Formulas for MA2
Chapter 3 & 4 – Cost classification and behaviour
Prime cost Direct material + Direct labour + Direct expense + Manufacturing overhead
Overhead cost Indirect material + Indirect labour + Indirect expense
Total production cost Direct Materials + Direct Labour + Direct Expenses + Production Overhead
Total cost Direct Materials + Direct Labour + Direct Expenses + Production Overhead
+ Non production Overhead
Fixed cost y=c
Stepped cost 𝑦1 = 𝑐1 , 𝑦2 = 𝑐2 , …
Variable cost y=mx
Mixed cost y=mx+c
𝑦 −𝑦
Variable cost per unit 𝑚 = 𝑥2 − 𝑥1
2 1
(high low method)
Chapter 5 – Information for comparison
Actual actual unit x actual cost/ budgeted sales price
Fixed cost budgeted unit x budgeted cost/ budgeted sales price
Flexed budget actual unit x budgeted cost/ budgeted sales price
Total variance actual – fixed budgeted
@
(Actual Quantity x Actual Price) – (Standard Quantity x Standard Price)
(AQ x AP) – (SQ x SP)
Activity/ volume fixed budgeted – flexed budgeted
variance @
Standard Price × (Standard Quantity – Actual Quantity)
SP x (SQ – AQ)
Price variance actual – flexed budgeted
@
Actual Quantity × (Standard Price – Actual Price)
AQ x (SP – AP)
Favourable variance Lower actual cost @ higher actual sales price
Adverse variance Higher actual cost @ lower actual sales price
Chapter 7 – Material
Economic order quantity (EOQ) 2 𝐶𝑜 𝐷
√
𝐶ℎ
Co = ordering cost per order
D = Demand per annum
Ch = holding cost per unit per annum
Reorder level Maximum usage x maximum lead time
Minimum level / safety/ buffer/ Reorder level – (average usage x average lead time)
back up/ reserve
Maximum level Reorder level – reorder quantity – (minimum usage x minimum lead time)
Average inventory Minimum inventory + ½ reorder quantity
Total ordering cost (tabulation demand per annum
Cost per order x 𝐸𝑂𝑄
method)
Total annual holding cost 𝐸𝑂𝑄
Holding cost x 2
+ minimum inventory
(tabulation method)
Total cost (tabulation method) Total ordering cost + total holding cost (choose lowest cost)
Chapter 8 – Labour
Hourly rate Basic + OT – Idle time
OT rate OT basic + OT premium
Piecework Units x rate
Bonus Time Saved (TS) = Time Allowed (TA) – Time Taken (TT)
Efficiency ratio (ESA) Standard hours ÷ Actual hours
Capacity ratio (CAB) Actual hours ÷ Budgeted hours
Productivity/ activity ratio (PSB) Standard hours ÷ Budgeted hours
@
Efficiency ratio x Capacity ratio
Labour turnover rate Replacement ÷ Average employees
Total labour hours Productive hours + Idle time
Chapter 9 – Expenses
Depreciation – Straight line method Cost – Residual value
Useful life
Depreciation – reducing balance method (Cost – accumulated depreciation) x Rate
Depreciation – unit Cost – Residual value
Total Estimated Unit
x Actual units produced
Depreciation – machine hour Cost – Residual value
x Actual hours used
Total Estimated hours
Chapter 10 – Overhead
Apportionment 𝑏𝑎𝑠𝑖𝑠 𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑
x overhead
𝑡𝑜𝑡𝑎𝑙 𝑏𝑎𝑠𝑖𝑠
Reapportionment 𝑏𝑎𝑠𝑖𝑠 𝑑𝑒𝑝𝑡 𝐴
x service department
𝑡𝑜𝑡𝑎𝑙 𝑏𝑎𝑠𝑖𝑠
Overhead absorption rate (OAR) Budgeted overhead ÷ Budgeted basis
Absorbed overhead OAR x Actual basis
Over/ Under absorbed Absorbed overhead – Actual overhead
(positive over, negative under)
Chapter 11 – Absorption & marginal
Marginal Sales – Variable cost only
Absorption Sales – Cost (variable and including fixed production overhead)
Difference between (Production – Sales) x Fixed production overhead
absorption and marginal @
profit (Opening inventory – Ending Inventory) x Fixed production overhead
PAMS Production ↑ Absorption profit ↑
Sales ↑ Marginal profit ↑
@
Ending inventory ↑ Absorption profit↑
Opening Inventory ↑ Marginal profit ↑
Chapter 14 – Process costing
Net realizable value Sales – further processing cost
Joint cost 𝐵𝑎𝑠𝑖𝑠 𝑝𝑟𝑜𝑑𝑢𝑐𝑡
𝑇𝑜𝑡𝑎𝑙 𝑏𝑎𝑠𝑖𝑠
x Common cost
Further processing decision Sales AA – Sales A – further processing cost
(positive accept, negative reject)
Chapter 15 – Cost Volume Profit
Contribution margin Sales – Variable
Contribution to sales ratio Sales – Variable
𝑆𝑎𝑙𝑒𝑠
x 100
Breakeven point (unit) Fixed cost
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
Breakeven sales Fixed cost
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑡𝑜 𝑠𝑎𝑙𝑒𝑠 𝑟𝑎𝑡𝑖𝑜
Margin of safety (unit) Sales – Breakeven point
Margin of safety (%) Sales−Breakeven point
𝑆𝑎𝑙𝑒𝑠
x 100
Target profit (unit) Fixed cost + target profit
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
Target profit (sales) Fixed cost + target profit
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑡𝑜 𝑠𝑎𝑙𝑒𝑠 𝑟𝑎𝑡𝑖𝑜
Chapter 16 – Short term decision making
Limiting factor 1) Find the limiting factor
2) Calculate contribution per unit
3) Calculate contribution per limiting factor
4) Ranking
5) Profit maximisation
Chapter 17 – Investment appraisal
Basic investment S = P + nrP
Compounding/ Future value FV = PV x (1 + r)𝑛
Discounting/ Present value 1
PV = FV x (1+r)𝑛
@
FV x Discount factor PVIF (table)
Annuity ((1+𝑟)𝑛 −1)
Px
𝑟
@
FV x Discount factor PVIFA (table)
Perpetuity 𝐹𝑉
PV = 𝑟
𝑟 𝑛
Effective annual rate (EAR) (1 + 𝑛) −1
Payback Initial Investment ÷ Annual Cash Flow
IRR 𝑁𝑃𝑉𝑎
a+[ ] x (b-a)
𝑁𝑃𝑉𝑎 −𝑁𝑃𝑉𝑏
a = lower rate
b = higher rate
NPV (–) cash outflow + cash inflow
Chapter 18 – Cash management
Working capital Current asset – current liability
Index 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
x 100
𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑏𝑎𝑠𝑒 𝑦𝑒𝑎𝑟
Additive Actual figure = Trend figure + Seasonal variation
Multiplicative Actual figure = Trend figure x Seasonal variation