S.M.

A FORMULAS

STRATEGIC MANAGEMENT ACCOUNTING (S.M.A)

FORMULAS

LEARNING CURVE

Y = a𝒙𝒃
1. CUMULATIVE y = Cumulative average time per unit or batch
AVERAGE TIME a = The time taken for the first unit of output
x = The cumulative number of units produced
b = The index of learning (log LR/log2)
LR = The learning rate as a decimal

2. TOTAL TIME Cumulative Average Time × No. Of Units Or Batches

Y = a𝒙𝒃
y = Cumulative average cost per unit or batch
3. AVERAGE COST PER a = Cost of the first unit/ Batch of output
UNIT/ BATCH x = The cumulative number of units produced
b = The index of learning (log LR/log2)
LR = The learning rate as a decimal

In case of Target Contribution

 The time taken for the first unit of output × 𝑅 𝑥 = Hours per
unit

 Labour Cost of first unit of output × 𝑅 𝑥 = Labour Cost per

unit
4. LEARNING RATE
 The time taken for the first unit of output × 𝑅 𝑥 = Hours per
unit when learning stops

Here
R = Learning rate
x = Doubling of output

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PRODUCT LIFE CYCLE COSTING

𝑻𝒐𝒕𝒂𝒍 𝑪𝒐𝒔𝒕 𝒐𝒇 𝑷𝒓𝒐𝒅𝒖𝒄𝒕 𝑶𝒗𝒆𝒓 𝒊𝒕𝒔 𝒆𝒏𝒕𝒊𝒓𝒆 𝒍𝒊𝒇𝒆 𝒄𝒚𝒄𝒍𝒆

1. LIFE CYCLE COST 𝑻𝒐𝒕𝒂𝒍 𝒏𝒐. 𝒐𝒇 𝑼𝒏𝒊𝒕𝒔 𝒐𝒇 𝑷𝒓𝒐𝒅𝒖𝒄𝒕
NOTE:
Total cost must comprises of all costs either fixed, variable, sunk,
relevant or irrelevant. Because we are not studying decision
making, just doing cost planning

2. LIFE CYCLE PROFIT/ Life Cycle Revenue – Life Cycle Cost

LOSS

RELEVANT COSTING

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Any historic cost given for materials is always a sunk cost and never relevant unless it
happens to be the same as the current purchase price.
Note: The above diagram assumes that it is possible to buy more materials if required. This
may not always be the case.
 If a material is in short supply, then the only way a proposal can be undertaken would be
by denying another part of the organisation that resource.
 In this case the relevant cost = normal materials cost + lost contribution in the other
department.

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CVP ANALYSIS

1. CONTRIBUTION = SALES – VARIABLE COST

MARGIN

= CM RATIO × MARGIN OF SAFETY RATIO

2. PROFIT RATIO OR
𝐍𝐄𝐓 𝐏𝐑𝐎𝐅𝐈𝐓
=𝐁𝐔𝐃𝐆𝐄𝐓𝐄𝐃 𝐒𝐀𝐋𝐄𝐒

1. C.M – F.C
3. NET PROFIT 2. BUDGETED SALES × PROFIT %
3. M/S × C.M RATIO
4. BUDGETED SALES × CM RATIO × MARGIN OF SAFETY
RATIO

= M/S RATIO × C.M PER UNIT

4. PROFIT PER UNIT OR
𝑩𝑼𝑫𝑮𝑬𝑻𝑬𝑫 𝑺𝑨𝑳𝑬𝑺 𝑼𝑵𝑰𝑻𝑺
= 𝑵𝑬𝑻 𝑷𝑹𝑶𝑭𝑰𝑻

𝐓𝐎𝐓𝐀𝐋 𝐂𝐎𝐍𝐓𝐑𝐈𝐁𝐔𝐓𝐈𝐎𝐍
= × 100
𝑻𝑶𝑻𝑨𝑳 𝑺𝑨𝑳𝑬𝑺
OR
𝐂𝐎𝐍𝐓𝐑𝐈𝐁𝐔𝐓𝐈𝐎𝐍 𝐏𝐄𝐑 𝐔𝐍𝐈𝐓
= × 100
𝑺𝑨𝑳𝑬𝑺 𝑷𝑬𝑹 𝑼𝑵𝑰𝑻
5. CM RATIO / PROFIT OR
𝐒𝐀𝐋𝐄𝐒 – 𝐕𝐀𝐑𝐈𝐀𝐁𝐋𝐄 𝐂𝐎𝐒𝐓
VOLUME RATIO = × 100
𝑺𝑨𝑳𝑬𝑺
OR
∆ 𝐂𝐎𝐍𝐓𝐑𝐈𝐁𝐔𝐓𝐈𝐎𝐍/𝐏𝐓𝐎𝐅𝐈𝐓
= ∆ 𝑺𝑨𝑳𝑬𝑺

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QUANTITY:
𝐓𝐎𝐓𝐀𝐋 𝐅𝐈𝐗𝐄𝐃 𝐂𝐎𝐒𝐓
=
𝑪𝑶𝑵𝑻𝑹𝑰𝑩𝑼𝑻𝑰𝑶𝑵 𝑷𝑬𝑹 𝑼𝑵𝑰𝑻
OR
𝐕𝐀𝐋𝐔𝐄 𝐎𝐅 𝐁𝐑𝐄𝐀𝐊𝐄𝐕𝐄𝐍 𝐏𝐎𝐈𝐍𝐓
=
𝑺𝑨𝑳𝑬𝑺 𝑷𝑹𝑰𝑪𝑬 𝑷𝑬𝑹 𝑼𝑵𝑰𝑻
6. BREAKEVEN POINT OR
SALES VALUE:
𝐓𝐎𝐓𝐀𝐋 𝐅𝐈𝐗𝐄𝐃 𝐂𝐎𝐒𝐓
= × SALES PRICE PER UNIT
𝑪𝑶𝑵𝑻𝑹𝑰𝑩𝑼𝑻𝑰𝑶𝑵 𝑷𝑬𝑹 𝑼𝑵𝑰𝑻
OR
𝐓𝐎𝐓𝐀𝐋 𝐅𝐈𝐗𝐄𝐃 𝐂𝐎𝐒𝐓
=
𝑷𝑹𝑶𝑭𝑰𝑻 𝑽𝑶𝑳𝑼𝑴𝑬 /𝑪𝑴 𝑹𝑨𝑻𝑰𝑶

QUANTITY:
𝐓𝐎𝐓𝐀𝐋 𝐅.𝐂 + 𝐃𝐄𝐒𝐈𝐑𝐄𝐃 𝐏𝐑𝐎𝐅𝐈𝐓
=
𝑪𝑶𝑵𝑻𝑹𝑰𝑩𝑼𝑻𝑰𝑶𝑵 𝑷𝑬𝑹 𝑼𝑵𝑰𝑻
7. SALE FOR DESIRED
PROFIT
VALUE:
𝐓𝐎𝐓𝐀𝐋 𝐅.𝐂 + 𝐃𝐄𝐒𝐈𝐑𝐄𝐃 𝐏𝐑𝐎𝐅𝐈𝐓
=+
𝑪𝑶𝑵𝑻𝑹𝑰𝑩𝑼𝑻𝑰𝑶𝑵 𝑴𝑨𝑹𝑮𝑰𝑵 𝑹𝑨𝑻𝑰𝑶
OR
𝐓𝐎𝐓𝐀𝐋 𝐅.𝐂 + 𝐃𝐄𝐒𝐈𝐑𝐄𝐃 𝐏𝐑𝐎𝐅𝐈𝐓
= × SALES PRICE PER UNIT
𝑪𝑶𝑵𝑻𝑹𝑰𝑩𝑼𝑻𝑰𝑶𝑵 𝑷𝑬𝑹 𝑼𝑵𝑰𝑻

PERCENTAGE
𝑩𝑼𝑫𝑮𝑬𝑻𝑬𝑫 /𝑨𝒄𝒕𝒖𝒂𝒍 𝒔𝒂𝒍𝒆𝒔 − 𝒃𝒓𝒆𝒂𝒌𝒆𝒗𝒆𝒏 𝒑𝒐𝒊𝒏𝒕
= × 100
𝑩𝒖𝒅𝒈𝒆𝒕𝒆𝒅 / 𝑨𝒄𝒕𝒖𝒂𝒍 𝒔𝒂𝒍𝒆𝒔

QUANTITY:

= BUDGETED/ ACTUAL SALE QUANTITY – BREAKEVEN QTY

8. MARGIN OF SAFETY
OR
𝑽𝑨𝑳𝑼𝑬 𝑶𝑭 𝑴𝑨𝑹𝑮𝑰𝑵 𝑶𝑭 𝑺𝑨𝑭𝑬𝑻𝒀
= 𝑺𝑨𝑳𝑬𝑺 𝑷𝑹𝑰𝑪𝑬 𝑷𝑬𝑹 𝑼𝑵𝑰𝑻
VALUE:
= BUDGETED/ ACTUAL SALES VALUE – B.E.P SALES VALUE
OR
= QUANTITY OF M.O.S × S.P PER UNIT

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QUANTITY: (UNITS)
𝐓𝐎𝐓𝐀𝐋 𝐅𝐈𝐗𝐄𝐃 𝐂𝐎𝐒𝐓
𝑾𝑬𝑰𝑮𝑯𝑻𝑬𝑫 𝑨𝑽𝑬𝑹𝑨𝑮𝑬 𝑪𝑶𝑵𝑻𝑰𝑩𝑼𝑻𝑰𝑶𝑵 𝑴𝑨𝑹𝑮𝑰𝑵
9. MULTI PRODUCT
BREAK EVEN SALES QUANTITY: (MIX)
𝐓𝐎𝐓𝐀𝐋 𝐅𝐈𝐗𝐄𝐃 𝐂𝐎𝐒𝐓
𝑪𝑴 𝑷𝑬𝑹 𝑴𝑰𝑿

VALUE
𝐓𝐎𝐓𝐀𝐋 𝐅𝐈𝐗𝐄𝐃 𝐂𝐎𝐒𝐓
𝑪𝑴 𝑹𝑨𝑻𝑰𝑶

WEIGHTED AVERAGE CM
10. MULTI PRODUCT 𝐂𝐌 𝐏𝐄𝐑 𝐌𝐈𝐗
CONTRIBUTION 𝑺𝑨𝑳𝑬𝑺 𝑴𝑰𝑿
MARGIN CS RATIO
𝐂𝐌 𝐏𝐄𝐑 𝐌𝐈𝐗
𝑻𝑶𝑻𝑨𝑳 𝑺𝑨𝑳𝑬 𝑹𝑬𝑽𝑬𝑵𝑼𝑬 𝑷𝑬𝑹 𝑴𝑰𝑿

PRICING DECISIONS

Price
P = a – bx
Here,
P = Price
a = Y- intercept (maximum Price at with Quantity
Demand is Zero)
Δ Price
b = Slope Δ Qd

1. DEMAND BASED PRICING Total Revenue

TR = a - b𝑥 2
Marginal Revenue
𝑑𝑇𝑅
= a – 2bx
𝑑𝑥
Optimum Quantity
MR = MC
a – 2bx = Variable Cost
Price At Optimum QTY
 Put optimum Quantity in Price Equation

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2. COST PLUS PRICING
3. MARKETING BASED APPROACH
LINEAR PROGRAMMING
SYED SHAHBAZ RAZA ZAIDI
FORMULAS
Full Cost Plus Pricing
Use Absorption Costing approach! (v.c + F.c)
Marginal Cost Plus Pricing
Use Marginal Costing approach! (v.c Only)
 Markup on Cost
 Margin on Sales
 Market Penetration
Charging Low Prices at initial stages
 Market Skimming
Charging High Prices initially
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HI -LO METHOD

𝑪𝑶𝑺𝑻 𝑶𝑭 𝑯𝑰𝑮𝑯𝑬𝑺𝑻 𝑳𝑬𝑽𝑬𝑳 − 𝑪𝑶𝑺𝑻 𝑶𝑭 𝑳𝑶𝑾𝑬𝑺𝑻 𝑳𝑬𝑽𝑬𝑳

=
𝑨𝑪𝑻𝑰𝑽𝑰𝑻𝒀 𝑶𝑭 𝑯𝑰𝑮𝑯𝑬𝑺𝑻 𝑳𝑬𝑽𝑬𝑳 − 𝑨𝑪𝑻𝑰𝑽𝑰𝑻𝒀 𝑨𝑻 𝑳𝑶𝑾𝑬𝑺𝑻

HI -LO METHOD THEORY

WHEN THERE ARE TWO LEVEL OF ACTIVITIES SO WE NEED TO USE HIGH LOW METHOD
1. SUB SE PHELE YE DEKH LO KE DIVIDE KIS LEVEL KI ACTIVITY SE KRNA HE?
 UNITS
 HOURS (LABOUR OR MACHINE)
 DOLLARS/ RS.
2. FIXED COST KISKI HE?
 FACTORY COST = USE PRODUCTION UINITS
 SELLING AND ADMIN COST = USE SALES UNITS
3. HIGH LOW KI AMOUNT KIS PERIOD KA HE (MONTHLY, QUARTERLY, ANNUALY)

ABSORPTION MARGINAL AND SUPER VARIABLE COSTING

METHODS PRODUCT COST PERIOD COST

1. ABSORPTION DIRECT MATERIAL
COSTING DIRECT LABOR -
VARIABLE FOH
FIXED FOH
2. MARGINAL COSTING DIRECT MATERIAL
DIRECT LABOR FIXED FOH
VARIABLE FOH

3. SUPER VARIABLE DIRECT LABOR

COSTING/ DIRECT MATERIAL VARIABLE FOH
THROUGHPUT FIXED FOH
ACCOUNTING

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THROUGHPUT ACCOUNTING

Theory of constraints (TOC) is an approach to production management which aims to

maximize sales revenue less material cost. It focuses on bottlenecks which act as
constraints to the maximization of throughput.

Throughput is the money generated from sales minus the cost of the materials used in
making the items sold.
 All costs other than materials are seen as fixed in the short term.
 Inventory is valued at material cost only.
Bottleneck resource or binding constraint – an activity which has a lower capacity than
preceding or subsequent activities, thereby limiting throughput.

1. Throughput = Sales – Material costs

margin
2. Throughput
return per factory 𝐒𝐚𝐥𝐞𝐬− 𝐝𝐢𝐫𝐞𝐜𝐭 𝐦𝐚𝐭𝐞𝐫𝐢𝐚𝐥 𝐜𝐨𝐬𝐭𝐬
=
hour: (TM PER 𝐔𝐬𝐚𝐠𝐞 𝐨𝐟 𝐛𝐨𝐭𝐭𝐥𝐞𝐧𝐞𝐜𝐤 𝐫𝐞𝐬𝐨𝐮𝐫𝐜𝐞 𝐢𝐧 𝐡𝐨𝐮𝐫𝐬 (𝐟𝐚𝐜𝐭𝐨𝐫𝐲 𝐡𝐨𝐮𝐫𝐬)
BNR)
=

3. Total Factory Cost = Fixed production costs, including labor

(TFC)

4. Cost per factory 𝐓𝐨𝐭𝐚𝐥 𝐟𝐚𝐜𝐭𝐨𝐫𝐲 𝐜𝐨𝐬𝐭𝐬

hour (FC PER BNR)
=
𝐓𝐢𝐦𝐞 𝐨𝐧 𝐤𝐞𝐲 𝐫𝐞𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐢𝐧 𝐡𝐨𝐮𝐫𝐬 (𝐟𝐚𝐜𝐭𝐨𝐫𝐲 𝐡𝐨𝐮𝐫𝐬)

5. Throughput 𝐓𝐡𝐫𝐨𝐮𝐠𝐡𝐩𝐮𝐭 𝐩𝐞𝐫 𝐮𝐧𝐢𝐭 𝐨𝐟 𝐛𝐨𝐭𝐭𝐥𝐞𝐧𝐞𝐜𝐤 𝐫𝐞𝐬𝐨𝐮𝐫𝐜𝐞

accounting ratio
=
𝐅𝐚𝐜𝐭𝐨𝐫𝐲 𝐜𝐨𝐬𝐭 𝐩𝐞𝐫 𝐮𝐧𝐢𝐭 𝐨𝐟 𝐛𝐨𝐭𝐭𝐥𝐞𝐧𝐞𝐜𝐤 𝐫𝐞𝐬𝐨𝐮𝐫𝐜𝐞
Or
𝐑𝐞𝐭𝐮𝐫𝐧 𝐩𝐞𝐫 𝐟𝐚𝐜𝐭𝐨𝐫𝐲 𝐡𝐨𝐮𝐫
=
𝐂𝐨𝐬𝐭 𝐩𝐞𝐫 𝐟𝐚𝐜𝐭𝐨𝐫𝐲 𝐡𝐨𝐮𝐫

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VARIANCE ANALYSIS

MATERIAL VARIANCE

1. MATERIAL PRICE = (STANDARD PRICE – ACTUAL PRICE) × ACTUAL MATERIAL USED

VARIANCE

2. MATERIAL = (STANDARD QUANTITY – ACTUAL QUANTITY) × STD. PRICE PER UNIT

QUANTITY/ USAGE/
VARIANCE MATERIAL USAGE VARIANCE = (MIX VARIANCE + YIELD VARIANCE)

2.1. MATERIAL MIX = (ACTUAL USING STD. MIX – ACTUAL KG) × STD. COST
VARIANCE
ACTUAL USING STD. MIX = ACTUAL INPUT/ STD OUTPUT × SPECIFIC STD. INPUT

2.2. MATERIAL YIELD = (OUTPUT SHOULD BE – ACTUAL OUTPUT) × STD. COST

VARIANCE
OUTPUT SHOULD BE = ACTUAL INPUT/ STD. INPUT × STD. OUTPUT

3. MATERIAL = (STANDARD PRICE – ACTUAL PRICE) × UNITS PURCHASED

PURCHASE
VARIANCE

4. MATERIAL = (STANDARD PRICE – ACTUAL PRICE) × MATERIAL UNITS ISSUED/

CONSUMPTION CONSUMED
VARIANCE

STANDARD QUAJNTITY 𝐒𝐓𝐀𝐍𝐃𝐀𝐑𝐃.𝐂𝐎𝐒𝐓

=
𝑺𝑻𝑨𝑵𝑫𝑨𝑹𝑫 𝑷𝑹𝑰𝑪𝑬

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LABOR VARIANCE

1. LABOUR WAGE = (STANDARD RATE – ACTUAL RATE) × ACTUAL HOURS

RATE VARIANCE

2. LABOUR = (STANDARD HOURS – ACTUAL HOURS) × STANDARD RATE PER HOUR

EFFICIENCY
VARIANCE

2.1. LABOUR MIX = (ACTUAL USING STD. MIX – ACTUAL HOURS) × STANDARD RATE PER
VARIANCE HOUR
ACTUAL USING STD. MIX = ACTUAL INPUT/ STD OUTPUT × SPECIFIC STD. INPUT

2.2. LABOUR YIELD = (OUTPUT SHOULD BE – ACTUAL OUTPUT) × STANDARD OUTPUT COST
VARIANCE
OUTPUT SHOULD BE = ACTUAL INPUT/ STD. INPUT × STD. OUTPUT

3. IDLE TIME = (ACTUAL HOURS – PAID FOR HOURS) × STANDARD RATE PER HOUR
VARIANCE

ACTUAL HOURS 𝐀𝐂𝐓𝐔𝐀𝐋 𝐋𝐀𝐁𝐎𝐔𝐑 𝐂𝐎𝐒𝐓

=
𝑨𝑪𝑻𝑼𝑨𝑳 𝑹𝑨𝑻𝑬 𝑷𝑬𝑹 𝑯𝑶𝑼𝑹

VARIABLE FOH VARIANCE

1. TOTAL VARIABLE FOH = (STD. V.FOH FOR ACTUAL OUTPUT – ACTUAL V.FOH)
VARIANCE

2. SPENDING VARIANCE = (STD. V.FOH FOR ACTUAL HOURS WORKED - ACTUAL V.FOH)

3. EFFICIENCY = (STANDARD HOURS – ACTUAL HOURS) × STD. V.FOH RATE

VARIANCE

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FIXED OVERHEAD VARIANCE

1. TOTAL FIXED FOH = (APPLIED/ABSORBED – ACTUAL)

VARIANCE
May be under or over absorbed

2. BUDGETED FIXED = (BUDGETED – ACTUAL)

FOH EXPENDITURE
VARIANCE

3. VOLUME FIXED FOH

VARIANCE = (BUDGETED – APPLIED/ABSORBED)

“It’s not required to calculate in marginal costing”

(i) EFFICIENCY
VARIANCE
(ii) CAPACITY VARIANCE

3.1. EFFICIENCY = (STD HOURS – ACTUAL HOURS) × RATE

VARIANCE

3.2. CAPACITY
VARIANCE = (ACTUAL HOURS – ESTIMATED HOURS) × RATE

SALES VARIANCE

1. SALES PRICE = (STD. SELLING PRICE – ACTUAL SELLING PRICE) × ACTUAL NO. OF UNITS
VARIANCE SOLD

= (STD. UNITS SOLD – ACTUAL UNITS SOLD) × STD. PRICE/ G.P/

2. SALES VOLUME CONTRIBUTION PER UNIT
VARIANCE
SALES VOLUME VARIANCE = SALES MIX VARIANCE + SALES QUANTITY
VARIANCE

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2.1. SALES MIX VARIANCE

= (ACTUAL UNITS - ACTUAL UASING STD. MIX) × STD. PROFIT

2.2. SALES QUANTITY

VARIANCE = (ACTUAL USING STD. MIX – STD. UNITS) × STD. PROFIT

3. COST VOLUME VARIANCE

(comparison of sales = (ACTUAL UNITS SOLD - BUDGETED SALE UNITS) × STANDARD COST
units/ volume) PER UNIT

4. SALES VOLUME PROFIT = (ACTUAL UNITS SOLD - BUDGETED SALE UNITS) × STANDARD
VARIANCE PROFIT PER UNIT

PLANNING VARIANCE

= ORIGINAL BUDGET/STANDARD – REVISED BUDGET/STANDARD

OPERATIONAL VARIANCE

= REVISED BUDGET/STANDARD – ACTUAL

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S.M.A FORMULAS

MAULA ALI (A.S)

“BLESSED IS HE WHO’S KNOWLEDGE & PRACTICE, LOVE & HATE,
ACCEPTANCE & REFUSAL, SPEECH & SILENCE, WORDS & ACTIONS ARE
SINCERELY FOR THE SAKE OF ALLAH”
IMAM HUSSAIN (A.S)
“JISNY TUJHY (ALLAH) PA LIYA USNY KHOYA KIA
JISNY TUJHY(ALLAH) KHO DIYA USNY PAYA KIA”

NOTE: FOR MORE EDUCATIONAL CONTENT YOU CAN CONTACT ME:

NAME: SYED SHAHBAZ RAZA ZAIDI

EMAIL ADDRESS: rshahbaz069@gmail.com

GOOGLE DRIVE LINK: STRATEGIC LEVEL 2 STUDY MATERIAL

https://drive.google.com/folderview?id=1jQt_hUTB63NkrILUOa_I3uZGbhzb4Jri

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SYED SHAHBAZ RAZA ZAIDI