Level 3 AAT Accounting: Management Accounting Techniques

Prime cost

Direct materials + direct labour + direct expenses

Non-production overheads

Selling and distribution + Administration + Finance

Profit

Sales revenue - total costs

Total variable cost

Variable cost per unit x number of units

Variable cost per unit

Total variable cost / Number of units

Total semi variable cost

Fixed element + (Variable cost per unit x number of units)

Total revenue

Number of units sold x revenue per unit

Profit per unit

Revenue per unit - cost per unit

Minimum inventory level (inventory buffer)

Reorder level - (average usage x average lead time)

Maximum inventory level

Inventory buffer + maximum reorder quantity

Reorder level

(Average usage x average lead time) + inventory buffer

Minimum reorder quantity

Average usage x average lead time

Maximum reorder quantity

Maximum inventory level - inventory buffer

Total inventory costs

Ordering costs + purchase costs + holding costs

Economic Order Quantity (EOQ)

Square root of (2 x fixed cost per order x annual demand in units) / cost of holding one unit for one year.

Average price per unit

(Total value of opening inventory + total value of units added to inventory) / (Units of opening inventory + units added to inventory)

Apportionment

(Value of apportionment base of cost centre / Total value of apportionment base) x Total overhead cost

Overhead absorption rate (OAR)

Budgeted production overhead / Budgeted activity level

Amount absorbed

Actual production activity x OAR

Amount over/under absorbed

Actual overheads - absorbed overheads

Cost per unit

Cost of the batch / Number of units in the batch

Cost per 'good' unit

(Total process costs - scrap proceeds from normal loss) / (Units input - normal loss units)

Quantity to be purchased

Material usage - opening inventory of materials + closing inventory of materials

Contribution

Sales value - variable cost of sales

Breakeven point

Fixed costs / contribution per unit

PV Ratio

Contribution / Sales

Breakeven revenue

Fixed costs / PV Ratio

Margin of safety

Budgeted sales volume - breakeven sales volume

((Budgeted sales volume - breakeven sales volume) / Budgeted sales volume) * 100

Sales volume to reach required profit level

(fixed costs + required profit) / contribution per unit

Net cash flow

Receipts - payments

Trade receivables collection period

Trade receivables / Revenue x 365

Inventory holding period

Inventory/ Cost of sales X 365

Trade payables payment period

Trade payables / Cost of sales x 365 days

Working capital Cycle

Trade receivables collection period + inventory holding period - trade payables payment period