Cost Accounting Fornulas
Most Important Cost Accounting Fornulas
Total Cost (TC)
TC = Direct Materials + Direct Labor + Factory Overhead
Average Cost (AC)
AC = Total Costs ÷ Number of Units Produced
Marginal Cost (MC)
MC = Change in Total Cost ÷ Change in Quantity
Contribution Margin (CM)
CM = Total Revenue – Variable Costs
Gross Profit (GP)
GP = Total Revenue – Cost of Goods Sold
Break-Even Point (BEP)
BEP (in units) = Fixed Costs ÷ Contribution Margin per Unit
Margin of Safety
Margin of safety = Actual sales volume – Break-even sales volume
Return on Investment (ROI)
ROI = (Net Profit ÷ Cost of Investment) x 100
Cost of Goods Sold (COGS)
COG= Beginning Inventory + Total Purchases on the Specified Period – the Ending Inventory
Overhead Allocation
Overhead Allocation = (Total Indirect Cost ÷ Total Direct Labor Hours) x Direct Labor Hours for Specific Product
Cost Variance
Cost Variance = Actual Cost – Budgeted Cost
Price Variance
Price Variance = (Actual Price – Standard Price) x Actual Quantity
Labor Efficiency Variance
Labor efficiency variance = (Standard hours – Actual hours) x Standard rate
Production Volume Variance
Production Volume Variance = (Standard Production Volume – Actual Production Volume) × Standard Cost per Unit
Predetermined Overhead Rate (POR)
Predetermined Overhead Rate (POR) = Estimated Total Overhead Costs ÷ Estimated Activity Base
Economic Order Quantity (EOQ)
EOQ = √[(2 × Annual Demand × Ordering Cost) ÷ Holding Cost per Unit per Year]
Cost of Quality (COQ)
COQ = Prevention Costs + Appraisal Costs + Internal Failure Costs + External Failure Costs