Management Accounting Equation

💸 Incremental benefit?

Relevant revenue − relevant cost − opportunity cost + opportunity benefit.

📈 Contribution per unit?

Selling price per unit − variable cost per unit.

🧮 Total contribution?

Contribution per unit × units sold.

🏭 Profit from contribution?

Total contribution − relevant fixed costs − opportunity costs.

🎟️ Lost contribution cost?

Opportunity cost = contribution sacrificed from the next-best alternative.

📦 Regularly used material?

Relevant material cost = required quantity × replacement price.

♻️ Resalable existing material?

Relevant cost = forgone net resale proceeds if used instead.

🗑️ Avoided disposal charge?

Opportunity benefit = disposal fee avoided by using unwanted material.

👷 Diverted labour opportunity cost?

Lost contribution per hour × hours diverted; only if other work is lost.

🧑‍🏭 Replacement labour cost?

Replacement hours × incremental replacement wage rate.

⚖️ Resource needed?

Forecast units demanded × scarce resource units per product.

🚧 Resource shortfall?

Required resource − available resource, if positive.

⏱️ Contribution per scarce hour?

Contribution per unit ÷ scarce hours per unit.

🏆 Rank constrained products?

Highest contribution per unit of limiting factor first, up to demand.

🏭 Max units from capacity?

Available scarce-resource capacity ÷ scarce-resource hours per unit.

📉 Capacity left after production?

Starting scarce resource − units made × scarce resource per unit.

🛒 Excess purchasing cost?

Relevant buy-in cost per unit − relevant make cost per unit.

🥇 EPC per scarce hour?

Excess purchasing cost per unit ÷ scarce hours per unit.

📦 Units to buy in?

Demanded units − internally produced units.

💰 Value of added capacity?

Incremental contribution gained or purchasing excess avoided, less additional costs.

🎲 Probability total?

P(outcome 1) + P(outcome 2) + … = 1.

📊 Convert percent probability?

Probability = percentage ÷ 100.

🧮 One weighted outcome?

Possible payoff × probability of that payoff.

🎯 Expected value (EV)?

EV = Σ(probability × financial outcome).

🪙 Joint probability?

P(A and B) = P(A) × P(B), if independent.

🔍 Probability above threshold?

Add probabilities of all outcomes exceeding the threshold.

➕ Complement probability?

P(not A) = 1 − P(A).

🌳 Chance-node EV?

EV = sum of each branch probability × branch payoff.

🔮 EV with perfect information?

EVwPI = Σ[scenario probability × best available payoff in that scenario].

💎 EVPI?

EVPI = EVwPI − highest EV without perfect information.

🏆 Maximax rule?

Choose the highest payoff across all decisions and scenarios.

☂️ Maximin rule?

Choose the highest of all decisions’ worst-case payoffs.

😬 Regret for a scenario?

Best payoff in that scenario − payoff from the chosen option.

🚨 Minimax-regret rule?

Pick the decision with the smallest maximum regret.

📦 Material purchasing quantity?

Purchased kg = max(actual required kg, contractual minimum kg).

🗑️ Unused material disposal?

Disposal cost = max(purchased kg − used kg, 0) × disposal fee/kg.

🎯 Core target cost?

Target cost = target selling price − target profit.

💰 Target profit using margin?

Target profit = selling price × profit margin rate.

📉 Target cost using margin?

Target cost = selling price × (1 − margin rate).

🧮 Target cost using markup?

Target cost = selling price ÷ (1 + markup rate).

📊 Profit margin percentage?

Profit margin % = profit ÷ selling price × 100.

📈 Profit markup percentage?

Markup % = profit ÷ cost × 100.

⚠️ Markup-to-margin conversion?

Margin rate = markup rate ÷ (1 + markup rate).

🔄 Margin-to-markup conversion?

Markup rate = margin rate ÷ (1 − margin rate).

🏷️ Traditional cost-plus selling price?

Selling price = cost × (1 + markup rate).

✂️ Cost reduction gap?

Required cost reduction per unit = estimated cost − target cost.

📦 Total cost reduction needed?

Cost reduction per unit × forecast sales volume.

💶 Total sales revenue?

Sales revenue = selling price per unit × units sold.

📌 Actual unit cost?

Total estimated product costs ÷ units sold.

🧾 Actual markup on total cost?

(Sales revenue − total cost) ÷ total cost × 100.

🏆 Total product profit?

Revenue − all attributable variable costs − relevant fixed costs.

⏱️ Labour hours per unit?

Minutes required per unit ÷ 60.

👷 Total labour hours?

Labour hours per unit × units made.

🟢 Regular working hours?

min(total hours needed, regular hours available).

⚡ Overtime hours?

max(total hours needed − regular hours available, 0).

💷 Overtime pay rate?

Normal hourly rate × (1 + overtime premium rate).

💰 Total wage cost?

Regular hours × normal rate + overtime hours × overtime rate.

🛍️ Discount applies to all?

Total cost = full quantity × base rate × (1 − discount).

📦 Discount only on excess?

Threshold × base price + excess quantity × discounted price.

🧪 Sample testing hours?

Units produced × tested proportion × testing hours per tested unit.

💵 Discounted first units revenue?

Discounted quantity × reduced price + remaining units × full price.

🚪 Step fixed-cost increase?

Fixed costs = base fixed costs + additional cost if threshold exceeded.

🍀 Expected scenario profit?

Revenue − variable costs − fixed costs − opportunity costs − disposal fees.

📉 Learning rate from doubling?

Learning rate = average hours at 2x units ÷ average hours at x units.

🔁 Average hours after doubling?

New cumulative average = previous cumulative average × learning rate.

📐 Cumulative-average equation?

Yₓ = a × x^b.

🧠 Meaning of a?

a = hours required for the first unit.

🔢 Meaning of x?

x = cumulative number of units produced.

🧮 Learning index b?

b = log(learning rate) ÷ log(2).

4️⃣ Learning rate from 1 to 4?

Learning rate = √(average hours for 4 ÷ first-unit hours).

🕒 Cumulative total hours?

Total hours for x units = Yₓ × x.

➖ Hours for an extra batch?

Hours = total cumulative hours after − total cumulative hours before.

1️⃣ Time for nth unit?

nth-unit hours = Tₙ − Tₙ₋₁; T is cumulative total hours.

💸 Learning labour cost?

Incremental hours × labour cost per hour.

📦 Material efficiency: original base?

New quantity = original kg − original kg × rate × completed blocks.

🔄 Material efficiency: previous base?

New quantity = original kg × (1 − rate)^completed blocks.

🏭 Variable overhead per hour?

Variable overhead = production hours × variable overhead hourly rate.

📊 Variable overhead as % labour?

Variable overhead = labour cost × overhead absorption percentage.

✅ Learning contribution?

Sales revenue − material cost − labour cost − variable overhead.

👷 Employee efficiency percentage?

(Expected average hours − actual average hours) ÷ expected average hours × 100.

🛍️ Customer-level profitability?

Customer revenue − product costs − customer-service costs.