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Managerial Accounting > Formulas > Flashcards

Formulas Flashcards

1
Q

Variable cost per unit with high low method (purpose, use, formula)

A

Purpose: find total cost per unit of expenses that fluctuate depending on product output

Useful for: seeing the total effect of fluctuating expenses, factor in setting prices

Formula: change in cost (high to low) / change in units (high to low)

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2
Q

Total cost (purpose, use, formula & sub-formula)

A

Purpose: find the overall total cost including fixed expenses and variable expenses

Use: useful in determining sales prices, determining expenses of producing product

Formula: FC + (VC per units * # units)

note:
FC = fixed cost (tost cost - (variable cost * #units))
VC = variable cost

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3
Q

Contribution Margin per unit (CM) (purpose, use, formula)

A

Purpose: The profit left on sale of one unit, after all variable expenses subtracted from revenue.

Use: determining min possible sale price

Interpretation: should be relatively high in order to cover fixed expenses and admin OH,

Formula: sales price per unit - total variable costs per unit (result is in dollars)

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4
Q

Contribution Margin ratio (purpose, use, interpret, formula, sub formula)

A

Purpose: find earnings available to pay for fixed expenses and still generate a profit

Useful for: determining overall sales price to make profit, determine special “sale” prices, determine different margins at different sales levels

How to interpret result: should be relatively high in order to cover fixed expenses and admin OH,

Formula: CM per unit / sales price per unit

NOTE:
CM = contribution margin (sales price per unit - total variable costs per unit)

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5
Q

break-even point in units (purpose, use, interpretation, formula, subform)

A

Purpose: locate the sales volume at which a business earns exactly no money, where all contribution margin earned is needed to pay for the company’s fixed costs

Use: Find amount of remaining capacity after breakeven point is reached, which reveals the max amount of profit that can be generated.
Find impact on profit if automation (FC) replaces labor (VC).
Find change in profits if product prices are altered.
Find amount of losses could be sustained if business suffers a sales downturn.
Establishing the overall ability of a company to generate a profit.

Interpretation: When the break even point is near the maximum sales level of a business, nearly impossible for company to earn a profit even under the best of circumstances.

Formula: FC / CM

NOTE:
FC = fixed cost = total cost - (variable cost * # units)
CM = contribution margin per unit
CM = sales price per unit - total variable costs per unit

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6
Q

break-even point in dollars (purpose, use, interpretation, formula, subform)

A

Purpose: locate the sales volume at which a business earns exactly no money, where all contribution margin earned is needed to pay for the company’s fixed costs

Use: Find amount of remaining capacity after breakeven point is reached, which reveals the max amount of profit that can be generated.
Find impact on profit if automation (FC) replaces labor (VC).
Find change in profits if product prices are altered.
Find amount of losses could be sustained if business suffers a sales downturn.
Establishing the overall ability of a company to generate a profit.

Interpretation: When the break even point is near the maximum sales level of a business, nearly impossible for company to earn a profit even under the best of circumstances.

Formula: FC / CM ratio

NOTE:
FC = fixed cost = total cost - (variable cost * # units)
CM ratio = (sales price per unit - total variable costs per unit) / sales price per unit

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7
Q

dollar sales needed to reach a target after-tax income

A

Purpose: Find the sales amt needed to reach a goal after-tax income

Use: allows for more thorough planning on projections with pessimistic, optimistic and realistic scenarios in numbers.

Formula: (FC + target pretax income) / CM ratio

Note:
FC = fixed cost = total cost - (total variable cost * # units)
CM ratio = (sales price per unit - total variable costs per unit) / sales price per unit

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8
Q

unit sales needed to reach target after-tax income (purpose, use, formula, subforms)

A

Purpose: Find the number of units that must be sold to reach a goal after-tax income

Use: allows for more thorough planning on projections with pessimistic, optimistic and realistic scenarios in numbers.

Formula: (FC + target pretax income) / CM

Notes:
FC = fixed cost = total cost - (total variable cost * # units)
CM = (sales price per unit - total variable price per unit)

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9
Q

Margin of safety in $ (purpose, use, interpretation, formula, subforms)

A

Purpose: Find the reduction in sales that can occur before the breakeven point is reached. The risk of loss a business is subjected to by changes in sales.

Use: allows for more thorough planning on projections with pessimistic, optimistic and realistic scenarios in numbers. useful when a significant proportion of sales at risk of decline or elimination, as may be the case when a sales contract is coming to an end.

Interpretation: Min margin of safety may warrant reduction of expenses. Large margin of safety business is well-protected from sales variations.

Formula: expected sales - break-even sales

NOTE:
Break-even sales: FC / CM ratio
FC = fixed cost = total cost - (variable cost * # units)
CM ratio = (sales price per unit - total variable costs per unit) / sales price per unit

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10
Q

Margin of safety in % (purpose, use, interpretation, formula, subforms)

A

Purpose: Find the reduction in sales that can occur before the breakeven point is reached. The risk of loss a business is subjected to by changes in sales.

Use: allows for more thorough planning on projections with pessimistic, optimistic and realistic scenarios in numbers. useful when a significant proportion of sales at risk of decline or elimination, as may be the case when a sales contract is coming to an end.

Interpretation: Min margin of safety may warrant reduction of expenses. Large margin of safety business is well-protected from sales variations.

Formula: (expected sales - breakeven sales) / expected sales

NOTE:
Break-even sales: FC / CM ratio
FC = fixed cost = total cost - (variable cost * # units)
CM ratio = (sales price per unit - total variable costs per unit) / sales price per unit

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11
Q

break-even point in composite units

A

Purpose: Find the sales volume in units at which no profit is earned, just enough money is made to cover all fixed costs. Break even point for companies with more than one product. Allows analysis of overall break-even with average of all product lines.

Use: to measure the break-even point of multiple products, departments, and even the company as a whole
Find impact on profit if automation (FC) replaces labor (VC).
Find change in profits if product prices are altered.
Find amount of losses could be sustained if business suffers a sales downturn.
Establishing the overall ability of a company to generate a profit.

Interpretation: When the break even point is near the maximum sales level of a business, nearly impossible for company to earn a profit even under the best of circumstances.

Formula: fixed cost / contribution margin composite per unit

NOTE:
Steps:
1. Find variable cost per unit per product line
2. Sum product lines, this is the composite
FC = fixed cost = total cost - (total variable cost * # units)
CM = cost margin

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12
Q

Weighted-average Contribution Margin

A

Purpose: average amount that a group of products or services contribute to paying down the fixed costs of a business

Use: used to project profit levels at various sales levels. Based on assumption that same mix of product sales and margins will apply in the future.

Interpretation: should be relatively high in order to cover fixed expenses and admin OH,

Formula: CM per unit * Sales Mix

Steps:

  1. Find variable cost per unit per product line
  2. Find percentage of each production line to overall sales mix
  3. multiple CM per unit * the sales mix percentage
FC = fixed cost = total cost - (total variable cost * # units)
CM = cost margin
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13
Q

Degree of leverage

A

Purpose: fixed costs as a percentage of its total costs.

Use: evaluate the break even point of a business, as well as the likely profit levels on individual sales.

Interpretation:
High operating leverage: large proportion of costs are fixed. Firm earns large profit per incremental sale, but must attain sufficient sales volume to cover large fixed costs. If achieves this, will have major profit on all sales after fixed costs covered.
Low operating leverage: . large proportion of sales are variable costs. Costs are only incurred if there is a sale. Firm earns much smaller profit on each incremental sale, but does not have to generate much sales volume to cover fixed costs. Easier for company to earn profit at low sales levels but doesn’t ear outsized profits w/additional sales.

Formula: CM (dollars) / pre-tax income

Note:
CM = cost margin
CM = sales price per unit - total variable costs per unit (result is in dollars)

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14
Q

fixed cost based on total cost and variable cost

A

total cost - (variable cost * # units)

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15
Q

total variable costs based on total sales, fixed costs and pretax income

A

Total sales - total fixed costs - pretax income

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16
Q

Income Relations in CVP analysis

A

Sales - Variable Costs =
Contribution Margin - Fixed Cost =
Income

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17
Q

Pre-tax income from sales units, CM unit, and fixed cost

A

(sales units * CM unit) - fixed costs = pre-tax income

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18
Q

Break-even point in # of units for weighted average contribution margin

A

(fixed cost + total pre-tax income (always 0 if basing on break-even)) / contribution margin per unit

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19
Q

of units to sell for each product line based on break-even point

A

“1. begin with weighted average contribution margin per unit formula above
2. break-even point in # of units * (# units in product line / total # of units in all product lines)”

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20
Q

Cost per unit using fixed cost and # units produced

A

fixed cost / # units

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21
Q

Three assumptions made in CVP analysis.

A
  1. constant fixed price
  2. constant variable price
  3. constant sales price
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22
Q

Profit increase using degree of operating leverage and sales increase

A

operating leverage * sales increase

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23
Q

COGS for Merchandiser

A

Beginning Inventory +
Cost of Goods Purchased -
Ending Inventory
=COGS

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24
Q

COGS for Manufacturer

A

Beginning finished goods inventory + Cost of goods manufactured -
ending finished goods inventory
=COGS

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25
Q

Prime costs

A

Direct Materials + Direct labor

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26
Q

Conversion costs

A

direct labor + factory overhead

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27
Q

Cycle Time (CT)

A

process time + inspection time + move time + wait time

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28
Q

Cycle Efficiency (CE)

A

value-added time / cycle time

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29
Q

Cost of Goods Manufactured

A

Sum of direct materials used + direct labor + overhead costs

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30
Q

non-value-added time

A

inspection time + move time + wait time

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31
Q

value-added time

A

equals process time

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32
Q

conversion costs per equivalent unit

A

direct labor costs + factory OH costs per equivalent unit

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33
Q

Merchandise purchases budget in equation form

A

inventory to be purchased = budgeted ending inventory + budgeted cost of sales for the period - budgeted beginning inventory

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34
Q

How to compute number of dollars of inventory to be purchased for budget if merchandise purchases budget is expressed in units and only one product is involved

A

of dollars of inventory = units to be purchased * cost per units

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35
Q

Merchandise Purchases Budget spreadseet

A 
Next month's budget sales (units)
* Ratio of inventory to future sales (*%)
=Budget ending inventory (units)
\+ budgeted sales
= required units of available merchandise
- beginning inventory (units) 
= units to be purchased
...
budget cost per unit 
(* units to be purchased)
=budgeted cost of merchandise purchases
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36
Q

selling expense budget spreadsheet formula

A 
budgeted sales 
* sales commission percent
= sales commissions
\+ salary for sales manager
= total selling expenses
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37
Q

cash budget

A

beginning cash balance + budgeted cash receipts - budgeted cash disbursements = preliminary cash balance

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38
Q

contribution margin format for flexible budget layouts?

A
  1. format beginning with sales followed by variable costs and then fixed costs
  2. both expected individual and total variable costs are reported and then subtracted from sales
  3. difference between sales and variable costs equals contribution margin
  4. expected amts of fixed costs listed next
  5. expected income from ops before taxes
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39
Q

cost variance (CV) equation in simple format

A

CV = actual cost (AC) - standard cost (SC)

Notes:
AC = Actual quantity (AQ) * Actual Price (AP)
SC = Standard Quantity (SQ) * Standard Price (SP)

40
Q

Actual Cost (AC) formula

A

actual quantity X actual price

Note: the input (material or labor) used to manufacture the quantity of output

41
Q

standard cost (SC) and what is it

A

standard quantity (SQ) x Standard price (sp)

note: the expected input for the quantity of ouput

42
Q

Formula for Cost Variance or Total Variance

A

Price Variance (PV) + Quantity Variance (QV)

Note: 
PV = (AQ * AP) - (AQ * SP)
QV = (AQ * SP) - (SQ * SP)
AQ = actual quantity
AP = actual price
SP = standard price
SQ = standard quantity
43
Q

Formula for Price Variance with four factors

A

(AQ * AP) - (AQ * SP)

Note: 
AQ = actual quantity
AP = actual price
SP = standard price
SQ = standard quantity
44
Q

Formula for Quantity Variance with four factors

A

(AQ * SP) - (SQ * SP)

AQ = actual quantity
AP = actual price
SP = standard price
SQ = standard quantity
45
Q

Price variance formula with three factors

A

(AP - SP) * AQ

Note: 
AQ = actual quantity
AP = actual price
SP = standard price
SQ = standard quantity
46
Q

Quantity variance formula with three factors

A

(AQ - SQ) * SP

Note: 
AQ = actual quantity
AP = actual price
SP = standard price
SQ = standard quantity
47
Q

What can the labor cost variance be divided into?

A

rate (price) variance and efficiency (quantity) variance

48
Q

Formula for actual labor cost

A

AH * AR

Note:
AH = Actual Direct Labor Hours
AR = Actual Wage Rate

49
Q

Formula for standard labor cost

A

SH * SR

Note:
SH = Standard Direct Labor Hours for Actual Output
SR = Standard Wage Rate

50
Q

How find the Actual Hours at Standard Rate to compute variance from standard cost

A

AH * SR

Note:
AH: Actual Direct Labor Hours
SR: Standard Rate (wage)

51
Q

Formula for computing rate variance in labor hours

A

AC - (AH * SR)

Note: 
AH = Actual Direct Labor Hours
AR = Actual Wage Rate
SH = Standard Direct Labor Hours for Actual Output
SR = Standard Wage Rate
52
Q

Formula for labor efficiency variance

A

(AH * SR) - Standard Cost

Note: 
Standard Cost = SH * SR
AH = Actual Direct Labor Hours
AR = Actual Wage Rate
SH = Standard Direct Labor Hours for Actual Output
SR = Standard Wage Rate
53
Q

Formula for Total Direct Labor Variance

A

Rate Variance - Efficiency Variance

Note:  
AH = Actual Direct Labor Hours
AR = Actual Wage Rate
SH = Standard Direct Labor Hours for Actual Output
SR = Standard Wage Rate
54
Q

What are the 4 general steps to establishing the standard overhead cost rate

A
  1. use same cost structure used to construct flexible budget at end of period
  2. identify the diff overhead cost components and classify each as variable or fixed
  3. select level of activity (volume) and predict total OH cost
  4. divide total by allocation base to get standard rate
55
Q

overhead cost variance formula (OCV)

A

OCV = Controllable Variance - Volume Variance

Note:
Controllable Variance: actual OH - budgeted OH
Volume Variance: budgeted OH - applied OH

56
Q

formula for fixed overhead rate

A

fixed OH $ / budgeted DL hours

57
Q

formula for variable Overhead rate

A

variable OH $ / budgeted DL hours

58
Q

variable cost flexible budget

A

(VC / predicted units) * actual units

59
Q

Direct Materials Cost Variance

A

Price Variance - Quantity Variance
or Actual Units at Actual cost - Standard Units at Standard Cost

Note:
Price Variance= (AP - SP) * AQ
Quantity Variance = (AQ - SQ) * SP

60
Q

Direct Labor Cost Variance

A

Rate Variance - Efficiency Variance

Note:
Rate: (AR - SR) * AH
Efficiency: (AH - SH) * SR

61
Q

Variable OH Cost Variance

A

Spending Variance - Efficiency Variance

Note: 
Spending Variance: (AVR - SVR) * AH
Efficiency Variance: (AH - SH) * SVR
AVR: 
SVR:
62
Q

Fixed OH Variance

A

Spending Variance - Volume Variance

Note:
Spending Variance: actual OH - budgeted OH
Volume Variance: budgeted OH - (SH * SFR)
SH:
SFR:

63
Q

actual price (AP)

A

total actual direct materials (DM) / actual direct materials (DM) quantity

64
Q

standard quantity (sq) total

A

actual units x standard quantity units

65
Q

actual rate:

A

actual total labor / actual labor hours

66
Q

standard hours overall

A

actual units * standard labor hours (units)

67
Q

Labor rate variance

A

(AR - SR) * AH

Note:
Actual Rate
Standard Rate
Actual Hours

68
Q

Labor Efficiency Variance

A

(AH - SH) * SR

Note:
actual hours
Standard hours
standard rate

69
Q

applied overhead

A

total overhead cost per hour * actual base rate (labor hrs, mach hours, etc)

70
Q

planned hours per unit

A

planned hours of direct labor / planned units to be produced

71
Q

total overhead variance

A

actual overhead - standard oh

72
Q

controllable variance

A

actual overhead - applied overhead

73
Q

fixed overhead volume variance

A

budgeted fixed overhead - fixed overhead cost applied

74
Q

Direct materials quantity variance
or
direct material usage/efficiency variance

A

( SQ − AQ ) × SP

75
Q

Direct materials Price Variance
or
direct material spending/rate variance

A

( SP − AP ) × AQ

76
Q

total direct material variance

A

direct material usage variance + direct material price variance
or
standard cost - actual cost

77
Q

Sell or process analysis

A

Revenue if process - revenue if sold as is = incremental revenue - cost to process = incremental net income

78
Q

scrap or rework analysis

A

sale of reworked units - less costs to rework defects - less opportunity cost of not making new units = incremental net income.
Compare against net income for scrap.

79
Q

make or buy analysis

A

Make:
direct materials/unit + direct labor/unit.
compare against purchase price for buying item. Incremental cost needs to be less than purchase cost.

80
Q

sales mix analysis formula w/unlimited demand and products use different inputs

A

selling price per unit - variable cost per unit = contribution margin per unit / machine hours per unit

greater contribution margin should be produced

81
Q

sales mix analysis formula w/unlimited demand and products with same inputs

A

selling price per unit - variable cost per unit = contribution margin per unit… go with one that has higher contribution margin per unit.

82
Q

net purchase price of equipment formula

A

total cost - any trade-in allowance/cash receipt for old equipment

83
Q

eliminate or continue product

A

identify expenses as avoidable or unavoidable, then avoidable expenses must be more than current sales for that product

84
Q

replace or keep equipment

A

cost to buy new machine (neg) + trade in + reduction to variable manufacturing costs = total increase () or decrease + net income

85
Q

sales mix analysis formula w/limited demand and products with different inputs

A

figure which has the highest contribution margin per input, make the max of those, then diff of other

86
Q

accounting rate of return

A

(after-tax net income) / (average investment)

NOTE:
average investment = investment’s (beg value + end value) / 2

87
Q

payback period

A

cost of investment / annual net cash flow

88
Q

net present value of investment

A

Step 1: find present value of annual net cash flow (income+depreciation)*PV of annuity % (found on chart)
Step 2: PV of annual net cash flow - cost of investment
Step 3: answer above must be greater than % needed fo move forward with investment
NOTE: when calculating cash flow * PV, multiple the PV of 1 factor by each useful life year by income, multiply the salvage value by the last useful year,

89
Q

profitability index

A

(net present value of cash flows) / investment cost

90
Q

internal rate of return

A

step 1: compute present value factor for investment project (amount invested/net cash flows)

step 2: identify discount rate (IRR) yielding present value factor (usually use chart, search down the applicable year row for the rate matching your NPV)

answer: the found discount % rate on the chart implies the IRR is at/approx that percentage

91
Q

break-even time (BET)

A

cash flows * present value of I 1 needed precentage = present val of cash flows

pres val of cash flows subtracted from cost over years to find break even time

92
Q

Return on investment or investment center return on total assets

A

investment center net income / investment center averge invested assets

OR

profit margin * investment turnover

OR

((investment center net income * investment cneter ales) * (invesmetn center sales / investmetn center averagessets))

93
Q

investment center residual income or economic value added (EVA)

A

investment center net income - target investment center net income

94
Q

What is the IRR Decision Rule?

A

in order for a project to create value in the company, IRR must be greater than the required return.

95
Q

What is capital-constrained environment?

A

when a firm does not have enough capital to fund ALL projects, resources are limited

96
Q

What is a conventional cash flow?

A

cash flow that begins with a negative initial outlay followed by series of positive inflows

Managerial Accounting (13 decks)

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