Quick Reference to Managerial Accounting Formulas
Basic Income Statement
| Sales |
| - Variable Cost |
| --------------------- |
| Contribution Margin |
| - Fixed Cost |
| --------------------- |
| Profit |
Sales Revenue = Variable Costs + Fixed Costs + Profit
- S = VC + FC + P
- To breakeven (P = 0): S = VC + FC
Contribution Margin
- CM = S - VC
- CM - FC = P
- CM ratio = CM per unit / Sales Price per unit
Breakeven and Profit Planning
- Breakeven in units = FC / CM per unit
- Breakeven in dollars = FC / CM ratio
- Breakeven in dollars = Breakeven in units * Sales Price per unit
- Target Profit point in units = (FC + P) / CM per unit
- Target Profit point in dollars = (FC + P) / CM ratio
- Target Profit point in dollars = Target Profit point in units * Sales Price per unit
Gross Margin Pricing
- Markup % = (P + S, G & A expenses) / Total Production Costs
- Gross Margin-based Price = Total Production Cost per unit (1 + markup %)
Profit Margin Pricing
- Markup % = P / Total Costs & Expenses
- Profit Margin-based Price = Total Costs & Expenses per unit (1 + markup %)
Return on Assets Pricing
- ROA price = Total Costs & Expenses per unit + X
- X = (Total Costs of Assets Employed / Units to be Produced) * Desired Rate of Return
Target Costing
- Target Cost = Price Quote / (1 + Desired Profit %)
- If Actual Cost > Target Cost = FORGET IT
Make or Buy
- If Relavent Cost of Making < Purchase Price = MAKE IT
- Relavent Cost = Cost that will change as a result of decision
- Relavent Cost = Variable Cost + Fixed Cost that changed
Special Orders
- Selling Price > Relavent Cost = ACCEPT ORDER
- Accept Special Order as long as there is production capacity.
Sales Mix
- Scarce resource and contribution margin determine the most profitable product
- Concentrate on production of highest contribution margin per unit of resource
Unprofitable Segment Decision Analysis
- Contribution Margin > Avoidable Costs = KEEP DEVISION
- Eliminate segment: decrease in contribution margin & avoidable costs; unavoidable costs are not eliminated
Sell Now or Process Further
- Selling Price at split off > (Selling Price after processing - Additional Processing Costs) = SELL NOW
- Selling Price after processing - Selling Price at split off > Additional Processing Costs = PROCESS
Marginal Analysis / Incremental Analysis
- Marginal Revenue > Marginal Cost = PRODUCE MORE
Capital Expenditure Decision
- Accounting Rate of Return = Annual After-Tax NI / Ave. Investment Cost
- Average Investment Cost = (Total Investment + Salvage Value) / 2
- Payback Period = Investment / Annual Net Cash Inflow
- Net Present Value = Present Value of Future Cash Flow - Cost of Investment
Last Updated :
This page has been visited 
times since 11-18-1998.
This page is designed by:
Donna Sum-yi Lau
Finance and Business Law,
Pennsylvania State University.
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