Cost Accounting Formulas and Important Terminologies

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 = 5. Manufacturing Cost = Prime Cost + FOH Cost 6. Cost Of Goods Manufactured = = Raw Material Opening + Material Purchases – Material Closing {Same as Sr. No.2} = Manufacturing Cost + Opening WIP – Closing WIP 7. Goods Available for Sale = 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 = Cost Of Goods Manufactured + Opening Finished Goods Expenses) 12. Applied FOH Rate 13. FOH Rate = Total FOH Cost x 100 = Answer % {Based on Labor Cost} 14. FOH Rate = Total FOH Cost x 100 = Answer % {Based on Material} 15. FOH Rate = Total FOH Cost x 100 = Answer % {Based on Prime Cost} Labor Cost Material Cost 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 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 = 23. Min Stock Level = Re-Order Level – (Avg Consumption) x (Avg Lead No. of Units Produced = Re-Order Level – (Min Consumption) x (Min Lead Time) + EOQ Time) 24. Danger Stock Level = (Avg Consumption) x (Emergency Lead Time) 25. Average Stock Level = Min Stock Level + Max Stock Level 26. Average Stock Level = Min Stock Level + Re-Order Quantity 27. Average Stock Level = Min Stock Level + EOQ 28. EOQ = 2 2 2 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) 30. Inventory Turnover Ratio = Material Consumed 365 x (Avg Lead Time) 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) 33. Halsey-Weir Premium Bonus Plan = 2 = (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) 31. Cost Of Goods Manufactured & Sold Statement (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 Gross Contribution Margin (XXXX) 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