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Chapter 3

3. Data presentation and analysis

Introduction to the chapter

This chapter deal with the interpretation and analysis of the data collected through structured interview, manual and
observation.

3.1 Background of the company

Pharmaceuticals and Medical Supplies Import and Whole Sale share company,(PHARMID) is an organization
established to supply imported and locally produced hermetical and medical supplies with the following business
objectives:-
- To supply imported and locally produced pharmaceutical and medical supplies primarily dealing with
country’s major health problems.
- To stabilize the market and prices of the basic pharmaceuticals and medical supplies and
- To engage in any other related activities necessary for attainment of the company's purpose.
- PHARMID has already been re-established in 1994 E, C. as a share company. By know it’s Asset & capital
is amounting to birr 500,000,000. The total employee of PHARMID is 603 and they are engaged in various activities
during 1999 -2000.
The categories of the employees are:
Professionals 85
Semi professionals 102
Vocational 78
Others 360

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3.2 Organizational structure of PHARMID

PHARMID led by board of directors and one General Manager leading different functional departments
including audit, legal, planning and project, and MIS service. In addition to that PHARMID have ten branches And
two of them found in Addis Ababa the remaining branches are in
The regional states.
3.3 Inventory control system of PHARMID
Inventory in Pharmid comprises Pharmaceuticals, Chemicals, Medical & Supplies & Instruments for reporting
purpose; goods in transit shall be included as inventory. All expenses such as inventory price, freight, insurance,
customs, Bank charge etc incurred in obtaining an item of inventory shall constitute the cost for that item.
Stock cards shall be maintained by finance & cost department for each item of stock in both quantity & values. The
stores & finance records shall be reconciled regularly.
Stores shall maintain bin cards for each type of medicine, chemicals…items showing its expiry date, quantities
available at any one time.

3.3.1 PURCHASES of PHARMID


PHARMID Purchases all pharmaceuticals, medical supplies, chemical and diagnostics, medical instruments,
narcotics, etc. and other expense items such as stationery, cleaning materials, etc
Purchases may be local purchases, i.e. goods purchased in Birr form a supplier in Ethiopia either for cash or on

credit, or foreign purchases i.e. goods imported by the company from a broad.

3.3.1.1 LOCAL PURCHASE in Pharmid


Local purchase comprises of the acquisition of goods & services by the company from a local Factories & Supplies
or in general from a local market.
3.3.1.2 FOREIGN PURCHASE in Pharmid
Foreign purchase comprises of the acquisition of various pharmaceutical, instrumental, medical supply & chemical
stocks from overseas.

Purchase order
-purchase orders are initiated from distribution department & sent to procurement.
- Procurement department shall check its completeness & register it & passes over the purchase order .
- after the approval of the purchase order by purchasing committee, General Manager & Board ,foreign
purchase department prepares price quotation in accordance with the set-up policy & distribute to potential suppliers
for providing their offer.

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- Up on the receipt of quotation tender from the suppliers, further analysis shall be carried out in accordance
with the guidance specified under quotation.
- Award of bid shall be granted for the winner of the bid final pro-forma shall be requested the supplier.
- up on the receipt of final pro-forma foreign purchase department process the formalities to secure import
permit & letter of credit.

3.3.2 INTERNAL CONTROL over Inventory of pharmid


The over all control procedures in the organization follow manual system.
All the documents used procedurally applied & activities are well designed & update.
The fundamentals of a sound system of internal control over purchases are as follows:
Responsible officials should authorize purchases in accordance with purchase regulation of the company for
obtaining pro-forma invoices, quotations, etc.
Cash purchases will be made on the basis of authorized purchase requisitions, pre-numbered purchase orders being
prepared for all credit purchases.
The procurement Department prepares a Local purchase Follow - up Register with the following columns, to control
that orders are promptly fulfilled: Purchase order no, Purchase requisition no, Date, Description, Quantity, supplier,
Goods receiving Voucher no., and remarks.
Where goods ordered is not available or the order was only partially filled, this fact should be noted in the remarks
column.
A Foreign purchase follow - up register must also be maintained by the purchasing Department to provide full
information on the exact situation of each import order as follows:
Order No. And date, Supplier's name, Description of goods and quantity, Supplier's invoice no., and amount,
Insurance credit no., Date import permit applied for, C.B.E. permit no. And date, Letter of credit no., date and
validity, Letter of credit extension dates, Bill of leading no. And date, vessel name, port of departure, port of arrival.

3.3.3 Goods receiving voucher in Pharmid


As stated in company's manual & as the practice of Pharmid goods receiving voucher is prepared by stock
clerk based on the invoice and sign by storekeeper after the requirements are fulfilled. There requirements are
appropriate requisition /purchase order, suppliers delivery order to invoice as to quantity, packing list, transits
transfer voucher, if there missing item, damages etc identify on the goods receiving Vouchers. All goods receiving
Voucher approved by distribution head or the assigned person distributor the original or the 1st goods receiving
voucher to cost and budget (finance), the 2nd copy to distribution department, the 3rd copy for bin card and the
remaining is left on the pad.

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3.3.4 Non - financial inventory in Pharmid
PHARMID is holding non - financial inventory comprising items such as medicines used for clinics. Cleaning and
repair and repair materials spare parts fuel, and other expenses items which are purchased for immediate
consumption even through, items that are not used immediately will be kept in the stocks,

3.3.5 STOCK -PHYSICAL INVENTORIES of Pharmid


A sound stock control system requires that stock record cards in quantity be maintained independently of
stores by the accounts section, that the quantity balances be regularly agreed with the stores bin cards, however,
goods recording control it is nevertheless necessary to take physical inventories of stock are in usable condition. It is
recommended that inventories of merchandise and other be taken at least once in a year. However, where stock
recording is incomplete, then reliance will have to be placed on the year-end physical inventories to establish the
quantities of stock on hand for evaluation and inclusion in the annual accounts.
Before physical inventories are taken, the quantity balances according to the Accounts section stock record
cards must be agreed with the balances on the stores bin cards or storekeeper's bin cards and all differences
identified and adjusted in order to ensure that the bin card balances are correct for comparison with the physical
counts. Physical inventory taking must be properly organized and controlled, as follows, if accurate results are to be
obtained.

3.3.6 RECORDING FOR TRANSFER OF GOODS in Pharmid


Goods transferred to branches will be recorded via stock Transfer voucher issued in quantity and value on the stock
record cards. The stock transfer Voucher is completed with item code, item description, unit, quantity, unit cost, total
cost and remark columns. Stock transfer vouchers should be summarized monthly for recording the transfers in the
stock ledger accounts.

3.3.7 SALES in pharmid


Sales may be either cash sales, where payments is received prior to delivery of goods or credit sales, where goods
are delivered to customers but not due until an agreed time after delivery or invoicing.
Where sales are made both on credit and for cash it is important for cash it is important for management to be
informed of the respective values of credit and cash sale

3.3.8 Stock -valuation Methods of Pharmid


Merchandise and other financial inventory items will be valuated as follows:
a) Pharmaceutical, Instruments and medicinal supplies at moving average cost;
b) Stationary and other stock items at purchase cost; and recorded on the stock record cards during the course of the
financial year so that the year balance sheet purposes, no further valuation being necessary.

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Stock should be carefully scrutinized by management to ensure that all items are not expired. obsolete or held in e
excessive quantities with consequent risk of expiring then adequate provision must be made to reduce the cost of
such items to estimated net realizable value, the accounting entry beings; cost prices must be compared to selling
prices and the appropriate provisions established to reduce the value of any stock item whose cost price is in excess
of selling price as stock must be stated at the lower of cost.
Merchandise should be carefully reviewed by management to ensure that all stocks are salable at least at cost price
and that the quantities held are reasonable relative to normal market demand, adequate provision being made for all
deteriorated, old or show moving stocks to reduce them to realizable value.
This chapter deals with the analysis and interpretation of data collected through interview analyze the data and then
state the finding that the present study come up with
Interviewees were asked to suggest ideas that improve the utilization of proper inventory control system in the
future.
3.3.9 Data Interpretation
In order to gather relevant data about control over inventory. The researcher interviewed ten selective
employees from different departments of PHARMID. Such as:
-from general accounts division:-division head
-from general accounts section: - section head
-from internal audit service: - senior & junior auditors
-from sales & distribution division:-store keepers

Purchase
Question No. 1. Does PHARMID follow proper purchase procedure? Explain.
For this question all the interviewees answer that ''yes'' there is proper purchase procedure. Because the
organization has purchase manual and separate purchase committee, and every purchase order is approved
by responsible person. As the respondents said the researcher also observed this fact while assessing the
organization manual & activities regarding to purchasing process.

Question No. 2. Does PHARMID Consider lead time at the time of ordering the items?
Most of the interviewees respond that the organization's manual considers lead-time but not fully
exercised. But it is appropriate for the organization.

Procedures
Question No 1 Is there clear polices procedures established by PHARMID?

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Almost all respondents similarly answered that the company /PHARMID/ has clear polices and
procedures regarding inventory and purchase procedures.
Question No 2. Are the procedures and polices efficient and effective?
All interviewees replied that, the policies and procedures are effective and efficient in
themselves.
Question No 3 How do you think if all manuals and procedures are applicable?
Most of the interviews agreed that 'almost all manuals and procedures are applicable
because of they are clear and understandable.

Receiving Voucher
Question No 1 Are goods received checked as to condition quantity and description? How?
They answered that "yes" goods received are checked by an authorized departments as to the
description of purchase order.
Question No2. Are pre - numbered goods receiving report prepared by store keepers for all
goods received? Give some explanation.
All of the interviews replied that "yes'' all the report produced by the store keepers are pre -
numbered.
Question No 3. Do you have a separate person to insect purchased goods and prepare
inspection report? Explain.
They respond that 'No' PHARMID has not a separate section and person, but the inspection of
goods are done by distribution department.

Inventory
Question No 1. Which inventory method applicable?
They assumed that other PHARMID used moving average inventory valuation method.
Question No 2. Which inventory system is applicable?
Half of the interviewees answer that periodic inventory system is used by PHARMID. And half
of them respond that 'perpetual'. Due to the nature of stocks held by the company, has an expiry
date; the FIFO system is widely used to prevent or minimize the cost of expiration.
Question No 3. Are perpetual stocks records are maintained for all stock?

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They answer that 'for all stock perpetual records are maintained and for the organization's
activity.
Question No 4. Are on stock difference reported to management? Why?
They responded to this question that 'yes', stock difference i.e. short and over are reported to
management for decision on the action to be taken during inventory count and as necessary.
There is no problem in reporting of the difference found during the inventory time.
Question No 5. To maintain effective control over stock, it is necessary to determine what
should be the maximum and minimum stock, then how do you compare?
For this question most of the interviewees replied that "PHARMID' does not use maximum and
minimum stock level for all items, but for some especially for essential drugs maximum and
minimum stock are set based on the consumption data'
Question No 6. Is there safety stock? Why?
They answered ''No'' PHARMID has not a safety stock. Because there is no sufficient store for
this purpose.
Question No.7. Is their carrying cost problem? How over comes this problem?
They answered that 'yes' to some extent warehouse cost is not an issue to PHARMID, but interest
on tied up of inventory is the major cost of the organization because its working capital is bank
overdraft.
Question No 8. Is the computer system properly applicable?
They respond to this question that 'Computer system is not fully applied at all level. The
organization uses manual system because there is no in-house developed or off-shelf system;
while this research conducted the company was processing to computerize its activities.
Question No 9. What is the major problem associated with control over inventories?
They answered that - trained personnel
- Warehouse space, facilities
- transportation problem
3.3.10 Summary of findings
1. PHARMID as merchandise business it needs adequate store in terms of space and
facilities that requires handling the items in standard form.

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 But PHARMID does not have efficient and facilitated store rooms.
2. In orders to control the unusual demand and out of stock problem it is necessary to use
economic order quantity but PHARMID doesn't use EOQ to determine the stock level
that satisfies the demand.
3. Pharmaceutical and medical supplies are required to inspect before they are ready to
distribute to the customer. This need qualified and authorized people but PHARMID has
not organized. Quality control department and separate person to inspect the purchased
goods.
4. The purchase manual indicates a clear lead-time for all stock purchased but in practice
this is not applicable this leads to out of stock.
5. Certain stock items are kept for a long period time due to obsolescence. As result the
company is incurring unnecessary carrying costs.

Chapter 4
4. Conclusion and recommendation
4.1Conclusion
The firm's inventory is classified in to Pharmaceutical, medical supplies, chemical,
diagnostics, medical Instruments, and narcotics etc.
• PHARMID does not have sufficient and enough storerooms to carry out these
responsibilities. Every merchandising business especially relates to health services
need to prepare clear comfortable warehouse space, etc.
• To indicate & over come problems in the processing of effective control over stock, it
is important to determine what should be the maximum and minimum stock but the
organization is not seriously applying it.
• Each merchandises are requires inspection before ready to distribute for customers.
But the quality control Lead time is used to estimate a period from requisition up to

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the merchandise received; however, the lead time set by PHARMID is mostly not
practiced.
• But it is an appropriate for the organization activity.
• A certain item is kept for a long period of time due to obsolescence or it might be due
to purchasing problem. This results in capital tied up, increases warehouse cost and
interest charge for the bank over draft.
• PHARMID used moving average for inventory valuation method. For sales purpose
they sale items with short expire date first. Then even if the usual working process
continued the next near expiry items selected for precaution.
• In this organization for every merchandise items there is a separate stock card and Bin
cards. The stock cad for each item indicates the description, quantity and price. But
the bin card doesn't show price of the item. Every movements of items are recorded
when purchase/and or sales are made. These two cards are reconciled every quarter.
So, this indicates that PHARMID uses perpetual inventory system.
4.2 Recommendation
As the research paper on title control over inventory of PHARMID, indicates that the
organization has a good inventory control system but there are some weakness regarding to
store, inspection of goods, lead time and others. So, the researcher recommend on the
following points.
1. PHARMID as a merchandise business, it has not adequate (in terms of space) and
facilities store. This creates more defect items. This problem has an effect on the
organization profitability. So, in order to maximize its profit keep the items in standard
from and reduce detect items the organization should have to prepare standardized and
facilitated store.
2. Economic order quantity (EOQ) which is appropriate & essential method to prevent out
of stock and to maintain the maximum and minimum stock level. Even so, the
organization inventory manual indicates the level of maximum, minimum stock level and
amount that should have maintained as safety stock. It is not applied in practice. In order
to prevent out of stock and fulfill unusual demands, the organization should have to

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follow a method to determine amounts of maximum, minimum and safety stock level and
applying it strictly.
3. Because of the nature of Pharmaceutical, medical supplies and medical instrument. They
need special care and inspection regarding their content and quality. This inspection need
highly qualified person and well organized quality control department. In order to achieve
this pool, PHARMID should have to establish organized quality control department with
highly specialized employees.
4. Due to in appropriate lead-time, the organization incurs additional cost, reduce sales
volume, increase slow moving and expired items. To prevent these problems the
organization should have to determine the appropriate lead-time from each purchases
goods based on study.
5. Slow moving items those medicines held for seasonal diseases have an effect on sales
volume. This slow moving item may result from low demand and/or purchasing problem.
To minimize slow moving items and increase sales volume, the organization should have
to:
a) Prepare demand forecast based on accurate information gathering by some
research.
b) Promote the selected slow moving items to customers.
c) Reduce selling price up to cost.

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BIBLIGRAPHY
1. A.N. Mosich, 1989 Intermediate accounting
2. Contemporary auditing for students
3. C.Rollin Niswongero and philipe fess, CPA, 1993 accounting principles
4. C.T. Hurngren W.T Harrison L.S Bamber, 1999 Accounting
5. Eugene F.Brigham; 2004 Fundamental of financial management
6. Http: // WWW,ia.edu/Asset/internal control Guide .pdf.
7. Jan R.williams,2005 Financial managerial accounting
8. J.P saxenn, 2003 ware house management inventory control
9. O.R Whittington K.pally W.B Meigs. R.Fags,1992 principle of auditing
10. R.Doyal, P.Zachariah K.Rajapal, 1996 Inventory credit management
11. Stanley B.Block, Geoffrey A. Hirt, 1978 foundation of financial managerial Stanley
12. Thomas R.D Man R.E Dukes, C.J Davis, 1998 Intermediate accounting
13. William C. Boynton, Walter G.Kell, 11996 Modern auditing

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Addis Ababa University
Business Education Department
Structured Interview

Objective

The aim of this interview is to seek & propose or recommend solutions for problems
encountered in the organization of is together data and information for search work on control
over inventory of PHARMID and only.

PART I

Personal profile of the interview


Name ------------------

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Age --------------------
Sex -------------------
Education Back ground ----------------------
Work position --------------------------
Work experience --------------------------
The aim of this interview to seek & propose or recommend solutions for problems
encountered in the organization of is together data and information for search work on control
over inventory of PHARMID and only.

Dear Participants

Thank you for agreeing to participate in my undergraduate research study .The overall purpose of
this study is to asses the internal control over inventory in case of PHARMID. Your participation
in this study is completely voluntary & your responses will remain confidential. Your
cooperation & genuine answers are of a great value.

PART II
1. Haw goods received cheeked to condition and as to quantity and description with the
appropriate? Purchase order before being taken in to stock?
Brief -------------------------------------------------

2. Are pre - numbered goods receiving reports prepared by the stock kipper for all goods
received?
Purpose ----------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
3. Are all receiving goods keeping their nature?
How ----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------

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-----------------------------------------------------------------------------------------------

4. Is there clear policy and procedure established by PHARMID?


IF there is, how do you apply it?
----------------------------------------------------------------------
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
5. How the procedures and polices effective and efficient?
Brief ------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
6. Do you think all manual and procedures are applicable?
How -------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
7. Is there any inventory limits in the policies and procedure?
Briefs -------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
8. Does PHARMID follow proper purchase procedure?
Brief --------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
a)
How?----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
9. To maintain effective control over stock, it is necessary to determine what should be the
maximum and minimum stock, then how do you compare?
Brief ---------------------------------------------------------------------------------------------------

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--------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
10. Is there carrying cost problem? Like tied up in inventory, interest on funds and the cost of
warehouse space?
Brief -----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
11. How to control /Evaluation efficiency and effectiveness?
Brief ----------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
12. Do you have a person to inspect the purchased goods and prepare inspection notes?
Brief -----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
13. Which inventory method applicable?
a. Last in first out (LIFO)
b. First in first out (FIFO)
c. Weighted average
d. Others
e. Why it is used?
--------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------
f. What problems arise by using this method? ----------------------------------------------
a)
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
b) ----------------------------------------------------------------------------------------------

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14. Which inventory system is applicable? Periodic or perpetual?
Why ----------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
15. Are perpetual stocks records maintained for all stocks?
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
16 Are cut - off procedures an adequate to insure that?
Advantage --------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
17. Are procedures for identifying and reporting and reporting slow moving quality? Defect,
obsolete or damaged items adequate?
Brief --------------------------------------------------------------------------------------------------
Why --------------------------------------------------------------------------------------------------
18. Are on stock differences reported to management?
-------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
a) How?
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
b) What is the problem in reporting?
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
----------------------------------------------

19. Is there safety stock? For what purpose -----------------------------------------------------------

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--------------------------------------------------------------------------------------------------
-
--------------------------------------------------------------------------------------------------
-
--------------------------------------------------------------------------------------------------
-
20. Do you have separate place for each category of inventory in the store? How?
---------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
21. Is the computer system properly applicable?
a) Which software?
b) Why?
c) Its help?
d) What are its limitations
----------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
22. Does PHARMID consider lead - time at the time of ordering the items?
Brief ----------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
23. What is the major problem associated with control over inventories?
Brief ---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------

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