Accounting Formulae

Cost Accounting
Cost Classification: (Traditional Approach, used for Absorption Costing Method)
Manufacturing cost = Direct Materials + Direct Labor + Manufacturing Overhead
Non- Manufacturing cost = Administrative Cost + Selling & Distribution Cost
Direct Material Cost = Opening Inventory + Purchases – Ending Inventory
Cost of Goods Manufactured = Manufacturing cost + Opening WIP – Closing WIP
Cost of Goods Sold=Cost of Goods manufactured+ Opening Finished Goods - Ending Finished Goods
Gross Profit = Sales – Cost of Goods Sold
Net income = Gross Profit – Non-Manufacturing Cost
*WIP = Work-in-process/ Work-in-progress

CVP Analysis: (Contribution Approach, used for Variable Costing Method)

CM = Total Sales – Variable cost of sales
= CM per unit * Number of units sold
= CM Ratio * Total Sales
Net income/Net loss = CM – Fixed Expenses
= CM per unit * Number of units sold above/below BEP
CM per unit = Unit Sales – Variable cost per unit
= Net income due to increase in sales by 1 unit above BEP
= Net loss due to decrease in sales by 1 unit below BEP
Total CM Unit CM
CM Ratio = ∗ 100% = ∗ 100%
Total Sales Unit Sales
Warning! if the selling price per unit and variable cost per unit change at different expected level of
sales, CM ratio will also be changed.
Increase in profit = Increase in sales * CM Ratio (IF FIXED COST REMAINS UNCHANGED)
BEP (in sales) = Unit sales * BEP (in units)
= Variable cost per unit * BEP (in units) + Fixed cost
= Variable cost ratio * BEP (in sales) + Fixed cost
 Fixed cost
BEP (in units) =
Unit CM

Fixed cost
BEP (in sales) =
CM Ratio
Targeted sales (in sales) = Unit sales * Targeted sales (in units)
= Variable cost per unit * Targeted sales (in units) + Fixed cost + Target Profit
= Variable cost ratio * Targeted sales (in sales) + Fixed cost + Target Profit
Fixed cost + Target profit
Targeted sales (in units) =
Unit CM
Fixed cost + Target profit
Targeted sales (in sales) =
CM Ratio
M/S (in sales) = Present sales – Break Even Sales
M/S
M/S (in units) = Unit sales
M/S
M/S Ratio = Present Sales
CM
DOL = Net income (𝑖𝑛 𝑡𝑖𝑚𝑒𝑠)

Increase in profit (%) = Increase in sales (%) * DOL

Absorption vs Variable Costing Method:

Absorption:
Unit Product Cost = Direct Materials + Direct Labor + Variable Manufacturing Overhead + Fixed
Manufacturing Overhead per unit
Period Cost = Variable Selling and Admin Cost + Fixed Selling and Admin Cost
Variable:
Unit Product Cost = Direct Materials + Direct Labor + Variable Manufacturing Overhead
Period Cost = Fixed Manufacturing Overhead+ Variable Selling and Admin Cost + Fixed Selling and
Admin Cost
 Financial Accounting
Chapter 1: Accounting in Action
Basic Accounting Equation Assets = Liabilities + Owner’s Equity
Extended Accounting Eqn. Assets = Liabilities + Capital – Drawings + Revenue – Expenses

Chapter 2: The Recording Process

From Extended Accounting Equation-
Assets + Drawings + Expenses = Liabilities + Capital + Revenue

Debit, if increases Credit, if increases

Credit, if decreases Debit, if decreases
Chapter 3: Adjusting Entries

Chapter 18: Financial Statement Analysis

Note: The expression units are shown with the formulae.