PRELIM: COST – FORMULA

SEGREGATION OF MIXED COSTS (Variable and Fixed Costs)

LINEAR: y = a + b(x)
1. High-Low Method

2. Least-Squares Method

PROFIT MODELLING
 1. Absorption Costing – Income Statement
Sales xxx
Less: Cost of goods sold xxx
Gross profit xxx
Less: Operating expenses xxx
Net profit xxx

*Cost per unit – includes FFOH

2. Variable Costing – Income Statement

Sales xxx
Less: Variable costs and expenses (DM/DL/FOH) xxx
Contribution Margin xxx
Less: Fixed costs and expenses (Fixed FOH-Operating) xxx
Profit xxx

*Cost per unit – does not include FFOH

*Fixed FOH = Units sold x FFOH cost /unit

3. Reconciliation
Net Profit (AC) xxx
Beginning Inventory xxx
Ending Inventory (xxx)
Net Profit (VC) xxx

*Ending Inventory = (Units Produced – Units Sold) x FFOH cost /unit

PROFIT PLANNING
1. CVP Analysis
a. Without profit or known as break – even point (BEP)
i. BEP in units (Volume) = Fixed Cost (FC) / Contribution Margin per unit
(CM /unit).
ii. BEP in pesos = FC / CM in %

*CM = Unit selling price – unit variable cost and expenses

*CM in % = (Sales – Variable cost and expenses) / Sales x 100%

b. With profit
i. Sales Volume = Fixed Cost + Desire Profit before tax / CM unit
ii. Sales Peso = Fixed Cost + Desired Profit before tax / CM in %

c. Margin of Safety = budgeted sales – break even sales

i. Margin of Safety Ratio = [(budgeted sales – break even sales) / budgeted
sales] x 100%

d. Degree of Operating Leverage

i. DOL = total CM / profit before tax; or
ii. DOL – change in profit before tax/ change in sales; or
iii. DOL = 1/ Margin of Safety Ratio

e. Multi-Product
i. BEP in units = Fixed Cost / Weighted average contribution margin per
unit
ii. BEP in pesos = Fixed Cost / Weighted average contribution margin in %

PAPASA TAYO HA? LAHAT TAYO!

CPAs YARN IHHH, diba bhie?
PAYTING!!!