Material cost ratio

This quotient portrays the relationship between cost of material consumed and sales volumes  especially in a manufacturing set up.

It is expressed as;

Applicability of Material Cost Ratio in Decision Making by Management

Material usage policy: The management need to lay a strategy to ensure that raw materials are optimally utilized in manufacturing for this reduces wastage and increases efficiency.

Material purchase policy-the management need to set purchasing policy where by purchase controls are put in place to ensure that cost of purchasing raw materials are minimized and also the quality of the materials themselves are of high standards. This ensures that the production efficiency is increased hence increase in sales.

About the Author - Dr Geoffrey Mbuva(PhD-Finance) is a lecturer of Finance and Accountancy at Kenyatta University, Kenya. He is an enthusiast of teaching and making accounting & research tutorials for his readers.