# Management of Inventory

Inventories constitute a major element of working capital, so investment in inventory must be properly controlled.
The objectives of inventory management are, to a great extent, similar to those of cash management — hold enough to operate smoothly, but avoid blocking excess funds.

## What inventory management covers

It deals with a wide range of problems, including:

Fixation of minimum and maximum stock levels;
Determining the size of inventory to be carried;
Deciding on issues, receipts and inspection procedures;
Determining the economic order quantity (EOQ);
Providing proper storage facilities;
Keeping a check over obsolescence; and
Ensuring control over the movement of inventories.

> Note for CA Inter: The detailed mechanics of inventory management (EOQ, stock levels, ABC analysis, etc.) are covered in the Material Cost chapter of Paper 4: Cost and Management Accounting — refer there for computations.

⚠️ Common exam mistakes

Overlooking that inventory management objectives parallel cash management objectives — balancing adequacy of stock against the cost of blocked funds.
Forgetting that the computational detail (EOQ, reorder/min/max levels) is examined under Cost & Management Accounting, not in depth in FM.

Reference:

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