Inventory Turnover Ratio (ITR)
Excess Inventory Ratio (EIR)
ITR is basic for to monitoring and controlling tool that help to inventory management for maintained & further actions. ITR – inventory Turn over ratio showing the real situation of the material are stacked in Raw material stage, Inventory is on in process, Material still at finishing or finished for dispatch that all are grand inventory total are counting as total inventory that can count in amount figure, you can say is “Cost” all on hand inventory against calculate sales or dispatch amount ( Not material qty or weight ) is direct method to find the excess inventory ratio and excess inventory ratio in percentage in attached excel sheet for you all.
In the excel sheet counted directly material cost and amounted the cost for as advance understanding, but real method that is basic method is as under:
Calculations for find ITR (Inventory Turn over ratio) or Excess Inventory Ratio:
A. Total Inventory Cost:
- Raw Material Qty x Rate of Raw material = R.M. Inventory Cost
- In process Qty x Rate of in-Process Material = In-Process Inventory Cost
- Finish Material Qty x Rate of Finish Material = Finish Material Cost
Total Inventory Cost = R.M Inventory Cost + In-Process Inventory Cost + Finish Material Cost
B. Sales Cost: Sales Quantity x Rate of Total Inventory Cost
I. Excess Inventory % Ratio = Sales Cost / Total Inventory Cost
II. Excess Inventory Ration = Find the formula in excel sheet as attached here
Excess Inventory Ratio means here Inventory Turn over ratio
Little Confusion are there to concern the Sales cost, Sales cost is the real valve should be different that dispatched value will be market value that can possible to up or down respect to market trend, but here we find the solution that sales cost are find on base of the total inventory rates during the all operation are get ratio without any variation with Quantity as well as cost center.
IF you want to find with market value that rates should be different, probably you can be found the big gap with % ITR and same with ITR Ratio ……………
Cool it all depend on you that real result are match by both result.. defer should be same. But ratio is always maintain on base of the values are basically used during collecting, procured & processing.
To consider the serious requirements of the ITR ( Inventory Turn over Ratio ) can help to reduce the extra money that financially big trouble can raise, if your stock are much than your daily requirements up that your reorder level that you must loss in business it basic true.. Your material’s money will be block for some time and possible that you stocked material can possible defects due to improper storage in case. There are too many possibilities to need a perfection for the maintain Inventory turn over ratio can lean the management as well as financial supports.