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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

Operating income (Contribution margin method)

(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


Target Operating income (TOI)

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

Target Operating income (TOI)

(CMPU x Q) - FX

Quantity of units required to be sold


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

Overhead allocated to product

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.

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