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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)

digital_darwaish@hotmail.com

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