JUST IN TIME INVENTORY IN COMPUTER STORE

Sumit Kumar (MBA)Banner Id: 02546519

Course No: ACCT 607 Managerial Accounting

Dr. Jerry KlineFaculty – Indiana University of Pennsylvania

Summer 2009

JUST IN TIME INVENTORY IN COMPUTER STORE

Sumit KumarBanner Id: 02546519

1. ABSTRACT

The research carried out is practical based objective to understand the managerial accounting system followed in organization BlueChip Corporation, an IT distribution company. Analyzing the concept of just in time (JIT) inventory management helps the company in enlargement of the purchases and sales activity. Adoption of JIT has provided an important prototype change for the organization compare to their competitors in market. Just-In-Time inventory system is all about having "the right material, at the right time, at the right place and in the exact amount", without the safety net of inventory. This project discusses about the company’s design and implementation of the system, process of decision making based on the inventory management and benefits of JIT in organization.

2. INTRODUCTION

2.1. Just-In-Time : is that cost management tool which is a comprehensive inventory and manufacturing control system in which no materials are purchased and no products are manufactured until they are needed.

Advantages: 1) A primary goal of JIT system is to reduce or eliminate non-value-added materials.2) Purchase of materials and manufacture of subassemblies and products in small lot sizes.3) Quick and inexpensive. Helps in advance technology aids in every process, technology

changes frequently.

Disadvantages:1) The major problem with Just-In-Time operation is that it leaves the supplies and

downstream consumers open to supply shocks & large supply or demand charges.2) If supplier fails to deliver the raw-material ‘just in time’ the production or sales drop for

the day increase the non-value-added cost.

2.2. About the company : Blue Chip Corporation is a leading emerging IT hardware technology provider of vertical business management solution serving transcend in distribution technology, to provide operational efficiency, cost savings as well as competitive advantage information through integrated hardware technology and other new technologies along with standard opportunities to enhance interaction with our distribution partners. We provide more products in hardware sales and services in great extent range of selections to the customer needs

by giving then in depth awareness. We mainly concentrate on providing awesome service to the customer needs, we serve superior custom sales and service to exceed our customer’s expectations and we provide our dedicated & supportive work closely with customer to determine the thermoelectric prototype and product to fit your needs to your end solution, which makes customer to think of purchasing in a right boundaries through final sale.

2.3. Describe the design and implementation of the system.

BlueChip Corporation process covers purchasing of laptops and desktops from Dell, HP and MSI Company, software installation and after sale service. The process includes delivering of PC’s to retail and direct customer channel. To minimize the delay between purchase and delivery, BlueChip Corporation is situated in IT centralized hub in Bangalore. The materials are purchased right before the supply. This minimizes inventory cost for the company. Low inventory is another business model – a critical consideration in an industry where components depreciate very rapidly.

2.4. Outline the decision making process.Chart1. Decision Process

The decision making process in BlueChip Corporation follows as per the chart 1. The company receives the purchase order from its customer from across Bangalore. Then the agent search for the information and alternatives from its various sources to provide the best configuration, price and quantity available. Then agent evaluates the best alternate and takes approval from the Director of company. A purchase approval mail is sent to purchasing department in company along with the customers purchase order and Director’s approval. The material is purchased. The last step is delivery of material to customer.

Based on the quantity order and location from where the customer is placing the order, company decide the time of delivery, usually it is observed that company believes in quick delivery of material say 2 business days for a large order and 24 hours for small quantity.

2.5. Benefits of JIT in organization Now let’s examine installation of the JIT system which is highly automated which records the each product line of the company. In the new process the material purchase and delivery would be quicker and more frequent. Few inspections are done while delivery time, due to the products are sealed packed from the Dell vendor’s end. Total quality control philosophy that often accompanies JIT. Variable costs would be lower, due to savings in direct labor. Finally, the office overhead cost would increase, due to the greater depreciation charges on the new software installation. Going over the benefits of JIT in organization, we compare the Traditional Cost-Volume-Profit analysis and an Activity-based costing CVP analysis. Taking the example of Dell Desktop 530s sold in company.

Table 1.1 - Traditional Cost-Volume-Profit analysis of per unit of Desktop sold. Sales price (in Rs.) 23,500.00Unit variable cost:Variable cost Variable selling and administration

12,500.00 9,000.00

Total unit variable cost 21,500.00Unit contribution margin 2,000.00Fixed costs (fixed with respect to sales volume):General warehouse overhead (including depreciation on plant & equipment)Software Installation (10 desktop at Rs.520 per installation)*Warehouse Maintenance [(52)(21) Supervision at Rs.20]^Material handling (1,080 hours at Rs.12 per hour)

60,000.005,200.00

21,840.0012,960.00

Total fixed costsFixed selling and administrative costs

1,00,000.0050,000.00

Total fixed cost 150,000.00 *One setup per week.^Three rounds of supervision at warehouse per day, seven days a week (52 weeks per year).(Source: Financial data record books)

Table 1.2 - Activity Based Costing CVP Analysis under the JIT ProcessSales Price (in Rs.) 23,500.00Unit variable cost:Variable costVariable selling and administration

10,500.009,000.00

Total variable cost 19,500.00Unit contribution margin 4000.00Fixed costs (fixed with respect to sales volume)General warehouse overhead (including depreciation on plant and equipment)Software Installation (100 desktop per day at Rs.250 per installation)Warehouse Maintenance [317 days Supervision at Rs.45]Material handling (100 hours at Rs.14 per hour)

108,975.0025,000.0014,265.001,400.00

Total fixed costFixed selling and administrative costs

150,000.0050,000.00

Total fixed cost 200,000.00(Source: Financial data record books)

As in the table 1.2, due to decreased use of labor, the unit variable cost has declined from Rs.12500 to Rs.10500, thus bringing the total unit variable cost to Rs.19500. this result in an increase in the unit contribution margin to Rs.4000. Under this process the software installation is daily and warehouse maintenance carry daily instead of weekly calculation done earlier.

As company already uses the JIT inventory management accounting system stated is the balance sheet of company along with the profits.

Balance Sheet of BlueChip Corporation as per 1-Jan-2009 to 31-Mar-2009Liabilities Amt (in Rs.) Amt (in Rs.) Assets Amt (in Rs.) Amt (in Rs.)

Capital Account 10,21,000.00 Fixed AssetsComputersFurniture Labeling MachineLaptopMobile Handset

39,564.0077,181.002,812.00

30,600.001,400.00

1,51,557.00

Loans Jammu & Kashmir BankOthers

2,50,000.00

19,000.00

2,69,000.00 Current AssetsClosing StockDeposits (Assets)Sundry DebtorsCash-in-handBank Accounts

10,05,133.382,000.00

7,87,636.001,02,686.202,06,750.00

21,04,205.00

Current LiabilitiesDuties & taxesProvisionsSundry Creditors

(-)28,710.192,133.00

7,89,652.00

7,63,074.81

Suspense A/cProfit & Loss A/cOpening BalanceCurrent Period

2,02,687.77

2,02,687.77

Total 22,55,762.58 Total 22,55,762.58(Source: As per the Vat Report of BlueChip Corporation)

The above balance sheet of company is the last quarter of financial year 2008-2009. Wherein the company records the profit of Rs. 2, 02,687.00/-. This shows the profit the company is making using the JIT inventory management in organization. The Director of company states “the costing account process JIT is main reason for the growth, wherein I easily analysis about what are the current inventory in hand, profit made in order and also finance available in hand and bank. All this helps the organization to take the quick decision and grab the opportunity in this cut thought competitive market”.

CONCLUSION

Thus, the practical research paper on the JIT in BlueChip Corporation clearly states the following advantage for the organization:

Reduced IT software support requirement. Reduced hardware and servers inventory stocks. Spontaneous, configurable system interfaces Reduction in software training. Customizable open source code. Ability to respond to new opportunities increased.

REFERENCES

Managerial Accounting – seventh edition - The McGraw Hill Publication. Website www.bluechipcorporation.in. BlueChip Corporation’s financial data record books. www.lotsofessays.com/essay_search/JIT.html. tutor2u.net/.../buying_decision_process.asp www.dell.com

Special Thanks To:

Mr. Amit BoranaManaging Director

BlueChip CorporationBangalore, Kar, India.

And

Mr. Ramesh Senior Accountant

BlueChip CorporationBangalore, Kar, India.