Semi Variable cost
Variable cost per unit = TC at high activity – TC at low activity
(High activity – low activity)
Fixed Cost = Variable cost per unit x Activity level – (Total cost at that activity level)
Note: Remove stepped Fixed cost from total cost, while applying the above formula
ACCOUNTING FOR COSTS
Pie Chart Degree = (cost/TC)*360
Total of Holding cost= Avg. Inventory x Holding cost/unit
Avg. Inventory = Buffer Inventory + (Re-Order Quantity / 2)
Total cost of Ordering = No. of orders * cost/per order
Reorder level = Max. Usage * Max. Lead time
Max. Level = Reorder level + Reorder qty-(Min., Usage*Min. Lead time)
(Buffer) Min. Level = Reorder level – (Avg. Usage * Avg. Lead time)
Idle time ratio = (Idle Hrs/Total Hrs) * 100%
Labour Turnover Rate = (Replacements/Avg. No. of Employees)*100%
Absorption and Marginal Costing
Selling Price – All Variable Cost = Contribution – Fixed Cost = Profit [Marginal Costing]
Over Absorption rate [OAR]= Budgeted OH / Budgeted Activity
(UNDER)/OVER ABSORPTION = (Actual hours * Std. OAR/unit) – Actual Overheads
Absorbed > Actual = Over Absorption (Favourable) - More Income will be recognized
Absorbed < Actual = Under Absorption (Adverse) – More Expense will be recognized
Profit Reconciliation
Profit Difference: (Opening Inventory – Closing Inventory) x OAR
If Closing > Opening = Absorption Costing profit will be more
If Opening > Closing = Marginal Costing profit will be more
Text Book Page 239 (Chart)
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Process Costing
Cost per good unit = (Material cost + Conversion Cost – Scrap of Normal loss)/Expected
output
Physical distribution = (X’s units/ Total units)*Common costs
Sales value basis = (Selling price perunit x Total production units of X / Total Sales Value @
Split off)*Common Costs
Scrap Value Treatment Page 253 – Table
Alternative Costing Methods
Cost/cost driver = COST POOL$/No. of Cost drivers
TARGET COST = Estimated SP – Expected Profit
BUDGETING
Additive Model, S =Y –S , Total to 0
Multiplicative model, S = Y/T , total to 4
PRODUCTION BUDGET = SALES – C/S FG – O/P FG
MAT. USAGE BUDGET = PRODUCTION UNITS * STD. USAGE /UNIT
MAT. PURCHASE BUDGET = MAT. USAGE+ C/S MATERIALS – O/P MATERIALS
LABOUR BUDGET = PRODUCTION * STD HRS* STD. RATE
VALUE ADDED = Sales – Cost of Bought in material and services
Pay back period = Year before recovery +[(unrecovered cost/ cashflow during next year]
Compounding (Finding the future value) = Present Value ( 1+r )n
Discounting (Finding Present Value) = Future Value ( 1+r )−n
Effective annual Interest rate: (1+R) = ( 1+r )n
Perpetuity = 1/r
IRR =
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PERFORMANCE MEASUREMENT
Investment Centre Performance measure ratios
1. ROCE = PBIT/CAPITAL EMPLOYED *100% How well you are using your Assets
(CA+NCA-CL) or Capital Employed (NCL+ Capital) to generate Operating Profit
2. ROI = PROFIT/INVESTMENT *100%
3. ASSET TURNOVER = SALES REVENUE/CAPITAL EMPLOYED [TIMES]
How well you are using your Assets (CA+NCA-CL) or Capital Employed (NCL+ Capital) to
generate Sales
4. Capital Employed = Current Assets + Non-Current Assets – Current Liabilities
Non-Current Liabilities + Capital
5. Current Ratio = CA/CL [Liquidity Check Ratio]
(Ratio of Less than one, means company is facing liquidity crisis as it has negative working
capital)
6. Quick Ratio = CA – INVENTORY/CL [Liquidity Check Ratio]
(It excludes inventories and other current assets that might not be very liquid)
7. Receivable Days = AVG. RECEIVABLES/CREDIT SALES *365 [Liquidity]
8. Inventory Days = AVG INVENTORY/COST OF SALES *365 [Liquidity]
9. Payable Days = AVG. PAYABLES/CREDIT PURCHASES * 365 [Liquidity]
10. Inventory Turnover: Cost of Goods Sold / Average Inventory
(How many times a company has sold and replaced inventory during a period)
11. Working Capital Cycle = Inventory Days + Receivable Days – Payable Days [Liquidity]
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(It calculates the length of time it takes, to turn firm’s cash investment in
inventories back into cash)
12. Gearing Ratio = DEBT/(DEBT+EQUITY)
13. Operating Gearing = OPERATING PROFIT/CONTRIBUTION
14. Interest Cover = PBIT/INTEREST [Liquidity] – How many times you can pay interest /
Finance Charges from your Profit??
15. Capacity Ratio = ACTUAL HRS/BUDGETED HRS* 100% [Good when using more than the
capacity When Actual > Budget ]
16. Production Volume / Activity Ratio = STD HRS/BUDGETED HRS *100%
17. Efficiency Ratio = STD. HRS/ACTUAL HRS *100% [more efficient i:e Actual < Standard]
Profit Centre Ratios
18. Cost To Sales Ratio = COST/SALES REVENUE
19. RETURN ON SALES OR PROFIT MARGIN = PROFIT/SALES REVENUE * 100%
20. GP Margin : Gross Profit / Sales
21. Net Profit Margin : Net Profit / Sales
22. Operating Profit Margin: Operating Profit (EBIT) (PBIT) / Sales
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