Essentials

Question 1

High/low method for contribution

Answer 1

High cost level of activity - low cost level of activity
TO WORK OUT VARIABLE COST

FC = total cost ay H or L - (VC x H or L output)

Question 2

Formula for total annual cost

Answer 2

TAC = PD + (Co x D/Q) + (Ch x Q/2)

Question 3

Formula for total annual ordering cost:

Answer 3

(Co x D/Q)

Co = amount of orders in a year
D = annual demand
Q = order quantity

Question 4

Formula for total annual holding cost

Answer 4

(Ch x Q/2)

Ch = holding cost per unit of inventory
Q/2 = average inventory

Question 5

Formula for re-order level:

Answer 5

(maximum usage x maximum time) + buffer inventory

Question 6

Formula for labour turnover:

Answer 6

number of staff that need replacing
—————————————————– x 100
average number of staff

Question 7

Formula for labour efficiency:

Answer 7

(how many hours it should have taken for actual output / hours it took for actual output) x 100

Question 8

Formula for labour capacity:

Answer 8

(actual hours to produce actual output / budgeted hours) x 100

Question 9

Formula for labour production/activity:

Answer 9

(how many hours it should have taken for actual output / budgeted hours) x 100

Question 10

OAR formula:

Answer 10

budgeted production overhead / total budgeted absorption basis

Question 11

Formula to calculate over/under absorption:

Answer 11

1. work out OAR
2. OAR x actual activity
3. difference