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MUST KNOW FORMULAS

Total Product Cost Direct materials + Direct Labor + Manufacturing Overhead

Per-unit Product Cost Total Product Cost____

Number of Units Produced

Prime Cost Direct Materials + Direct Labor

Conversion Cost Direct Labor + Manufacturing Overhead

Ending Inventory of Beginning inventory of materials + Purchases - Direct Materials Used in

Materials Production

Gross Margin Sales Revenue - Cost of Goods Sold

Operating Income Gross Margin - Selling and Administrative Expense

Total Variable Costs Variable Rate x Units of Output

Total Cost Total Fixed Cost + Total Variable Cost

Total Cost Total Fixed Cost + ( Variable Rate x Units of Output )

Variable Rate __High Point Cost - Low Point Cost___

High Point Output - Low Point Output

Fixed Cost Total Cost at High Point - ( Variable Rate x Output at High Point )

Fixed Cost Total Cost at Low Point - ( Variable Rate x Output at Low Point )

Operating Income ( Price x Number of Units Sold ) - ( Variable Cost per Unit x
Number of Units Sold ) - Total Fixed Cost

Break-Even Units ____Total Fixed Cost______

Price – Variable Cost per Unit

Sales Revenue Price x Units Sold

Variable Cost Ratio Total Variable Cost

Sales

Variable Cost Ratio Unit Variable Cost

Price

Contribution Margin Ratio Total Contribution Margin

Sales

Contribution Margin Ratio Total Contribution Margin

Price

Break-Even Sales Total Fixed Expenses

Contribution Margin Ratio

Margin of Safety Sales - Breakeven Sales

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Degree of Operating Total Contribution Margin

Leverage Operating Income

Percentage Change in Profits Degree of Operating Leverage x Percentage Change in Sales

Predetermined Overhead Rate _Estimated Annual Overhead_

Estimated Annual Activity Level

Applied Overhead Predetermined Overhead Rate x Actual Activity Level

Total Normal Product Costs Actual Direct Materials + Actual Direct Labor + Applied
Overhead

Overhead Variance Actual Overhead - Applied Overhead

Adjusted COGS Unadjusted COGS +/- Overhead Variance

(Note: Applied Overhead >Actual Overhead means Over applied
Overhead ; subtract from COGS
Applied Overhead<Actual Overhead means Under applied
Overhead; add to COGS)

Departmental Overhead Rate __Estimated Department Overhead__

Estimated Departmental Activity Level

Unit Cost __Total Cost___

Equivalent Units

Units Started and Completed Total Units Completed - Units

Units Started Units Started and Completed + Units in EWIP

Consumption Ratio Amount of Activity Driver per Product

Total Driver Quantity

Absorption Costing Product Direct Materials + Direct Labor + Variable Overhead + Fixed
Cost Overhead

Variable Costing Product Cost Direct Materials + Direct Labor + Variable Overhead

Total Inventory-Related Cost Ordering Cost + Carrying Cost

Ordering Cost Number of Orders per Year x Cost of Placing an Order

Average Number of Units in Units in Order

Inventory 2

Carrying Cost Average Number of Units in Inventory x Cost of Carrying One

Unit in Inventory

EOQ √ 2 x CO x D/CC

Reorder Point Rate of Usage x Lead Time

Safety Stock ( Maximum Daily Usage - Average Daily Usage ) x Lead Time
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Units to be Produced Expected Units Sales + Units in Desired

Ending Inventory (EI) - Units in Beginning Inventory (BI)

Purchases Direct Materials Needed for Production + Direct Materials in

Desired Ending Inventory - Direct Materials in Beginning
Inventory

Cash Available Beginning Cash Balance + Expected Cash Receipts

Ending Cash Balance Cash Available – Expected Cash Disbursements

Cost Per Unit Total Cost / Total Units

Standard Cost per Unit Quantity Standard x Price Standard

SQ Unit Quantity Standard x Actual Output

SH Unit Labor Standard x Actual Output

Total Variance Actual Cost - Planned Cost

( AP x AQ ) - ( SP x SQ )

Total Materials Variance Actual Cost - Planned Cost

( AP x AQ ) - ( SP x SQ )

MPV ( AP - SP ) x AQ

MUV ( AQ - SQ ) x SP

MPV ( AP x AQ ) - ( SP x AQ)

MUV ( SP x AQ ) - ( SP x SQ )

Total Labor Variance ( AR x AH ) - ( SR x SH )

Total Labor Variance Labor Rate Variance + Labor Efficiency Variance

LRV ( AR x AH ) - ( SR x AH )

LRV ( AR x SR ) x AH

LEV ( SR x AH ) - ( SR x SH )

LEV ( AH - SH ) x SR

Target Cost per Unit Expected Sales Price per Unit - Desired Profit per Unit

FOH Fixed Overhead

VOH Variable Overhead

AH Actual Direct Labor Hours

SH Standard Direct Labor Hours that should have been worked

for Actual Units Produced
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AVOR Actual Variable Overhead Rate

SVOR Standard Variable Overhead Rate

AVOR Actual Variable Overhead

Actual Hours

Variable Overhead Spending ( AH x AVOR ) - ( AH x SVOR )

Variance ( AVOR - SVOR ) x AH

Variable Overhead Efficiency ( AH x SH ) x SVOR

Variance
Practical Capacity at Standard SHp

SFOR Budgeted Fixed Overhead Costs

Practical Capacity

Applied Fixed Overhead SH x SFOR

Total Fixed Overhead Variance Actual Fixed Overhead - Applied Fixed Overhead

Fixed Overhead Spending AFOH - BFOH

Variance

Volume Variance Budgeted Fixed Overhead - Applied Fixed Overhead

ROI Operating Income

Average Operating Assets

Average Operating Assets ( Beginning Assets + Ending Assets )

2

ROI Operating Income Sales________

Sales X Average Operating Assets

Residual Income Operating Income - ( Minimum Rate of Return x Average

Operating Assets )

EVA After-Tax Operating Income - ( Actual Percentage Cost of

Capital x Total Capital Employed )

MCE Processing Time______________ ___

Process Time + Move Time + Inspection Time + Waiting Time

Contribution Margin per Unit of Selling Price per Unit - Variable Cost per Unit
Scarce Resource Required Amount of Scarce Resource per Unit

Price Using Markup Cost per Unit + ( Cost per Unit x Markup percentage )

Target Cost Target Price - Desired Profit

Payback Period Original Investment

Annual Cash Flow

Accounting Rate of Return Average Income

Initial Investment
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[∑ CF t/ (1 + i) ͭ] – I
NPV
[ ∑ CF t df t ] - I = P - I

I ∑ [CF t/ (1 + i) ]ͭ
I CF ( df )

df = I / CF Investment___
Annual Cash Flow

F P(1+i)n

P F /(1+i)n

Liquidity Ratios:
Current Ratio Current Assets_
Current Liabilities

Quick Ratio ( Cash + Marketable Securities + Accounts Receivable )

Current Liabilities

Accounts Receivable Turnover Net Sales_________

Ratio Average Accounts Receivable

Average Accounts Receivable ( Beginning Receivables + Ending Receivables )

2

Turnover in Days 365___________

Receivables Turnover Ratio

Inventory Turnover Ratio Cost of Goods Sold

Average Inventory

Average Inventory ( Beginning Inventory + Ending Inventory )

2

Leverage Ratios:
Times-Interest-Earned Ratio ( Income Before Taxes + Interest Expense )
Interest Expense

Debt Ratio Total Liabilities

Total Assets

Debt-to-Equity Ratio Total Liabilities______

Total Stockholders’ Equity

Profitability Ratios:
Return on Sales Net Income
Sales

Return on Total Assets Net Income + [Interest Expense (1 - Tax Rate )]

Average Total Assets
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Average Total Assets (Beginning Total Assets + Ending Total Assets )

2

Return on Stockholders’ Equity (Net Income - Preferred Dividends )__

Average Common Stockholders’ Equity

Earnings per Share (Net Income - Preferred Dividends )__

Average Common Shares

Price-Earnings Ratio Market Price per Share

Earnings per Share

Dividend Yield Dividends per Common Share__

Market Price per Common Share

Dividend Payout Ratio Common Dividends_______

( Net Income – Preferred Dividends )

Solvency Ratios
Debt-to–Asset Total Debt
Total Shareholder’s Equity

Debt – to – Capital Total Debt

Total Debt + Total Shareholder’s Equity

Debt – to - Equity Total Debt

Total Shareholder’s Equity

Financial Leverage Average Total Assets

Average Total Equity

Interest Coverage Earnings before interests and taxes

Interest Payments

Fixed Charge Coverage Earnings before interests and taxes + Lease payments
Interests Payments + Lease Payments
Activity Ratios
Receivable Turnover Annual Sales
Average Receivables

Days of sales outstanding 365

Receivable Turnover
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Inventory Turnover = Cost of goods sold

Average inventory

Payables Turnover = Purchases

Average trades payable

No. of days payables 356

Payables turnover ratio

Total asset Turnover Revenue

Average total assets

Fixed asset Turnover Revenue

Average net fixed asset

Working capital Turnover Revenue

Average working capital

Market Value
Earnings Per Share Net Income - Preferred Dividends
Common Stock Outstanding

Price/Earnings Ratio Market Price Per Share

Earnings Per Share

Book Value Per Share Stockholders Equity – Preferred Stock

Common Stock Outstanding

Dividend Yield Dividends Per Share

Market Price Per Share

Dividend Payoff Dividends Per Share

Earnings Per Share

Break Even Analysis Formulas

Breakeven point (quantity) Fixed cost
Contribution per unit

Breakeven point-(value) Sales value x fixed cost

Total Contribution

Breakeven point- (value) Fixed cost

Contribution sales ratio
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Contribution Sales minus marginal(variable) cost

Contribution sales ratio Contribution

Sales

Margin of safety Sales level minus breakeven point (quantity)

Margin of safety Profit

Contribution sales ratio

Profit Contribution minus fixed cost

Overhead Costing Formulas

Cost unit rate Budgeted overhead
Budgeted output

Direct material cost % rate Budgeted overhead x 100%

Budgeted direct material costs

Direct labor cost % rate Budgeted overhead x 100%

Budgeted direct labor cost

Direct labor hour rate Budgeted overhead

Budgeted direct labor hours

Predetermined absorption rate Estimated or budgeted overhead for the period

Estimated or budgeted units of base for the period

Prime cost % rate Budgeted overhead x 100

Budgeted Prime cost

Machine hour rate Budgeted overhead

Budgeted machine hours
Based on Production/Output Budgeted overhead
Budgeted units produced

Non-production overheads
Administration Costs Budgeted admin cost
Budgeted production cost
Or
Budgeted admin cost
Budgeted conversation cost

Selling & Marketing Costs Budgeted selling & marketing cost

Budgeted sales value
Or
Budgeted selling & marketing cost
Budgeted production cost
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Materials Costing Formulas

Economic Order Square of 2ab/c
Quantity (EOQ)

Minimum level Re-order level – (Average usage x Average re-order period

Minimum level Re-order level + Quantity ordered-(Minimum usage x

Minimum re-order period

Re-order level Maximum usage x Maximum re-order period

Stock Turnover Cost of Materials stock consumed
Average stock of materials

Costing for Labor Formulas

Labor Turnover rate No of employees left and replaced
Average number of employees

Halsey Scheme ½ x Time saved x Wage rate per hour

Contract Costing Formulas

Cost of work certified Cost of all work to date – Cost of work not certified

Profit to be taken on a contract 2/3 (Value of work certified – Cost of work certified) x Cash
received/ Value of work certified

Profit in suspense Total profit on the contract to date –

Profit taken into account

Process Costing Formulas

Abnormal gain/(loss) Actual loss - normal loss

Total Equivalent Production Completed units + Equivalent units in Work in Progress

(WIP)

Standard Costing & Variance Analysis Formulas

MATERIALS

Materials PRICE Variance (Actual – price Standard price) x Actual quantity

(use purchase quantity if it is given)

Material USAGE variance (Actual Quantity Used – Standard Quantity of Actual

Production) x Standard Price

Material COST variance Material Price Variance + Material Usage Variance

Material MIX variance (Actual Mix – Standard Mix) x Standard Price

Materials YIELD variance (Actual Output-Standard Output) x Standard Cost of Output

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Materials USAGE variance Material Mix Variance + Materials Yield Variance

LABOR

Labor RATE variance (Actual Rate-Standard Rate) x Actual Hours Paid

Labor EFFICIENCY variance (Actual Hours worked-Standard hours of Actual Production)

x Standard Rate

Labor IDDLE TIME variance Idle Time x Standard Rate

Labour COST variance Labor Rate Variance + Labor Efficiency variance + Idle
Time variance

VARIABLE OVERHEAD

EXPENDITURE variance (Actual Rate-Standard Rate) x Actual Hours Worked

EFFICIENCY variance (Actual Hours worked-Standard Hours of actual production)

x Standard Rate

COST variance Expenditure variance + Efficiency variance

FIXED OVERHEAD

EXPENDITURE variance (Actual Expenditure-Budgeted Expenditure)

VOLUME variance (Budgeted Hours-Standard Hours of Actual Production) x

Standard Rate

COST variance (Expenditure variance + Volume variance)

CAPACITY variance (Budgeted Hours-Actual Hours) x Standard Rate

EFFICIENCY (Actual Hours-Standard Hours of Actual Production) x

(PRODUCTIVITY) Standard Rate
Variance

VOLUME variance (Capacity Variance + Efficiency Variance)

SALES

PRICE variance (Actual Price-Standard Price) x Actual Quantity

VOLUME variance

(a) Sales Value Method (Actual Quantity-Budgeted Quantity) x Standard Selling

Price
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(b) Sales Margin Method (Actual Quantity-Budgeted Quantity) x Standard

Contribution
Standard Costing and Variance Analysis Formulas Under the Standard Marginal Costing
Techniques
(a) No volume variance under fixed
overhead

(b) Sales margin volume variance (Actual Quantity – Budgeted Quantity) x

Standard Contribution

Inventories
Ending Inventory Beginning Inventory + Purchase – COGS
=

Bad Debt

Current Period Credit Sales x Estimated Bad Debt %

Estimated Bad Debt Expense

Percent Revenue

Gross profit recognized this period (total estimated gross profit x percentage
completed to date) Gross profit recognized in
prior period

Dupont

Return on equity Return on assets x Equity multiplier

Net Income Net Income x Ave. total assets

Ave. total equity Ave. total assets Ave. total equity

Average Collection Period Accounts Receivable

Sales/360

Total Asset Turnover Sales

Total assets

Equity Multiplier Total Assets

Equity

Net profit margin Net Income

Sales

ROE Net income

Equity

Payable period Accounts Payable

COGS/360

Effective cost of not taking the discount Discount percent

Extra days if not take the discount/360
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Inventory Conversion period Inventory

COGS/360

Quick Current Asset - inventory

ratio Current Liabilities

Inventory turnover ratio COGS

Inventory

Debt ratio Total Debt

Total Assets

Times interest earned EBIT

Interest Expense

ROA Net Income

Total Assets

Gross profit margins Gross Profit

Sales

ROE (Net Income) x (Sales) x (Assets)

(Sales) (Assets) ( Equity)

Basic Accounting Formulas

The Accounting Equation Worth Assets - Liabilities

Net Fixed assets Fixed Assets @ cost - Accumulated Depreciation

Current Assets Cash + Accounts Receivable + Inventory + Prepaid

Expense

Current Liabilities Accounts Payable + Accrued Expenses + Current

Portion of Debt + Income Taxes Payable

Total Assets Current Assets + Other Assets + Net Fixed Assets

Shareholder’s Equity Capital Stock + Retained Earnings

Total Liabilities and Equity Current Liabilities + Long-Term Debt + Shareholders’

Equity

Gross Margin Net Sales - Cost of Goods Sold

Operating Expenses Sales & Marketing + Research & Development +

General and Administrative

Income from Operations Gross margin - Operating Expense

Net Income Income from Operations + Interest Income - Income

taxes
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Performance Ratios
Cash Flow - to – Revenue CFO
Net Revenue

Cash Return – on – Asset CFO

Average Total Asset

Cash Return – on – Equity CFO

Average Total equity

Cash – to – Income CFO

Operating Expense

Cash flow per Share CFO – Preferrence Dividends

Weighted average no. of Common Share

Coverage Ratios
Debt Coverage CFO
Total Debt

Interest Coverage CFO + Interest Paid + Taxes Paid

Interest Paid

Reinvestment CFO
Cash Paid for Long Terms Assets

Debt Repayment CFO

Cash for Long term Debt Repayment

Dividend Payments CFO

Dividends Paid

Investing & Financing CFO

Cash Out flows from Investing and Financing Activities

Income Statement Formula

Gross Profit Margin Gross Profit x 100
Sales

Operating Profit Margin Operating Profit x 100

Sales

Net Profit Margin Net Profit x 100

Sales

Absorption Costing Formula

Total Cost Direct Cost + Indirect Cost

Total Cost Fixed Cost + Variable Cost

Total Cost Cost Per Unit x Total Quantity Produced

Accounting and Finance for Managers Formula

Share premium issue price – Price Value

Asset Liability + Equity

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Gross profit Sales - Cost of Sales

Cost of Sales Opening inventories + Purchase - Closing

inventories

Straight Line Depreciation Methods (Cost - Residual value)

Number of Years

Operating Profit Margin (Operating Profit/Sales)* 100

Cash Operating Cycle Inventory turnover – Payable turnover

P.E. Ratio Price / Earning

Current Ratio Current assets

Current liabilities

Quick ratio or Acid test ratio Current Assets – Inventory

Current Liabilities

Working capital Current asset – Current liability

Break even points Total Fixed Costs/Contribution per unit

Long Term - Liabilities

Debt to Equity Total Liabilities

Total Stockholder’s Equity

Interest Coverage Ratio Income Before Income Taxes + Interest Expense

Interest Expense

Contributed Capital

Dividend Yields Dividends per Share

Market Price per Share

The Corporate Income Statement and the Statement of Stockholder’s Equity

Basic Earnings per Share Net Income

Weighted – Average Common Shares Outstanding

Account Receivable Turnover Net Sales / Average Accounts Receivable

Accounts Payable Turnover Ratio Total Supplier Purchases / Average Accounts Payable

Acid Test Ratio (Cash Marketable Securities )/Current Liabilities

Age of Inventory 365 Days/Inventory Turnover Ratio

Average Inventory Period (Inventory x 365 Days) / Cost of Sales

Average Wage and Benefit Per (Salaries + Wages + Benefits) / No. of Employees
Employees
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Bad Debts Ratio Bad Debts / Accounts Receivable

Assumptions of Contribution Analysis

Profit – Volume Ratio Contribution x 100

Sales

Margin of Safety Budgeted (or actual)

(units) Sales – Break even Sales

Margin of Safety % Budgeted sales – Breakeven sales

Budgeted Sales

Contribution Sales – variable cost

Target Profit Units Fixed costs + target profit

Contribution per unit

Profit Contribution – fixed costs

Break-even point (£) Fixed Costs

Profit volume ratio

Break-even point Fixed Costs

(units) Contribution per unit

Gross Profit Margin Gross Profit x 100

Sales Revenue

Direct Material Cost Total Material Cost

per unit Sales Volume

Direct Labour Cost Total Labour Cost

per unit Sales Volume

Fixed Overhead Cost Total Fixed Overhead Cost

per unit Sales Volume

Liquidity and Efficiency

Current Ratio Current Assets

Current Liabilities

Acid Test Ratio Cash and cash equivalents + Short-term investments +

Current receivables
Current liabilities

Inventory turnover Cost of Goods sold

Average inventory

Day’s sales inventory Ending inventory x 365

Cost of goods sold
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Accounts receivable turnover Net sales

Average accounts receivable, net

Days’ sales uncollected Ending accounts receivable x 365

Net Sales

Total asset turnover Net sales

Average total asset

Accounts payable turnover Cost of goods sold

Average accounts payable

Days’ purchases in accounts payable Ending accounts payable x 365

Cost of goods sold

Efficiency Ratios Formula

Asset Sales
Turnover Ratio Average Total Assets

Inventory Turnover Cost of Goods Sold

Ratio Average Inventory

Receivables Credit Sales

Turnover Ratio Average Accounts Receivable

Accounts Payable Supplier Purchases

Turnover Ratio Average Accounts Payable

Accounting Rate of Return

ARR Average net income

Average investment

Accounting Liquidity

Current Ratio Current Assets

Current Liabilities

Quick Ratio Current Assets – Inventories

Current Liabilities

Cash Ratio Cash and Cash Equivalent = Short term Investments

Current Liabilities

6 Important Accounting Formulas Small Business Owners Need to Know

The Balance Sheet Equation Assets = Liabilities + Equity

Current Ratio or Acid Ratio Current Assets/Current Liabilities=Current Ratio

Net Income Income – Expenses = Net Income

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Cost of Goods Sold Beginning inventory value + Purchases of inventory –

Ending inventory value = Cost of goods sold

Gross Profit and Gross Profit Margin Sales – Cost of goods sold = Gross profit

Break Even Point Fixed Cost / (Sales price per unit – variable cost per
unit) = Break Even Point

Shareholder ratios
Earnings per share Net income available to shareholders
Number of share outstanding

Dividends per share Dividends paid to shareholders

Number of shares outstanding

Dividend payout ratio Dividends

Earning
Price-earnings ratio Market price per share
Earnings per share

Financial leverage

Total debt to assets ratio Total Debt

Total Assets

Long-term debt to assets ratio Long - term debt

Total Assets

Total debt to equity ratio Total debt

Total shareholders’ equity

Equity multiplier Total assets

Shareholders’ equity

Times-interest-coverage ratio Earnings before interest and taxes

Interest

Fixed -change coverage ratio Earnings before interest and taxes + Lease payment
Interest + lease payment