SYED BASIT HUSSAIN

Ph: 0345-6877081
Cost Accounting

Inventory Management
Economic Order Quantity (EOQ)

EOQ= √ 2 x AR x O.C
C.C
EOQ = Economic order quantity
AR = Annual Requirement
O.C = Ordering Cost
C.C = Per unit Carrying Cost (storing cost)

i) No. of orders = AR /Eoq

ii) No. of days after an order placed = no. of days in an year
No. orders
iii) Total ordering Cost =no. of orders x per order cost
iv) Units in average = EOQ/ 2
Inventory
v) Total Carrying Cost =units in ave. inventory x per unit carrying cost
vi) Total Cost =total ordering cost + total carrying cost

i) Order Point/Level= maximum use during lead time x max. lead time
Or
Average daily use x lead time + safety stock
Or
Average use during lead time + safety stock
ii) Minimum level= order point - (Ave. daily use x ave. lead time)
iii) Maximum level= order point – (minimum daily use x minimum lead time)
+ Eoq
iv) Danger level = Ave. daily use x Daily requirement to get
emergency stock

Factory Overhead Variances

Total/Overall Variance= Applied FOH – Actual FOH

Total variance includes a) Capacity variance b) Budget Varianc

a) Capacity/ideal capacity/volume Varianc= Applied Foh – Budgeted foh for actual

capacity attained
Applied Foh = Applied Rate x Actual Capacity
Applied/Absorption/ = Estimated Foh
Overhead rate Estimated/Normal capacity

Budgeted foh for actual =Fixed foh + variable rate x Actual Capacity
capacity attained

Variable Rate =Estimated variable foh

Estimated/Normal Capacity
b) Budget/spending/price/ =Budgeted foh for actual capacity attained – actual foh
Expenditure Variance
EXTRA:.
Applied Rate = fixed foh rate + variable foh rat

Fixed foh rate =Fixed Foh

Normal Capacity
Normal Capacity/ =Fixed foh
Budget volume Fixed foh rate

Or =Estimated variable foh

Variable Rate

Fixed Foh Rate =Applied Rate – variable Foh rate

Syed Basit Hussain

0345-6877081