Inventory Control Ratios — Input-Output Ratio and Inventory Turnover Ratio

## Inventory Control Ratios

### 1. Input-Output Ratio

$$\text{Input-Output Ratio} = \frac{\text{Actual quantity of material input}}{\text{Standard material content of actual output}}$$

• Compares actual consumption with the standard (expected) consumption for the same output.
• Effectively measures material usage variance in ratio form.
• Ratio > 1 → excess material used; Ratio = 1 → on standard; Ratio < 1 → better than standard.

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### 2. Inventory Turnover Ratio (ITR)

$$\text{ITR} = \frac{\text{Cost of materials consumed during the period}}{\text{Average stock held during the period}}$$

$$\text{Average Stock} = \frac{\text{Opening Stock} + \text{Closing Stock}}{2}$$

$$\text{Average Inventory Holding Period} = \frac{360 \text{ days (or 12 months)}}{\text{ITR}}$$

Interpretation: