Inventory’s another names are goods, stock or products of company. 80 percent of business transactions are associating to purchasing and selling of inventories. Inventory can classify in raw material, work in growth and finished goods. For ongoing production, it is very essential to manage inventory management since without inventory management, it might possible that there is no stock in store and devoid of stock of raw material our production might delay. However the logic of inventory management in finance or financial management is advance and it is the portion of working capital management. In finance, this is the money of investment. Therefore, proper inventory management is very obliging to give good return on the investment in inventory.
There are some following facts which are required for appropriate inventory management.
1. In inventory management, we sustain the stock register that used to track what quantity is sold at what price.
2. We have to compute proper financial statement by employing first in first out technique of computation the value of inventory or any other technique of valuation of inventory.
3. Appropriate inventory management tells you various stock items closing stock at its cost. Let us take a very simple illustration. Assume that you have started your own VCD business. You have formed 100 VCDs by utilizing your own computer and appoint your salesman to sell these 100 VCDs although your salesman sells only 2 VCDs. Then, you can estimate cost of goods sold by employing your own calculator but in very big institute where 100000 or more VCDs raw materials are purchased and then such VCDs are formed and sold by salesmen. At that time, appropriate inventory management will tells you what amount of raw material you must keep by employing reorder level. It as well tells you that what amount must be used for purchasing of raw material and what quantity, we should produce and keep as finished product. Subsequent to selling, what quantity of gain, we have to obtain from each salesman.
4. Some decisions are too taken associating to reducing the stock conversion period in inventory management. Stock conversion period is the period when stock is transformed into sales. Fewer periods are enhanced from financial view point.
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