Purushottam Sir - CMA

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Purushottam SirFormulas of CostingMaterialMaximum Stock Level Re-order level Re-order quantity – (Minimum consumption Minimum reorder period)Minimum Stock Level Re-order level – (Average lead time Average consumption)Average Stock Level π‘€π‘Žπ‘₯π‘–π‘šπ‘’π‘š π‘†π‘‘π‘œπ‘π‘˜ 𝐿𝑒𝑣𝑒𝑙 π‘€π‘–π‘›π‘–π‘šπ‘’π‘š π‘†π‘‘π‘œπ‘π‘˜ 𝐿𝑒𝑣𝑒𝑙2Or,Minimum Stock Level Β½ Re-order QuantityRe-order Level Maximum Re-order period Maximum consumptionOr(Normal Usage Average Delivery Time) Minimum Stock LevelOrSafety Stock Lead Time ConsumptionDanger Level Minimum Consumption Emergency Delivery Time(EOQ) Economic Order Quantity Inventory Turnover Ratio 2 π΄π‘›π‘›π‘’π‘Žπ‘™ πΆπ‘œπ‘›π‘ π‘’π‘šπ‘π‘‘π‘–π‘œπ‘› πΆπ‘œπ‘ π‘‘ π‘œπ‘“ π‘π‘™π‘Žπ‘π‘–π‘›π‘” π‘Žπ‘› π‘œπ‘Ÿπ‘‘π‘’π‘ŸπΆπ‘œπ‘ π‘‘ π‘œπ‘“ π‘π‘Žπ‘Ÿπ‘Ÿπ‘¦π‘–π‘›π‘” π‘π‘’π‘Ÿ 𝑒𝑛𝑖𝑑 π‘π‘’π‘Ÿ οΏ½οΏ½ ��𝑔𝑒 πΌπ‘›π‘£π‘’π‘›π‘‘π‘œπ‘Ÿπ‘¦Inventory Turnover Period 365 Inventory Turnover RatioSafety Stock π΄π‘›π‘›π‘’π‘Žπ‘™ π·π‘’π‘šπ‘Žπ‘›π‘‘365 (Maximum lead time – Average lead time)Total Inventory Cost Ordering Cost Carrying Cost Purchase CostOrdering Cost Carrying Cost π΄π‘›π‘›π‘’π‘Žπ‘™ π‘π‘œπ‘›π‘ π‘’π‘šπ‘π‘‘π‘–π‘œπ‘› πΆπ‘œπ‘ π‘‘ π‘œπ‘“ π‘π‘™π‘Žπ‘π‘–π‘›π‘” π‘Žπ‘› οΏ½οΏ½ ��𝑑𝑦 π‘œπ‘Ÿπ‘‘π‘’π‘Ÿπ‘’π‘‘2 Price per unit Carrying Cost expressed as % of averageinventory

Purushottam SirNote: For calculation of total inventory carrying cost, average inventory should be taken as half of EOQ. Average inventorycost is normally given as a percentage of cost per unit.Note: To decide whether discount on purchase of material should be availed or not, compare total inventory cost beforediscount and after discount. Total inventory cost will include ordering cost, carrying cost and purchase cost.LabourTime Rate System:- Earnings Hours worked Rate per hourStraight Piece Rate System:- Earnings Number of units Piece rate per unitMerrick Differential Piece Rate System:-EfficiencyPaymentUp to 83 %Ordinary piece rate110% of ordinary piece rate (10%above the ordinary piece rate)120% or 130% of ordinary piece rate (20% to30% above ordinary piece rate)83% to 100%Above 100%Combination of Time and Piece RateGantt Task And Bonus SystemOutputPaymentOutput below standardGuaranteed time rateOutput at standard120% of time rateOutput above standard120% of piece rateEmerson Efficiency SystemEarning is calculated as follows :EfficiencyPaymentBelow 66-2/3%No bonus, only guaranteed time rate is paid.66-2/3% to 100%Worker is paid by hourly rate for the time heactually worked plus in increase in bonusaccording to degree of efficiency on the basis of

Purushottam Sirstep bonus rates. Bonus rate can be up to 20%.120% of time wage rate plus additional bonus of1% for each of 1% increase in efficiency.Above 100%Bedeaux Point SystemEarning Hours Worked X Rate per hour (75100XBedeaux Points saved60X Rate per hour)Haynes Manit SystemThis system is similar to Bedeaux Point system. Instead of Bedeaux points saved, β€˜MANIT’(Man-minutes)saved are measured for payment of bonus. Bonus is distributed as follows : 50% bonus to the workers 10% bonus to the supervisors 40% bonus to the employerAccelerated Premium SystemIn this system individual employer makes his own formula. The following formula may be used for ageneral idea of the scheme:y 0.8 x2Where y wagesx efficiencyPremium Bonus PlanHalsey Premium PlanEarnings Hours worked Rate per hour (50100Halsey-Weir Premium PlanEarnings Hours worked Rate per hour (Rowan SystemEarnings Hours worked Rate per hour (30100X Time Saved X Rate per Hour)π‘‡π‘–π‘šπ‘’ π‘†π‘Žπ‘£π‘’π‘‘π‘‡π‘–π‘šπ‘’ π‘Žπ‘™π‘™π‘œπ‘€π‘’π‘‘X Hours Worked X Rate per hour)Labour Turnover RateSeparation MethodSeparation Method X Time Saved X Rate per Hour)π‘π‘’π‘šπ‘π‘’π‘Ÿ π‘œπ‘“ π‘ π‘’π‘π‘Žπ‘Ÿπ‘Žπ‘‘π‘–π‘œπ‘›π‘  π‘‘π‘’π‘Ÿπ‘–π‘›π‘” π‘‘β„Žπ‘’ π‘π‘’π‘Ÿπ‘–π‘œπ‘‘Replacement MethodReplacement Method π΄π‘£π‘’π‘Ÿπ‘Žπ‘”π‘’ π‘›π‘’π‘šπ‘π‘’π‘Ÿ π‘œπ‘“ π‘Šπ‘œπ‘Ÿπ‘˜π‘’π‘Ÿπ‘  π‘œπ‘› π‘…π‘œπ‘™π‘™X 100π‘π‘’π‘šπ‘π‘’π‘Ÿ π‘œπ‘“ π‘€π‘œπ‘Ÿπ‘˜π‘’π‘Ÿπ‘  π‘Ÿπ‘’π‘π‘™π‘Žπ‘π‘’π‘‘ 𝑖𝑛 π‘Ž οΏ½οΏ½ π‘›π‘’π‘šπ‘π‘’π‘Ÿ π‘œπ‘“ π‘Šπ‘œπ‘Ÿπ‘˜π‘’π‘Ÿπ‘  π‘œπ‘› π‘Ÿπ‘œπ‘™π‘™X 100

Purushottam SirFlux MethodFlux Method π‘π‘œ.π‘œπ‘“ π‘ π‘’π‘π‘Žπ‘Ÿπ‘Žπ‘‘π‘–π‘œπ‘›π‘  π‘π‘œ.π‘œπ‘“ οΏ½οΏ½π‘£π‘’π‘Ÿπ‘Žπ‘”π‘’ π‘›π‘’π‘šπ‘π‘’π‘Ÿ π‘œπ‘“ π‘Šπ‘œπ‘Ÿπ‘˜π‘’π‘Ÿπ‘  π‘œπ‘› π‘Ÿπ‘œπ‘™π‘™X 100OR π‘π‘œ.π‘œπ‘“ π‘ π‘’π‘π‘Žπ‘Ÿπ‘Žπ‘‘π‘–π‘œπ‘›π‘  π‘π‘œ.π‘œπ‘“ π‘Ÿπ‘’π‘π‘™π‘Žπ‘π‘’π‘šπ‘’π‘›π‘‘π‘  π‘π‘œ.π‘œπ‘“ 𝑁𝑒𝑀 οΏ½οΏ½π‘£π‘’π‘Ÿπ‘Žπ‘”π‘’ π‘›π‘’π‘šπ‘π‘’π‘Ÿ π‘œπ‘“ π‘Šπ‘œπ‘Ÿπ‘˜π‘’π‘Ÿπ‘  π‘œπ‘› π‘Ÿπ‘œπ‘™π‘™X100OverheadOverhead Recovery Rate or Overhead Absorption RateOverhead Absorption Rate π΄π‘šπ‘œπ‘’π‘›π‘‘ π‘œπ‘“ π‘œπ‘£π‘’π‘Ÿβ„Žπ‘’π‘Žπ‘‘ οΏ½οΏ½ π‘“π‘œπ‘Ÿ ned Overhead RatePredetermined Overhead Rate 𝐡𝑒𝑑𝑔𝑒𝑑𝑒𝑑 π‘œπ‘£π‘’π‘Ÿβ„Žπ‘’π‘Žπ‘‘ π‘“π‘œπ‘Ÿ π‘‘β„Žπ‘’ ��𝑑 π‘π‘Žπ‘ π‘–π‘  π‘“π‘œπ‘Ÿ π‘‘β„Žπ‘’ π‘ƒπ‘’π‘Ÿπ‘–π‘œπ‘‘Blanket Overhead RateBlanket Overhead Rate π‘‚π‘£π‘’π‘Ÿβ„Žπ‘’π‘Žπ‘‘ π‘π‘œπ‘ π‘‘ π‘“π‘œπ‘Ÿ π‘‘β„Žπ‘’ π‘’π‘›π‘‘π‘–π‘Ÿπ‘’ π‘“π‘Žπ‘π‘‘π‘œπ‘Ÿπ‘¦ π‘“π‘œπ‘Ÿ π‘‘β„Žπ‘’ π‘π‘’π‘Ÿπ‘–π‘œπ‘‘π΅π‘Žπ‘ π‘’ π‘“π‘œπ‘Ÿ π‘‘β„Žπ‘’ π‘π‘’π‘Ÿπ‘–π‘œπ‘‘ ( π‘‘π‘œπ‘‘π‘Žπ‘™ π‘™π‘Žπ‘π‘œπ‘’π‘Ÿ β„Žπ‘œπ‘’π‘Ÿπ‘ ,π‘‘π‘œπ‘‘π‘Žπ‘™ π‘šπ‘Žπ‘β„Žπ‘–π‘›π‘’ β„Žπ‘œπ‘’π‘Ÿπ‘ ,𝑒𝑑𝑐)Multiple Overhead RateMultiple Overhead Rate π‘‚π‘£π‘’π‘Ÿβ„Žπ‘’π‘Žπ‘‘π‘  π‘Žπ‘™π‘™π‘œπ‘π‘Žπ‘‘π‘’π‘‘ / π‘Žπ‘π‘π‘œπ‘Ÿπ‘‘π‘–π‘œπ‘›π‘’π‘‘ π‘‘π‘œ π‘’π‘Žπ‘β„Ž ���𝑛𝑑𝑖𝑛𝑔 π‘π‘Žπ‘ π‘’Variable Overhead in Semi-Variable OverheadVariable Overhead Rate πΆβ„Žπ‘Žπ‘›π‘”π‘’ 𝑖𝑛 π‘Žπ‘šπ‘œπ‘’π‘›π‘‘ π‘œπ‘“ οΏ½ 𝑖𝑛 𝐴𝑐𝑑𝑖𝑣𝑖𝑑𝑦 𝐿𝑒𝑣𝑒𝑙 π‘œπ‘Ÿ π‘„π‘’π‘Žπ‘›π‘‘π‘–π‘‘π‘¦Non Integrated AccountsRECONCILIATION STATEMENT(When Profit as per Cost Accounts is taken as a starting point)Format of Reconciliation StatementParticularsA. Profit as per Cost Accounts( )( ) .

B.Purushottam SirAdd. Items having the effect of higher profitin financial accounts:(a) Over-absorption of Factory Overhead/ Office & Adm.Overheads / Selling & Distribution Overheads in CostAccounts(b) Over-valuation of Opening Stock of Raw Material / Work-inprogress / Finished goods in Cost Accounts(c ) Under-valuation of Closing Stock of Raw Material / Work-in-progress/ Finished Goods in Cost Accounts(d) Income excluded from Cost Accounts : (e.g.)Interest & Dividend on InvestmentsRent receivedTransfer Fees received etcLess: Items having the effect of lower profitin financial accounts:(a) Under-absorption of Factory Overheads/ Office & Adm. Overheads /Selling & Distribution Overheads in Cost Accounts(b) Under-valuation of Opening Stock of Raw Material / Work-inprogress/ Finished goods in Cost Accounts(c ) Over-valuation of Closing Stock of Raw Material / Work-in-progress/ Finished Goods in Cost Accounts(d) Expenses excluded from CostAccounts : (e.g.)Bad Debts written offPreliminary Expenses/ Discount onIssue/ Write-offLegal Charges . . . . . . .C. . . . . . .D. Profit as per Financial Accounts (A B – C)( .) .Note: In case of β€˜Loss’, the amount shall appear as a minus item.Note: When profit as per Cost account is calculated from profit as per financial accounts, then itemswhich are added above will be deducted and vice-versa.Journal Entries under Non-integrated Accounting SystemMaterial Purchased and Material Issued:At the time of purchaseDr. Stores Ledger Control A/cCr. Cost Ledger Control A/cxxxxxxxxIf purchased on special requirement for a jobDr. Work-in-Progress Control A/cxxxx

Purushottam SirCr. Cost Ledger Control A/cxxxxWhen Materials returned to vendor (Return outwards)Dr. Cost Ledger Control A/cCr. Store Ledger Control A/cxxxxxxxxWhen direct material issued to productionDr. Work-in-Progress Control A/cCr. Store Ledger Control A/cxxxxxxxxWhen indirect material issued to productionDr. Production Overhead Control A/cCr. Store Ledger Control A/cxxxxxxxxWhen Materials returned to Store (Return inwards)Dr. Store Ledger Control A/cCr. Work-in-Progress Control A/cxxxxxxxxWages PaidWhen wages paid to workersDr. Wages Control A/cCr. Cost Ledger Control A/cxxxxxxxxWhen wages (for direct labour) charged to the productionDr. Work-in-Progress Control A/cCr. Wages Control A/cxxxxxxxxWhen wages (for indirect labour) charged to the productionDr. Production Overhead Control A/cxxxxCr. Wages Control A/cxxxxProduction OverheadsWhen production overheads incurredDr. Production Overhead Control A/cCr. Cost Ledger Control A/cxxxxxxxx

Purushottam SirWhen production overheads recovered (absorbed)Dr. Work-in-Progress Control A/cCr. Production Overhead Control A/cxxxxxxxxAdministrative OverheadsWhen administration overheads incurredDr. Administrative Overhead Control A/cCr. Cost Ledger Control A/cxxxxxxxxWhen administration overheads recovered (absorbed)Dr. Finished Goods Ledger Control A/cxxxxCr. Administration Overhead Control A/cxxxxSelling and Distribution OverheadsWhen selling and distribution overheads incurredDr. Selling and Distribution Overhead Control A/cCr. Cost Ledger Control A/cxxxxxxxxWhen selling and distribution overheads recovered (absorbed)Dr. Cost of Sales A/cCr. Selling and Distribution Overhead Control A/cxxxxxxxxTransfer of under/ over absorbed OverheadsIn case of over absorption of overheadsDr. Production/Administration/Selling & Distribution Overhead Control A/cCr. Cost Ledger Control A/cxxxxxxxxIn case of under absorption of overheadsDr. Cost Ledger Control A/cCr. Production/ Administration/ Selling & Distribution Overhead Control A/cSalesDr. Cost Ledger Control A/c xxxxCr. Costing Profit & Loss A/c xxxxxxxxxxxx

Purushottam SirProfit/ LossIn case of ProfitDr. Costing Profit & Loss A/cCr. Cost Ledger Control A/cxxxxxxxxIn case of LossDr. Cost Ledger Control A/cCr. Costing Profit & Loss A/cxxxxxxxxJob Costing & Batch CostingE.B.Q 2 Annual Demand Setting upCost per batchCost of carrying per unit of production per annumContract CostingValue of work certified Value of Contract Percentage of work certified.Cost of work certified Cost of work to date - (Cost of work uncertified Materials at site Plant at site)Cost of work uncertified Cost of work to date – Cost of work certifiedEstimated Profit Value of Contract – Total estimated cost of contract completion.Percentage of work completed Value of Work Certified 100 Contract ValueProfits on Incomplete ContractsWhen work on contract has not reasonably advanced No profit is calculated when work certified is less than 25% of the value of the contract.No Profit is takenWhen work certified is 25% or more but less than 50% of the contract price 1 X Notional Profit X Cash Received

Purushottam Sir3Work CertifiedWhen work certified is 50% or more but less than90% of the contract price 2 X Notional Profit X Cash Received3Work CertifiedWhen the contract is almost complete i.e. 90% or more of the contract price.An estimated total profit is determined by deducting aggregate of cost to date and estimated additionalexpenditure from contract price. A portion of this estimated total profit is credited to profit and lossaccount. The figure to be credited to profit and loss account is ascertained by adopting any of thefollowing formulae:Estimated Total Profit X Work CertifiedContract PriceOr, Estimated Total Profit X Cash ReceivedContract PriceOr, Estimated Total Profit X Cost of Work to dateEstimated Total costOr, Estimated Total Profit X Cost of Work to date X Cash ReceivedEstimated Total costWork CertifiedJoint Products & By-ProductsMethods of Apportioning joint costs over Joint ProductsPhysical Unit MethodJoint Costs are apportioned on the basis of some physical base, such as weight or measure expressed ingallon, tonnes, etc.Average unit cost methodUnder this method process cost (upto the point of separation) is divided by total units of joint productsproduced.Survey MethodIt is based on the technical survey of all factors involved in the production and distribution of products.Under this method joint costs are apportioned over the joint products on the basis of percentage/ pointvalue assigned to the products according to their relative importance.Contribution Margin MethodAccording to this method, joint costs are segregated into two parts-variable and fixed. The variable costsare apportioned over the joint products on the basis of units produced (average method) or physical

Purushottam Sirquantities. In case the products are further processed after the point of separation, then all variable costincurred be added to the variable costs determined earlier. In this way total variable cost is arrived whichis deducted from their respective sales values to ascertain their contribution. The fixed costs are thenapportioned over the joint products on the basis of the contribution ratios.Market Value MethodUnder this method joint costs upto the point of separation is apportioned on the basis of market value ofthe joint products at the point of separation.Methods of Apportioning joint costs over By- ProductsMarket Value or realization value methodThe realisation on the disposal of the by-product may be deducted from the total cost of production so asto arrive at the cost of the main product.Standard Cost in technical estimatesThe standard may be determined by averaging costs recorded in the past and making technical estimatesof the number of units of original raw material going into the main product and the number forming theby-product or by adopting some other consistent basis. This method may be adopted where the byproduct is not saleable in the condition in which it emerges or comparative prices of similar products arenot available.Comparative price MethodValue of the by-product is ascertained with reference to the price of a similar or an alternative material.Re-use basisThe value put on the by-product should be same as that of the materials introduced into the process.Standard CostingSales Variances (Turnover or Value)Sales Variance(Actual Sales) Less (Budgeted Sales)[(AP AQ) – (BP BQ)]Sales Price Variance(Actual Sales)Less(Standard Sales)[(AP AQ) – (BP AQ)]OrSales Volume Variance(Standard Sales)Less(Budgeted Sales)[(BP AQ) – (BP BQ)]Or[AQ (AP – BP)][BP (AQ – BQ)]

Purushottam SirSales Mix Variance(Standard Sales)Less(Revised Standard Sales)[(BP AQ) – (BP RSQ)]Or[BP (AQ – RSQ)]Sales Quantity Variance(Revised Standard Sales)Less(Budgeted Sales)[(BP RSQ) – (BP BQ)]Or[BP (RSQ – BQ)]Alternative FormulaAlternative Formula[Total Actual Quantity (units) {Average[Average Budgeted Price per unit ofMarginal CostingP/V ratio π‘†π‘Žπ‘™π‘’π‘  π‘‰π‘Žπ‘Ÿπ‘–π‘Žπ‘π‘™π‘’ πΆπ‘œπ‘ π‘‘π‘†π‘Žπ‘™π‘’π‘  οΏ½οΏ½π‘Žπ‘™π‘’π‘  𝐹𝑖π‘₯𝑒𝑑 πΆπ‘œπ‘ π‘‘ Even Point Sales X P/V ratio Fixed Cost (Profit is zero at BEP)Contribution Sales X P/V ratioP/V ratio πΆβ„Žπ‘Žπ‘›π‘”π‘’ 𝑖𝑛 π‘ƒπ‘Ÿπ‘œπ‘“π‘–π‘‘πΆβ„Žπ‘Žπ‘›π‘”π‘’ 𝑖𝑛 π‘†π‘Žπ‘™π‘’π‘ BEP Sales ( ) πΆβ„Žπ‘Žπ‘›π‘”π‘’ 𝑖𝑛 οΏ½οΏ½β„Žπ‘Žπ‘›π‘”π‘’ 𝑖𝑛 π‘†π‘Žπ‘™π‘’π‘  𝐹𝑖π‘₯𝑒𝑑 πΆπ‘œπ‘ π‘‘π΅πΈπ‘ƒ π‘†π‘Žπ‘™π‘’π‘ πΉπ‘–π‘₯𝑒𝑑 πΆπ‘œπ‘ π‘‘π‘ƒπ‘Ÿπ‘œπ‘“π‘–π‘‘ π‘‰π‘œπ‘™π‘’π‘šπ‘’ π‘…π‘Žπ‘‘π‘–π‘œBEP Sales (Units) 𝐹𝑖π‘₯𝑒𝑑 οΏ½οΏ½π‘–π‘œπ‘› π‘π‘’π‘Ÿ 𝑒𝑛𝑖𝑑(Break-even Sales Margin of Safety Sales) X P/V Ratio ContributionTotal Sales Brea-even Sales Margin of Safety SalesMargin of Safety Sales X P/V ratio Profit

Purushottam SirMargin of Safety Ratio Cash BEP π‘€π‘Žπ‘Ÿπ‘”π‘–π‘› π‘œπ‘“ π‘†π‘Žπ‘“π‘’π‘‘π‘¦ π‘†π‘Žπ‘™π‘’π‘ π‘‡π‘œπ‘‘π‘Žπ‘™ π‘†π‘Žπ‘™π‘’π‘ πΆπ‘Žπ‘ β„Ž 𝐹𝑖π‘₯𝑒𝑑 οΏ½οΏ½π‘–π‘œπ‘› π‘π‘’π‘Ÿ 𝑒𝑛𝑖𝑑Profit Sales – Variable Cost – Fixed CostContribution Sales – Variable Cost Fixed Cost Profit Fixed Cost –LossMarginal Costing EquationBEP SALESMOS SALESTOTAL SALESVARIABLE COSTCONTRIBUTIONFIXED COSTPROFIT Calculation of BEP SalesFIXED COST1. In Rupees PROFIT VOLUME RATIO2. In UnitsFIXED COST πΆπ‘‚π‘π‘‡π‘…πΌπ΅π‘ˆπ‘‡πΌπ‘‚π‘ 𝑃𝐸𝑅 π‘ˆπ‘πΌπ‘‡Calculation of MOS Sales1. In Rupees 𝑃𝑅𝑂𝐹𝐼𝑇2. In οΏ½οΏ½οΏ½ 𝑅𝐴𝑇𝐼𝑂PROFIT CONTRIBUTION PER UNITCalculation of Total Sale1. Total Sale s BEP Sales MOS SalesCalculation of Variable Cost per unitTOTAL VARIABLE COST1. Variable Cost per unit TOTAL PRODUCED UNITSCHANGE IN TOTAL COST2. Variable Cost per unit CHANGE IN TOTAL PRODUCED UNITSCalculation of ContributionXXXXXXXXX(XXX)XXX(XXX)XXX

Purushottam Sir1.2.3.4.Contribution Total Sales X P/V RatioContribution Total Sales – Total Variable CostContribution Fixed Cost ProfitContribution Fixed Cost – LossCalculation of Fixed cost1. Fixed Cost BEP Sales X P/v Ratio2. Fixed Cost Contribution – Profit3. Fixed Cost Contribution LossCalculation of Profit1. Profit MOS Sales X P/v RatioEquation No. 2 BEP Sales (In % to Total Sales)MOS Sales (In % to Total Sales)Total SalesMOS Ratio MOS SALESTOTAL SALESXXXXXX100%X 100

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

Straight Piece Rate System:-Earnings Number of units Piece rate per unit Merrick Differential Piece Rate System:-Efficiency Payment Up to 83 % Ordinary piece rate 83% to 100% 110% of ordinary piece rate (10% above the ordinary piece rate) Above 100% 120% or ordinary130% of piece rate (20% to 30% above ordinary piece rate)

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