The term ‘Margin of Safety’ is a self explanatory term. It shows the amount of sales that act as a safety cover for an enterprise to help it earn profits. From accounting point of view, Margin of safety is the difference between actual sales and sales at break even point. It represents an amount of sales that contributes to the profits of the company i.e. the amount of sales which is over and above the sales at break even point. For example, If break even point sales of a company are $20,000,000…
ABC Analysis
ABC (Always Better Control) analysis is an important tool used in material control. As we all know that a variety of parts and materials are used in manufacturing each and every industrial product. And efficient material management calls for a selective control over all the items of inventory. Since every item of material is not equally important for controlling point of view, some expensive or critical items require more control as compared to relatively cheaper and less important items. Hence there arises a need for an analysis of these items…
Economic Order Quantity / Ordering quantity
One important question before the materials department, when placing an order before the supplier, is to select an optimum order size which is also called economic order quantity. Economic order quantity(EOQ) is the optimum ordering quantity i.e. the quantity for which cost of holding plus the cost of purchasing is the minimum. The factors that affect EOQ are material carrying charges and the ordering cost associated with placing the order. The basic aim behind setting of EOQ is to minimise both the costs. The material carrying costs include interest on the…