COST ACCOUNTING FORMULAS & IMPORTANT TERMINOLOGIES1. 2. 3. 4. Prime Cost = Direct Material + Direct Labor Total Production Cost = Prime Cost + FOH Cost Conversion Cost = Direct Labor + FOH Cost Raw Material Consumed = = Raw Material Opening + Material Purchases – Material Closing 5. 6. Manufacturing Cost = Prime Cost + FOH Cost Cost Of Goods Manufactured = {Same as Sr. No.2} = Manufacturing Cost + Opening WIP – Closing WIP 7. Goods Available for Sale = = Cost Of Goods Manufactured + Opening Finished Goods 8. 9. 10. 11. Cost of Goods Sold = Goods Available for Sale – Closing Finished Goods Contribution Margin = Sales – Variable Cost Income Statement = Gross Profit – Operating Expenses Income Statement = (Sale-COGS) – (Selling + Admin + Marketing Expenses) 12. Applied FOH Rate 13. FOH Rate = Total FOH Cost x 100 Labor Cost = Answer % {Based on Labor Cost} 14. FOH Rate = Total FOH Cost x 100 Material Cost = Answer % {Based on Material} 15. FOH Rate = Total FOH Cost x 100 Prime Cost = Answer % {Based on Prime Cost} 16. FOH Rate = Budgeted FOH Cost = Answer Rupees {Based on Labor Hours} 17. FOH Rate = Budgeted FOH Cost = Ans Rupees {Based on Machine Hours} 18. Per Unit Cost = Cost of Goods Manufactured No. of Units Produced 19. 20. 21. 22. Re-Order Period = Lead Time EOQ = Re-Order Quantity Re-Order Level = (Max Consumption) x (Max Lead Time) Max Stock Level = = Re-Order Level – (Min Consumption) x (Min Lead Time) + EOQ Min Stock Level = Re-Order Level – (Avg Consumption) x (Avg Lead Time) 23. 24. 25. Danger Stock Level = (Avg Consumption) x (Emergency Lead Time) Average Stock Level = Min Stock Level + Max Stock Level 2 26. Average Stock Level = Min Stock Level + Re-Order Quantity 2 27. Average Stock Level = Min Stock Level + EOQ 2 28. EOQ = 2 (Annual Units Consumption) x (Cost per Order) (Cost per unit of Material) x (Carrying Cost Percentage) 29. Safety Stock = (Annual Demand) x (Max Lead Time – Min Lead Time) 365 x (Avg Lead Time) 30. Inventory Turnover Ratio = Material Consumed Avg Inventory = Answer Times 31. Inventory Holding Period = No. of days in year = 365 Inventory Turnover Ratio Inventory Turnover Ratio Labor Premium Bonus Plans 32. Halsey Bonus Plan = (Time Allowed – Time Saved) x (Rate per Labor Hour) 2 33. Halsey-Weir Premium Bonus Plan = = (Time Allowed – Time Saved) x (Rate per Labor Hour) 3 34. Rowan Premium Plan Step-I Bonus Rate = Time Saved x 100 Time Allowed Step-II Bonus Pay = (Basic Pay) x (Bonus Rate %) = Answer Rupees Step-III Now Total Pay = Basic Pay + Bonus Pay = Answer % Piece Rate System 35. Taylor's Differential Piece Rate Plan If Efficiency > Standard then 120 % of Normal Piece Rate = (Units Produced)x(Normal Piece Rate) + (1.20)x(Normal Piece Rate) If Efficiency < Standard then 80 % of Normal Piece Rate = (Units Produced)x(Normal Piece Rate) + (0.80)x(Normal Piece Rate) 30. Merrick's Differential Piece Rate Plan If Efficiency 0 - 80% then Normal Piece Rate = (Units Produced) x (Normal Piece Rate) + (Units Produced) x (Normal Piece Rate) If Efficiency 81 - 100% then 10 % of Normal Piece Rate = (Units Produced)x(Normal Piece Rate) + (Units Produced)x(0.10)x(Normal Piece Rate) If Efficiency 100% - Above% then 20 % of Normal Piece Rate = (Units Produced)x(Normal Piece Rate) + (Units Produced)x(0.20)x(Normal Piece Rate) 31. Cost Of Goods Manufactured & Sold Statement (Source: See Page 22 of PIPFA Cost Accounting Book) 32. Marginal Costing / Direct Costing Sales XXXX XXXX XXXX (XXXX) XXXX (XXXX) Less Variable Cost of Goods Sold Opening Stock (Opening Stock x Variable FOH Rate/unit) + Production (Produced Units x Variable FOH Rate/unit) (-) Closing Stock (Closing x Variable FOH Rate/unit) Variable COGS Gross Contribution Margin (Less) Variable Marketing Expenses (if any) Net Contribution Margin Less Fixed Costs (if any) Period Cost (Sales x Fixed FOH Rate) + Fixed Marketing Expenses Total Fixed Costs XXXX XXXX XXXX XXXX (XXXX) XXXX (XXXX) Net Profit by Marginal Costing Notes to Marginal Costing:- XXXX a. b. c. Fixed Cost are for one month only then they will be treated as Period Cost. Inventory is multiplied to only Variable FOH Rate per unit. Marginal Costing shows higher profits . d. Marginal Costing leads to Contribution Margin (CM) then Net Profit. 33. Sales Absorption Costing XXXX XXXX XXXX (XXXX) XXXX XXXX XXXX (XXXX) Less Cost of Goods Sold Opening Stock {Opening Stock x (Fixed FOH Rate/unit +Variable FOH Rate/unit)} + Production {Units Produced x (Fixed FOH Rate/unit +Variable FOH Rate/unit)} (-) Closing Stock {Closing Stock x (Fixed FOH Rate/unit +Variable FOH Rate/unit)} Cost of Goods Sold +Under / (-)Over Applied FOH Cost of Goods Sold at Actual Gross Profit Less Marketing Expenses (if any) Fixed Marketing Expenses + Variable Marketing Expenses Total Marketing Expenses XXXX XXXX XXXX XXXX (XXXX) Net Profit by Absorption Costing Notes to Absorption Costing:- XXXX e. Over/Under Applied FOH Budgeted Production (Budgeted units x Fixed FOH Rate/unit) (-) Actual Production (Actual units x Fixed FOH Rate/unit) Over/Under Applied FOH XXXX (XXXX) XXXX If Actual Production > Budgeted Production ^ Over Applied FOH If Actual Production < Budgeted Production ^ Under Applied FOH f. g. h. If Over – Applied FOH ^ Minus from COGS at Actual If Under – Applied FOH ^ Add in COGS at Actual Absorption Costing leads to Gross Profit (GP) then Net Profit . Confusing Terminologies of Cost Accounting 1. 2. 3. 4. 5. 6. 7. Inventory = Stock Re-Order Period = Lead Time EOQ = Re-Order Quantity Standard = Budgeted Marginal Costing = Direct Costing Absorption Costing = Full Costing = Factory Cost = Production Cost Total Production Cost = Manufacturing Cost ................................................................................................................................................ Best Regards, (DILAWAR ABBAS) B. Com (IT), MBA (Finance) [email protected]