THE COSTING CHEAT SHEET

by
Oana
Labes
CONTRIBUTION
GROSS
PROFIT MARGIN COST DRIVERS WACC
Gross Profit is the sales revenue Contribution Margin is the
less direct costs (COGS / COS) product price less variable costs Internal Drivers External Drivers
Gross Profit Margin Contribution Margin Ratio
Contribution Margin
Gross Profit expressed as a expressed as a percentage Volume Efficiency Process Quality Overhead Materials Labor
percentage of sales. of the sales price.

Gross Profit (GP) = (Revenue Contribution Margin (CM) =

Quality

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- COGS) Unit Price - Unit Variable Cost Production Cycle time Workflow control Energy Lower cost Employee
volume streamlining procedures consumption sourcing cross-training
Gross Profit Margin = Gross Contribution Margin Ratio =
Profit /Revenue CM / Unit Price
Manual Rework and Outsourcing Material Retention
Just-in-time process Automation warranty non-core usage and
Evaluates the profitability of Evaluates the profitability of ©Oana Labes, MBA, CPA (JIT) inventory technology
automation costs functions optimization engagement
overall operations, through the individual products or services,
relationship between revenue assessing how each product
and the cost of goods sold contributes to covering fixed Occupancy
Production Product Continuous Employee cost Substitute Temporary or
(COGS) for all products /services costs and generating profit. consolidation design improvement development management materials contract labor

Includes direct materials, Considers direct materials, MARGIN VS. MARKUP

direct labor, and
manufacturing fixed and
variable overheads. Excludes
variable costs unrelated to
direct labor, variable
manufacturing overhead,
variable selling and variable COST-VOLUME-PROFIT MARGIN SHOWS HOW MUCH OF YOUR
PRODUCT SALES PRICE YOU GOT TO KEEP
marketing.

ANALYSIS
production
MARGIN = GROSS PROFIT PER PRODUCT /
Used to understand company Used for decisions related PRODUCT PRICE X 100
overall operational to individual product or CVP IS A MANAGEMENT ACCOUNTING TOOL
efficiency, identify areas for service pricing, production
USED TO ANALYZE THE RELATIONSHIP BETWEEN
Margin = Markup/ (1+Markup)
cost improvement, and levels, and sales mix, because

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determine the profitability of it highlights the incremental SALES VOLUMES, COSTS, AND PROFITS
the entire product or service profit generated by each MARKUP SHOWS HOW MUCH OVER COST
portfolio additional unit sold. YOU'VE SOLD YOUR PRODUCT FOR
Revenue
MARKUP = GROSS PROFIT PER PRODUCT /
PRODUCT COST X 100
THE OVERHEAD ABC'S Markup = Margin / (1-Margin)
Total Costs
indirect costs or operating expenses not directly

CAPITALIZE EXPENSE
OVERHEAD
attributable to a specific product or service
e
om
can nevertheless be manually allocated to products and
g Inc
services to ensure all relevant costs are included when tin
era Recognizing an expense on Recognizing an expense in
determining total cost and profitability per product or service
Op the balance sheet as an the income statement in the
asset, and then regularly same period it was incurred,
Rent, utilities, and indirect labor fall under overhead costs
reducing its value over time rather than spreading it over
HOW IS OVERHEAD ALLOCATED? Break even Fixed Costs by a depreciation expense in several periods as in the
ss case of capitalized
Traditional costing Activity-Based Costing Lo the income statement.
g expenses.
costing methodology that in
overhead costs are
works by identifying business rat
amalgamated into a single
activities and assigning their pe STATEMENTS IMPACTED
cost pool and then allocated O
costs to products and services
based on a single so called based on each product and Balance Sheet >> cash or
Balance Sheet >> PPE, cash or
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“cost driver” service use of that activity liabilities liabilities

Income Statement >> depreciation Income Statement >> expenses
expense

10 TYPES OF COSTS
HOW DO YOU IMPLEMENT ABC? Cash Flow Statement >>
Cash Flow Statement >> investing
cash flows operating cash flows

Identify and classify Allocate costs to

activities Assign activity costs KEY RATIOS IMPACTED
all business activities
to cost objects
COSTS BY BEHAVIOR
that consume Return on Assets
Return on Equity Return on Assets
resources Identify cost drivers Fixed Costs Variable Costs Return on Equity
Debt to Equity Ratio
Earnings per Share Debt to Equity Ratio
costs that remain constant regardless of the level of costs that vary in direct proportion to the level of Earnings per Share
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CHALLENGES WITH ABC Asset Turnover Ratio

production or services production

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Data Intensity Subjectivity because RECOGNITION
Complexity and Cost Step Costs
different Semi-variable Costs
because it requires a because it requires a
significant amount of assumptions for cost costs that contain both fixed and variable costs that remain fixed only for a certain volume
detailed analysis of
drivers can lead to When: future economic Depreciation begins when
activities and data collection and components or range of activity the asset is available for use
analysis different cost benefits associated with the
resources and continues until the asset
allocation item must be probable and the
COSTS BY TRACEABILITY cost of the item must be
is derecognised.
Maintenance CAPEX is
SOLUTIONS FOR NAVIGATING ABC reliably measured expensed (maintains asset
Direct Costs Indirect Costs How much: initially be current condition and
Use ABC for Key recorded at cost, which performance)
Decisions Only Leverage Technology costs that can be traced directly to a specific cost costs that cannot be traced directly to a specific includes all costs necessary to Improvement CAPEX is
Combine ABC with capitalized (increases asset
object cost object bring the asset to working capacity, efficiency, or
to Reduce ABC Costs
Implement a condition for its intended use lifespan)
Traditional Costing
Simplified ABC and Complexity COSTS BY FUNCTION
Approach
Product Costs Period Costs EXAMPLES
inventoried costs associated with production costs unrelated to production and expensed in period

20 COST KPIs
COGS PER MANUFACTURING
EMPLOYEE
Total Cost of Goods Sold / Number
of Manufacturing Employees
COST PER CLICK (CPC)
Total Advertising Cost / Total Clicks
ACCOUNTS PAYABLE (AP)
CARRYING COST
Software development costs Software research costs to
that meet capitalization criteria determine feasibility of
Manufacturing Costs Conversion Costs Storage costs of whiskey developing your new software
costs associated with the production of goods costs incurred converting raw materials barrels incurred in the process Storage costs of warehoused
of ageing it whiskey awaiting delivery
CLIENT ACQUISITION COST Legal fees for developing Legal fees to defend against a
Operating Costs Conversion Costs capitalized patent assets
Total Marketing and Sales Expenses / supplier lawsuit
Number of New Customers Acquired costs associated with day to day business ops. costs incurred converting raw materials
OPEX PER SQ.FT. COSTS BY RELEVANCE TO DECISION MAKING
60 COST CONCEPTS
Total Operating Expenses (OPEX) /
Total Square Footage of the Facility Relevant/Incremental Costs Irrelevant/Sunk Costs
INVENTORY HOLDING COST future costs relevant to decision making past costs irrelevant to decision making
Cost of Goods Sold (COGS)
Inventory Carrying Rate * Average Cost-Volume-Profit (CVP) Analysis

20 COST ANALYSES
(Annual Interest Rate / 360) * Operating Expenses (OPEX) Cost Estimation
Inventory Value
Average AP Balance * Days Held Fixed Costs Cost Behavior
TOTAL PAYROLL TO COGS + OPEX Variable Costs Cost Accumulation
TOTAL OPERATING COST Direct Costs Cost Reduction
Total Payroll / (COGS + OPEX)
Operating Expenses (OPEX) +
Indirect Costs Cost Reporting
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Cost of Goods Sold (COGS)
OPEX PER NON-
MANUFACTURING EMPLOYEE
Total Operating Expenses / Number
ACCOUNTS RECEIVABLE (AR)
of Non-Manufacturing Employees
COGS MARGIN
COGS / Sales
COGS PER SQ.FT./SQ. M
COGS / Square Footage or Square
Meters of Manufacturing Space
TOTAL FIXED COST
Sum of all costs that do not vary
with the level of output
TOTAL VARIABLE COST PER UNIT
Total Variable Cost / Total Units
Produced
OPEX MARGIN
(Sales - OPEX) / Sales
1. Cost-Benefit Analysis: Evaluation of costs 11. Cost Control & Reduction Techniques: Manufacturing Costs Cost System
SELLING, GENERAL, AND Non-Manufacturing Costs
and benefits. Managing and lowering expenses. Cost Recovery
ADMINISTRATIVE (SG&A) MARGIN Overhead Costs
2. Break-Even Analysis: Revenue equals total 12. Just-in-Time (JIT) Inventory Cost Structure
(Sales - SG&A Costs) / Sales costs. Management: Minimizing inventory through Depreciation Cost Planning
Amortization Cost Forecasting
3. Variance Analysis: Comparing actual to efficient production.
Cost Allocation Cost Analysis
expected results. 13.Six Sigma: Reduce defects & improve Cost Center
CARRYING COST Cost Audit
4. Activity-Based Costing (ABC): Allocating quality Cost Benefit Analysis
(Annual Interest Rate / 360) * Average Cost Sheet
costs based on activities. 14.Lean Manufacturing/Lean Management: Cost Control Costing Methodologies
AR Balance * Days Held
5. Cost-Volume-Profit (CVP) Analysis: Eliminating waste for efficiency improvement. Cost Driver Transfer Pricing
Examining relationship between costs and 15.Balanced Scorecard: Performance Cost Management Joint Costs
RESEARCH AND DEVELOPMENT Cost of Quality
volume. measurement across multiple areas. Target Costing
(R&D) MARGIN Cost Variance
5. Value Chain Analysis: Assessing value 16.Cost of Quality Analysis: Costs associated Cost of Capital
(Sales - R&D Costs) / Sales Marginal Cost Cost of Equity
creation activities. with product quality. Average Cost Cost of Debt
AVERAGE COST OF DEBT 7. Total Cost of Ownership (TCO) Analysis: 17.Total Quality Management (TQM): Standard Cost
Cost-Effectiveness Analysis
Total Interest Expense / Total Debt Lifecycle costs of an asset. Continuous improvement and customer Absorption Costing Cost-Sharing
8. Cost Forecasting: Predicting future costs satisfaction. Activity-Based Costing (ABC) Full Cost Accounting
SALES & MARKETING COSTS MARGIN and expenses. 18.Value Engineering/Value Analysis: Life Cycle Costing Incremental Cost
Maximizing value through optimization. Relevant Cost Prepaid Costs
(Sales - Sales & Marketing Costs) / Sales 9. Cost-Effectiveness Analysis: Assessing
Sunk Cost Controllable Costs
AVERAGE COST OF EQUITY efficiency and cost efficiency. 19.Cost Benchmarking: Comparing costs Opportunity Cost
against industry standards. Non-controllable Costs
10. Return on Investment (ROI) Analysis: Break-Even Point
Dividends per Share / Market Price per Cost Sheet
Evaluating profitability of investments. 20.Cost Simulation and Scenario Analysis: Contribution Margin Costing System
Share OR (Dividends per Share / Market
Modeling and analyzing cost scenarios.
Price per Share) + Dividend Growth Rate

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