Fixed Cost

Fixed cost A cost that are not affected in total by the level of activity, but remains the same. According to this, when activity level increase the Fixed Cost per Unit will reduce.

Variable Cost A cost that change in direct proportion to the level of activity. Variable Cost per Unit is constant so if activity level increases total variable cost will increase.

Semi-variable Cost A cost which have both fixed and variable elements. In this case, if activity levels increase; cost per unit will reduce but not in proportion to the activity level.

Step-cost /Stepped Fixed Cost: Constant in one range of activity level and then change and again constant in another level.

AVCO (weighted average cost) AVCO =

SVIS + PCUR ───────── QAS+QR

EOQ: EOQ =

2C D C O

H

Co = is the cost of placing an order of stock item. Ch = is the annual cost of holding one unit of stock for one year.

D = is the annual demand for the stock item. Q = is the order quantity. Total Holding Cost:

EOQ 2

Holding cost =

× cost of holding one unit.

Re-order Level: RL = Maximum supply lead time × Maximum Demand in daily or weekly. Minimum Stock Level: Min.SL = Re-order Level ─ (Average Demand for the item each day/month × Average length of lead time) Maximum Stock Level: Max.SL = Re-order Quantity + Re-order Level ─ (Minimum Demand in daily/weekly × Minimum Lead time in daily/weekly)

Labor Turnover: Average annual number of leavers who are replaced

LT = −−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−− × 100% Average annual number of employee

Efficiency Ratio: Actual output measured in standard hours

ER = −−−−−−−−−−−−−−−−−−−−−−−−−−−−−− × 100 % Actual production hours

Capacity Ratio/Labor Utilization: Actual hour worked

CR = −−−−−−−−−−−−−−−−−− × 100% Budgeted Hours

Activity/Production/Volume Ratio: Actual output measured in standard hours

AR = −−−−−−−−−−−−−−−−−−−−−−−−−−−−−− 100% Budgeted Production Hours

Depreciation Machine Hour method: Cost less residual Value

MHM = −−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−− Expected total number of hours of use over the life of the asset

Indirect cost = Overhead All indirect cost is overhead. Variable cost : all direct cost. Process Cost = Direct Material + Direct Labor + Production Overhead. Abnormal Gain:

CVP: Total Contribution = Volume of sales in unit × Unit contribution. Or, = Total sales revenue ─ total variable cost. Or, = Total sales revenue × contribution/sales ratio ( C/S ratio) C/S ratio: Contribution per unit

C/S ratio = ─────────── Sales price per unit

Why CVP:  Estimating future profit  Break-even point of sale  Margin of safety in the budget  Volume of sales required to achieve target profit  Deciding on a selling price for a product

Margin of safety:

Target sales volume: Target contribution

TSV = ──────────── Contribution per unit

Target Sales Revenue: Target Contribution

Sales required to achieve the Target Profit =

-------------------------C/S ratio

Prime Cost = all direct cost ( direct labor + direct material + direct expense ) Production Overhead = all indirect cost ( Indirect labor + material + expense ) According to High-Low method: Overhead = Fixed cost + Variable cost of new events. Conversion Cost: Production cost without direct material. Simply, direct labor cost plus production overhead cost. Idle Time: eg. Budgeted production hour is 3300 where idle time is 25%. In this case calculation should be – 3300 × 25% = 3300 × Idle time is an overhead cost. Overtime:

25 25 = 3300 × = 1100 (Paid hour). 100 − 25 75

Overtime is an indirect cost as well as production overhead. So basic salary is direct cost. But when overtime is worked specifically for a customer, Overtime is treated as direct labor cost.

Activity Ratio = Capacity ratio × Efficiency ratio. Activity Ratio

Capacity ratio = ---------------------Efficiency Ratio

Overhead Costs: Depreciation, Training, Power, Overtime, Idle time, Overhead Allocation: Is a process of charging a whole item of cost to a cost centre. Apportion: sharing out overhead cost on a fair basis. Absorption Costing: Is a method of calculating a cost per cost unit that includes direct costs and a share of overhead costs. So absorption costing may concerned with variable & fixed costs. Overhead Absorption Calculation: among the machine hour, labor hour and unit of production; which is the big by rating that will be the base method of calculating overhead absorption rate. Stock Valuation: (in marginal costing): Prime cost (all direct cost) + variable overhead. Job Costing: Is for special product order from customer. Process Costing: In process costing normal losses is valued on its scrap value. In fact of normal/abnormal losses: Input cost ─ proceeds from normal loss

Cost per unit = −−−−−−−−−−−−−−−−−−−−−−−

Input units ─ normal loss units

To buy rather than produce: If buying price is less than variable production cost, that item can be buying.