1.1 BACKGROUND OF THE STUDY
It has been observed over the year that inventories constitute the most significant part of current assets of manufacturing companies in Nigeria and the world in general, moreover, in most industrial outlets raw material inventories account for over 50% of company’s cost of production. It is argued that a considerable amount of invested capital are locked up in stock while the cost of keeping (holding) these stocks amount to about one-quarter of the value of the stocks.
Further in the 1930s, most businesses in Europe and America experienced great slumps. This business slump was as a result of stock mismanagement and valuation. It was during this period the businessman coined the statement “stocks are the graveyard of any business”. The successor failure of any business depends in their level of stock management and valuation.
According to the statement of accounting standard (SAS) No. 4, 1986, “Appropriate classification and accurate determination of the quantity and cost of stocks are necessary for proper determination of the result of the operation of an enterprise and for the presentation of current assets in its balance sheet”. Further, Olojede 1996, said that in this ha time any good management will want to avoid two danger points usually associated with stock control.
- That of inadequate stock which disrupt production and loss of sales and good customers and
- Excess stock which constitute carrying costs and obsolescence risk.
As far as manufacturing companies are concerned stocks exist in various form; raw materials work-in-progress, finished goods and engineering spare parts/consumables. The stock of raw materials, work-in-progress and engineering spare parts/consumerable facilities production, which stock of finished goods is required for smooth marketing operation. Excessive investment in stock will cause unnecessary tie up of the firms fund increase in carrying cost (cost of keeping stock), and risk of liquidity while under-stocking will cause production hold-ups failure to meet delivery commitments and possible reduction in profits. Therefore, the aim of stock management should be to avoid excess and inadequate levels of stock but to maintain sufficient stocks for the smooth production and sales operations.
Infact, this study will seek to identifying and appraise the various stock management and valuation methods in manufacturing companies and in Nigeria Breweries in particular.
1.2 STATEMENT OF THE PROBLEM