FORMULAS TO LEARN

Question 1

total cost of a semi variable cost (high low method)

Answer 1

Total costs = Total fixed costs + (Variable cost per unit × Activity level)

Question 2

calculate vc per unit using the high low method

Answer 2

VCPU = cost at high activity - cost at low activity/high level activity - low level activity

Question 3

total annual holding costs

Answer 3

Total annual holding cost = holding cost per unit of inventory (Ch) × average inventory (Q/2).

Where average inventory held is equal to half of the order quantity Q.

Question 4

Toal annual ordering cost

Answer 4

Total annual ordering cost = cost of placing an order (Co) × number of orders (D/Q).
Where the number of orders in a year is expected annual demand D divided by the order quantity Q.

Question 5

total annual cost of inventory

Answer 5

Total annual cost = PD + (Co × D/Q) + (Ch × Q/2)

The Total Annual Costs (TAC) is the total of purchasing costs P multiplied by annual demand D plus total ordering costs (Co × D/Q) and total holding costs (Ch × Q/2)

Question 6

reorder level

Answer 6

Reorder level = Maximum usage × Maximum lead time

Question 7

EOQ

Answer 7

GIVEN

D = Demand per annum
Co = Cost of placing one order
Ch = Cost of holding one unit for one year

Question 8

EBQ

Answer 8

GIVEN

Q = Batch size
D = Demand per annum
Ch = Cost of holding one unit for one year
Co = Cost of setting up one batch ready to be produced
R = Annual replenishment rate

Question 9

min/max inventory level

Answer 9

Minimum level = Re-order level – (Average usage × Average lead time)
Maximum level = Re-order level + Re-order quantity – (Minimum usage × Minimum lead time)

Question 10

closing inventory valuation

Answer 10

Closing inventory valuation = Opening inventory + receipts – issues

Question 11

AVCO cumulative weighted average price

Answer 11

cumulative weighted average price = total costs before issue/total number of units before issue

Question 12

total wages

Answer 12

total wages = (total hours worked x basic rate of pay ph) + (overtime hours worked x overtime premium pay ph)

Question 13

piecework wages

Answer 13

total wages = units produced x rate of pay per unit

Question 14

premium bonus plans

Answer 14

if an employee receives 50% of time saved

bonus = (time allowed - time taken)/3 x time rate

employee is paid based on ratio of time taken to time allowed

bonus = time taken/time allowed x time rate x time saved

Question 15

labour turnover

Answer 15

number of leavers who require replacement/average number of employees x 100

Question 16

labour efficiency ratio

Answer 16

standard hours for actual output/actual hours worked to produce output x 100

Question 17

idle time ratio

Answer 17

idle hours/total hours x 100

Question 18

labour capacity ratio

Answer 18

actual hours worked to produce output/total budgeted hours x 100

Question 19

labour production volume ratio (activity ratio)

Answer 19

standard hours for actual output/total budgeted hours x 100

Question 20

Overhead absorption rate

Answer 20

OAR = budgeted production overhead/budgeted total of absorption basis

The absorption basis is most commonly units of a product, labour hours, or machine hours.

Question 21

calculate under/over absorption

Answer 21

calculate OAR

OAR = budgeted overheads/budgeted level of activity

calculate overhead absorbed by actual activity

overheads absorbed = OAR x actual level of activity

compare absorbed to actual

if absorbed are less Han actual overheads then there is an under absorption

Question 22

reconcile absorption/marginal costing profits

Answer 22

absorption costing profit >
(opening inv - closing inv) x OAR >
marginal costing

Question 23

total contribution

Answer 23

contribution = sales price - all variable costs

Question 24

batch costing (cost per unit in batch)

Answer 24

total production cost of batch/number of units in batch

Question 25

process costing (average cost per unit)

Answer 25

average cost per unit = net costs of inputs/expected output

Question 26

average cost per unit (normal loss and scrap value)

Answer 26

average cpu = (total cost of inputs - scrap value of normal loss)/input unit - normal loss units

Question 27

balancing equation for abnormal gains and losses

Answer 27

input units + abnormal gain = output units + normal loss

Question 28

expected output (process costing)

Answer 28

output = input units - normal loss units

Question 29

normal loss units

Answer 29

normal loss units = % normal loss x input

Question 30

cost per unit for by products

Answer 30

(process costs materials & conversion - scrap value of normal loss - sales value of by product)/ (input units - normal loss units - by products) net costs of inputs/expected outputs

Question 31

cost per service unit

Answer 31

cost per service unit = total costs for providing the service/number of service units used to provide the service

Question 32

coefficient of variation

Answer 32

standard deviation/mean

Question 33

expected value

Answer 33

EV = sum of PX P = probability of outcome X = the outcome

Question 34

standard normal distribution

Answer 34

z = (x - u)/o z = the score x = value being considered u = the mean o = the standard deviation

Question 35

formula for a (y intercept)

Answer 35

a = sum of y/n - (b x sum of x)/n y = dependent variable n = number of pairs of data b = gradient x = independent variable

Question 35

simple price/quantity index

Answer 35

simple price index = p1/p0 x 100 simple quantity index = q1/q0 x 100 0 = price/quantity at time 0 1 = price/quantity at time 1

Question 36

chain base index

Answer 36

chain base index = this years value/last years value x100

Question 37

Laspeyre index

Answer 37

price index = sum of (current year price x base year quantity)/sum of (base year price x base year quantity) quantity index = sum of (current year quantity x base year price)/sum of (base year quantity x base year price) x100

Question 38

paasche index numbers

Answer 38

price index = sum of (current year price x current year quantity)/sum of (base year price x current year quantity) x100 quantity index = sum of (current year quantity x current year price)/sum of (base year quantity x current year price) x100

Question 39

budgeted production levels

Answer 39

forecast sales - opening inv + closing inv = budgeted production in units

Question 40

material purchases budget

Answer 40

forecast material usage - opening inv of raw material + closing inv of raw material = material purchases budget

Question 41

formula for compounding

Answer 41

v = X(1+ r)^n v = future value x = initial investment (present value) r = interest rate (decimal) n = number of time periods

Question 42

formula for effective interest rate

Answer 42

r = (1 + I/n)^n -1 r = effective interest rate I = nominal interest rate n= number of time periods

Question 43

formulas for discounting

Answer 43

present value = future value x discount factor discount factor = 1/(1+r)^n or (1+r)^-n (GIVEN) r = the interest rate as a decimal n = number of time periods

Question 44

payback period

Answer 44

initial investment/annual cash inflow

Question 45

internal rate of return IRR

Answer 45

IRR = L + NL/(NL - NH) X (H-L) L= lower rate of interest H = higher rate of interest NL = NPV at lower rate of interest N = NPV at higher rate of interest

Question 46

NPV using annuity factor AF

Answer 46

PV = annual cash flow x AF AF = (1-(1+ r)^-n)/r can also find using the table in exam, find the DF at the % rate column

Question 47

NPV and IRR formula using perpetuities

Answer 47

PV = cashflow/r or PV = cash flow x 1/r IRR of a perpetuity = annual inflow/initial investment x 100

Question 48

sale volume variance

Answer 48

(actual q sold - budget q sold) x standard margin standard margin is the standard cpu (marginal), or standard profit pu (absorption)

Question 49

sales price variance

Answer 49

(actual price - budget price) x actual q sold

Question 50

material price/usage variance

Answer 50

material price variance = (actual q bought x actual p) - (actual q bought x standard price) material usage variance = (actual q used x standard p) - (standard q used for actual production x standard price)

Question 51

Labour/overheads/materials total variance

Answer 51

total of rate and efficiency variances rate variance = (actual hours x actual rate) - (actual hours x standard rate) efficiency variance = (actual hours x standard rate) - (standard hours x standard rate)

Question 52

fixed overhead expenditure variance in absorption costing

Answer 52

fixed overhead expenditure variance = actual expenditure - budget expenditure fixed overhead volume variance - (actual units x OAR) - budgeted expenditure

Question 52

fixed overhead capacity and efficiency variances

Answer 52

capacity variance = (actual hours x OAR per hour) - budget expenditure efficiency variance = (standard hours for actual production x OAR per hour) - (actual hours x OAR per hour)

Question 53

ROCE

Answer 53

= operating profit/(non current liabilities + equity)

Question 54

ROS

Answer 54

return on sales = operating profit/revenue

Question 55

gross margin

Answer 55

= gross profit/revenue

Question 56

asset turnover

Answer 56

= revenue/capital employed

Question 57

ROCE/ROS/Asset turnover formula

Answer 57

ROCE = ROS x Asset turnover

Question 58

current ratio

Answer 58

= current assets/current liabilities

Question 59

acid test (quick ratio)

Answer 59

= (current assets - inventory)/current liabilities

Question 60

inventory holding period

Answer 60

= inventory/cost of sales x 365

Question 61

receivables collection period

Answer 61

= receivables/credit sales x 365

Question 62

payable payment period

Answer 62

= payables/credit purchases x 365

Question 63

capital gearing (leverage)

Answer 63

= non current liabilities (debt)/ordinary shareholders funds (equity) or = non current liabilities/(non current liabilities +equity)

Question 64

interest cover (income gearing)

Answer 64

= operating profit/finance cost

Question 65

ROI

Answer 65

= controllable profit/controllable capital employed x 100

Question 66

residual income RI

Answer 66

= controllable profit - notional interest on capital

Question 67

production volume ratio

Answer 67

= actual output measured in standard hours/budgeted production hours x 100

Question 68

capacity ratio

Answer 68

= actual production hours worked/budgeted production hours x 100

Question 69

efficiency ratio

Answer 69

= actual output measured in standard hours/actual production hours worked x 100