22 6.5 2.77 3.17

23. INTERPRETATION:
This ratio measures the relationship between gross profit in relation to net
sales. This ratio tends to increase year by year with increase in the gross
profit. It was 6.50 in 2009-2010 and decrease to 3.17 up to 2011-2012. This
year to year change may be the result of decrease in cost of goods sold without
increase in sales revenue or change in the method of valuation of closing
stock. .

24. STATISTICAL TOOLS
MEANING
Broadly speaking, the term statistics has been generally used in two
senses:-
Plural Sense
Singular Sense
Plural sense refers to the numerical data. Singular Sense refers to a
Science in which we deals with the techniques of
collecting, classifying, presenting, analyzing and interpreting the
data, the concept in its singular sense, refers to Statistical Method.

25. CORRELATION
Karl Pearson's coefficient of correlation method
Karl Pearson's coefficient of correlation method is the main important method
to calculate the correlation between two variables.
CORRELATION (Net profit and cost of inventory)
Correlations
inventorycost Profits
inventorycost Pearson Correlation 1 .927*
Sig. (1-tailed) .037
N 4 4
Profits Pearson Correlation .927* 1
Sig. (1-tailed) .037
N 4 4
Significant at the o.o5 level(1-tailed) correlation is:

26. INTERPRETATION:
The correlation between profit and cost of inventory is found
to be significant. As it can be seen that its value is .927
which shows that they are highly positively related to each
other.

27. CORRELATION (sales and cost of
inventory)
Correlations
inventorycost Sales
inventorycost Pearson Correlation 1 .853
Sig. (1-tailed)
.074
N 4 4
sales Pearson Correlation .853 1
Sig. (1-tailed)
.074
N 4 4
INTERPRETATION:
The correlation between sales and cost of inventory is found to be significant. As it can
be seen that its value is .853 which shows that they are highly positively related to each
other.

28. REGRESSION
COST OF INVENTORY AND PROFITS:
Model Summary
Model R R Square Adjusted R Square Std. Error of the Estimate
1 .934a .873 .809 58.32965
a. Predictors: (Constant), Inventory cost.
INTERPRETATION:
After applying regression value of r square is observed as .873, which means that there is
high dependency between independent and dependent variables net profit and cost of
inventory i.e. 87.3% which is a significant value.

29. COST OF INVENTORY AND SALES
Model Summary
Model R R Square Adjusted R Square Std. Error of the Estimate
1
.853a .727 .590 761.05253
INTERPRETATION:
After applying regression value of r square is observed as .727, which means
that there is high dependency between independent and dependent variables
sales and cost of inventory i.e. 72.7% which is a significant value.

30. LIMITATIONS OF THE STUDY
In spite of best efforts of the investigator the study was subjected to following limitations:-
Less Time Period:
The time period given to the researcher for the completion of the project was short, in such a short
span of time it is difficult to complete any project in detail.
Less Response:
Some officers were too busy to give a sincere response to investigators & hence their response may
not relate to real picture.
Unavailability of primary data:
Manager some time denied disclosing some important financial matters, which can be helpful in
processing of this study.
Limited Area of Study:
Researcher lack of experience in the field of research creates so many problems during the study.

31. FINDINGS
With increase in cost of inventory, production will also increase, with this sale
and profits will also increase because of high growth of the firm and demand for its
products.
After applying correlation, researcher found that there is positive relation
between dependent and independent variable that is cost of inventory and net profit
& sales which means that on increasing the cost of inventory, the sales and profits
will increase simultaneously.
After applying regression, researcher found that there is high dependency
between dependent and independent variable means with increase in cost of
inventory, there will be increase in sales and profit also.
After applying t-test researcher found that there is significant impact of
dependent variable on independent variable that is with increase in cost of
inventory, the sales and profits will increase.

32. RECOMMENDATIONS
Company should reduce its carrying cost of inventory.
Company should reduce its ordering cost of inventory.
Company should order in optimum quantity with the help
of EOQ analysis so that holding and ordering cost should
not go high.
Company should increase its sales by increasing the
various promotional activities..

33. Thank YOU