1) Principles of Lending

Lending in stores management involves temporarily providing surplus materials to another

department, plant, or organization under an agreement to return or compensate later.

Key Principles:

 Materials lent must not affect the lender's operations.

 Clear documentation of the items, quantities, and terms is essential.
 Accountability ensures timely return or compensation.
 Fosters mutual trust and collaboration between parties.

Lending helps prevent production delays, optimizes resource use, and strengthens relationships
across departments.

Benefits:

 Prevents production halts due to material shortages.

 Reduces the risk of overstock in one location and understock in another.

Challenges:

 Potential misuse or damage to lent items.

 Delayed return can impact future operations.
2) LIFO (Last In, First Out)
The Last In, First Out (LIFO) method assumes that the most recently purchased or produced items are the
first to be issued or consumed.

1. Stock Rotation: Newer stock is issued first, leaving older stock in inventory.
2. Cost Valuation: Ensures production costs reflect current market prices, especially during
inflation.
3. Inventory Management: Commonly used for non-perishable items or goods with stable
shelf lives, such as metals or raw materials.

Advantages:

 Reduces the impact of rising material costs on production.

 Simplifies issuing when new stock is more accessible.
 Useful in industries where market prices fluctuate frequently.

Disadvantages:

 Older stock risks becoming obsolete or damaged.

 Not suitable for perishable or time-sensitive items.
 May not comply with accounting regulations in some countries (e.g., IFRS).

LIFO is beneficial for cost management but requires careful planning to avoid inventory
spoilage.

 Older stock risks outdated

 Unsuitable for perishable or time-sensitive items.
3) FIFO (First In, First Out)
The First In, First Out (FIFO) method assumes that the earliest purchased or produced items are the
first to be issued or consumed.Key Features:
Key Features:

1. Stock Rotation: Oldest items are issued first, ensuring that inventory moves in
chronological order.
2. Cost Valuation: Aligns with actual consumption patterns, reflecting lower costs during
inflation.
3. Inventory Management: Primarily used for perishable goods or items with shelf-life
constraints, like food, chemicals, or pharmaceuticals.

Advantages:

 Reduces the risk of stock becoming outdated or obsolete.

 Maintains product quality by preventing long storage periods.
 Easier compliance with accounting standards like IFRS.

Disadvantages:

 May increase production costs during inflation as older stocks are cheaper.
 Requires effective tracking to ensure the first-in stock is accurately issued.

FIFO is widely preferred for industries where product freshness and quality are critical.

These responses are concise yet sufficiently detailed to meet the expectations of a 5-mark exam.
Inflation

Definition:
Inflation is the rise in the general price level of goods and services over time. As inflation
increases, the value of money decreases, meaning things become more expensive, and your
money buys less.

Types of Inflation

1. Demand-Pull Inflation:
o Happens when demand for goods is higher than the supply.
o Example: People spending more money during economic growth.
2. Cost-Push Inflation:
o Caused by higher costs of production, like rising raw material or wage costs.
o Example: An increase in oil prices raising transportation costs.
3. Built-In Inflation:
o Happens when people expect prices to rise in the future, leading to higher wages
and costs.
4. Hyperinflation:
o Extremely high and fast price increases.
o Example: Post-war Germany in the 1920s.
5. Creeping Inflation:
o Slow and steady price rises that are manageable.
6. Galloping Inflation:
o Fast price rises, often in double or triple digits annually.

Causes of Inflation

1. High Demand:
o When people spend more, or the government increases its spending.
2. Higher Production Costs:
o When costs like wages or materials rise, businesses increase prices.
3. Excess Money Supply:
o When too much money is in circulation, its value decreases, causing prices to rise.
4. Global Factors:
o Rising prices of imported goods, like oil or metals.
5. Currency Value Drop:
o A weak currency makes imported goods more expensive.
Effects of Inflation

1. Reduces Buying Power:

o Things become more expensive, so people can buy less with the same amount of
money.
2. Hurts Savings:
o Money saved loses value over time because prices are rising.
3. Affects Economic Growth:
o Moderate inflation can be good, but too much can slow the economy.
4. Hits Poor People Harder:
o Essential goods like food and fuel become less affordable.
5. Raises Interest Rates:
o Central banks increase rates to control inflation, making loans more expensive.
6. Hurts Exports:
o Domestic goods become costlier, reducing their competitiveness globally.

Control of Inflation

1. Monetary Policy:
o Raise Interest Rates: Makes borrowing expensive, reducing spending.
o Control Money Supply: Reduces the amount of money in the economy.
2. Fiscal Policy:
o Reduce Government Spending: Lowers demand.
o Increase Taxes: Reduces people’s spending power.
3. Improve Supply:
o Increase production to meet demand.
o Import goods to reduce shortages.
4. Price Control:
o Set maximum prices for essential items to prevent overcharging.
5. Wage Control:
o Limit wage increases to prevent a cycle of rising wages and prices.

Conclusion

Inflation is a natural part of the economy, but it needs to be controlled. While a small amount of
inflation indicates economic growth, too much can harm people, businesses, and the overall
economy. Governments use various tools like monetary policies and improved supply to keep
inflation under control.
Short Note on Flow Chart and Flow Diagram

Flow Chart

A flow chart is a visual representation of a process, system, or workflow using symbols and
arrows.

It helps to clearly show the sequence of steps or activities.

Features of a Flow Chart:

1. Symbols:
o Oval: Start/End
o Rectangle: Process
o Diamond: Decision
o Arrow: Flow direction
2. Purpose:
o Simplifies complex processes for better understanding.
o Identifies inefficiencies.
o Useful in planning, troubleshooting, and communication.

Applications:

 Business process mapping.

 Engineering workflows.
 Programming and algorithm development.

Flow Diagram

A flow diagram is a schematic or graphical representation of a physical or chemical process,

often used in engineering and production. It typically shows the flow of materials, energy, or
information.

Types of Flow Diagrams:

1. Process Flow Diagram (PFD):

o Represents the major steps in a process, showing equipment, flow direction, and
materials.
2. Piping and Instrumentation Diagram (P&ID):
o Includes detailed information about piping, instruments, and controls in a process.
Purpose:

 Visualizes the entire process for easy understanding.

 Identifies critical control points.
 Assists in design, operation, and maintenance.

Applications:

 Chemical and mechanical engineering.

 Process industries like oil refineries and water treatment plants.
Work Measurement

Definition:
Work measurement is the process of determining the time required for a skilled worker to
perform a specific job or task under standard working conditions. It is used to set time standards,
improve productivity, and optimize resource utilization.

Objectives of Work Measurement

1. Set Time Standards:

o Establish a baseline for how long tasks should take.
2. Improve Productivity:
o Identify inefficient processes and suggest improvements.
3. Ensure Fair Workload Distribution:
o Allocate work evenly among employees based on time standards.
4. Optimize Resource Utilization:
o Ensure efficient use of labor, materials, and equipment.
5. Support Cost Estimation:
o Provide accurate data for budgeting and pricing.
6. Monitor Performance:
o Compare actual performance with established standards to ensure efficiency.

Procedures of Work Measurement

1. Select the Task:

o Identify the task or job to be studied, ensuring it is repetitive and measurable.
2. Record the Details:
o Break down the task into smaller steps or elements.
o Use tools like flowcharts or process diagrams for clarity.
3. Measure the Task:
o Use techniques such as time study, work sampling, or predetermined motion-time
systems (PMTS) to measure the time taken for each element.
4. Evaluate the Data:
o Analyze the recorded times, considering allowances for fatigue, delays, and other
factors.
5. Establish Standard Time:
o Combine the measured times and allowances to determine the standard time for
the task.
6. Implement and Monitor:
o Use the standard time as a benchmark for operations and regularly monitor its
effectiveness.