Question

How to calculate ratio for raw material?

Answer 1

Calculating Raw Material Inventory Turnover

Upon obtaining the necessary inputs, calculate raw material inventory turnover by dividing the actual value of raw materials used by the raw materials inventory balance. For example, if during the fiscal year raw materials amounting to $1 million were used, and the ending raw materials balance was $200,000, the raw material turnover ratio would equal $1 million divided by $200,000, or 5.0. This means that raw material inventory balances were used and replenished five times over the course of the year. If production was erratic, you can use average raw material inventory as the denominator. This is done by adding beginning raw material inventory plus ending raw material inventory and dividing by 2.