# Materials Costing Formula

Maximum Level
Maximum Level = Re-order level + Re-order quantity – (Minimum consumption x Minimum
Re-order period)
2.       Minimum Level
Minimum Level = Re-order level – (Average rate of consumption x Average time
required to obtain fresh delivery)        (or)
Minimum Level = Re-order level – (Normal consumption x Normal Re – order period)
3.       Re-order level
Re-order level = Maximum consumption x Maximum re-order period
4.       Average Stock Level                                                                                                                             Average Stock Level = ½ (Maximum Level + Minimum level)
(or)                        Minimum level + ½ of Re-order Quantity
5.       Danger level
Danger level = Average consumption x maximum re-order period for emergency
purchases.

6.       Economic Ordering Quantity
1.EOQ = 2U XP/ S
U = Quantity(units) Purchased or used in a year                P = Cost of Placing Order
S = Annual cost of storage of one unit
2.EOQ = 2AB / CS
A = Annual consumption in units               B = Buying cost per order
C = Cost per unit                                               S = Storage & carrying cost per annum.
3.EOQ = 2UO / C
U = Usage in units per annum                    O = Ordering cost
C = Cost of inventory carrying cost per unit in year.
4.EOQ = 2CO / I
C = Consumption of the material in units per year             O = Ordering cost
I = Interest  & other carrying cost per unit / annum.
5.EOQ = 2AB / S
A = Annual consumption in units               B = Buying cost per order
S = Storage & carrying cost per annum.
1. Inventory Turnover Ratio:  =
Cost of materials consumed during the period
Average stock of material held during the period
Cost of material Consumed = Opening Raw material
+ Purchased Raw  Material   l – Closing raw material
Average stock of materials = ½ ( Opening Raw material +
Closing Raw materials)
Inventory Turnover in days =  Days in the period
Inventory Turnover Ratio

8.       Input – Output Ratio Analysis   = Standard cost of Actual quantity

Standard cost of Standard quantity
9.       No.of Orders  = Quantity purchased / Consumed
Economic Order Quantity(EOQ)
10.   Desired Purchase quantity  = Difference in fixed Cost
Difference in Variable Cost

11.   Computation of Purchase price of Raw Materials
Particulars                                                                                          Amount
Units Purchased(No of units X Price per unit/Kg)               XXX
Less Total Units Purchased