Formulas & Acronyms Flashcards
(53 cards)
Topic 1 Costing
Total cost
Total cost = Fixed cost + (Variable cost per unit x number of units)
Topic 1 Costing
Prime cost
Prime cost = Total direct cost = Direct materials + direct labour + direct expenses
Topic 1 Costing
What does a Cost Card look like?
Production Costs - HEADING 1
Direct Production Costs (Prime Cost)
Indirect Product Costs (Production Overheads)
Non Production Costs - HEADING 2
Administration Cost
Selling and Distribution Cost
ALL THE ABOVE = Total Product Cost
A direct cost is a cost that can be traced in full to the product, service or department that is being costed
Indirect production costs are those costs which are incurred in the course of making a product/service but which cannot be identified with a particular cost unit.
Indirect production costs are often referred to as production overheads.
Topic 1 Costing
OAR (Overhead Absorption Rate)
OAR = Production Overhead/Activity Level per hour
Topic 1 Costing
Predetermined OAR (Overhead Absorption Rate)
OAR = Budgeted overhead/budgeted activity
Topic 1 Costing
OAR per unit
OAR per unit = OAR per hour x number of hours per unit
Topic 1 Costing
Overhead absorbed
Overhead absorbed = Actual activity (hours or units) x OAR
Topic 1 Costing
Under/over absorption
Under/over absorption = Actual overhead – overhead absorbed
Under = +ve = recognised too less so need to DR expense
Over = -ve = recognised too much so need to CR income
Topic 1 Costing
TotalProductCost
TotalProductCost = DirectMaterialCost + DirectLabourCost + DirectExpenses + Overheads
Topic 1 Costing
Cost per unit manufactured in a batch
Cost per unit manufactured in a batch = Total batch cost / No of units in a batch
Topic 1 Costing
Absorption Costing proforma
Absorption Costing proforma
Sales
Less COS
= Gross profit
Less selling expense
= Net profit
Topic 1 Costing
SOPL UNDER MARGINAL COSTING
SOPL UNDER MARGINAL COSTING
Sales
Less Var COS
Less Other Var costs (selling/admin)
= Contribution
Less Fixed Costs (Production/Selling and distribution/Administration)
= Net Profit
Topic 1 Costing
Contribution
Contribution
= Sales - Var COS - Other Var costs (selling/admin)
OR
= Sales - Production and Non Production
Contribution is a fundamental concept in marginal costing. Contribution is an abbreviation of ‘contribution towards fixed costs and profit’. It is the difference between selling price and all variable costs (including non-production variable costs), usually expressed on a per unit basis.
Topic 1 Costing
Difference in marginal costing and absorption costing profit
Difference in marginal costing and absorption costing profit = Change in inventory units x OAR per unit
Topic 1 Costing
SOPL Absorption Costing
Sales - HEADING 1
Less COS
: Opening Inventory
: Var Production Costs
: Fixed Production Overhead Absorbed
: Closing Inventory
: Fixed Overhead (under/over) Absorbed
Gross profit - HEADING 2
Less selling, administration etc costs (non-production) - inclu variable and fixed
Net profit - HEADING 3
Topic 1 Costing
SOPL Absorption Costing
Sales - HEADING 1
Less COS
: Opening Inventory = Units x Cost card per unit
: Var Production Costs = Direct materials + Var production OVH x actual amount produced
: Fixed Production Overhead Absorbed = Budgeted OAR x Actual activity (hours or units)
: Closing Inventory - include OAR
: Fixed Overhead (under/over) Absorbed = Actual overhead – overhead absorbed
Gross profit - HEADING 2
Less selling, administration etc costs (non-production) - inclu variable and fixed
variable = variable selling cost per unit x actual sales
fixed = actual fixed selling cost
Net profit - HEADING 3
Topic 1 Costing
SIAM
Profits generated using AC and MC can also be reconciled as follows:
Stocks
Increase
Absorption profit
More
Topic 1 Costing
Periodic weighted average pricing
Periodic weighted average pricing
This average method differs from the cumulative weighted average method. A single average is calculated at the end of the period based on all purchases for the period.
Periodic weighted average price =
(Cost of opening inventory + Total cost of receipts in period)
DIVIDED BY
(Units in opening inventory + Total units received in period)
This average price is used to value all the units issued and the units in the closing inventory.
Unless stated to the contrary, assume the cumulative method is required in an exam question.
Topic 2 Pricing
Mark Up
Applies to Cost
Mark up:
Selling price 120
Profit (20)
Cost 100
Profit/Cost x 100 = Markup %
Topic 2 Pricing
Margin
Applies to Sales
Margin:
Selling price 100
Profit (20)
Cost 80
Profit/Selling Price x 100 = Margin %
Topic 2 Pricing
Cost-plus pricing
Cost-plus pricing
In practice cost is one of the most important influences on price. Some organisations will base their selling price decision on simple cost-plus rules, whereby costs are estimated and then a percentage mark-up is added in order to set the price.
Setting full cost-plus prices
There are two options for calculating a full cost-plus price.
Option 1
Unit sales price = Total production cost per unit + Percentage mark-up
Option 2
Unit sales price = Total production cost per unit + Other costs* per unit + Percentage mark-up
*Other costs include selling, distribution and administration costs.
Topic 2 Pricing
COGS
Cost of goods sold = Purchases + Opening Inv - Closing Inv
Topic 2 Pricing
ROI
ROI = Profit/Investment
or
Return on investment (ROI) = Controllable divisional profit/divisional capital employed x 100%
Topic 3 Budgeting and Forecasting
PRIME
Reasons for preparing budgets
P – R – I – M – E
Planning
Responsibility
Integration and co-ordination
Motivation
Evaluation and control
Topic 3 Budgeting and Forecasting
Linear Graph formula
y = a + bx
- y is the dependent variable
- a is a constant
- b is a constant
- x is the independent variable
