COST ACCOUNTING FORMULAS & IMPORTANT TERMINOLOGIES
1.
Prime Cost = Direct Material + Direct Labor
2.
Total Production Cost = Prime Cost + FOH Cost
3.
Conversion Cost = Direct Labor + FOH Cost
4.
Raw Material Consumed = = Raw Material Opening + Material Purchases – Material Closing
5.
Manufacturing Cost = Prime Cost + FOH Cost
6.
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.
Cost of Goods Sold = Goods Available for Sale – Closing Finished Goods
9.
Contribution Margin = Sales – Variable Cost
10.
Income Statement = Gross Profit – Operating Expenses
11.
Income Statement = (Sale-COGS) – (Selling + Admin + Marketing Expenses)
12.
Applied FOH Rate
13.
FOH Rate = Total FOH Cost x 100
= Answer % {Based on Labor Cost}
Labor Cost 14.
FOH Rate = Total FOH Cost x 100
= Answer % {Based on Material}
Material Cost 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.
Re-Order Period = Lead Time
20.
EOQ = Re-Order Quantity
21.
Re-Order Level = (Max Consumption) x (Max Lead Time)
22.
Max Stock Level = = Re-Order Level – (Min Consumption) x (Min Lead Time) + EOQ
23.
Min Stock Level = Re-Order Level – (Avg Consumption) x (Avg Lead Time)
24.
Danger Stock Level = (Avg Consumption) x (Emergency Lead Time)
25.
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
= Answer %
Time Allowed Step-II Bonus Pay = (Basic Pay) x (Bonus Rate %) = Answer Rupees Step-III Now Total Pay = Basic Pay + Bonus Pay
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)
Cost Of Goods Manufactured & Sold Statement
31.
(Source: See Page 22 of PIPFA Cost Accounting Book)
32.
Marginal Costing / Direct Costing Sales
XXXX
Less Variable Cost of Goods Sold Opening Stock (Opening Stock x Variable FOH Rate/unit)
XXXX
+ Production (Produced Units x
XXXX
Variable FOH Rate/unit)
(-) Closing Stock (Closing x Variable FOH Rate/unit)
(XXXX)
Variable COGS
XXXX
(XXXX)
Gross Contribution Margin
XXXX
(Less) Variable Marketing Expenses (if any)
(XXXX)
Net Contribution Margin
XXXX
Less Fixed Costs (if any) Period Cost (Sales x Fixed FOH Rate)
XXXX
+ Fixed Marketing Expenses
XXXX
Total Fixed Costs
XXXX
Net Profit by Marginal Costing
(XXXX)
XXXX
Notes to Marginal Costing:-
a.
Fixed Cost are for one month only then they will be treated as Period Cost.
b.
Inventory is multiplied to only Variable FOH Rate per unit.
c.
Marginal Costing shows higher profits .
d.
33.
Marginal Costing leads to Contribution Margin (CM) then Net Profit.
Absorption Costing
Sales
XXXX
Less Cost of Goods Sold Opening Stock
XXXX
{Opening Stock x (Fixed FOH Rate/unit +Variable FOH Rate/unit)}
+ Production
XXXX
{Units Produced x (Fixed FOH Rate/unit +Variable FOH Rate/unit)}
(-) Closing Stock
(XXXX)
{Closing Stock x (Fixed FOH Rate/unit +Variable FOH Rate/unit)}
Cost of Goods Sold
XXXX
+Under / (-)Over Applied FOH
XXXX
Cost of Goods Sold at Actual
XXXX
Gross Profit
(XXXX)
XXXX
Less Marketing Expenses (if any) Fixed Marketing Expenses
XXXX
+ Variable Marketing Expenses
XXXX
Total Marketing Expenses
XXXX
Net Profit by Absorption Costing
(XXXX)
XXXX
Notes to Absorption Costing:-
e.
Over/Under Applied FOH Budgeted Production (Budgeted units x Fixed FOH Rate/unit)
XXXX
(-) Actual Production (Actual units x Fixed FOH Rate/unit)
(XXXX)
Over/Under Applied FOH
XXXX
If Actual Production > Budgeted Production ^ Over Applied FOH
If Actual Production < Budgeted Production ^ Under Applied FOH f.
If Over – Applied FOH ^ Minus from COGS at Actual
g.
If Under – Applied FOH ^ Add in COGS at Actual
h.
Absorption Costing leads to Gross Profit (GP) then Net Profit .
Confusing Terminologies of Cost Accounting 1.
Inventory = Stock
2.
Re-Order Period = Lead Time
3.
EOQ = Re-Order Quantity
4.
Standard = Budgeted
5.
Marginal Costing = Direct Costing
6.
Absorption Costing = Full Costing = Factory Cost = Production Cost
7.
Total Production Cost = Manufacturing Cost
................................................................................................................................................ Best Regards,
(DILAWAR ABBAS) B. Com (IT), MBA (Finance)
[email protected]
