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Notes/CA Intermediate/Cost & Management Accounting

CA Intermediate · Cost & Management Accounting

Material Cost

Chapter 2 · 5 formulas · 4 exam-critical pointers

Core concepts

  1. 01EOQ minimizes total inventory cost (ordering + carrying).
  2. 02ABC analysis: A = high value low qty, C = low value high qty.
  3. 03VED analysis (Vital, Essential, Desirable) for stores.
  4. 04Stock levels: Re-order, Min, Max, Average; safety stock for uncertainty.
  5. 05Pricing of issues: FIFO, Weighted Average, Standard Cost (LIFO not preferred per AS-2).

Flowchart summary

Inventory Management | EOQ ────► Optimal Order Size | ABC, VED, FSN, HML — analyses | Stock Levels: Re-order, Min, Max, Danger

Exam-critical pointers

  • ⭐EOQ assumes constant demand, instant replenishment, no stock-outs.
  • ⭐Carrying cost includes storage + interest on funds blocked + insurance + obsolescence.
  • ⭐Material price variance = (SP − AP) × AQ; usage variance = (SQ − AQ) × SP.
  • ⭐Bin Card maintained at stores; Stores Ledger by costing department.

Make it click

Formula sheet

  • EOQ = √[(2 × Annual Demand × Order Cost) / Carrying Cost per Unit]
  • Reorder Level = Max Consumption × Max Lead Time
  • Min Level = ROL − (Avg Cons × Avg LT)
  • Max Level = ROL + ROQ − (Min Cons × Min LT)
  • Avg Stock = (Min Level + Max Level) / 2

More from Cost & Management Accounting

  1. Ch 1Introduction to Cost & Management Accounting
  2. Ch 3Overheads — Absorption Costing
  3. Ch 4Marginal Costing & CVP Analysis
  4. Ch 5Standard Costing & Variance Analysis
  5. Ch 6Budgetary Control
All CA Intermediate notes →
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