Costing formulas

INVENTORY CONTROL FORMULARS

RE-ORDER LEVEL = MAXIMUM USAGE X MAXIMUM LEAD TIME

MAXIMUM LEVEL = RE-ORDER LEVEL+REORDER QUANTITY-(MINIMUM USAGE X MINIMUM

LEAD TIME

MINIMUM LEVEL = RE-ORDER LEVEL – (AVERAGE USAGE X AVERAGE LEAD TIME)

AVERAGE INVENTORY = BUFFER + (1/2 RE-ORDER QUANTITY)

EOQ= ECONOMIC ORDER QUANTITY = (2 CD/CH)2

C = COST OF PLACING AN ORDER

D = DEMAND/USAGE AT A PERIOD
CH = COST OF HOLDING 1UNIT PER PERIOD

Free inventory
Inventory available for future use

Formula= Physical inventory + Inventory in transit- Inventory on existing orders

Order Quantity
Amount of inventory ordered at a time

Factors to consider = Sales/ demand, Material usage/ production and Raw materials available & inventory
polices.

Formula: MATERIAL USAGE XXX

-OPENING INVENTORY (XXX)
XXX
+CLOSING INVENTORY +XXX
ORDER QUANTITY XXX

COST CLASSIFICATION AND BEHAVIOUR FORMULAS

HIGH LOW MODEL= IT is used to calculate variable cost per unit. The assumption is y= a+bx where
Y= total cost, a= fixed cost, b= variable cost/unit & x= level of activity

VC/Unit = TC@HLOA-TC@LLOA
TU@HLOA-TU@LLOA

FIXED COSTS = TC@HLOA- (VC/Unit@HLOA x TC/Unit@HLOA)

TOTAL COSTS= FIXED COST + (VC/Unit x Required level of activity)