M.

A FORMULAS

MANAGEMENT ACCOUNTING (M.A)

FORMULAS

CVP ANALYSIS AND BREAKEVEN

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

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

𝐓𝐎𝐓𝐀𝐋 𝐂𝐎𝐍𝐓𝐑𝐈𝐁𝐔𝐓𝐈𝐎𝐍
= × 100
𝑻𝑶𝑻𝑨𝑳 𝑺𝑨𝑳𝑬𝑺
OR
𝐂𝐎𝐍𝐓𝐑𝐈𝐁𝐔𝐓𝐈𝐎𝐍 𝐏𝐄𝐑 𝐔𝐍𝐈𝐓
= × 100
𝑺𝑨𝑳𝑬𝑺 𝑷𝑬𝑹 𝑼𝑵𝑰𝑻
4. 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
5. 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
6. 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

7. 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:
𝐓𝐎𝐓𝐀𝐋 𝐅𝐈𝐗𝐄𝐃 𝐂𝐎𝐒𝐓
=
𝑾𝑬𝑰𝑮𝑯𝑻𝑬𝑫 𝑪𝑶𝑵𝑻𝑰𝑩𝑼𝑻𝑰𝑶𝑵 𝑴𝑨𝑹𝑮𝑰𝑵 𝑷𝑬𝑹 𝑼𝑵𝑰𝑻

8. MULTI PRODUCT VALUE

BREAK EVEN SALES
𝐓𝐎𝐓𝐀𝐋 𝐅𝐈𝐗𝐄𝐃 𝐂𝐎𝐒𝐓
=
𝑾𝑬𝑰𝑮𝑯𝑻𝑬𝑫 𝑪𝑴 𝑹𝑨𝑻𝑰𝑶

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)

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WHO'S PROFIT WILL BE GREATER?

WHEN: CLOSING STOCK > OPENING STOCK

PROFIT WITH: ABSORPTION COSTING > MARGINAL COSTING

WHEN: CLOSING STOCK < OPENING STOCK

PROFIT WITH: ABSORPTION COSTING < MARGINAL COSTING

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

OVER AND UNDER APPLIED TREATMENTS

COST PROFIT
OVER APPLIED ADD LESS
UNDER APPLIED LESS ADD
BEGINNING STOCK COGS PROFIT

ENDING STOCK COGS PROFIT

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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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PROJECT APPRAISAL METHOD

FV = PV (1 + 𝒓)𝒏
1. FUTURE VALUE PV = present value
(Compounding) FV = future value
r = cost of capital or interest rate
n = number of years/ periods

2. PRESENT VALUE 𝐅𝐕
PV =
(Discounting) (𝟏 + 𝒓)𝒏

3. Net present value = DISCOUNTED CASH OUT LOW – DISCOUNTED CASH INFLOW
(NPV)

Future value of annuity

(𝟏 + 𝒓)𝒏 −𝟏
FV = P
𝒓

4. ORDINARY Present value of annuity

(𝟏 + 𝒓)𝒏 − 𝟏
ANNUITY PV = P
𝒓 (𝟏 + 𝒓)𝒏
FV = Future value of annuity
P = Periodic payments
PV = Present value of annuity

Future value of annuity

(𝟏 + 𝒓)𝒏 −𝟏
FV = (1 + r) × P
𝒓
5. ANNUITY DUE
Present value of annuity
(𝟏 + 𝒓)𝒏 − 𝟏
PV = P + P
𝒓 (𝟏 + 𝒓)𝒏−𝟏

6. PERPETUITY 𝐀𝐧𝐧𝐮𝐚𝐥 𝐜𝐚𝐬𝐡 𝐟𝐥𝐨𝐰

PV OF PERPETUITY =
𝒓

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𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐚𝐧𝐧𝐮𝐚𝐥 𝐩𝐫𝐨𝐟𝐢𝐭 𝐟𝐫𝐨𝐦 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭

× 100
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭
OR
𝐄𝐬𝐭𝐢𝐦𝐚𝐭𝐞𝐝 𝐭𝐨𝐭𝐚𝐥 𝐩𝐫𝐨𝐟𝐢𝐭
× 100
7. ACCOUNTING RATE 𝐄𝐬𝐭𝐢𝐦𝐚𝐭𝐞𝐝 𝐢𝐧𝐢𝐭𝐢𝐚𝐥 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭
OR
OF RETURN 𝐄𝐬𝐭𝐢𝐦𝐚𝐭𝐞𝐝 𝐚𝐯𝐞𝐫𝐚𝐠𝐞 𝐩𝐫𝐨𝐟𝐢𝐭𝐬
(ARR) × 100
𝐄𝐬𝐭𝐢𝐦𝐚𝐭𝐞𝐝 𝐢𝐧𝐢𝐭𝐢𝐚𝐥 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭

 Average investment

𝑰𝒏𝒊𝒕𝒊𝒂𝒍 𝒊𝒏𝒗𝒆𝒔𝒕𝒎𝒆𝒏𝒕 + 𝑹𝒆𝒔𝒊𝒅𝒖𝒂𝒍 𝑽𝒂𝒍𝒖𝒆

𝟐

8. EFFECTIVE RATE 𝟏 +𝒓 𝒎
=( ) -1
𝒎

𝑷
9. INTERNAL RATE OF
IRR = A + × (B-A) %
𝑷−𝑵
RETURN (IRR) Where
A is the (lower) rate of return
B is the (higher) rate of return
P is the NPV at A
N is the NPV at B

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)

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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

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

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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

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

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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

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

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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

IMPORTANT: STANDARD COST BOOKKEEPING

ADVERSE VARIANCES ARE DEBITED
FAVOURABLE VARIANCES ARE CREDITED

RECORDING VARIANCES – GENERAL RULES

Record all variances at the point at which they arise

Materials price variance in materials control stock account

Labor rate variance in wages control account stock

‘Quantity’ variances (material usage, efficiency variances) in work in progress account

Overhead variances in production overhead control account

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SYED SHAHBAZ RAZA ZAIDI
M.A FORMULAS

Sales values recorded at actual amounts. No accounts are kept for sales variances

Finished goods stock held at standard cost.

Transfer to cost of sales and to P & L made at standard cost

MAULA ALI (A.S) SAID

“BLESSED IS HE WHOSE KNOWLEDGE & PRACTICE, LOVE & HATE,
ACCEPTANCE & REFUSAL, SPEECH & SILENCE, WORDS & ACTIONS ARE
SINCERELY FOR THE SAKE OF ALLAH”
IMAM HUSSAIN (A.S) SAID
“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

CONTACT NO: 03122580232

EMAIL ADDRESS: rshahbaz069@gmail.com

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SYED SHAHBAZ RAZA ZAIDI