COSTING FORMULAE MARGINAL COSTING

COSTING FORMULAEMARGINAL COSTINGSTATEMENT OF PROFITParticularsAmountSalesLess:-Variable costContributionLess:- Fixed costProfit***************1. Sales Total cost Profit Variable cost Fixed cost Profit2. Total Cost Variable cost Fixed costVariable cost It changes directly in proportion with volume1. Variable cost Ratio {Variable cost / Sales} * 1002. Sales – Variable cost Fixed cost Profit3. Contribution Sales * P/V RatioPROFIT VOLUME RATIO [P/V RATIO]:1. {Contribution / Sales} * 1002. {Contribution per unit / Sales per unit} * 1003. {Change in profit / Change in sales} * 1004. {Change in contribution / Change in sales} * 100BREAK EVEN POINT [BEP]:1. Fixed cost / Contribution per unit [in units]2. Fixed cost / P/V Ratio [in value] (or) Fixed Cost * Sales value per unit1. (Sales – Variable cost per unit)MARGIN OF SAFETY [MOP]1. Actual sales – Break even sales2. Net profit / P/V Ratio3. Profit / Contribution per unit [In units]3. Sales unit at Desired profit {Fixed cost Desired profit} / Cont. per unit4. Sales value for Desired Profit {Fixed cost Desired profit} / P/V Ratio1 P age

COSTING FORMULAE5. At BEP Contribution Fixed costVariable cost Ratio Change in total costX100Change in total sales6. Indifference Point Point at which two Product sales result in same amount of profit Change in fixed cost(in units)Change in variable cost per unit Change in fixed cost(in units)Change in contribution per unit Change in Fixed cost(Rs.)Change in P/Ratio Change in Fixed cost(Rs.)Change in Variable cost ratio7. Shut down point Point at which each of division or product can be closed Maximum (or) Specific (or) Available fixed costP/V Ratio (or) Contribution per unitIf sales are less than shut down point then that product is to shut down.Note1. When comparison of profitability of two products if P/V Ratio of one product is greaterthan P/V Ratio of other Product then it is more profitable.2. In case of Indifference point if, (Sales Indifference point)a.Select option with higher fixed cost (or) select option with lower fixed cost.2 P age

COSTING FORMULAESTANDARD COSTINGMATERIAL1. Material cost variance 2. Material price variance 3. Material usage variance 4. Material mix variance 5. Material yield variance LABOUR1. Labour Cost variance 2. Labour Rate variance 3. Labour Efficiency variance 4. Labour mix variance 5. Labour Idle time variance SP * SQ – AP * AQSP * AQ–AP * AQSP * SQ – SP * AQSP * RSQ – SP * AQSP * SQ –SP * RSQSR*ST – AR*ATSR*AT (paid) – AR*ATSR*ST – SR*AT (paid)SR*RST – SR*AT(worked)SR*AT(worked) – SR*AT (paid)VARIABLE OVERHEADS COST VARIANCEVariable Overheads Cost Variance SR * ST – AR * ATVariable Overheads Expenditure Variance SR * AT – AR * ATVariable Overheads Efficiency Variance SR * ST – SR * ATWhere,Budgeted variable OHSR Standard rate/hourBudgeted HoursFIXED OVERHEADS COST VARIANCEFixed Overheads Cost Variance Fixed Overheads Budgeted Variance Fixed Overheads Efficiency Variance Fixed Overheads Volume Variance Fixed Overheads Capacity Variance Fixed Overheads Calendar Variance SR*ST– AR*AT(paid)SR*BT – AR*AT(paid)SR*ST– SR*AT(worked)SR*ST – SR*BTSR*AT(worked)– SR*RBTSR*RBT – SR*BTSALES VALUE VARIANCESales value variance Sales price variance Sales volume variance Sales mix variance Sales quantity variance AP*AQ–Budgeted Price*BQAP*AQ – BP*AQBP*AQ – Budgeted Price*BQBP*AQ – BP*Budgeted mixBP*Budgeted mix – Budgeted Price*BQ3 P age

COSTING FORMULAENote:Actual margin per unit (AMPU) Budgeted margin per unit (BMPU) SALES MARGIN VARIANCESales margin variance Sales margin price variance Sales margin volume variance Sales margin mix variance Sales margin quantity variance Actual sale price – selling cost per unitBudgeted sale price – selling price per unitAMPU*AQ – BMPU*BQAMPU*AQ – BMPU*AQBMPU*AQ – BMPU*BQBMPU*AQ – BMPU*Budgeted mixBMPU*Budgeted mix – BMPU*BQCONTROL RATIOEfficiency Ratio Capacity Ratio Activity Ratio Standard hours for actual outputX 100Actual hours workedActual Hours WorkedX 100Budgeted HoursActual Hours WorkedX 100Budgeted HoursVerification: Activity Ratio Efficiency * Capacity RatioSHORT WORDS USED IN THE FORMULAESC Standard Cost,SP Standard Price,AP Actual Price,AY Actual Yield,RSQ Revised Standard Quantity,ST Standard TimeAT Actual TimeBP Budgeted Price,RBT Revised Budgeted TimeAC Actual CostSQ Standard QuantityAQ Actual QuantitySY Standard YieldSR Standard Rate,AR Actual Rate,RST Revised Standard Time,BQ Budgeted QuantityBMPU Budgeted Margin per UnitAMPU Actual Margin per Unit4 P age

COSTING FORMULAESTANDARD COSTINGMATERIALMaterial cost variance Material price variance Material usage variance Material mix variance Material yield variance SC – AC (SQ*AQ) – (AQ*AP)AQ (SP – AP)SP (SQ – AQ)SP (RSQ – AQ)(AY – SY for actual input)Standard material cost per unit of outputMaterial revised usage variance[standard quantity – Revised standard for(calculated instead of material yield variance) actual output quantity ] * Standard priceLABOURLabour Cost variance Labour Rate variance Labour Efficiency or time variance Labour Mix or gang composition Variance Labour Idle Time Variance Labour Yield Variance Labour Revised Efficiency Variance(instead of LYV) SC – AC (SH*SR) – (AH*AR)AH (SR - AR)SR (SH –AH)SR(RSH-AH)Idle hours * SR[Actual Output – Standard output for actualinput] X Standard labour cost/unit of output[Standard hours for actual output – Revisedstandard hours] X Standard rateNotes:1. LCV LRV LMV ITV LYV2. LCV LRV LEV ITV3. LEV LMV, LYV (or) LREVOVERHEAD VARIANCE(GENERAL FOR BOTH VARIABLE AND FIXED)Standard overhead rate (per hour) Standard hours for actual output Budgeted OverheadsBudgeted HoursBudgeted hoursX Actual OutputBudgeted outputStandard OH Standard hrs for actual output X Standard OH rate per hourAbsorbed OH Actual hrs X Standard OH rate per hour5 P age

COSTING FORMULAEBudgeted OHActual OHOH cost variance Budgeted hrs X Standard OH rate per hour Actual hrs X Actual OH rate per hour Absorbed OH – Actual OHVARIABLE OVERHEADS VARIANCEVariable OH Cost VarianceVariable OH Exp. VarianceVariable OH EfficiencyVariance Standard OH – Actual OH Absorbed OH – Actual Variable OH Standard OH – Absorbed OH Standard hours for Actual output hours X Standard rate forvariable OHFIXED OVERHEADS VARIANCEFixed OH Cost Variance Fixed OH expenditure variance Fixed OH Efficiency Variance Fixed OH Volume Variance Fixed OH capacity variance Fixed OH Calendar Variance Standard OH – Actual OHBudgeted OH – Actual OHStandard OH (units based) – Absorbed OH(Hours based)Standard OH – Budgeted OH[Standard hrs for – Budgeted actual output hours ] XStandard rateAbsorbed OH–Budgeted OH[Revised budgeted hrs – Budgeted hrs] X Standard rate/hrsWhen there is calendar variance capacity variance is calculated as follows:Capacity variance [Actual hours – Revised Budgeted hrs] X Standard rate/hourVERIFICATIONVariable OH cost variance Variable OH Exp Variance Variable OH Efficiency varianceFixed OH cost variance Fixed OH Exp Variance Fixed OH volume VarianceFixed OH volume variance Fixed OH Eff variance Capacity variance Calendar Vari6 P age

COSTING FORMULAESALES VARIANCESTURNOVER METHOD (OR) SALES VALUE METHOD:Sales value variance Actual Sales – Budgeted SalesSales price variance [Actual Price – Standard price] X Actual quantity Actual sales – standard salesSales volume variance [Actual-Budgeted quantity] X Standard price Standard sales – Budgeted salesSales mix variance [Actual quantity – Revised standard quantity] * Standard Price Standard sales – Revised salesSales quantity variance [Revised standard variance – Budgeted quantity] X Standard price Revised Standard sales – Budgeted salesPROFIT METHODTotal sales margin variance (Actual Profit–Budgeted price) {Actual quantity * Actual profit p. u} – {Budgeted quantity * Standard profit p. u}Sales margin price variance Actual profit–Standard profit {Actual Profit p. u – Standard profit p. u} * Actual quantity of salesSales margin volume variance Standard profit – Budgeted Profit {Actual quantity – Budgeted quantity} * Standard profit per unitSales margin mix variance Standard profit – Revised Standard profit {Actual quantity – Revised standard quantity} * Standard profit per unitSales margin quantity variance Revised standard profit – Budgeted profit {Revised standard quantity – Budgeted quantity} * Standard profit per unitFIXED OVERHEAD VARIANCEStandard OH Standard hrs for actual output * Standard OH rate per hourAbsorbed OH Actual hrs * Standard OH rate per hourBudgeted OH Budgeted hrs * Standard OH rate per hourActual OH Actual hrs * Actual OH rate per hourRevised Budgeted Hour Actual Days * Budgeted Hours per day(Expected hours for actual days worked)When Calendar variance is asked then for capacity variance Budgeted Overhead is(Budgeted days * Standard OH rate per day)Revised Budgeted Hr (Budgeted hrs for actual days) Actual days * Budgeted hrs per day7 P age

COSTING FORMULAESALES VARIANCESSales value variance Actual Sales – Budgeted SalesSALES MARGIN VARIANCESTotal sales margin variance (Actual Profit–Budgeted price) {Actual quantity * Actual profit per unit}- {Budgetedquantity * Standard profit per unit}RECONCILIATIONReconciliation statement is prepared to reconcile the actual profit with the budgetedprofitPARTICULARSBudgeted Profit :Add Favorable variancesLess Unfavorable variancesSales Variances :Sales price varianceSales mix varianceSales quantity varianceCost variance :Material :Cost varianceUsage varianceMix varianceLabour :Rate varianceMix varianceEfficiency varianceIdle time varianceFixed overhead variance :Expenditure varianceEfficiency varianceFixed overhead variance :Expenditure varianceEfficiency varianceCapacity varianceCalendar varianceFAVORABLEUNFAVORABLE(RS)8 P age

input] X Standard labour cost/unit of output Labour Revised Efficiency Variance (instead of LYV) [Standard h ours for actual output – Revised standard hours] X Standard rate Notes:- 1. LCV LRV LMV ITV LYV 2. LCV LRV LEV ITV 3. LEV LMV, LYV (or) LREV OVERHEAD VARIANCE .