Cost and Management Accounting Formulas Cheat Sheet
Costing, break-even, variances, budgeting, decision rules and investment appraisal on one printable sheet.
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Cost and Management Accounting Formulas Cheat Sheet
1. Costing
| Measure | Formula |
|---|
| Prime cost | Direct materials + Direct labour + Direct expenses |
| Total production cost | Prime cost + Production overhead |
| Total cost | Fixed costs + (Variable cost per unit × Units) |
| Overhead absorption rate | Budgeted overhead ÷ Budgeted activity |
| Overhead absorbed | Rate × Actual activity |
| Under- or over-absorption | Actual overhead − Overhead absorbed (positive = under-absorbed) |
| Absorption vs marginal profit | Difference = Change in inventory (units) × Fixed overhead per unit |
2. Cost-volume-profit
| Measure | Formula |
|---|
| Contribution per unit | Selling price − Variable cost per unit |
| Contribution margin ratio | Contribution ÷ Sales × 100 |
| Break-even units | Fixed costs ÷ Contribution per unit |
| Break-even sales value | Fixed costs ÷ Contribution margin ratio |
| Units for target profit | (Fixed costs + Target profit) ÷ Contribution per unit |
| Margin of safety % | (Sales − Break-even sales) ÷ Sales × 100 |
3. Standard costing variances
| Variance | Formula (positive = favourable) |
|---|
| Material price | (Standard price − Actual price) × Actual quantity |
| Material usage | (Standard quantity − Actual quantity) × Standard price |
| Labour rate | (Standard rate − Actual rate) × Actual hours |
| Labour efficiency | (Standard hours − Actual hours) × Standard rate |
Standard quantity and hours are for the actual output achieved.
4. Budgeting and decisions
| Topic | Rule or formula |
|---|
| Production budget | Sales + Closing inventory − Opening inventory |
| Materials to purchase | Materials needed + Closing materials − Opening materials |
| Relevant costs | Include future, incremental cash costs and opportunity costs. Ignore sunk costs, depreciation and unchanged fixed overhead. |
| Limiting factor | Rank products by contribution per unit of the scarce resource |
| Keep or drop a product | Compare its contribution with the avoidable fixed costs |
5. Performance and investment appraisal
| Measure | Formula |
|---|
| ROI | Profit ÷ Capital employed × 100 |
| Residual income | Profit − (Required return × Capital employed) |
| Payback period | Years until cumulative cash inflows equal the investment |
| ARR | Average annual profit ÷ Average (or initial) investment × 100 |
| NPV | Sum of discounted cash flows − Initial investment (accept if positive) |
| Discount factor | 1 ÷ (1 + r)t |
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