EXAM TIPS FOR FMA –

MANAGEMENT ACCOUNTING

I - Get into good exam habits now!

 Take a moment to focus on the right approach for this exam. Ensure that all topics are
well-covered before examination.
 Effective time management/planning:
o Identify and make sure you pick up the easy marks available.
o Watch the clock and move on if you get behind (1.2 minutes per mark)
o Be selective: focus on the difficult requirements if you have free time afterwards
 Read questions carefully, don’t miss any important word or ignore words that can easily
get you into pitfall (not, least, only, always, false, untrue, incorrect, best, etc.)
 Read the requirements carefully: question words and potential overlap between
requirements
 Take a few moments to think what the requirements are asking for and how you are going
to answer them
o Eliminate incorrect answer
o Work out your answer (in details)
o Guess the right answer (Do not leave any question unanswered!)

II – Be careful of possible pitfalls and “favourite” topics!

 Managerial accounting vs Financial accounting
 Strategic planning vs Tactical planning vs Operational planning
 Primary data vs Secondary data
 Sampling methods (Probability vs non-probability; Advantages vs Disadvantages)
 Fixed cost vs Variable cost (i.e. expressed as $ per unit)
 Direct cost vs Indirect cost
 Free inventory formula
 Consistent cost calculation when calculating EOQ, EBQ
 Marginal costing vs Absorption costing (i.e. Profit reconciliation)
 Under absorption vs Over absorption
 Process costing
o Equivalent Units under FIFO and WA
o Working backwards
o Joint cost allocation
 Budget vs Forecast
 Correlation coefficient vs coefficient of determination
 Nominal interest rate vs Effective annual interest rate

Page 1 of 7
  IRR Calculation
 Adverse variance vs Favourable variance
 Variance calculation
o Fixed overhead variance
o Operating statement
o Working backwards
 Efficiency, Capacity and Activity Ratios
 Profitability, Liquidity and Gearing calculation
 Service industry performance measurement
 Mission statements/ Critical Success Factors/ Key Performance Indicators

III - Formulas to remember (not provided in exam)

1. Financial Performance measurement for Business
a. Profitability

𝑃𝐵𝐼𝑇&𝑃𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠
𝑅𝑂𝐼 = × 100%
𝑂𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑠ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 ′ 𝑓𝑢𝑛𝑑

𝑃𝐵𝐼𝑇
𝑅𝑂𝐶𝐸 = × 100%
𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑

𝑃𝐵𝐼𝑇
(𝑁𝑒𝑡) 𝑃𝑟𝑜𝑓𝑖𝑡 𝑚𝑎𝑟𝑔𝑖𝑛 = × 100%
𝑆𝑎𝑙𝑒𝑠
𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡
𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡 𝑚𝑎𝑟𝑔𝑖𝑛 = × 100%
𝑆𝑎𝑙𝑒𝑠

b. Liquidity
𝑆𝑎𝑙𝑒𝑠
𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 = × 100%
𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝑐𝑎𝑝𝑖𝑡𝑎𝑙

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

𝐴𝑐𝑖𝑑 𝑇𝑒𝑠𝑡 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
c. Gearing
𝐿𝑜𝑛𝑔 − 𝑡𝑒𝑟𝑚 𝑑𝑒𝑏𝑡
𝐺𝑒𝑎𝑟𝑖𝑛𝑔 𝑟𝑎𝑡𝑖𝑜 = × 100%
𝑂𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 ′ 𝑓𝑢𝑛𝑑𝑠

𝐿𝑜𝑛𝑔 − 𝑡𝑒𝑟𝑚 𝑑𝑒𝑏𝑡

𝐺𝑒𝑎𝑟𝑖𝑛𝑔 𝑟𝑎𝑡𝑖𝑜 = × 100%
𝑂𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 ′ 𝑓𝑢𝑛𝑑𝑠 + 𝐿𝑜𝑛𝑔 − 𝑡𝑒𝑟𝑚 𝑑𝑒𝑏𝑡

Page 2 of 7
 𝑃𝐵𝐼𝑇
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑐𝑜𝑣𝑒𝑟 =
𝐴𝑛𝑛𝑢𝑎𝑙 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑐ℎ𝑎𝑟𝑔𝑒

d. Activity/Efficiency
𝑆𝑎𝑙𝑒𝑠
𝐴𝑠𝑠𝑒𝑡 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 =
𝐶𝑎𝑝𝑡𝑖𝑎𝑙 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑

𝑆𝑎𝑙𝑒𝑠
𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 =
𝑁𝑜𝑛 − 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠

𝑇𝑟𝑎𝑑𝑒 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠
𝑇𝑟𝑎𝑑𝑒 𝑟𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝑑𝑎𝑦𝑠 = × 365
𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠

𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
𝑆𝑡𝑜𝑐𝑘 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑝𝑒𝑟𝑖𝑜𝑑 = × 365
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑆𝑎𝑙𝑒𝑠

𝑇𝑟𝑎𝑑𝑒 𝑃𝑎𝑦𝑎𝑏𝑙𝑒𝑠
𝑇𝑟𝑎𝑑𝑒 𝑝𝑎𝑦𝑎𝑏𝑙𝑒 𝑡𝑢𝑟𝑜𝑛𝑣𝑒𝑟 = × 365
𝐶𝑟𝑒𝑑𝑖𝑡 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒

2. Performance measures for profit centre

𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑙𝑎𝑏𝑙𝑒 𝑃𝑟𝑜𝑓𝑖𝑡 = 𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑙𝑎𝑏𝑙𝑒 𝑆𝑎𝑙𝑒𝑠 − 𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑙𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡

𝑇𝑟𝑎𝑐𝑎𝑏𝑙𝑒 𝑃𝑟𝑜𝑓𝑖𝑡 = 𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑙𝑎𝑏𝑙𝑒 𝑃𝑟𝑜𝑓𝑖𝑡 − 𝑇𝑟𝑎𝑐𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡

3. Performance measures for investment centre

𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑙𝑎𝑏𝑙𝑒 (𝑇𝑟𝑎𝑐𝑎𝑏𝑎𝑙𝑒) 𝑃𝑟𝑜𝑓𝑖𝑡

𝑅𝑂𝐼 = × 100%
𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑙𝑎𝑏𝑙𝑒 (𝑇𝑟𝑎𝑐𝑎𝑏𝑙𝑒) 𝐼𝑛𝑣𝑒𝑠𝑚𝑒𝑛𝑡 (𝐶𝑎𝑝𝑎𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑)

𝑅𝑒𝑠𝑖𝑑𝑢𝑎𝑙 𝐼𝑛𝑐𝑜𝑚𝑒 (𝑅𝐼)

= 𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑙𝑎𝑏𝑙𝑒 (𝑇𝑟𝑎𝑐𝑎𝑏𝑙𝑒) 𝑃𝑟𝑜𝑓𝑖𝑡
− 𝐼𝑚𝑝𝑢𝑡𝑒𝑑 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑜𝑛 𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑙𝑎𝑏𝑙𝑒 (𝑇𝑟𝑎𝑐𝑎𝑏𝑙𝑒)𝐼𝑛𝑣𝑒𝑠𝑚𝑒𝑛𝑡
4. Variances
a. Revenue Variances

𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒

= (𝐴𝑐𝑡𝑢𝑎𝑙 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 − 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒) × 𝐴𝑐𝑡𝑢𝑎𝑙 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑆𝑜𝑙𝑑

𝑆𝑎𝑙𝑒𝑠 𝑉𝑜𝑙𝑢𝑚𝑒 𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒

= (𝐴𝑐𝑡𝑢𝑎𝑙 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑆𝑜𝑙𝑑 − 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑆𝑜𝑙𝑑)
× 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑃𝑟𝑜𝑓𝑖𝑡 (𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑀𝑎𝑟𝑔𝑖𝑛)

Page 3 of 7
 b. Cost Variances
i. Material Variance

𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝑃𝑟𝑖𝑐𝑒 𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒

= (𝐴𝑐𝑡𝑢𝑎𝑙 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑃𝑟𝑖𝑐𝑒 − 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑃𝑟𝑖𝑐𝑒)
× 𝐴𝑐𝑡𝑢𝑎𝑙 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑑

𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝑈𝑠𝑎𝑔𝑒 𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒

= (𝐴𝑐𝑡𝑢𝑎𝑙 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑈𝑠𝑒𝑑(𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑑)
− 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑓𝑜𝑟 𝐴𝑐𝑡𝑢𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡)
× 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑃𝑟𝑖𝑐𝑒

ii. Labour Variance

𝐿𝑎𝑏𝑜𝑢𝑟 𝑅𝑎𝑡𝑒 𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒 = (𝐴𝑐𝑡𝑢𝑎𝑙 𝑅𝑎𝑡𝑒 − 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑅𝑎𝑡𝑒) × 𝐴𝑐𝑡𝑢𝑎𝑙 𝐻𝑜𝑢𝑟𝑠 𝑃𝑎𝑖𝑑

𝐿𝑎𝑏𝑜𝑢𝑟 𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦 𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒

= (𝐴𝑐𝑡𝑢𝑎𝑙 𝐻𝑜𝑢𝑟𝑠 𝑊𝑜𝑟𝑘𝑒𝑑 − 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝐻𝑜𝑢𝑟𝑠 𝑓𝑜𝑟 𝐴𝑐𝑡𝑢𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡)
× 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑅𝑎𝑡𝑒

𝐿𝑎𝑏𝑜𝑢𝑟 𝐼𝑑𝑙𝑒 𝑇𝑖𝑚𝑒 𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒 = (𝐴𝑐𝑡𝑢𝑎𝑙 𝐻𝑜𝑢𝑟𝑠 𝑃𝑎𝑖𝑑 − 𝐴𝑐𝑡𝑢𝑎𝑙 𝐻𝑜𝑢𝑟𝑠 𝑊𝑜𝑟𝑘𝑒𝑑) × 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑅𝑎𝑡𝑒

iii. Variable Overhead Variance

𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝐸𝑥𝑝𝑒𝑛𝑑𝑖𝑡𝑢𝑟𝑒 𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒

= 𝐴𝑐𝑡𝑢𝑎𝑙 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑂𝐻 − 𝐴𝑐𝑡𝑢𝑎𝑙 𝐻𝑜𝑢𝑟𝑠 𝑊𝑜𝑟𝑘𝑒𝑑
× 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑂𝐻 𝑟𝑎𝑡𝑒 𝑝𝑒𝑟 ℎ𝑜𝑢𝑟

𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦 𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒

= (𝐴𝑐𝑡𝑢𝑎𝑙 𝐻𝑜𝑢𝑟𝑠 𝑊𝑜𝑟𝑘𝑒𝑑
− 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝐻𝑜𝑢𝑟𝑠 𝑓𝑜𝑟 𝐴𝑐𝑡𝑢𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡)
× 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑂𝐻 𝑟𝑎𝑡𝑒 𝑝𝑒𝑟 ℎ𝑜𝑢𝑟

iv. Fixed Overhead Variance (Absorption Costing)

𝐹𝑖𝑥𝑒𝑑 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒 = 𝐴𝑐𝑡𝑢𝑎𝑙 𝐹𝑖𝑥𝑒𝑑 𝑂𝐻 − 𝐴𝑏𝑠𝑜𝑟𝑝𝑒𝑑 𝑂𝐻

𝐹𝑖𝑥𝑒𝑑 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝐸𝑥𝑝𝑒𝑛𝑑𝑖𝑡𝑢𝑟𝑒 𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒 = 𝐴𝑐𝑡𝑢𝑎𝑙 𝐹𝑖𝑥𝑒𝑑 𝑂𝐻 − 𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑂𝐻

𝐹𝑖𝑥𝑒𝑑 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝑉𝑜𝑙𝑢𝑚𝑒 𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒

= (𝐴𝑐𝑡𝑢𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡 − 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑂𝑢𝑡𝑝𝑢𝑡) × 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑂𝐴𝑅 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡

Page 4 of 7
 𝐹𝑖𝑥𝑒𝑑 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒
= (𝐴𝑐𝑡𝑢𝑎𝑙 𝐻𝑜𝑢𝑟𝑠 𝑊𝑜𝑟𝑘𝑒𝑑 − 𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐻𝑜𝑢𝑟𝑠)
× 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑂𝐴𝑅 𝑝𝑒𝑟 ℎ𝑜𝑢𝑟

𝐹𝑖𝑥𝑒𝑑 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦 𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒

= (𝐴𝑐𝑡𝑢𝑎𝑙 𝐻𝑜𝑢𝑟𝑠 𝑊𝑜𝑟𝑘𝑒𝑑 − 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝐻𝑜𝑢𝑟𝑠 𝑓𝑜𝑟 𝐴𝑐𝑡𝑢𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡)
× 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑂𝐴𝑅 𝑝𝑒𝑟 ℎ𝑜𝑢𝑟

c. Operating Statements

𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑃𝑟𝑜𝑓𝑖𝑡 − 𝑆𝑎𝑙𝑒𝑠 𝑉𝑜𝑙𝑢𝑚𝑒 𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒

= 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑃𝑟𝑜𝑓𝑖𝑡 (𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛)𝑓𝑟𝑜𝑚 𝐴𝑐𝑡𝑢𝑎𝑙 𝑆𝑎𝑙𝑒𝑠

𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑃𝑟𝑜𝑓𝑖𝑡 (𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛)𝑓𝑟𝑜𝑚 𝐴𝑐𝑡𝑢𝑎𝑙 𝑆𝑎𝑙𝑒𝑠 − 𝑆𝑎𝑙𝑒𝑠 𝑃𝑟𝑖𝑐𝑒 𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒

− 𝐶𝑜𝑠𝑡 𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒𝑠 = 𝐴𝑐𝑢𝑡𝑎𝑙 𝑃𝑟𝑜𝑓𝑖𝑡

5. Cost

𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 = 𝑃𝑟𝑖𝑚𝑒 𝑐𝑜𝑠𝑡 + 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑 + 𝑁𝑜𝑛 − 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑

𝑃𝑟𝑖𝑚𝑒 𝑐𝑜𝑠𝑡 = 𝐷𝑖𝑟𝑒𝑐𝑡 𝑚𝑎𝑡𝑒𝑟𝑖𝑎𝑙𝑠 + 𝐷𝑖𝑟𝑒𝑐𝑡 𝑙𝑎𝑏𝑜𝑢𝑟 + 𝐷𝑖𝑟𝑒𝑐𝑡 𝑒𝑥𝑝𝑒𝑛𝑠𝑒𝑠

𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑐𝑜𝑠𝑡 = 𝑃𝑟𝑖𝑚𝑒 𝑐𝑜𝑠𝑡 + 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑

𝐶𝑜𝑠𝑡 𝑢𝑛𝑖𝑡 (𝑎𝑏𝑠𝑜𝑟𝑝𝑡𝑖𝑜𝑛 𝑐𝑜𝑠𝑡𝑖𝑛𝑔) = 𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑐𝑜𝑠𝑡 + 𝑓𝑖𝑥𝑒𝑑 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑

𝐶𝑜𝑠𝑡 𝑢𝑛𝑖𝑡 (𝑚𝑎𝑟𝑔𝑖𝑛𝑎𝑙 𝑐𝑜𝑠𝑡𝑖𝑛𝑔) = 𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑐𝑜𝑠𝑡

𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 (𝑗𝑜𝑏 𝑐𝑜𝑠𝑡𝑖𝑛𝑔) = 𝑃𝑟𝑖𝑚𝑒 𝑐𝑜𝑠𝑡 + 𝐴𝑏𝑠𝑜𝑟𝑏𝑒𝑑 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑂𝐻 + 𝑁𝑜𝑛 − 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑂𝐻

𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 (𝑗𝑜𝑏 𝑐𝑜𝑠𝑡𝑖𝑛𝑔) = 𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 + 𝑀𝑎𝑟𝑘 − 𝑢𝑝 (% 𝑜𝑛 𝑐𝑜𝑠𝑡)

𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡
𝐶𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 (𝑏𝑎𝑡𝑐ℎ 𝑐𝑜𝑠𝑡𝑖𝑛𝑔) =
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑢𝑛𝑖𝑡𝑠 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑

6. Materials

𝐹𝑟𝑒𝑒 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑜𝑛 ℎ𝑎𝑛𝑑 + 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑜𝑛 𝑜𝑟𝑑𝑒𝑟 − 𝑆𝑐ℎ𝑒𝑑𝑢𝑙𝑒𝑑 𝑓𝑜𝑟 𝑢𝑠𝑒 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

𝑅𝑒𝑜𝑟𝑑𝑒𝑟 𝑙𝑒𝑣𝑒𝑙 = 𝑀𝑎𝑥 𝑈𝑠𝑎𝑔𝑒 × 𝑀𝑎𝑥 𝐿𝑒𝑎𝑑 𝑇𝑖𝑚𝑒

𝑀𝑖𝑛𝑖𝑚𝑢𝑚 𝑙𝑒𝑣𝑒𝑙 = 𝑅𝑒𝑜𝑟𝑑𝑒𝑟 𝐿𝑒𝑣𝑒𝑙 − (𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑈𝑠𝑎𝑔𝑒 × 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐿𝑒𝑎𝑑 𝑇𝑖𝑚𝑒)

𝑀𝑎𝑥𝑖𝑚𝑢𝑚 𝑙𝑒𝑣𝑒𝑙 = 𝑅𝑒𝑜𝑟𝑑𝑒𝑟 𝐿𝑒𝑣𝑒𝑙 + 𝑅𝑒𝑜𝑑𝑒𝑟 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 + (𝑀𝑖𝑛𝑖𝑚𝑢𝑚 𝑈𝑠𝑎𝑔𝑒 × 𝑀𝑖𝑛𝑖𝑚𝑢𝑚 𝐿𝑒𝑎𝑑 𝑇𝑖𝑚𝑒)

1
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑙𝑒𝑣𝑒𝑙 = 𝑀𝑖𝑛𝑖𝑚𝑢𝑚 𝐿𝑒𝑣𝑒𝑙 + 𝑅𝑒𝑜𝑟𝑑𝑒𝑟 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦
2

Page 5 of 7
 7. Labour
𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦 𝑅𝑎𝑡𝑖𝑜 × 𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑅𝑎𝑡𝑖𝑜 = 𝐴𝑐𝑡𝑖𝑣𝑖𝑡𝑦/𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑉𝑜𝑙𝑢𝑚𝑒 𝑅𝑎𝑡𝑖𝑜

𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 ℎ𝑜𝑢𝑟𝑠 𝑓𝑜𝑟 𝐴𝑐𝑡𝑢𝑎𝑙 𝑜𝑢𝑝𝑢𝑡 𝐴𝑐𝑡𝑢𝑎𝑙 ℎ𝑜𝑢𝑟𝑠 𝑤𝑜𝑟𝑘𝑒𝑑 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 ℎ𝑜𝑢𝑟𝑠 𝑓𝑜𝑟 𝐴𝑐𝑡𝑢𝑎𝑙 𝑜𝑢𝑝𝑢𝑡
× =
𝐴𝑐𝑡𝑢𝑎𝑙 ℎ𝑜𝑢𝑟𝑠 𝑤𝑜𝑟𝑘𝑒𝑑 𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 ℎ𝑜𝑢𝑟𝑠 𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 ℎ𝑜𝑢𝑟𝑠

𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑟𝑒𝑝𝑙𝑎𝑐𝑒𝑚𝑒𝑛𝑡
𝐿𝑎𝑏𝑜𝑢𝑟 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 = × 100%
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠 𝑖𝑛 𝑡ℎ𝑒 𝑝𝑒𝑟𝑖𝑜𝑑

8. Absorption costing & Marginal costing

𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑
𝑃𝑟𝑒𝑑𝑒𝑡𝑒𝑟𝑚𝑖𝑛𝑒𝑑 𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝑎𝑏𝑠𝑜𝑟𝑝𝑡𝑖𝑜𝑛 𝑟𝑎𝑡𝑒 =
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑙𝑒𝑣𝑒𝑙 𝑜𝑓 𝑎𝑐𝑡𝑖𝑣𝑖𝑡𝑦

𝐴𝑏𝑠𝑜𝑟𝑏𝑒𝑑 𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑 = 𝑃𝑟𝑒 − 𝑑𝑒𝑡𝑒𝑟𝑚𝑖𝑛𝑒𝑑 𝑂𝐴𝑅 × 𝐴𝑐𝑡𝑢𝑎𝑙 ℎ𝑜𝑢𝑟𝑠 (𝑚𝑎𝑐ℎ𝑖𝑛𝑒 𝑜𝑟 𝑙𝑎𝑏𝑜𝑢𝑟)

(𝑈𝑛𝑑𝑒𝑟)/𝑜𝑣𝑒𝑟 𝑎𝑏𝑠𝑜𝑟𝑏𝑒𝑑 𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑 = 𝐴𝑏𝑠𝑜𝑟𝑏𝑒𝑑 𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑 – 𝐴𝑐𝑡𝑢𝑎𝑙 𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑

𝑃𝑟𝑜𝑓𝑖𝑡 𝑢𝑛𝑑𝑒𝑟 𝐴𝐶
= 𝑃𝑟𝑜𝑓𝑖𝑡 𝑢𝑛𝑑𝑒𝑟 𝑀𝐶 + (𝐶𝑙𝑜𝑠𝑖𝑛𝑔 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑏𝑎𝑙𝑎𝑛𝑐𝑒 − 𝐸𝑛𝑑𝑖𝑛𝑔 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑏𝑎𝑙𝑎𝑛𝑐𝑒)
× 𝑃𝑟𝑒 − 𝑑𝑒𝑡𝑒𝑟𝑚𝑖𝑛𝑒𝑑 𝑂𝐴𝑅

9. Process costing
𝑁𝑜𝑟𝑚𝑎𝑙 𝐿𝑜𝑠𝑠 = 𝐼𝑛𝑝𝑢𝑡 × % 𝑁𝑜𝑟𝑚𝑎𝑙 𝐿𝑜𝑠𝑠

𝐴𝑏𝑛𝑜𝑟𝑚𝑎𝑙 𝐿𝑜𝑠𝑠/(𝐺𝑎𝑖𝑛) = 𝑁𝑜𝑟𝑚𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡 − 𝐴𝑐𝑡𝑢𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡

𝐶𝑜𝑠𝑡/(𝑉𝑎𝑙𝑢𝑒) 𝑝𝑒𝑟 𝐴𝑏𝑛𝑜𝑟𝑚𝑎𝑙 𝐿𝑜𝑠𝑠/(𝐺𝑎𝑖𝑛)

𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 𝑓𝑜𝑟 𝑡ℎ𝑒 𝑝𝑟𝑜𝑐𝑒𝑠𝑠 − 𝑆𝑐𝑟𝑎𝑝 𝑣𝑎𝑙𝑢𝑒 𝑓𝑜𝑟 𝑛𝑜𝑟𝑚𝑎𝑙 𝑙𝑜𝑠𝑠
=
𝑁𝑜𝑟𝑚𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡

𝐸𝑞𝑢𝑖𝑣𝑎𝑙𝑒𝑛𝑡 𝑈𝑛𝑖𝑡𝑠 = 𝑃ℎ𝑦𝑠𝑖𝑐𝑎𝑙 𝑈𝑛𝑖𝑡𝑠 × % 𝐶𝑜𝑚𝑝𝑙𝑒𝑡𝑖𝑜𝑛

𝐷𝑖𝑟𝑒𝑐𝑡 𝑚𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝑐𝑜𝑠𝑡 − 𝑆𝑐𝑟𝑎𝑝 𝑣𝑎𝑙𝑢𝑒 𝑓𝑜𝑟 𝑛𝑜𝑟𝑚𝑎𝑙 𝑙𝑜𝑠𝑠
𝐶𝑜𝑠𝑡 𝑝𝑒𝑟 𝐸𝑈 =
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐸𝑈 (𝑖𝑛 𝑡𝑒𝑟𝑚𝑠 𝑜𝑓𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙𝑠)
𝐶𝑜𝑛𝑣𝑒𝑟𝑠𝑖𝑜𝑛 𝑐𝑜𝑠𝑡
+
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐸𝑈 (𝑖𝑛 𝑡𝑒𝑟𝑚𝑠 𝑜𝑓 𝐶𝑜𝑛𝑣𝑒𝑟𝑠𝑖𝑜𝑛 𝑐𝑜𝑠𝑡)

𝐶𝑜𝑛𝑣𝑒𝑟𝑠𝑖𝑜𝑛 𝐶𝑜𝑠𝑡 = 𝐷𝑖𝑟𝑒𝑐𝑡 𝐿𝑎𝑏𝑜𝑢𝑟 + 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑂𝐻

10. Budgeting
𝑂𝑝𝑒𝑛𝑖𝑛𝑔 + 𝐴𝑑𝑑𝑖𝑡𝑖𝑜𝑛 = 𝐶𝑙𝑜𝑠𝑖𝑛𝑔 + 𝑊𝑖𝑡ℎ𝑑𝑟𝑎𝑤𝑎𝑙𝑠

𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 = 𝐶𝑙𝑜𝑠𝑖𝑛𝑔 𝐹𝑖𝑛𝑖𝑠ℎ𝑒𝑑 𝐺𝑜𝑜𝑑𝑠 + 𝑆𝑎𝑙𝑒𝑠 − 𝑂𝑝𝑒𝑛𝑖𝑛𝑔 𝐹𝑖𝑛𝑖𝑠ℎ𝑒𝑑 𝐺𝑜𝑜𝑑𝑠

Page 6 of 7
 𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒
= 𝐶𝑙𝑜𝑠𝑖𝑛𝑔 𝑅𝑎𝑤 𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙 + 𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙𝑠 𝑢𝑠𝑒𝑑 𝑓𝑜𝑟 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛
− 𝑂𝑝𝑒𝑛𝑖𝑛𝑔 𝑅𝑎𝑤 𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙

11. High-low method (y= b+ax):

𝑦2 − 𝑦1
𝑎=
𝑥2 − 𝑥1

𝑏 = 𝑦1 − 𝑎𝑥1

12. Capital Budgeting:

𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒 = 𝑃𝑎𝑦𝑚𝑒𝑛𝑡 × 𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝐹𝑎𝑐𝑡𝑜𝑟

𝐴𝑛𝑛𝑢𝑖𝑡𝑦
𝑃𝑒𝑟𝑝𝑒𝑡𝑢𝑖𝑡𝑦 =
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒

𝐴
𝐼𝑅𝑅 = 𝑎% + [ (𝑏 − 𝑎)] %
𝐴−𝐵

GOOD LUCK TO ALL OF YOU! 

Page 7 of 7