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    Formulas: Wace Accounting and Finance

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    Jikose
    This document provides formulas and explanations for various accounting and finance concepts including: overhead recovery rate, job costing, markup, standard cost, material and labor variances, contribution margin, break-even point, target profit, margin of safety, product mix analysis, capacity constraints, accepting special orders, and continuing or closing a business segment.

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    Formulas: Wace Accounting and Finance

    Uploaded by

    Jikose
    64 views4 pages
    This document provides formulas and explanations for various accounting and finance concepts including: overhead recovery rate, job costing, markup, standard cost, material and labor variances, contribution margin, break-even point, target profit, margin of safety, product mix analysis, capacity constraints, accepting special orders, and continuing or closing a business segment.

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    This document provides formulas and explanations for various accounting and finance concepts including: overhead recovery rate, job costing, markup, standard cost, material and labor variances, contribution margin, break-even point, target profit, margin of safety, product mix analysis, capacity constraints, accepting special orders, and continuing or closing a business segment.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    64 views4 pages

    Formulas: Wace Accounting and Finance

    Uploaded by

    Jikose
    This document provides formulas and explanations for various accounting and finance concepts including: overhead recovery rate, job costing, markup, standard cost, material and labor variances, contribution margin, break-even point, target profit, margin of safety, product mix analysis, capacity constraints, accepting special orders, and continuing or closing a business segment.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    of 4

    Wace accounting and finance

    Formulas

    Overhead recovery/ absorption rate


    𝐵𝑢𝑑𝑗𝑒𝑡𝑒𝑑 _____𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝑐𝑜𝑠𝑡
    𝑂. 𝐴. 𝑅 =
    𝐵𝑢𝑑𝑗𝑒𝑡𝑒𝑑 _______𝑑𝑖𝑟𝑒𝑐𝑡 𝑙𝑎𝑏𝑜𝑢𝑟 ℎ𝑜𝑢𝑟𝑠

    Job costing

    $
    Direct material
    Direct labour
    Factory overhead
    Cost of job

    Markup

    𝑀𝑎𝑟𝑘𝑢𝑝 = 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 × 𝑐𝑜𝑠𝑡

    Standard cost

    $
    Direct material
    Direct labour
    Variable overhead
    Fixed overhead
    Standard cost

    Direct material price variance

    Price variance = (standard price − actual price) × actual quantity purchased

    Direct material usage variance

    Usage variance = (standard quantit𝑦𝑓𝑜𝑟 𝑎𝑐𝑡𝑢𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡 − actual quantit𝑦𝑓𝑜𝑟 𝑎𝑐𝑡𝑢𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡 )
    × standard price

    Direct labour rate variance

    Rate variance = (standard rate − actual rate) × actual direct labour hours
    Direct labour efficiency variance

    Efficiency variance
    = (standard hou𝑟𝑓𝑜𝑟 𝑎𝑐𝑡𝑢𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡 − actual hou𝑟𝑓𝑜𝑟 𝑎𝑐𝑡𝑢𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡 ) × standard rate

    Contribution margin

    𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 = 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 − 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡

    Contribution margin ratio


    𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛
    𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑟𝑎𝑡𝑖𝑜 =
    𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒

    Break even point

    (a) Units
    𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡
    𝐵𝑟𝑒𝑎𝑘 𝑒𝑣𝑒𝑛 𝑝𝑜𝑖𝑛𝑡 =
    𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛/ 𝑢𝑛𝑖𝑡

    (b) Dollars
    𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡
    𝐵𝑟𝑒𝑎𝑘 𝑒𝑣𝑒𝑛 𝑝𝑜𝑖𝑛𝑡 =
    𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑟𝑎𝑡𝑖𝑜

    𝐵𝑟𝑒𝑎𝑘 𝑒𝑣𝑒𝑛 𝑝𝑜𝑖𝑛𝑡 = 𝑏𝑟𝑒𝑎𝑘 𝑒𝑣𝑒𝑛 𝑝𝑜𝑖𝑛𝑡 (𝑢𝑛𝑖𝑡𝑠) × 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒

    Target/ expected profit


    𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡 + 𝑒𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑝𝑟𝑜𝑓𝑖𝑡
    𝐵𝑟𝑒𝑎𝑘 𝑒𝑣𝑒𝑛 𝑝𝑜𝑖𝑛𝑡 (𝑢𝑛𝑖𝑡𝑠) =
    𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛/ 𝑢𝑛𝑖𝑡

    𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡 + 𝑒𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑝𝑟𝑜𝑓𝑖𝑡


    𝐵𝑟𝑒𝑎𝑘 𝑒𝑣𝑒𝑛 𝑝𝑜𝑖𝑛𝑡 ($) =
    𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑟𝑎𝑡𝑖𝑜

    Margin of safety

    (a) Units
    𝑀𝑎𝑟𝑔𝑖𝑛 𝑜𝑓 𝑠𝑎𝑓𝑒𝑡𝑦 = 𝑎𝑐𝑡𝑢𝑎𝑙 𝑠𝑎𝑙𝑒𝑠 − 𝑏𝑟𝑒𝑎𝑘 𝑒𝑣𝑒𝑛 𝑠𝑎𝑙𝑒𝑠
    (b) Dollars
    𝑀𝑎𝑟𝑔𝑖𝑛 𝑜𝑓 𝑠𝑎𝑓𝑒𝑡𝑦
    𝑀𝑎𝑟𝑔𝑖𝑛 𝑜𝑓 𝑠𝑎𝑓𝑒𝑡𝑦 = × 100%
    𝑇𝑜𝑡𝑎𝑙 𝑠𝑎𝑙𝑒𝑠

    Steps

    Product mix

    1. Find percentage of product


    𝑃𝑟𝑜𝑑𝑢𝑐𝑡 𝑋
    × 100%
    𝑇𝑜𝑡𝑎𝑙 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑠
    2. Find contribution margin
    𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 = 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 − 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡

    3. Find weighted average contribution margin


    𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 × 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 (𝑓𝑟𝑜𝑚 𝑠𝑡𝑒𝑝 1)

    4. Find break even point (units)


    𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡
    𝐵𝑟𝑒𝑎𝑘 𝑒𝑣𝑒𝑛 𝑝𝑜𝑖𝑛𝑡 =
    𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛

    5. Find the break even for each product


    𝐵𝑟𝑒𝑎𝑘 𝑒𝑣𝑒𝑛 𝑝𝑜𝑖𝑛𝑡 (𝑓𝑟𝑜𝑚 𝑠𝑡𝑒𝑝 4) × 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 (𝑓𝑟𝑜𝑚 𝑠𝑡𝑒𝑝 1)

    Capacity constrain

    1. Find contribution margin


    𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 = 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 − 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡
    2. Calculate contribution/ limiting factor
    𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛/ 𝑙𝑖𝑚𝑖𝑡𝑖𝑛𝑔 𝑓𝑎𝑐𝑡𝑜𝑟
    3. Rank the allocation based on contribution/ limiting factor
    Rank 1st for higher contribution/ limiting factor
    4. Calculate the necessary

    Accept/ reject special order

    1. Find contribution margin


    𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 = 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 − 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡
    2. Compare the contribution margin of special order and original production

    Continue/ close down a segment of business

    1. Find the contribution margin


    𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 = 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 − 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡

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