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Formulas (Part 1)

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0% found this document useful (0 votes)
13 views12 pages

Formulas (Part 1)

Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Part 1 Formula Reference Guide

Term Formula Unit

Revenue
− Less: cost of goods sold
Absorption
costing Gross margin 2
equation − Less: operating expenses (both fixed and variable)

Net income

Accounting
equation (or
Assets = Liabilities + Owners' equity (or stockholders' equity) 1
balance sheet
equation)

Sales
Asset turnover Asset turnover = 4
Assets

Budgeted sales

Budgeted + Desired ending inventory


3
production – Beginning inventory

Budgeted production

Beginning cash

+ Cash collections from sales

– Cash disbursements for purchases and operating expenses

Ending cash balance


Cash budget 3
– Cash requirements set by policy

± Working capital available for loan repayment or if negative, loan needed

± Loan proceeds or loan repayment

Ending cash available

© Becker Professional Education Corporation. All rights reserved. 1


Part 1 Formula Reference Guide

Term Formula Unit

Net income

Comprehensive + Other comprehensive income


1
income
Comprehensive income

Contribution
Contribution margin = Sales revenue – Variable costs 4
margin

Contribution Contribution margin


Contribution margin ratio = 2
margin ratio Revenue

Conversion cost Conversion cost = Direct labor cost + Overhead costs 2

Cost model Cost model Historical Accumulated


= – – Impairment 1
carrying value carrying value cost depreciation

Cost of direct
Units of direct materials to be purchased for the period
materials to
be purchased × Cost per unit 3
(purchases at
Cost of direct materials to be purchased for the period (purchases at cost)
cost)

Total manufacturing costs (DM, DL, OH)

Cost of goods + Beginning work-in-process inventory


3
manufactured – Ending work-in-process inventory

Cost of goods manufactured (COGM)

Beginning inventory

+ Purchases
Cost of
Cost of goods available for sale 1
goods sold
− Ending inventory (physical count)

Cost of goods sold

2 © Becker Professional Education Corporation. All rights reserved.


Formula Reference Guide Part 1

Term Formula Unit

Cost of goods manufactured

Cost of goods + Beginning finished goods inventory


3
sold (budget) – Ending finished goods inventory

Cost of goods sold

Beginning finished goods inventory


+ Costs of goods manufactured
Cost of
Costs of goods available for sale
goods sold 3
(manufacturer) − Ending finishing goods inventory

Costs of goods sold

Beginning finished goods inventory


+ Purchases

Cost of goods Costs of goods available for sale


3
sold (retailer) − Ending finished goods inventory (physical count)

Costs of goods sold

1
Declining balance depreciation expense = 2 × × (Cost – Accumulated depreciation)
Declining n
balance Where: 1
depreciation
N = Useful life

Departmental Budgeted department overhead costs


overhead Departmental overhead application rate = 2
Budgeted department cost driver
application rate

Direct labor
DL efficiency variance = Standard rate × (Actual hours worked – Standard hours allowed)
efficiency 4
= SR × (AH – SH)
variance

Direct labor mix


DL mix variance = The sum of total hours worked × (WASRA mix – WASRS mix) 4
variance

© Becker Professional Education Corporation. All rights reserved. 3


Part 1 Formula Reference Guide

Term Formula Unit

Direct labor DL rate variance = Actual hours worked × (Actual rate – Standard rate)
4
rate variance = AH × (AR – SR)

Direct labor DL yield variance = WASRS mix × (The sum of total hours worked –
4
yield variance The sum of total hours allowed)

The sum of
Direct materials
DM mix variance = total quantities × (WASPA mix – WASPS mix) 4
mix variance of materials used

Direct materials DM price variance = Actual quantity purchased × (Actual price – Standard price)
4
price variance = AQpurchased × (AP – SP)

DM quantity usage variance


Direct materials
quantity usage = Standard price × (Actual quantity used – Standard quantity allowed) 4
variance
= SP × (AQused – SQallowed)

Beginning inventory at cost

Direct materials + Purchases at cost


usage (cost of 3
– Ending inventory at cost
materials used)
Direct materials usage (cost of materials used)

Direct materials DM yield variance = WASPS mix × (The sum of total quantities of materials used – The
4
yield variance sum of total quantities of materials allowed)

Ending Beginning Inventory


Finished goods Cost of goods
inventory of = inventory of + transferred from – 2
inventory sold
finished goods finished goods work-in-process

Fixed overhead Budgeted fixed overhead


application rate Fixed overhead application rate = 2
Budgeted fixed overhead cost driver
(normal costing)

4 © Becker Professional Education Corporation. All rights reserved.


Formula Reference Guide Part 1

Term Formula Unit

Flexible budget Total OH spending Variable OH efficiency


= +
OH variance variance variance

Flexible budget Where:


overhead
4
variance (three- Total OH
= Actual total OH –
Flexible budget total OH (based on
way variance) spending variance actual hours used)

Variable OH Flexible budget variable Flexible budget variable OH


= –
efficiency variance OH (based on actual hours) (based on hours allowed)

Step 1: Determine the net book value

Cost

Less: accumulated depreciation, if any


Gain/loss on Net book value
disposals of 1
fixed assets Step 2: Calculate the gain/(loss)

Selling price

Net book value

Gain/(loss) on sale

Sales price

– Separate costs
Gross profit
– Joint costs 2
margin
Gross profit

Gross profit / Sales price = Gross profit margin

Total impairment loss = FV or PV future net cash flows – Net carrying value +
Cost of disposal
Impairment
loss: Assets held *When testing indefinite-life intangible assets for impairment, fair value must be used 1
for disposal instead of undiscounted future net cash flows:
Fair value − Net carrying value = Positive (no impairment) or negative (impairment)

© Becker Professional Education Corporation. All rights reserved. 5


Part 1 Formula Reference Guide

Term Formula Unit

Impairment loss = FV or PV future net cash flows – Net carrying value


Impairment
loss: Assets held *When testing indefinite-life intangible assets for impairment, fair value must be used 1
instead of undiscounted future net cash flows:
for use
Fair value − Net carrying value = Positive (no impairment) or negative (impairment)

Change in the deferred income


Income tax Total income Current income tax payable or
tax asset or liability from the
expense tax expense or = refundable as determined on ± 1
beginning to the end of the
(benefit) benefit the corporate tax return
reporting period

Total life-cycle costs


Life-cycle cost Life-cycle cost per unit =
Total number of units expected to be produced and sold over 2
per unit
the life of the product

Net realizable
value (for joint Net realizable value = Final selling price − Identifiable costs incurred after split-off 2
costing)

Overapplied or underapplied OH = Total actual OH – Total OH applied


Overapplied or
underapplied *Applied OH:
4
overhead (one- (1) Fixed OH = Actual output × Standard FOH rate/hour
way variance) (2) Variable OH = Actual output × Hours allowed/unit × Standard VOH rate/hour

Overapplied or Flexible budget OH Production


= +
underapplied OH variance volume variance

Where:

Overapplied or Flexible budget OH Flexible budget total OH (based


= Actual total OH –
variance on hours allowed)
underapplied
4
overhead (two-
way variance) Production volume Flexible budget Fixed OH applied
= –
variance fixed OH to actual production

Or:

Production volume
= FOH application rate × (Actual output – Forecasted output)
variance

6 © Becker Professional Education Corporation. All rights reserved.


Formula Reference Guide Part 1

Term Formula Unit

Overhead
application Total budgeted overhead costs
Overhead application rate = 2
rate (single Total budgeted cost driver
overhead rate)

Predetermined Total budgeted overhead


overhead rate Predetermined overhead rate = 2
Budgeted volume
(normal costing)

Price index (for Ending inventory at current year cost


dollar-value Price index = 1
Ending inventory at base year cost
LIFO)

Prime costs Prime costs = Direct materials cost + Direct labor costs 2

Beginning Raw
Raw materials Ending inventory of Purchases of
= inventory of + − materials 2
inventory raw materials raw materials
raw materials used

Regression
equation
y = a + b1x1 + b2x2 + bixi 3, 6
(multiple
regression)

y = a + Bx

Where:

Regression y = Total cost


equation
x = Production output 3
(simple
regression) a = Total fixed costs

B = Variable cost per unit

© Becker Professional Education Corporation. All rights reserved. 7


Part 1 Formula Reference Guide

Term Formula Unit

*Residual income (RI) = Income of business unit − (Assets of business unit ×


Required rate of return)
Note: "Income" means operating income unless otherwise noted.

Alternative method:

Residual income = Net income (from the income statement) – Required return
Residual income 4
Where:

Required return = Net book value (Equity) × Hurdle rate

*Note that this formula is on the ICMA CMA Exam ratio definitions document. There are
multiple ways to calculate many financial ratios. Students should use the ICMA recommended
definitions, when possible, for the CMA exam.

Net income/loss

– Dividends (cash, property, and stock) declared


Retained
earnings ± Prior period adjustments 1
(deficit) ± Accounting changes reported retrospectively

Retained earnings

Income of a business unit


ROI =
Assets of a business unit

Where:

Income = Operating income unless otherwise noted

Or:
Return on
investment ROI = Profit margin × Asset turnover
4
(ROI)

Alternative method:

*ROI = Net income/ Investment capital

*Note that this formula is on the ICMA CMA Exam ratio definitions document. There are
multiple ways to calculate many financial ratios. Students should use the ICMA recommended
definitions, when possible, for the CMA exam.

8 © Becker Professional Education Corporation. All rights reserved.


Formula Reference Guide Part 1

Term Formula Unit

Fair value at Subsequent


Revaluation model Subsequent
Revaluation carrying value
= revaluation – accumulated –
impairment
model carrying date depreciation* 1
value *Subsequent amortization for revalued intangible assets (infinite life intangible
assets only)

 Actual Budgeted Total number Budgeted


Sales mix  sales mix sales mix  of units of contribution
Sales mix variance       4
variance  ratio for ratio for  all products margin per
a product a product sold unit of product

Sales price Sales price variance = Actual quantity sold × (Actual price – Standard price)
4
variance = AQsold × (AP – SP)

Sales volume Sales volume variance = Standard price × (Actual quantity – Standard quantity)
4
variance = SP × (AQ – SQ)

Standard hours per


Standard direct Standard rate per
Standard DL = × unit allowed for one 4
labor labor hour
unit of production

Standard quantity of
Standard direct Standard price
Standard DM = × materials allowed for 4
materials per unit
one unit of production

Standard
Standard Standard cost
Standard OH = (predetermined) × 4
overhead application rate
driver per unit

Straight-line Straight-line Cost − Salvage value


depreciation = 1
depreciation Estimated useful life

N × (N + 1)
Sum-of-the years' digits =
2
Sum-of-the-
1
years' digits Where:

N = Estimated useful life

© Becker Professional Education Corporation. All rights reserved. 9


Part 1 Formula Reference Guide

Term Formula Unit

Sum-of-the- Remaining life of asset


Sum-of-the years' digits
years' digits depreciation expense
= (Cost − Salvage value) × 1
Sum-of-the-years' digits
depreciation

Total OH spending Variable OH Fixed OH


= +
variance spending variance spending variance

Total OH Where:
spending
Variable OH Flexible budget variable OH 4
variance (four- = Actual variable OH –
spending variance (based on actual hours used)
way variance)

Fixed OH Flexible budget fixed OH


= Actual fixed OH –
spending variance (based on actual hours used)

Budgeted production (in units)

× Hours (or fractions of hours) required to produce each unit


Total wages
(direct labor Total number of hours needed 3
budget)
× Hourly wage rate

Total wages

Units completed Units completed = BWIP + Units started − EWIP 2

Units of direct materials needed for a production period


Units of direct + Desired ending inventory at the end of the period
materials to be 3
purchased – Beginning inventory at the start of the period

Units of direct materials to be purchased for the period

Units-of-production
Rate per unit Number of units produced
(productive output) = ×
Units-of- (or hour) (or hours worked)
depreciation expense
production
(productive Where: 1
output)
depreciation Cost – Salvage value
Rate per unit (or hour) =
Estimated units or hours

10 © Becker Professional Education Corporation. All rights reserved.


Formula Reference Guide Part 1

Term Formula Unit

Units started
Units started and completed = Units completed − BWIP = Units started − EWIP 2
and completed

Revenue
Variable
(direct) costing − Less: variable costs
equation
Contribution margin 2
(used in the
contribution − Less: fixed costs (includes fixed overhead and fixed operating expenses)
approach)
Net income

Variable
overhead Budgeted variable overhead
Variable overhead application rate = 2
application rate Budgeted variable overhead cost driver
(normal costing)

Weighted Cost of goods available for sale during the period


average cost Weighted average cost per unit = 1
Number of units available during the period
per unit

Weighted
average
(Actual quantity of Material A × Standard price)
standard price + (Actual quantity of Material B × Standard price)
WASPA mix = 4
for the actual
Actual quantity of Material A + Actual quantity of Material B
mix (WASPA
mix)
Weighted
average
(Standard quantity of Material A × Standard price)
standard price + (Standard quantity of Material B × Standard price)
WASPS mix = 4
for the standard
Standard quantity of Material A + Standard quantity of Material B
mix (WASPS
mix)
Weighted
average
(Actual hours of group A × Standard rate)
standard rate + (Actual hours of group B × Standard rate)
WASRA mix = 4
for the actual
Actual hours of group A + Actual hours of group B
mix (WASRA
mix)
Weighted
average
(Standard hours of group A × Standard rate)
standard rate + (Standard hours of group B × Standard rate)
WASRS mix = 4
for the standard
Standard hours of group A + Standard hours of group B
mix (WASRS
mix)

© Becker Professional Education Corporation. All rights reserved. 11


Part 1 Formula Reference Guide

Term Formula Unit

Ending Beginning Direct Inventory


Work-in-process inventory inventory Raw material labor and transferred
= + + − 2
inventory of work-in- of work-in- materials used overhead to finished
process process used goods

12 © Becker Professional Education Corporation. All rights reserved.

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