Part 1 Formula Reference Guide

Term Formula Unit

Revenue
− Less: cost of goods sold
Absorption
costing Gross margin 2
equation − Less: operating expenses (both fixed and variable)

Net income

Accounting
equation (or
Assets = Liabilities + Owners' equity (or stockholders' equity) 1
balance sheet
equation)

Sales
Asset turnover Asset turnover = 4
Assets

Budgeted sales

Budgeted + Desired ending inventory

3
production – Beginning inventory

Budgeted production

Beginning cash

+ Cash collections from sales

– Cash disbursements for purchases and operating expenses

Ending cash balance

Cash budget 3
– Cash requirements set by policy

± Working capital available for loan repayment or if negative, loan needed

± Loan proceeds or loan repayment

Ending cash available

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Part 1 Formula Reference Guide

Term Formula Unit

Net income

Comprehensive + Other comprehensive income

1
income
Comprehensive income

Contribution
Contribution margin = Sales revenue – Variable costs 4
margin

Contribution Contribution margin

Contribution margin ratio = 1
margin ratio Revenue

Conversion cost Conversion cost = Direct labor cost + Overhead costs 2

Cost model Cost model Historical Accumulated

= – – Impairment 1
carrying value carrying value cost depreciation

Cost of direct
Units of direct materials to be purchased for the period
materials to
be purchased × Cost per unit 3
(purchases at
Cost of direct materials to be purchased for the period (purchases at cost)
cost)

Total manufacturing costs (DM, DL, OH)

+ Beginning work-in-process inventory

Cost of goods
3
manufactured – Ending work-in-process inventory

Cost of goods manufactured (COGM)

Beginning finished goods inventory

+ Costs of goods manufactured
Cost of
Costs of goods available for sale
goods sold 3
(manufacturer) − Ending finishing goods inventory

Costs of goods sold

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Formula Reference Guide Part 1

Term Formula Unit

Beginning inventory
+ Purchases

Cost of goods Costs of goods available for sale

3
sold (retailer) − Ending inventory (physical count)

Costs of goods sold

1
Declining balance depreciation expense = 2 × × (Cost – Accumulated depreciation)
Declining n
balance Where: 1
depreciation
N = Useful life

Departmental Budgeted department overhead costs

overhead Departmental overhead application rate = 2
Budgeted department cost driver
application rate

Direct labor
DL efficiency variance = Standard rate × (Actual hours worked – Standard hours allowed)
efficiency 4
= SR × (AH – SH)
variance

Direct labor mix

DL mix variance = The sum of total hours worked × (WASRA mix – WASRS mix) 4
variance

Direct labor DL rate variance = Actual hours worked × (Actual rate – Standard rate)
4
rate variance = AH × (AR – SR)

Direct labor DL yield variance = WASRS mix × (The sum of total hours worked –
4
yield variance The sum of total hours allowed)

Direct materials DM mix variance = The sum of total quantities of materials used ×
4
mix variance (WASPA mix – WASPS mix)

Direct materials DM price variance = Actual quantity purchased × (Actual price – Standard price)
4
price variance = AQpurchased × (AP – SP)

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Part 1 Formula Reference Guide

Term Formula Unit

Direct materials DM quantity usage variance = Standard price ×

quantity usage (Actual quantity used – Standard quantity allowed) 4
variance = SP × (AQused – SQallowed)

Beginning inventory at cost

Direct materials + Purchases at cost

usage (cost of 3
– Ending inventory at cost
materials used)
Direct materials usage (cost of materials used)

Direct materials DM yield variance = WASPS mix × (The sum of total quantities of materials used – The
4
yield variance sum of total quantities of materials allowed)

DuPont ROE = Net profit margin × Asset turnover × Financial leverage

DuPont ROE Net income

×
Sales
×
Assets 4
=
Sales Assets Equity

EBIT
EBIT margin EBIT margin = 4
Sales

Equivalent cost Current costs only

per unit (FIFO Equivalent cost per unit (FIFO) = 2
method) Equivalent units

Equivalent
cost per unit Beginning costs + Current costs
(weighted Equivalent cost per unit (weighted average) = 2
average Equivalent units
method)

Equivalent units (FIFO) = (Beginning WIP × % to be completed) +

Equivalent units
(Units completed – Beginning WIP) + (Ending WIP × 2
(FIFO method)
percentage completed)

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Formula Reference Guide Part 1

Term Formula Unit

Equivalent
units (weighted Equivalent units (weighted average) = Units completed + (Ending WIP ×
2
average percentage completed)
method)

Extended DuPont ROE = Tax burden × Interest burden × EBIT margin

× Asset turnover × Financial leverage

Extended
4
DuPont ROE Net Pretax
income income EBIT Sales Assets
= × × × ×
Pretax EBIT Sales Assets Equity
income

Financial Assets
Financial leverage = 4
leverage Equity

Ending Beginning Inventory

Finished goods Cost of goods
inventory of = inventory of + transferred from – 2
inventory sold
finished goods finished goods work-in-process

Fixed overhead Budgeted fixed overhead

application rate Fixed overhead application rate = 2
Budgeted fixed overhead cost driver
(normal costing)

Flexible budget Total OH spending Variable OH efficiency

= +
OH variance variance variance

Flexible budget Where:

overhead
4
variance (three- Total OH
= Actual total OH –
Flexible budget total OH (based on
way variance) spending variance actual hours used)

Variable OH Flexible budget variable Flexible budget variable OH

= –
efficiency variance OH (based on actual hours) (based on hours allowed)

High-low
method: Total Total cost = Fixed cost + (Variable cost per unit × Number of units) 2
cost

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Part 1 Formula Reference Guide

Term Formula Unit

High-low
method: High cost – Low cost
Variable cost per unit = 2
Variable cost High volume – Low volume
per unit

Impairment
Total impairment loss = FV or PV future net cash flows – Net carrying value +
loss: Assets held 1
Cost of disposal
for disposal

Impairment Impairment loss = FV or PV future net cash flows – Net carrying value
loss: Assets held 1
for use

Change in the deferred income

Income tax Total income Current income tax payable or
tax asset or liability from the
expense tax expense or = refundable as determined on ± 1
beginning to the end of the
(benefit) benefit the corporate tax return
reporting period

Pretax income
Interest burden Interest burden = 4
Earnings before interest and taxes (EBIT)

Maximum
Unit throughput
throughput Maximum throughput Maximum number of units set
= contribution × 2
contribution contribution margin
margin
by the constraint activity
margin

Net profit Net income

Net profit margin = 4
margin Sales

Net realizable
value (for joint Net realizable value = Final selling price − Identifiable costs incurred after split-off 2
costing)

Overapplied or
underapplied
Overapplied or underapplied OH = Total actual OH – Total OH applied 4
overhead (one-
way variance)

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Formula Reference Guide Part 1

Term Formula Unit

Overapplied or Flexible budget OH Production

= +
underapplied OH variance volume variance

Where:

Overapplied or Flexible budget OH Flexible budget total OH (based

= Actual total OH –
variance on hours allowed)
underapplied
4
overhead (two-
way variance) Production volume Flexible budget Fixed OH applied
= –
variance fixed OH to actual production

Or:

Production volume
= FOH application rate × (Actual output – Forecasted output)
variance

Overhead
application Total budgeted overhead costs
Overhead application rate = 2
rate (single Total budgeted cost driver
overhead rate)

Predetermined Total budgeted overhead

overhead rate Predetermined overhead rate = 2
Budgeted volume
(normal costing)

Price index (for Ending inventory at current year cost

dollar-value Price index = 1
Ending inventory at base year cost
LIFO)

Prime costs Prime costs = Direct materials cost + Direct labor costs 2

Units-of-production
Rate per unit Number of units produced
(productive output) = ×
Units-of- (or hour) (or hours worked)
depreciation
production
(productive Where: 1
output)
depreciation Cost – Salvage value
Rate per unit (or hour) =
Estimated units or hours

Beginning Raw
Raw materials Ending inventory of Purchases of
= inventory of + − materials 2
inventory raw materials raw materials
raw materials used

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Part 1 Formula Reference Guide

Term Formula Unit

Regression
equation
y = a + b1x1 + b2x2 + bixi 3
(multiple
regression)

y = a + Bx

Where:

Regression y = Total cost

equation
x = Production output 3
(simple
regression) a = Total fixed costs

B = Variable cost per unit

Residual income = Net income (from the income statement) − Required return

Where:
Required return = Net book value (Equity) × Hurdle rate

Alternative method:

Residual income *Residual income (RI) = Income of business unit − (Assets of business unit × 4
Required rate of return)
Where:
Income = Operating income unless otherwise noted

*Note that this formula is on the ICMA formula sheet. There are multiple ways to calculate
many financial ratios. Students should use the IMA recommended definitions, when possible,
for the CMA exam.

Net income/loss

– Dividends (cash, property, and stock) declared

Retained
earnings ± Prior period adjustments 1
(deficit) ± Accounting changes reported retrospectively

Retained earnings

Return on Net income

ROE = 4
equity (ROE) Equity

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Formula Reference Guide Part 1

Term Formula Unit

Income
ROI =
(Investment capital)

Or:

ROI = Profit margin × Investment turnover

Return on Alternative method:

investment 4
(ROI) *ROI = Income of business unit ÷ Assets of business unit

Where:

Income = Operating income unless otherwise noted

*Note that this formula is on the ICMA formula sheet. There are multiple ways to calculate
many financial ratios. Students should use the IMA recommended definitions, when possible,
for the CMA exam.

Revaluation Fair value at Subsequent

Revaluation model Subsequent
model carrying carrying value
= revaluation – accumulated –
impairment
1
value date depreciation

 Actual Budgeted Total number Budgeted

Sales mix  sales mix sales mix  of units of contribution
Sales mix variance       4
variance  ratio for ratio for  all products margin per
a product a product sold unit of product

Sales price Sales price variance = Actual quantity sold × (Actual price – Standard price)
4
variance = AQsold × (AP – SP)

Sales volume Sales volume variance = Standard price × (Actual quantity – Standard quantity)
4
variance = SP × (AQ – SQ)

Standard hours per

Standard direct Standard rate per
Standard DL = × unit allowed for one 4
labor labor hour
unit of production

Standard quantity of
Standard direct Standard price
Standard DM = × materials allowed for 4
materials per unit
one unit of production

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Part 1 Formula Reference Guide

Term Formula Unit

Standard
Standard Standard cost
Standard OH = (predetermined) × 4
overhead application rate
driver per unit

Straight-line Straight-line Cost − Salvage value

depreciation = 1
depreciation Estimated useful life

N × (N + 1)
Sum-of-the years' digits =
2
Sum-of-the-
1
years' digits Where:

N = Estimated useful life

Sum-of-the- Remaining life of asset

Sum-of-the years'
years' digits digits depreciation
= (Cost − Salvage value) × 1
Sum-of-the-years' digits
depreciation

Net income
Tax burden Tax burden = 4
Pretax income

Throughput
costing: Throughput
Operating income = − Operating costs 2
Operating contribution
Income

Total OH spending Variable OH Fixed OH

= +
variance spending variance spending variance

Total OH Where:
spending
Variable OH Flexible budget variable OH 4
variance (four- = Actual variable OH –
spending variance (based on actual hours used)
way variance)

Fixed OH Flexible budget fixed OH

= Actual fixed OH –
spending variance (based on actual hours used)

Total
throughput Total throughput
= Sales revenue − Direct materials cost 2
contribution contribution margin
margin

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Formula Reference Guide Part 1

Term Formula Unit

Budgeted production (in units)

× Hours (or fractions of hours) required to produce each unit

Total wages
(direct labor Total number of hours needed 3
budget)
× Hourly wage rate

Total wages

Units completed Units completed = BWIP + Units started − EWIP 2

Units of direct materials needed for a production period

Units of direct + Desired ending inventory at the end of the period
materials to be 3
purchased – Beginning inventory at the start of the period

Units of direct materials to be purchased for the period

Units started
Units started and completed = Units completed − BWIP = Units started − EWIP 2
and completed

Unit throughput
Unit throughput Materials cost
contribution contribution margin
= Unit selling price −
(the only variable cost in TOC)
2
margin

Revenue
Variable
(direct) costing − Less: variable costs
equation
Contribution margin 2
(used in the
contribution – Less: fixed costs (includes fixed overhead and fixed operating expenses)
approach)
Net income

Variable
overhead Budgeted variable overhead
Variable overhead application rate = 2
application rate Budgeted variable overhead cost driver
(normal costing)

Weighted Cost of goods available for sale during the period

average cost Weighted average cost per unit = 1
Number of units available during the period
per unit

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Part 1 Formula Reference Guide

Term Formula Unit

Weighted
average
(Actual quantity of Material A × Standard price)
standard price + (Actual quantity of Material B × Standard price)
WASPA mix = 4
for the actual
Actual quantity of Material A + Actual quantity of Material B
mix (WASPA
mix)
Weighted
average
(Standard quantity of Material A × Standard price)
standard price + (Standard quantity of Material B × Standard price)
WASPS mix = 4
for the standard
Standard quantity of Material A + Standard quantity of Material B
mix (WASPS
mix)
Weighted
average
(Actual hours of group A × Standard rate)
standard rate + (Actual hours of group B × Standard rate)
WASRA mix = 4
for the actual
Actual hours of group A + Actual hours of group B
mix (WASRA
mix)
Weighted
average
(Standard hours of group A × Standard rate)
standard rate + (Standard hours of group B × Standard rate)
WASRS mix = 4
for the standard
Standard hours of group A + Standard hours of group B
mix (WASRS
mix)

Ending Beginning Direct Inventory

Work-in-process inventory inventory Raw material labor and transferred
= + + − 2
inventory of work-in- of work-in- materials used overhead to finished
process process used goods

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