DECISION MAKING TECHNIQUES

VARIABLE COST PER UNIT(X)

CHANGE∈TOTAL COST
If activity level used is sales , equation gives CHANGE∈ACTIVITY LEVEL
VARIABLE COST as a PERCENTAGE of sales

FIXED COSTS(A) TOTAL COSTS−TOTAL VARIABLE COSTS

TOTAL COST(Y) A+bX

CONTRIBUTION
PROFIT VOLUME RATIO(PVR) ×100
SALES

CONTRIBUTION
SALES UNITS
CONTRIBUTION PER UNIT

¿ COSTS ( ¿ CONTRIBUTION )
BREAK EVEN POINT(BEP) IN UNITS
CONTRIBUTION PER UNIT

¿ COSTS
PVR
BREAK EVEN REVENUE
OR

BEP UNITS × SELLING PRICE

 DECISION MAKING TECHNIQUES
TOTAL SALES−BREAK EVEN REVENUE

OR
MARGIN OF SAFETY
TOTAL PROFIT
PVR

TOTAL QTS−BEP QTS

MoS
MARGIN OF SAFETY QUANTITIES SELLING PRICE

PROFIT ( ¿ CONTRIBUTION )
CONTRIBUTION PER UNIT

MoS
MoS PERCENTAGE × 100
TOTAL SALES

TOTAL CONTRIBUTION
TOTAL SALES

WEIGHTED AVG. PVR OR

PVR 1 × Sales Mix 1+ PVR 2× Sales Mix 2

WEIGHTED AVG. CONTRIBUTION PER UNIT CPU 1 ×QTY ∝ ¿1+ CPU 2 ×QTY ∝¿2 ¿ ¿

MULTIPRODUCT BE UNITS

SPLIT THE UNITS AMONG THE PRODUCTS

¿ COSTS
USING THE QUANTITY PROPORTION WA CPU
QTY UNITS1 , QTY UNITS2
 DECISION MAKING TECHNIQUES
¿ COSTS
WA PVR
MULTIPRODUCT BE REVENUE
OR

QTY UNITS 1 × SP+OTY UNITS 2 × SP2

TOTAL SALES−BREAK EVEN REVENUE ( MP )

MULTIPRODUCT MoS
TOTAL PROFIT
WA PVR

TOTAL QTS−BEP QTS

OR
MULTIPRODUCT MoS QTY
PROFIT
WA CPU
 PRICING

% CHANGE ∈DEMAND
PRICE ELASTICITY OF DEMAND
% CHANGE ∈PRICE

P=a−bQ

CHANGE IN PRICE
a =CURRENT PRICE+ ×CURRENT
DEMAND EQUATION CHANGE IN DEMAND

CHANGE IN PRICE
b=
CHANGE IN DEMAND

MARGINAL REVENUE a−2 bQ

CONTRIBUTION ∨PROFIT
MARKUP % ×100
COST

CONTRIBUTION ∨PROFIT
MARGIN % ×100
SALES
 RISK AND UNCERTAINTY & LIMITING FACTORS

REGRET PROFIT ¿ BEST POSSIBLE DECISION −PROFIT ¿ THE DEC

PROFIT ∨LOSS
SENSITIVITY ×100
VARIABLE

VALUE OF INFORMATION
EVOP WITH INFORMATION −EVOP WITHOUT INFORMAT

C PU
CONTRIBUTION PER UNIT LF
LF PU

COST SAVED (/EXTRA COST) PURCHASE PRICE−VARIABLECOST

COST SAVED PU
COST SAVED PER LF
LF PU

REVISED CONTRIBUTION WITH 1 ADD . LF UNIT −ORIGIN

SHADOW PRICE OR

NO OF UNITS PRODUCED WITH 1 ADD . LF UNIT × CPU

 CMAT

PRODUCT
TOTAL COSTS OF THE LIFE
LIFECYCLE COST ITS
TOTAL NUMBER OF UNITS

COST GAP ESTIMATED COST −TARGET COST

ACTIVITY COST
COST DRIVER RATE
COST DRIVER

SALES−DIRECT MATERIALCOST
THROUGHPUT NOTE: PURCHASE COST IS USED RATHER THAN THE COST OF
MATERIAL USED

THROUGHPUT PER UNIT

THROUGPUT PER UNIT OF BOTTLENECK
BOTTLENECK RESOURCE PER UNIT

THROUGHPUT PER UNIT OF BN

FACTORY COST PER UNIT OF BN

TOTAL FACTORY COS

FACTORY COST PER UNIT OF BN=
THROUGHPUT ACCOUNTING RATIO(TPAR) TOTAL BN AVAILABLE

NOTE: ADJUST FOR TIME PERIOD

OR

TOTAL THROUGHPUT
TOTAL FACTORY COST
 PERFORMANCE MEASUREMENT

PBIT (CONTROLLABLE)
ROI
CAPITAL EMPLOYED

PBIT −NOTIONAL INTEREST

RESIDUAL INCOME NOTIONAL INTEREST=COST OF CAPITAL×CAPITAL EM

PROFIT
PROFIT MARGIN × 100
SALES

D
DEBT RATIO ×100
D+ E

CONTRIBUTION
OPERATIONAL GEARING
PBIT

PATAPD
EPS
NO OF SHARES

PATAPD
DIVIDEND COVER
DIVIDEND
 PERFORMANCE MEASUREMENT

CURRENT ASSETS
CURRENT RATIO
CURRENT LIABILITIES

CURRENT ASSETS −INVENTORY

QUICK RATIO CURRENT LIABILITIES

AVG INVENTORY
INVENTORY DAYS × 365
COGS

AVG RECEIVABLES
RECEIVABLE DAYS ×365
CREDIT SALES

AVG PAYABLES
PAYABLE DAYS ×365
CREDIT PURCHASES/COGS
 BUDGETING AND CONTROL

MATERIAL VARIANCE

(1) (2) (3) (4)

SQ * SP AQ * AP AQ * SP RAQ * SP

SQ = Standard quantity of material consumed for actual production.

AQ = Actual quantity of material consumed.

SP = Standard price per unit.

AP= Actual price per unit.

RAQ= Revised Actual Quantity. (Actual quantity in standard proportion.)

(1)-(2) = Material Cost Variance

C
(3)-(2) = Material Price Variance
P
(1)-(3) = Material Usage Variance U
(4)-(3) = Material Mix Variance M
(1)-(4) = Material Yield Variance Y
 BUDGETING AND CONTROL

MATERIAL COST VARIANCE SQ × SP−AQ × AP

MATERIAL PRICE VARIANCE AQ × SP−AQ × AP

MATERIAL USAGE VARIANCE SQ × SP−AQ × SP

MATERIAL MIX VARIANCE RAQ × SP− AQ × SP

MATERIAL YIELD VARIANCE SQ × SP−RAQ × SP

MATERIAL COST VARIANCE MPV + MUV

MATERIAL YIELD VARIANCE MMV + MYV