Formulas Flashcards
(50 cards)
What is the formula for Profit in CVP analysis?
Profit = Total Revenue – Total Costs
How is Total Revenue (TR) calculated?
Total Revenue (TR) = P × x
Where P = selling price and x = number of units produced and sold
What does Total Costs (TC) consist of?
Total Costs (TC) = a + bx
Where a = level of fixed costs, b = variable cost per unit, and x = number of units produced and sold
What is the Break-even Point (BEP) formula?
x = a / (P − b)
Where P = selling price per unit, x = number of units produced and sold, a = level of fixed costs, b = variable cost per unit
What does Contribution represent?
Contribution represents the amount of revenue remaining after deducting the variable costs
Margin of Safety (MOS)
MOS = Budgeted (or actual) sales - break-even sales
What is the main principle for relevant cost calculation?
Relevant Cost = Additional Cost + Opportunity Cost
What are additional costs in relevant costing?
Additional costs refer to costs incurred due to a specific decision
When is opportunity cost considered in relevant costing?
Opportunity costs represent the benefits forgone from other plans due to a particular decision
What is relevant material cost for material not already owned?
Purchase cost
What is the relevant labour cost when the current workforce is at full capacity?
Wage of additional labour if hiring from outside, otherwise opportunity cost
What is the formula for Overhead Absorption Rate?
Overhead absorption rate = Budgeted production overhead / Budgeted activity level of the chosen absorption base
Define Over-absorption.
Over-absorption occurs when charged overheads exceed actual overheads
What is the difference between Variable Costing and Absorption Costing?
Variable Costing treats fixed manufacturing overheads as a period cost; Absorption Costing includes fixed manufacturing overheads in product costs
What is the optimal selling price?
The highest price at which the optimal level of output can be sold
What is Cost Plus Pricing?
Start with the cost of the product and add a mark-up for desired profit
What is the formula for Budgeted Profits?
Budgeted Profits = (Budgeted Sales Units × Budgeted Selling Price Per Unit) - Total Budgeted Variable Costs - Total Budgeted Fixed Costs
Why adjust sales first when flexing the budget?
Sales volume affects both revenue and variable costs, making it a critical factor
What is Sales Volume Variance?
Sales Volume Variance = (Standard Sales Units − Actual Sales Units) × Standard Contribution per Unit
What does a favourable Sales Price Variance indicate?
Actual selling prices are higher than expected, leading to higher profit
What is the formula for Material Usage Variance?
Material Usage Variance = (Standard quantity of materials used per unit × Actual sales units - Actual quantity of materials used per unit × Actual sales units) × Standard price per unit of material
What is the formula for Fixed Overhead Expenditure Variance?
Fixed overhead expenditure variance = Budgeted fixed overhead – Actual fixed overhead
What are the common techniques for capital investment appraisal?
- Accounting rate of return (ARR)
- Payback period
- Net present value (NPV)
- Internal rate of return (IRR)
What is the formula for ARR?
ARR = (Average Annual Profit / Average Capital Investment) × 100%
