ECONOMIC ORDER QUANTITYOptimum or most favorable quantity, which should be purchased each time, the purchases are made.

[Inventory carrying costs and ordering costs are minimum and almost equal.] EOQ = [SQUAR RUTE OF] 2AP [DIVIDED BY] IC, Where A=NUAL CONSUMPTION, P= COST OF PLACING AN ORDER, I= INVENTORY CARRYING COST IN % C= COST PER UNIT OF MATERIAL. REORDER LEAVEL-

= Maximum consumption * Maximum lead-time. = [Normal/Average usage * Normal/Average lead time] + Minimum level. MINIMUM STOCK LEVEL

Level below which stocks should not be allowed to fall in normal working. [This is reserve or safety stock, which should be used only in abnormal conditions.] = ROL [normal/Average consumption * Average/ Normal Lead time. = [Maximum consumption Average consumption] * lead-time. MAXIMUM STOCK LEVEL

Stock will not increases above this level although there may be low demand or quick delivery. = ROL+EOQ [Minimum consumption* Minimum lead time] AVERAGE STOCK LEVEL

= MINIMUM LEVEL + MAXIMUM STOCK [DIVIDED BY] 2. STOCK/INVENTORY TURNOVER RATIO

= COST OF MATERIAL CONSUMED [DIVIDED BY] COST OF AVERAGE STOCK DURING THE PERIOD. [Average stock = [opening + closing stock]] INVENTORY TURNOVER RATIO IN NO OF DAYS.

=NO OF DAYS IN THE PERIOD [DIVIDED BY] INVENTORY TURNOVER RATIO [AS ABOVE]

VARIANCE ANALYSIS : The resolution into component parts, and the explanation of variances. COST VARIANCE: The difference between a budgeted cost or a slandered cost and comparable actual cost incurred during a period. REVISION VRIANCE: The amount by which a budget is revised which, as a matter of policy is not incorporated in the standard cost rate. CONTROLLABLE COST VARIANCE: A cost variance, which can be identified as the primary responsibility of a specified person. MATERIAL COST VARIANCE: The difference between slandered cost of material specified and the actual cost of material used. MARERIAL PRICE VARIANCE: The portion of the material cost variance which is due to the difference between the standard price specified and the actual price paid. MARERIAL USAGE VARIANCE: The portion of the material cost variance which due to the difference between the standard quantity specified and the actual quantity used. MATERIAL MIXTURE VARIANCE: The portion of the material usage variance, which is due to the difference between the standard and the actual composition of the mixture. WAGES VARIANCE: The difference between standard wages specified and the actual wages paid. WAGES RATE VARIANCE: The portion of the wages variance which is due to the difference between the standard labour rate specified and the actual rate paid. LABOUR EFFICIENCY VARIANCE: The portion of the wages variance which is due to the difference between the standard labour hours specified and the actual labour hours expended. EXPENSE VARIANCE: The difference between the standard expenses specified and the actual expense incurred. EXPENSE PRICE VARIANCE: The portion of the expense variance which is due to the difference between the standard price of the service specified and the actual price paid. EXPENSE UTILISATION VARIANCE: The portion of the expense variance which is due to the difference between the standard quantity of the service specified and the actual quantity of the service used. YIELD VARIANCE: The difference between the standard yield specified and the actual yield obtained. OVERHEAD VARIANCE: The difference between the standard overhead specified and the actual overhead incurred.

CALENDAR VARIANCE: The portion of the overhead variance which is due to the difference between the number of working days in the budget period and the number of working days in the period to which the budget is applied. VOLUME VARIANCE: The portion of the overhead variance, which is due to the difference between the budgeted level of output and actual level of output attained. OVERHEAD EFFICIENCY VARIANCE: The portion of the overhead variance, which is due to the difference between the budgeted efficiency of production and the actual efficiency attained. TOTAL COST VARIAVCE: The difference between the total slandered cost and the total cost. METHODS VARIANCE: The portion of the total cost variance, which is due to the use of methods other than, those specified. SALES VARIANCE: The difference between the standard value and the actual value of sales affected during a period. SALES PRICE VARIANCE: The portion of the sales value variance which is due to the difference between the slandered price specified and the specific price charged. SALES ALLOWANCE VARIANCE: The portion of the sales value variance which is due to the difference between the standards rebates, discount, etc, specified and the actual rebates, discounts ect, allowed. SALES MIXTURE VRIANCE: The portion of the sales value variance which is due to the difference between the standards and the actual inter relationship of the quantities of each product or product group of which the sales are composed.

MARGINAL COSTING Definition: A principal whereby marginal cost of cost units are ascertained. Only variable costs are charged to cost units the fixed costs attributable to a relevant period being written off ib full against the contribution for that period. MARGINAL COST SHEET: SALES [S] DIRECT MATERIAL DIRECT WAGES DIRECT EXPENSES PRIME COST ADD: ALL VARIABLE OVERHEADS [ INCLUDING VARIABLE PORTION OF SEMI VARIABLE OVERHEADS ] MARGINAL COST OR VARIABLE COST [V] CONTRIBUTION [C] i.e. [s-v] LESS : FIXED OVERHEADS [F] [ INCUDING FIXED AMOUNT OF SEMI VARIBLE OVERHEADS. PROFIT [P] [+] / LOSS[L] [-] *** *** *** *** *** *** *** *** ***

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PROFIT VOLUME RATIO [ P/V RATIO ] P/V RATIO = CONTRIBUTION SALES.

Another formula : P/V RATIO = Change in profit [ in two period or between two levels ] Change in sales [ in two period or between two levels ] SALES VOLUME [UNITS] = FIXED COST + PROFIT CONTRIBUTION PER UNIT SALES VALUE = FIXED COST + PROFIT P/V RATIO.

IN CASE OF LOSS : SALES VOLUME [UNITS] = FIXED COST - LOSS CONTRIBUTION PER UNIT.

SALES VALUE

= FIXED COST - LOSS P/V RARIO

To earn a desired profit after income tax : SALES VOLUME [UNITS] : FIXED COST AFTER TAX PROFIT/ 1 TAX Rate Contribution per unit.

SALES VALUE = FIXED COST AFTER TAX PROFIT/ 1 TAX Rate P/v ratio For determination of profit at a particular volume of sales: PROFIT = [SALES * P/V RATIO] FIXED COST. KEY FACTOR: PROFITABILITY = CONTRIBUTION KEY FACTOR. BREAK EVEN POINT: BEP [UNITS] = F / CONTRIBUTION PER UNIT. BEP [VALUE] = F / P/V RATIO. MARGIN OF SAFTY: = TOTAL SALES SALES AT BEP. M/S RATIO = TOTAL SALES SALES AT BEP TOTAL SALES *100

With the helps of margin of safety ratio profit can be ascertained as follows: Profit = p/v ratio* m/s ratio * sales.

FORMULA FOR MATERIAL VARIANCE.

Material cost variance = standard cost actual cost i.e.[standard qty * standard rate] [actual qty *actual rate] Or = Standard cost for actual production-actual cost. Material price variance = actual quantity consumed [standard rate actual rate.] Material usage variance = standard rate [standard quantity actual quantity] Material mix variance = standard cost of standard mix * standard cost of actual mix. Material yield variance = standard yield rate [standard yield-actual yield]. Material usage other causes variance = standard rate [standard proportion for actual usage standard qty[.

FORMULA FOR LABOUR VARIANCE.

LABOUR COST VARIANCE OR DIRECT WAGES VARIANCE. = STANDARD COST ACTUAL COST i.e. [STANDARD HOURS * STANDARD RATE] [ACTUAL HOURS * ACTUAL RATE] OR = STANDARD COST FOR ACTUAL PRODUCTION ACTUAL COST. LABOUR RATE VARIANCE. =ACTUAL HOURS PAID [STANDARD RATE ACTUAL RATE]. LABOUR EFFICIANCY VARIANCE. = STANDARD RATE [STANDARD HOURS ACTUAL HOURS PAID]. LABOUR EFFICIANCY SUB VARIANCE VARIANCE. STANDARD RATE [STANDARD HOURS WORK] LABOUR IDLE TIME VARIANCE. = STANDARD RATE [ ACTUAL HOURS PAID ACTUAL HOURS WORKED]. OR = STANDARD RATE * ACTUAL HOURS OF IDLE TIME. LABOUR MIX VARIANCE. STANDARD COST OF STANDARD MIX STANDARD COST ACTUAL MIX.

VARIABLE OVERHEADS VARIANCE:VOH VARIANCE [VOH] = STANDARD VARIBLE OVERHEAD- ACTUAL VARIABLE. OVERHEAD. i.e. [ STANDARD RATE * ACTUAL OUT PUT] [ ACTUAL RATE * ACTUAL OUTPUT]. VOH EXPENDITURE VARIANCE = STANDARD VARIABLE OVERHEAD ON STANDARD PRODUCTION ACTUAL VARIABLE OVERHEAD. VOH EFFICIENCY VARIANCE= STANDARD RATE [STANDARD QUANTITY ACTUAL QUANTITY]. NOTE: STANDARED QUANTITY= STANDARD NUMBER OF ARTICLES PER HOUR * ACTUAL HOURS WORKED. FIXED OVERHEADS VARIANCE:FOH= STANDARD FIXED OVERHEAD ACTUIAL FIXED OVERHEAD. i.e. [STANDARD RATE * ACTUAL OUT PUT] [ ACTUAL RATE * ACTUAL OUTPUT]. FOH EXPENDITURE VARIANCE = BUDGETED FIXED OVERHEADS ACTUAL FIXED OVERHEADS. FOH VOLUME VARIANCE = STANDARED RATE [BUDGET QTY ACTUAL QTY] FOH EFFICIENCY VARIANCE = STANDARD RATE [STANDARD QTY- ACTUAL QTY]. FOH CAPACITY VARIANCE = STANDARD RATE [BUDGET QTY STANDARD QTY]. REVISED CAPACITY VARIANCE = STANDARD RATE [REVISED BUDGET QTY-STD QTY]. CALENDAR VARIANCE = STANDARD RATE [BUDGET QTY REVISED BUDGET QTY].

SALES VARIANCES

TOTAL SALES VALUE VARIANCE = BUDGETED SALES ACTUAL SALES. SALES RATE VARIANCE= ACTUAL QTY [ STANDARED RATE ACTUAL RATE]. SALES VOLUME VARIANCE = STANDARD RATE [BUDGET QTY ACTUAL QTY]. SALES MIX VARIANCE = REVISED STANDARED SALES STANDARD SALES. SALES QTY VARIANCE. = BUDGETED SALES - REVISED STANDARED SALES.

SALES PROFIT [MARGIN]VARIANCE.

[A] SALES PROFIT [MARGIN] VARIANCE.= BUDGETED PROFIT ACTUAL PRIFIT. WHERE, BUDGET PROFIT= [BUDGETED PRICE BUDGETED COST]= STANDARD RATE OF PROFIT * BUDGET QTY. ACTUAL PROFIT= [ACTUAL PRICE- BUDGETED COST]=ACTUAL RATE OF PROFIT*ACTUAL QTY. STANDARD PROFIT = [BUDGETED PRICE BUDGETED COST] = STANDARD RATE PROFIT* ACTUAL QTY. [B] SALES RATE OF PROFIT VARIANCE= ACTUAL QTY [STANDARD RATE OF PROFIT ACTUAL RATE OF PROFIT]. [C] SALES VOLUME VARIANCE = STANDARD RATE OF PROFIT [ BUDGETED QTY ACTUAL QTY]. [D] SALES MIX VARIANCE = REVISED STANDARD PROFIT STANDARED PROFIT. [E] SALES QTY VARIANCE = BUDGET PROFIT REVISED STANDARD PROFIT.