Management Accounting Equations/Formulas

Variance Formulas Upcoming - Purpose to compare actual financial results against budgeted or forecasted amounts to identify and investigate discrepancies

Direct Material Total Variance

Direct Material Price Variance + Direct Material Usage Variance

Direct Material Total Variance

Standard cost - Actual Cost

Direct Material Price Variance

Actual Quantity (Standard price - Actual Price)

Direct Material Usage Variance

Standard Quantity (Standard quantity - Actual Quantity)

Direct labour total variance

Direct labour rate variance + Direct labour efficencey variance

Direct labour total variance

Standard cost - Actual cost

Direct Labour rate variance

Actual hours (standard rate - actual rate)

Direct Labour effiencencey variance

Standard rate (Standard hours - Actual Hours)

Variable overhead total variance

variable overhead rate variance + variable overhead efficencey variance

Fixed Overhead total variance

Fixed overhead expenditure variance + fixed overhead volume variance

Fixed overhead total variance

Standard cost - Actual cost

Fixed overhead expenditure variance

Fixed overhead expendtiure variance + fixed overhead volume variance

Fixed Overhead total variance

Standard cost - actual cost

Fixed overhead expenditure variance

Budgeted fixed overhead - actual fixed overhead

fixed overhead volume variance

standard rate (actual hours - budgeted hours)

Cost Classifications coming up -he systematic process of grouping business expenses based on common characteristics

Prime cost

Direct matieral + Direct Labour + direct expense

Conversion Cost

Direct Labour + Direct expenses + production overheads

Production overheads

indirect material + indirect labour + indirect expense

production cost

prime cost + production overhead

total cost

production cost + non production overheads

Direct Cost

Direct material + Direct Labour + Direct expense

indirect cost

production overheads + non production overheads

total cost

direct costs + indirect costs

Production Overheads - Cannot be directly traced to a cost object so we assign using cost allocation and apportionment

allocate

apportion

absorb

allocate - assign a whole item of cost to a signle cost unit/centre or time period

apportion - means to spread costs over two or more cost units/centre or time periods

absorb- means to attach overhead costs to products or services

absorption (full) costing

marginal (variable) costing

absorption costing - includes ALL production cost

prime + fixed + variable overheads

marginal costing - includes only variable production costs

prime + variable production costs

high low method Y=a+bX

y= total mixed cost

a = fixed cost

b = variable cost pu

X = level of activity (produced/sold)

Breakeven Point

Breakeven Units = Fixed cost / Contribution PU

Breakeven Revenue = Bresakeven units x SP pu

contribution

selling price - variable cost

sales revenue - total variable costs

margin of safety

MOS Units = Sales - Breakeven sales units

MOS £ = sales revenue - breakeven sales revenue

MOS % = Sales units - Breakeven units / Sales units x100

target profit analysis

target sales units = fixed cost + target profit / CPU

Target sales revenue = Target sales units x selling price per unit

standard price

is the budgeted ,expected cost per unit

set before production

THE BENCHMARK

actual price

is the real amount you paid per unit

REAL AMOUNT

price variance

Actual price - standard price ) x actual quantity

Standard price = £5/kg

• Actual price = £6/kg

• Actual quantity purchased = 1,000 kg

(6−5)×1000=£1,000 Adverse

payback period months

Amount still to recover at START of final year ───────────────────────────────────────────── × 12 Net Cash Flow in that final year