# Cost Accounting Formulas

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This are the formulas we need to memorize in cost accounting

### Prime Cost

Direct Material+Direct Labor

### Conversion costs

Direct manufacturing labor costs

### Contribution margin

Total revenues - Total variable costs

### Contribution margin per unit

Selling price - variable cost per unit

### Contribution Margin

Contribution margin per unit x number of units sold

### Contribution margin % (ratio) (CMP)

Contribution margin per unit (CMPU)
------------------------------------------------
selling price (SP)

### Contribution margin

Contribution margin % (CMP) x Revenues (in dollars)

### Operating Income (equation method)

Revenues - Variable costs (VC) - Fixed costs (FC)

### Revenues (equation method)

Selling price (SP) x Quantity of units sold (Q)

### Variable Cost (equation method)

Variable cost per unit (VCU) x Quantity of units sold (Q)

### Operating Income (equation method)

[(SP x Q)] - (VCU x Q)] - FC

### Operating income

[(SP - VCU) - Q] - FC

(CMPU x Q) - FC

### Operating Income (Break - even)

(SP x Q) - (VCPU x Q) - FC

### Break even per units

Fixed costs
------------------------------------
Contribution margin per unit

### Break even revenues

break even number of units x SP

### Break even revenues

FC
--------------------------------------------
CM%

### Target Operating income (TOI)

[(SP x Q) - (VCPU x Q)] - FC

(CMPU x Q) - FX

FC + TOI
-------------
CMPU

### Net Income

Operating Income - Income Taxes

### Target net income (TNI)

TOI - (TOI x Tax rate)

### Target net income (TNI)

TOI x (1 - tax rate)

### Margin of safety in dollars

Budgeted (or actual) Revenues - Breakeven revenues

### Margin of safety (in units)

Budgeted (or actual) sales quantity - Breakeven quantity

### Margin of safety

Budgeted revenues - Breakeven revenues

### Margin of safety (in units)

Budgeted sales (units) - Breakeven sales (units)

### Margin of safety %

Margin of safety in \$
---------------------------
Budgeted (or actual) revenues

### Degree of operating leverage

Contribution margin
--------------------------
Operating income

Indirect-cost rate x Product quantity of allocation base

### What is the activity-based approach to designing a costing system?

An activity-based approach refines a costing system by focusing on individual activities as the fundamental cost objects. It uses the cost of these activities as the basis for assigning costs to other cost objects such as products or services.

Example: