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New Era University: Inventory Management of Hardware Businesses in Batasan, Quezon City
New Era University: Inventory Management of Hardware Businesses in Batasan, Quezon City
College of Accountancy
City
By:
Belleza, Ed Mark
Gaila, Jackilyn
Gregorio, Diane
3BSA3
New Era University
College of Accountancy
Chapter 1
INTRODUCTION
always have the right products in the right quantity for sale, at the right time. When done
effectively, businesses reduce the costs of carrying excess inventory while maximizing
sales. Good inventory management can help you track your inventory in real time to
inventory management system, it might cause a lot of trouble like loss of products,
operation.
By effectively managing your inventory you can have the right products in the right
quantity on hand and avoid products being out of stock and funds being tied up in excess
stock. You can also ensure your products are sold in time to avoid spoilage or
warehouse or stockroom.
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Inventory management of retail businesses may greatly affect the profitability of the
business. Since hardware businesses invest largely on inventories, they may be exposed
Literature Review
Inventory Management
techniques help stores and ecommerce sellers satisfy customers, reduce costs, and
increase profits. Retail inventory management is the process of ensuring you carry
merchandise that shoppers want, with neither too little nor too much on hand. By
managing inventory, retailers meet customer demand without running out of stock
results in lower costs and a better understanding of sales patterns. Retail inventory
management tools and methods give retailers more information with which to run
which stock sells well and which does not, by location and sales channel, profit
margin by style, model, product line or item, Ideal amount of inventory to have in
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back stock and storage, how many products to reorder and how often, when to
Inventory management is vital for retailers because the practice helps them
increase profits. They are more likely to have enough inventory to capture every
possible sale while avoiding overstock and minimizing expenses. From a strategic
Inventory Costs, when you know how much stock you have and how much you
need, you can pinpoint inventory levels more accurately, thereby reducing storage
and carrying costs for excess merchandise. Other savings include shipping,
logistics, depreciation, and the opportunity cost that comes from not having an
disappointing customers and missing sales, retailers want to avoid running out of
inventory. Retailers can use inventory management tools to determine how much
stock is “just right” to have on hand, neither too much nor too little. Improves
Profit Margins, with lower inventory costs and enough supply to fill every order,
management helps retailers address another costly inefficiency that happens when
loss due to shoplifting, product damage, vendor mistakes or fraud, employee theft
the products, they want faster with fewer mistakes or out-of-stocks, it increases
customer loyalty.
current assets of many organizations. Too much and too low inventories bring
same, that is, to ensure the inventory is ready and at the same time inventory is at
Stock and Lambert (2011) assert that inventory serves five purposes in the
firm. Thus, inventory provides protection from uncertainties in demand and order
cycle, enables the firm to achieve economies of scale, balances supply and
managing the inventories are lacking in best systems, which is also lagging them
downstream members.
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enterprise.
explained in theory; an empirical evaluation of the same is not done so far in the
contribute to profits only when they are sold, and money is received at the cash
businesses, in fact, are unable to tolerate the types of losses that result from
The relevance of these literatures to this study is that they suggest that
In one study its findings showed the challenges facing the manual system
everyday counting of items in the inventory, human errors are very prevalent
during counting and recording and in case of disaster like fire or flood or poor
irretrievable. Based on the findings this paper highlights the possible solutions to
update the stocks was designed and goods were supplied to implement the
increases the possibility of human error. The person may forget to record a
transaction or only the wrong count of items. This decision on additional orders
need not increase inventory costs of the company and use valuable storage space.
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Calculation physically inaccurate can also result in not ordering really a product,
meaning business could run out a single item criticality in the wrong time.
Profitability Ratio
revenues and after deducting all expenses incurred during a given period. Khaled
operational efficiency; however, Gaur et al. (2005) suggested the use of a new
turnover ratios of companies. They observed that gross margin, capital intensity,
and sales surprise were the factors influencing the firms’ inventory turnover ratios
in the retail industry. In subsequent work, Gaur and Kesavan (2015) found that
company size and sales growth rate also affected inventory turnover ratios of
retail companies.
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days as a dependent variable and gross profit and net profit as an independent
management and gross profit had a positive relationship, net profit had a negative
manufacturing industry because it can tell how fast the products are moving out
of the factory. Higher inventory turnover indicates less cash being tied up in
slow-moving products that are not being sold. In addition, inventory turnover
statements. It is also a signal of how efficiently products are moving along the
considered gross margin, capital intensity, firm size, debt cost, and demand
industry.
profitability that shows the percentage of revenue that exceeds the cost of goods
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sold (COGS). The gross profit margin reflects how successful a company's
involved in producing their products and services. In short, the higher the number,
the more efficient management is in generating profit for every dollar of cost
involved.
The gross profit margin is calculated by taking total revenue minus the
COGS and dividing the difference by total revenue. The gross margin result is
typically multiplied by 100 to show the figure as a percentage. The COGS is the
If a company's gross profit margin wildly fluctuates, this may signal poor
comparative study of SAIL & TATA Steel). The main purpose of a business unit
is to make profit. The profitability analysis is done to throw light on the current
that net income figure alone is not very helpful in determining the efficiency and
performance of the business firm unless it is related to some other figures such as
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sales, cost of goods sold, operating expenses, capital invested etc. Thus the
profitability ratios are calculated to enlighten the end result and comparison of
concern.
It is evident from the gross profit ratio of Tata Steel showed a decreasing
trend and so is the case with SAIL, which shows inefficiency of the management,
however on the basis of the average it can be concluded that Tata Steel performed
better as the decrease is less than the decrease in the gross profit ratio of SAIL.
the gross profit ratio by controlling cost of goods sold and by increasing sales and
Inventory Method
FIFO Method
FIFO assumes that any sale of an item is from the oldest batch on hand and is
relevant when the prices you bought it at fluctuate when you have large numbers
of nearly identical items, specific identification may not be worth the effort. First
This method will give you a very accurate representation of your inventory,
which can be beneficial if you buy batches of the same item at varying prices,”
stated (Abir, 2021). “It will often mirror reality as older units of a stock-keeping
unit (that scannable barcode) tend to be sold before the newer ones in ideal
circumstances. “The downside is that it takes more effort to track different costs
within the same stock-keeping unit for different batches of purchases. For
example, if you sell a particular shirt with one universal product code (UPC) that
was bought in three batches, it’s harder to track a different cost for each batch
LIFO Method
LIFO, as the name suggests, is basically the opposite of FIFO. It treats the
last items bought as the first ones sold. Here is what (Abir, 2021) has to say about
this method. “LIFO is when you attribute specific costs to individual items or
batches of items based on their actual cost, and you reduce your cost as you sell
items with the last items added being removed from inventory first. This method
only makes sense when it actually mirrors reality where the newest items are sold
first, and older items can sit there for a long time.” It is not a particularly common
Lastly, if the prices of the products you buy hardly change then you can use an
even easier method called Weighted Average Costing. With the weighted average
method, you use a pool of cost for all units of a particular stock keeping unit. Any
purchase is added to the pool of cost, and the pool of cost is divided by all units
you have on hand. “The benefit is that it’s much easier to track than specific
costing because you don’t need to know exactly which batch a sold unit was part
of, which is especially helpful when you have many identical units,” says
(Abir, 2021). It may also give you a more accurate costing method than the retail
method—which does not compensate for discounts or differing margins across SKUs.
This is when you assign a specific cost to each item in your store. Abir says this
method makes the most sense for retailers that have a lot of different items,
especially if they were bought from various sources. “A good example would be
an antique dealer,” says Abir. Specific identification methods depend on the size
of your retail business, according to the Corporate Finance Institute (CFI). For the
specific identification method to suit your retail business, you need to be able to
identify the location, cost, and sale amount of every stock-keeping unit (SKU)
confidently and accurately in your inventory. The bigger your business and its
inventory, the harder that becomes. The CFI suggests specific identification is
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better suited to small businesses because it can give them a more accurate profit
and loss statement, with reliable numbers on income and losses and normal
The retail method provides the ending inventory balance for a store by measuring
the cost of inventory relative to the price of the goods. In essence, it determines
how much expense to recognize this period versus the next period. The retail
method assumes that all your inventory has a consistent markup, explains
(Abir Syed, 2021) CPA of UpCounting. “So, you take the total value of what you
have for sale, reduce it by its markup, and use that number as your cost.”
The benefit of this method, explains Abir, is that it is extremely easy to calculate
and can work when you have weak inventory cost tracking. “The main con is that
it’s generally not very accurate, especially if you have prices that fluctuate at
different times of the year (which most retailers do), and if you have products
Theoretical Framework
This study adopts to the EOQ Model. EOQ is the purchase order quantity for
replenishment that minimizes total inventory costs. The purchase order is triggered when
the inventory level hits the reorder point. The following illustrates the EOQ Model
EOQ is the order quantity that minimize total holding costs and ordering costs for
the year hence increasing company profits. EOQ model is a formula to determine the
ordering quantity that will minimize total inventory costs that is ordering and carrying
costs. The carrying cost rises with large orders because the more inventories that are
ordered the larger the amount of inventory held by the company. Ordering costs on the
The EOQ is calculated in order to minimize a combination of costs such as the purchase
cost (which may include volume discounts), the inventory holding cost, the ordering cost,
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etc. The order quantity optimization is complementary to the safety stock optimization
One of the most widely used models is the EOQ model in determining the optimal
inventory level under operational management. This mathematical model was developed
by F.W Haris year 1913 but still R.H. Wilson is given credit for his early in-depth
analysis of the model. the model is also known as the Wilson EOQ model. According to
this model, some costs (ordering cost) decline with inventory holdings, while others
(holding cost) rise and that the total inventory-associated cost curve has a minimum point.
Since inventory costs directly impacts the profitability of the company, the EOQ Model
businesses.
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Conceptual Framework
• Effective and
efficient inventory
management
practices
view of the study’s dependent and independent variables. The independent variables are
variables that predict the amount of variation in the dependent variable. Thus, the value of
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the dependent variable depends on any change in the independent variable. This study’s
independent variable was represented by the inventory management practices while the
Fig. 2 presents the conceptual framework of the study. From Fig. 2, operational
likely to cause a change in firm performance in the same vein. Therefore, this framework
was very important as it clearly revealed the effect that inventory management practices
could have on the operational performances of manufacturing firms. This will help inform
policies and practices of the manufacturing firms in a bid to improve their operational and
This study attempts to determine the effect of inventory management on the profitability
1.1 Ordering
1.2 receiving
1.3 storing
1.4 sales
2. How may the profitability of the hardware businesses be measured in terms of:
This study will investigate the inventory management of the hardware businesses.
This was done to have an understanding about the hardware businesses perspective and
The respondents of the study were composed of all hardware businesses within
the area of Batasan Hills, Quezon City. A short questionnaire that consists of
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closed-ended questions will be used on which the researchers will personally distribute.
The respondents that will partake in the survey will only be owner/managers as these are
practices employed by their businesses and should be able to supply reliable information
Another limitation in this study is to consider that financial statements are reliable.
Management of Hardware Entities – This study will serve as a tool for evaluation of
the inventory management they use. This will enable them to stress out the effectiveness
of their current inventory method. The findings will make them aware of whatever
problem, possible solutions and recommendations to further enhance the factors that
Other Hardware Entities – For the hardware entities/owners who would like to check
Future Investors – This study will provide relevant information to the future
better facilitate the management of inventories that will help the hardware owners
obligations in all businesses must account for the value of their trading stock at the end of
each income year (closing stock) and at the start of the next income year (opening stock).
Plus, the corporate tax of any business is directly related to inventory management. The
First In, First Out (FIFO) method increases corporate tax liability. In contrast, the Last In,
Academe – This study contributes faculty members handling accounting and other
business subjects to be able to deliver to their students the most recent inventory
Future Researchers – This study will be an effective tool and reference for the future
researchers who would intend to make further relevant study particularly on the inventory
Definition of terms
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These are some of the words and terms that were used in this project. Their definitions
Cost efficient. The act of saving money without wasting time and money. It is measured
Inventory. Products which are available for sale. It is an asset that is intended to be sold
Inventory costs. It is the total costs associated with ordering and holding of inventory.
entire flow of goods from purchasing right through to sale, ensuring that you always have
the right quantities of the right item in the right location at the right time.
well.
Chapter 2
METHOD
This chapter deals with the procedures and techniques used by the researcher in
completing the study. It includes research design, population, sampling, sources of data,
Research Design
The study adopted descriptive research design. This design utilized quantitative and data,
which enabled the researcher to have an in-depth examination of the proposed study. It
was also intended to provide answers to the research question. The design was chosen
since it was deemed to be the most effective to significantly contribute of to the depth and
specificity of the study. Given that the aim of the proposed study is to focus on the
inventory classification, storage method and material inspections that results in inventory
lost.
The researchers have chosen all hardware businesses located in Batasan, Quezon City to
be their respondents. The total amount of the population will be gathered from the
Data Gathering
The researchers will prepare a letter of request signed by their thesis adviser and
obtain the total number of hardware stores located at batasan, Quezon city. After that, the
researchers will be able to gather information from the management of hardware stores in
The result of the data gathering will be tallied and tabulated according to the frequency of
items checked by the researchers. The results will be interpreted by the statistician using
statistical tools. The result will help the researchers to arrive at the interpretation of the
study.
Data Analysis
With the data collected being numerical scores, which can be analyzed, interpreted and
organize, analyze, interpret, and summarize the data collected. To carry this task out, the
Statistical Package for Social Sciences (SPSS) version 22.0 was employed. This software
is useful in the handling of complex data manipulations and analyses. It is fairly fast and
easy to use. It allows the use of percentages, graphs, charts, means and a score of other
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useful interpretations from a simple pull-down menu. It was then decided that it would be
1. Spearman rank-order
exists between two variables measured on at least an ordinal scale will be used in this
study. It is denoted by the symbol rs (or the Greek letter ρ, pronounced rho). The test
is used for either ordinal variables or for continuous data that has failed the
2. Cross Tabulation
multiple variables.
Also known as contingency tables or cross tabs, cross tabulation groups variables to
understand the correlation between different variables. It also shows how correlations
Cross tabulations are used to examine relationships within data that may not be readily
apparent. Cross tabulation is especially useful for studying market research or survey
responses. Cross tabulation of categorical data can be done with through tools such as
statistical technique that uses several explanatory variables to predict the outcome of a
response variable. The goal of multiple linear regression (MLR) is to model the linear
(dependent) variable.
Source of Data
Questionnaire/Test
Survey Questionnaires
We, the researchers from New Era University, as part of our studies, are carrying out
research on the Inventory Management of Hardware Businesses in Batasan, Quezon City.
Your participation in answering candidly the following questions would be a great
contribution to this paper. Please be assured that the responses you give are for academic
purposes only.
By beginning the survey, you acknowledge that you have read this information and agree
to participate in this research, with the knowledge that you are free to withdraw your
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participation at any time without penalty. Your participation is appreciated. Thank you for
taking time to assist us in our educational endeavors.
Age: ____________________________________________________
o 1-20 o 21-50 o
51-100 o More
than 100
Instructions: For each statement, please check whether you Strongly Agree, Agree,
Neutral, Disagree or Strongly Disagree
3. To what extent do you agree with the following statements about how your business
orders inventory (stock)?
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Ordering
i. We rely on common
sense to determine the
quantity of inventory
(stock) to order
ii. We use an equation to
calculate the quantity of
inventory (stock) to
order
iii. We order a fixed
quantity of inventory
(stock) periodically
iv. We order inventory
(stock) in bulk to take
advantage of the trade
discounts
v. We order inventory
(stock) when we receive
an inquiry from our
customer
vi. We receive our
inventory (stock)
automatically from our
suppliers without even
placing an order
vii. We order only when we
run out of stock
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€ Yes
€ No
If Yes, proceed to Question 5 and 6, if No, proceed to Question 13
Instructions: For each statement, please check whether you Strongly Agree, Agree,
Neutral, Disagree or Strongly Disagree
5. To what extent do you agree with the following statements about storage of stock in
your business?
6. Do you plan in advance before ordering inventory (stock) for the warehouse in your
business?
€ Yes
€ No
If Yes, proceed to Question 7, if No, proceed to Question 10
7. Do you prepare inventory (stock) budgets in your business?
€ Yes
€ No
8. Do you compare inventory (stock) ordered to the budgets regularly in your business?
€ Yes
€ No
€ Yes
€ No
€ Yes
€ No
11. If Yes, to Question 10, how often does your business conduct stocktaking?
€ Daily
€ Weekly
€ Monthly
€ Every 6 months
€ Annually
€ Other (please specify) ____________________
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12. Do you track the movement of inventory (stock) from the time an order is placed to
the time the stock is received?
€ Yes
€ No
13. Does your business have dedicated staff that manage the warehouse?
€ Yes
€ No
If Yes, proceed to Question 14, if No, proceed to Question 15
Please use the following scale to answer Question 14.
Instructions: For each statement, please check whether you Strongly Agree, Agree,
Neutral, Disagree or Strongly Disagree
14. To what extent do you agree with the following statements about inventory (stock)
control by your staff in the warehouse?
15. To what extent do you agree with the following statements about how your
business received your orders from suppliers?
i. Receiving, issuing,
accounting, and storing
responsibilities are
properly segregated.
ii. We match the delivery to a
purchase order.
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2. To what extent do you agree with the following statements about how your business
deliver your orders to customer?
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