PERFORMANC

MANCE MANAGEMEN

ACCA
EMENT
 A REVISION TO M
Particulars Amount
Direct material 212
Direct labour
Bonding department 120
finishing department 72
Prime cost 404
Variable production cost
Bonding department 36
finishing department 15
Total variableProduction cost 455
Fixed production OH 40
Total production cost 495 Let Sp be X , Therefore profit is 25% of sp i.e. 0.
Non production OH 30 = 0.75x = 525 , X = 525/0.75 = 70
Total Cost 525
Profit 175
Selling price 700

Particulars Minutes
Total time 100%
idle time (8%) 0.08
Productive time 92%
92 32 min
100 34.8 min
Add on: non productive time 2 min
Total time 36.8 min
For 60 min =4.50
For 1 min=4.50/60
for 36.8 min 2.76 for 20 sandwitch
for 1 sandwitch 0.138

Illustratiion - 1
Particulars SKY BAR MOON EGG
Direct labour cost per unit ($) 0.07 0.14
Direct material cost per unit ($) 0.17 0.19
Sales/ production 500000 150000
Direct labour hours per unit 0.001 0.01
Direct machine hours per unit 0.01 0.04
Selling price per unit 0.5 0.45
Actual production OH 80000
 OAR PER MACHINE HOUR 5
Calculation of cost card
Particulars SKY BAR MOON EGG
Direct labour cost per unit ($) 0.07 0.14
Direct material cost per unit ($) 0.17 0.19
(Production) OH Absorbed per unit 5000.00 20000.00
Full cost of production per unit 5000.24 20000.33
Selling price per unit 0.5 0.45
Profit/ loss per unit -4999.74 -19999.88
Illustratiion - 2
Calculation of under/over absorption
Particulars $
Direct cost (per unit) 17
Fixed overheads (per unit) 9
Total cost (per unit) 26
Budgeted fixed OH 27000
Fixed OH absorbed 28800
Actual fixed OH [27000+(27000*5%)] 28350
Over-absorption 450
Illustratiion
Calculation of under/over absorption
Particulars $ Units
Budgeted production - 5000
Actual production - 5200
Direct cost (per unit) 25 -
Fixed overheads (per unit) 10 -
Total cost (per unit) 35 -
The actual fixed overhead expenditure was 8% higher than budgeted.
Note
During the period, 200 defective units had to
be scrapped, the cost of scrapped units is to be
absorbed into the remaining good units.

Budgeted Fixed overhead 50000

Fixed overhead absorbed 50000
Actual fixed overhead (50000*8%)+50000 54000
under absorption -4000
Illustratiion
Calculation of under/over absorption
Particulars $ Units
Budgeted production - 6000
Actual production - 5800
Direct cost (per unit) 30 -
Fixed overheads (per unit) 12 -
Total cost (per unit) 42 -
The actual fixed overhead expenditure was 15% lower than budgeted.
Note
 During the period, 500 defective units had to be scrapped, the cost of scrapped units is to be
absorbed into the remaining good units.
Calculation $
Budgeted Fixed overhead 72000
Fixed overhead absorbed 63600
Actual fixed overhead (72000*15%)-72000 61200
Over-Absorption 2400
Note, Scrapped units are subtracted from actual production in fixed OH absorbed calculation
because : Since the units are expired, the overhead cost (incurred to produce them) needs to be
absorbed within the remaining units

Practice Question
Particulars Twix bar Mars bite
Direct labour cost per unit ($) 0.10 0.15
Direct Material cost per unit ($) 0.22 0.2
Actual production/ sales 400000 100000
Direct labour hours per unit 0.003 0.006
Direct machine hours per unit 0.02 0.03
Selling price per unit ($) 0.55 0.48
Annual production overhead = $95000
Cost Sheet
Particulars Twix bar Mars bite
Direct labour cost per unit ($) 0.10 0.15
Direct Material cost per unit ($) 0.22 0.2
Overhead Absorbed 0.09 0.14
Full cost of production 0.41 0.49
Selling price per unit ($) 0.55 0.48
Profit/loss per unit 0.14 -0.01
OAR per machine hour 4.52

ILLUSTRATION -3
Level of activity 2500 units 5000 units
Revenue 50000 100000
Variable cost 30000 60000
Total contribution 20000 40000
fixed cost 25000 25000
Total profit / (loss) -5000 15000
Contribution per unit 8 8
fixed cost Per unit 10 5
Profit/(loss) per unit -2 3
ON TO MANAGEMENT ACCOUNT

Sp Let 100
Profit 25% of sp
Therefore 25
cp 75
75 525
1
100 700

X , Therefore profit is 25% of sp i.e. 0.25x therefore cost = sp - profit = 0.75X Therefore Cost
= 0.75x = 525 , X = 525/0.75 = 700 , Therefore profit = 700 X 0.25 = 175

SUN BAR
0.12
0.16
250000
0.005
0.02
0.43
 SUN BAR
0.12
0.16
10000.00
10000.28
0.43
-9999.85

Illustratiion
Calculation of under/over absorption
Particulars $
Direct cost (per unit) 20
Fixed overheads (per unit) 8
Total cost (per unit) 28

Fixed OH budgeted 32000

Fixed OH Absorbed 36000
Actual Fixed OH 28800
Overe Absorption 7200
 Snickers chunk
0.18
0.25
200000
0.009
0.05
0.5

Snickers chunk
0.18
0.25
0.23
0.66
0.5
-0.16
52

3
7500 units 10000 units
150000 200000
90000 120000
60000 80000
25000 25000
35000 55000
8 8
3 2.5
4.67 5.5
ACCOUNTING
SPECIALIST COST AND MANAGEM
TYU- 2 Theor
Step -1 Idenification of constraint (bottl

PROCESS A B
Capacity per week (Current) 400 300
New machine for C - -
New capacity 400 300
New machine for B 300
New capacity 400 600
New machine for A 150
New capacity 550 600

Throughput calculation
Information $
Profit 120000
Fixed cost 300000
Material cost 10% of sale value
contribution/ sale ratio 75%
Throughput = sale price - direct material cost
Workings
Sale (revenue) (100%)...(420000/75)*100 560000 WORKINGS
less: All variable cost (25%) 56000 75
contribution (75%) 420000 1
less: fixed cost 300000 100
Profit / loss 120000
Throughput 504000
Test your understadning -3
TPAR & RETURN PER FACTORY HOUR
production time ( machine hour ) 1.5
Availability of machine 10
Machine maximum time 40 hour each per week
Total machine time 400 hours per week
sale price of product ($) per unit 85
Direct material cost per unit ($) 42.5
total factory cost 8000 each week
Workings
Throughput = sale price -direct material cost 42.5
 Throughtput per unit 42.5
Retur per factory hour = TP per unit / production
time on bottleneck 28.33
TPAR = Return per factory hour/ cost per factory hour
Cost per factory hour = total factory cost
/bottlneck Maximum time available 20.00
TPAR 1.417

Calculation of TPAR
Selling price per unit ($) 10

Material cost per unit ($) 3

Operating exp per month($) 50000
Labour hours per month 20000
Assemble time (hour) per unit 2
Workings
TPAR = Return per factory hour / cost per factory hour
Return per factory hour = Throughput per unit / Time required for producing bottleneck
Throughput per unit = Sale price - Direct material cost
7
Return per factory hour ($) 3.50
Cost per factory hour ($) = Total factory cost / Maximum bottleneck time allowed
cost per factory hour ($) 2.50
TPAR 1.40
Test your understadning - 6
Target costing
Scenario - 1
Particulars ($) sp
Market determined Selling price per unit 200 profit
Markup 10% on priTarget cost
Direct material cost 60% 110
Cost per printer 109.0909 1
100
Scenario - 2
Particulars ($)
Markup 10% on prime cost
Let direct cost be 100
Software represent 40% of direct cost
40 76
Cost gap = estimated price - target price 1 1.9
23.70 = 190 - target price Total direc 190
Target price 166.3

Test your understandings - 8 (Life cycle costing

Time period Total Cost ($m) Development
Amortised R&D 20 20
Marekting cost ($M) 12.9 -
 Production cost per unit ($m) 15.5 -
Production volume 20 -
Life cycle cost 48.40
Life cycle cost per unit ($) 2.42
Selling price ($) 8
Gain 5.58
Comment
1. Based on the previous report , the concerned of the accountant was quite reasonable
the cost price of the product was shown as $11 per unit and selling this at $8 per unit
Mighht be lossing making .
2. however when the marketing manager looked at the whole life cycle of the product. he
found that the cost incurred by the product over its entire life is $ 48.40M Prodcuing 20M products
3. Thereafter it is noticed that th per unit cost of the product is $ 2.42 only and selling it for $8
coud lead to generate a gain of $5.58 here the company is not only able to sell but also making
a attracive profit with archieving its target cost.
ND MANAGEMENT ACCOUNTING TEC
TYU- 2 Theory of constraint
Step -1 Idenification of constraint (bottleneck)
C's capacity per week ANS: All are the best couse of action and interelated with each other . All the option
Step-2 process of exploitation profitability
Demand per week (units) 500
C Produced Increase capacity
250 250
300 50
550 300
150
550 400

550 500 250

(just in time)
n

WORKINGS
420000
5600
560000

Test your understandings - 4

Particulars Product A
Sale price per unit ($) 1.40
Less: Direct material cost($) 0.60
Throughput per unit ($) 0.80
Machine time per unit (min) 5
Throughput per machine minut 0.16
Rank 4
Production Units
Product D 1500
 Product B 2000
Product C
2500
Product A 2000

Actual production of product A 700

Total machine time (min)
Time taken before production of product A
Machine min left

Test your
Particulars Alpha
sale price per unit($) 2
Less: direct material cost per unit($) 0.50
Throughput per unit 1.50
Machine time per unit (min)
Assembly (min) 2
quality control(min) 3
pacakaging (min) 4

Throughput per min 0.50

Rank 2
Products Units
Gamma 850
Alpha 1000
Beta 1500
110 Actual beta production 1375
10
100 Machine time taken for production of Alpha and gam
200 Maxmimum machine time
1.82 Machine time left
181.82

Sp 182.93
Profit 16.63
Target price 166.3

Test your understandings - 8 (Life cycle costing)

Launch Growth Maturity
- - -
5 4 3
 1 0.9 0.8
1 5 10

quite reasonable
at $8 per unit

of the product. he
M Prodcuing 20M products
nly and selling it for $8
to sell but also making
OUNTING TECHNIQUE

d interelated with each other . All the options must be opt in order to maximize
profitability

Excess sale cost ($m) Additional INCOME

1250000 2 -750000

3750000 1.5 250000

1
6250000 4.5 1750000

Test your understandings - 4

Product B Product C Product D
0.80 1.20 2.80
0.30 0.60 1.00
0.50 0.60 1.80
2 3 6
0.25 0.20 0.30
2 3 1
Machine min Throughput per uniTotal Throughput
9000 1.80 2700
 4000 0.50 1000

7500 0.60 1500

10000

3500 0.80 560

24000 Total throghput 5760
20500 Less: operating cost -5440
3500 Profit 320

Test your Understandings - 5

Beta Gamma WN-1 Identification of bottleneck resource
2.25 1.75 Machine time per unit (min) Alpha Beta Gamma
0.81 0.35 Assembly (min) 2 3 2.5
1.44 1.40 quality control(min) 3 4 2
pacakaging (min) 4 5 3
3 2.5 Maximum Assembly time - 150 hour, Quality control 170
4 2 hour Packaging 250 hour Total
5 3 Demand 1000 1500 850
Actual Assembly time (min) 2000 4500 2125 143.75
0.36 0.70 Actual Quality control time 3000 6000 1700 178.3333
3 1 Actual packaging time (min) 4000 7500 2550 234.1667
Total machine min
1700
3000
6000
5500

10200
10200
0

Decline
-
0.9
0.5
4
esource

hour
hour Bottleneck
hour
 COST VOLUME
Test your understandings - 1
Selling price ($) 25 per unit
Variable cost ($) 20 per unit
Contribution per unit 5
less: fixed cost 50000
Profit 0
A) No of units (breakeven) 10000 Selling price ($) 25
B)Total Contribution 90000 Variable cost ($) 20
Level of activity to earn profit 18000 Contribution per unit 5
less: fixed cost 50000
C) No of sales budgeted 13000 Profit 40000

Contribution 65000
less: fixed cost 50000
Profit 15000
breakeven 10000
margin of safety (units) 3000
margin of safety (%) 23%

D) Contribution to sales ratio 20%

E) Breakeven (sales revenue ) 250000
Proofing $
Selling price ($) 250000
less: variable cost 200000
contribution 50000
fixed cost 50000
profit/loss 0
F) Total contribution 90000 Selling price ($) 25
No of units to be sold 18000 Variable cost ($) 20
Sale revenue 450000 Contribution per unit 5
Alternative method less: fixed cost 50000
Sale revenue req to reach target 450000 Profit 40000

Additional examples Additional examples

Selling price ($) per unit 50 selling price ($) 100
Variable cost ($) per unit 30 variable cost ($) 60
Fixed cost per month ($) 20000 contribution 40
Forecasted sales (units) per month 1700 fixed cost ($) 250000
Contribution per unit ($) 20 profit 0
Fixed cost per month ($) 20000 (i)breakeven (units) 6250
Breakeven (units) 1000 (ii)breakeven (sales revenue) 625000
Breakeven in sales revenue ($) 50000
(iii)Level of activity 5666.666667
(iv) Margin of safety (%) 48
 budgetd sales
Scenario 3
selling price ($) 120
variable cost ($) 60
contribution 60
fixed cost ($) 250000
profit 90000
OLUME PROFIT ANALYSIS
FORMULAE SHHET
1 Margin of safety
Budgeted sale - breakeven
per unit
per unit

per unit
per unit
 ADVANCE V
Calculation of material M
Material Grade Actual Qty consumed Standard Mix
A 14000 12600
B 5500 5040
C 5500 7560
Total 25000 25200

Calculation of material Yie

Material Grade Actual Qty consumed Standard Mix
A 14000 12600
B 5500 5040
C 5500 7560
Total 25000 25200

Actual output 21000

Expected output from actual input 20833
Difference 167 F
Standard rate 1.67
Material yield 278

Test your understandings - 1

Actual Q X Standard price 4000
Material Usage variance for 2400 F
Standard Q X Standard price 6400
AQXSP 8760
Material Usage variance for 10440 F
SQXSP 19200
Total material usage varainc 12840 F
Calculation of Material Mix V
Materials Actual Quantity consumed
Standard proportion
A 1000 33%
B 1460 67%
Total 2460
Calculation of Yield Variance
Materials AQ Standard Mix SQ Standard Mix
A 820 1600
B 1640 3200
Total 2460 4800
 Test your understanding - 11
Material grade Actual Mix Input
S1 8284 8
S2 7535 5
S3 3334 3
Total 19153 16

Actual input 19153

Actual Output 15408
Standard loss 10% of input
Standard output 90%
Standard output 17238
Yield variance (kgs) -1830 A
Standard output per batch 14.40 kg
Cost of S1 per batch 2.40
Cost of S2 per batch 2.50
Cost of S3 per batch 1.20
Total cost per batch 6.10 for 14.40kg
Standard cost per kg 0.42
Yield variance ($) -775 A
Test your understandings - 13
Calculation of sales mix and sales quantity
Products Actual Q Actual mix standard mix (%)
Sofa 9500 40%
Table 11000 60%
Total 20500 100%
calculation of sale qunatity contribution variance
Actual total sale(units) 20500

Std total sale (units) 20000

Sale Quantity contribtuion variance (kgs) 500 F
std price as per weighted avg 5.6 per kg
Sale Quantity contribtuion variance ($) 2800 F

Test your understandings - 15

Market share (operational)) and market size (planning) variance
(A)
Sale volume variance 150000 F
(B)
Operational variance 30000 F
Revised budget 440000
Planning variance 120000 F
# The company’s favorable
Total sale volume variance variance came
150000 mostly from the market
F
getting bigger(market
Comment size). # A smaller portion came
from the sales team’s hard work, increasing their market share.
# Managers should be judged based on the market share increase, not
the total market growth.
 Test your understandings - 16
A. Sale price
Budgeted variance
market share (%), 330000 A
(Total market share / expected
sale unit 25% of total market share
Revised Budgeted market share ( 275000
B. Operational variance 220000 A
Planning variance 100000 F
DVANCE VARIANCE
tion of material Mix
D/f Price Material Mix ($)
-1400 1.10 -1540 A
-460 2.40 -1104 A
2060 1.50 3090 F
200 446 F

ation of material Yield

budgeted input Budgeted Output

1200 1000
1 0.8333333333333

our understandings - 10

culation of Material Mix Variance

AQ Standard MixMix variance (kgs) Cost per kg $ Mix Variance ($)
820 -180 4 -720
1640 180 6 1080
2460 360
ulation of Yield Variance
Yield variance (kgs) Cost per kg $ Yield variance ($)
780 4 3120 F
1560 6 9360 F
2340 12480 F
Test your understanding - 11
Standard Mix(%)Standard mix (kgs)
Material mix (kgs)
cost per unit
Material mix($)
50% 9577 1293 0.30 388 F
31% 5985 -1550 0.50 -775 A
19% 3591 257 0.40 103 F
100% -284 A

our understandings - 13
f sales mix and sales quantity
standard mix (kgs) Sales Mix(kgs)
std contribution per
Sales
unitMix($)
8200 1300 5 6500 F
12300 -1300 6 -7800 A
20500 0 11 -1300 A
arket share
 Test your understanding - 6
Recouncilation Statement - AC
Variance $
Budgeted profit
Sale volume variance A
Standard profit on actual sales

Sale price variance F

Cost variance
Material price variance (A+B) A
Material Usage variance (A+B) A
Labour rate variance A
Labour Efficiency variance F
Fixed overhead expenditure variance F
Fixed overhead volume variance A
Actual profit

TEST YO
FOAR 1.75
Fixed OH exp variance 1240
Fixed OH capacity variance 520.00
The labour works less hour than it was budgeted for here ther

Fixed OH efficiency variance 560

standard hour for actual production 12920.00
standard rate 1.75
Fixed OH volume variance 350.00

Test your understanding -7

Variance ($) Operating statement - MC
A Variance $
F budgeted contribution 17000
F Add: sale volume contribution variance 1020
standard Contribution on actual sales 18020
less: sale price variance -599.999999999998
Add: material price variance 60.000000000001
less:Material Usage variance -160
less: Labour rate variance -39.9999999999999
 Add :Labour Efficiency variance 120
Actual Contribution 17400
Less: budgeted fixed overhead expenditure -2000
Less: Fixed overhead varaince -200
Actual profit 15200

Test y
Material grade Actual mix
A 14000
B 5500
C 5500
25000

Test your understandings - 9

Material grade Input
A 600
B 240
C 360
1200
25000
yield variance (kgs)
Material yield variace ($) per kg
Yield variance

Test your understandings - 14

B
Sale price varaince ($) 4750
Effect F
Sale volume profit variance 2000
Effect A
profit per unit 4.00
Direct material cost per unit 5.4
Direct labour cost per unit 3.25
Overhead absorebd per unit 1.35

Actual Mix 9500

Std mix (units) 10000
Std mix (%) 31.25%
std mix (units) 9844
Sales mix(units) 344
Sales mix profit variance ($) 1375
Effect A
Total
Total Std sale (units) 32000
Actual sale (units) 31500
Sales qunatity profit variance (units) 500
Profit per unit (weighted avg) 3.88
Sales qunatity profit variance ($ 1937.5
Note : If it is asked to calculate sales quantity variance for each product then, sale
price or profit or contribution whichever is refered in question will be multiplied with
sales quantity varaince (units) for each product (total and weighted value will not
consider here)

1. Sale quantity variance Actual sale mix

A 300
B 700
C 1200
2200

3. sale mix variance Actual sale mix

A 300
B 700
C 1200
2200
4. Planning variance AFFECT
A
B ALL decline by 10%
C
Total
5. OPERATIONAL VARIANCE AFFECT
A
B ALL decline by 10%
C
Total

Test your understandings

Standard cost per unit ($)
Market price at purchase ($)
Actual price paid($)
Purchase quantity (units)

Operational variance
Planning variance
Total sale quantity variance

Test your understandings

Std cost ($)
New cost
Actual output for nov
Actual Material purchased and used
Actual cost per kg ($)
 A.
Material price variance
Material usage variance
Std material purchase for actual production
B.
Operational variance
Planning variance
Total material variance

Test your understandings

Std hours for production (hrs)
Actual production (units)
Actual worked (hours)
Std rate per hour ($)
Increase in time
Increase in hours
Operational variances
Revised budget for labour hour
Planning variance
Planning variance

Addition

Original budget
Flexed budget
-6
AC
$ Working
37500 Actual Q X Actual price
2500 Sale price variance
35000 Actual Q X Standard pric

14000 Material A price variance

Material B price variance
4300 Material Usage variance f
2500 Material Usage variance f
680
800
8000
3000
47320

TEST YOUR UNDERSTANDINGS -5

Per labour hour
A
A 910
budgeted for here therefore it is a adverse effect for the organisation

F
hour
Less hours worked than expected as a r
A utilised optimumly

Working
Sale price variance per cy
Effect therefore sale price varia
Contribution per cylinder
F Sale volume variance
Material price variance pe
A Material price variance
F Material usage variance
A standard Q for actual pro
A Labour rate variance per
 F Labour rate variance
Standard hour for actual
Labour efficiency varianc
A Fixed OH Expenditure var

Test your understandings - 8

Input Standard mix(%) Standard mix(kgs) Material Mix variance (kgs)
600 50% 12500 -1500
240 20% 5000 -500
360 30% 7500 2000
1200 25000

understandings - 9
Output Material used cost per unit
14000 1.10
5500 2.40
5500 1.50
1000 25000
20833
167 F
1.78
296 F

nderstandings - 14
R K Total
6750 8500 20000
F F F
1500 2500 -3000
F A A
3.00 5.00
4.1 4.85
5.2 4.55
2.70 3.60

13500 8500 31500

13000 9000 32000
40.63% 28.13% 100.00%
12797 8859 31500
703 359 1406
2109 1797 1063
F A A
B R K
10000 13000 9000
9500 13500 8500
 A
ach product then, sale
will be multiplied with
eighted value will not

Test your understandings - 17

SQ STD MIX Std mix(%) AQ STD MIX Sale quantity variance (units)
400 20% 440 40
600 30% 660 60
1000 50% 1100 100
2000 2200

SQ STD MIX Std mix(%) AQ STD MIX Sale mix variance (units)
400 20% 440 -140
600 30% 660 40
1000 50% 1100 100
2000 2200
SQ STD MIX Revised sales budget
Planning variance (units) Std profit per unit
400 360 -40 8
600 540 -60 6
1000 900 -100 4
2000 1800 200
Actual sales
Revised sales budget Std profit per unit Operational variance ($)
300 360 8 -480
700 540 6 960
1200 900 4 1200
2200 1800 1680

r understandings - 18
5.20 per unit
5.00 per unit
5.18 per unit
10000

1800 ADV
2000 FAV
200 FAV

r understandings - 19
28 7kg per unit @$4 per kg
30 8 kg per unit@$3.80 per kg
1400 units
11000kg at $41500
3.77
 2500 F
4800 A
9800 kg

300 F 11200
2200 F
2500 F

r understandings - 20
5 per unit
250
1450
10
20%

500 F
1500 1250
250 15000
2500 A 14500
2000 A

Additional example (pgno:434 kp)

Fuel (litre) Fuel($)/Lit No of jouney Total cost($)
20 2 120 4800
18 2.5 120 5400
 Working Note -1
224000
14000 F
210000

1499.99999999999 A
2800 A
6000 A
3500 F

rked than expected as a result FOH doesn’t

utilised optimumly

Working Note -1
0.06
599.999999999998 A
1.7
1020 F
0.001
60.000000000001 F
160 A
53000
-0.02
 -39.9999999999999 A
2120
120 F
200 A

cost per unit Material mix variance ($)

1.10 -1650 A
2.40 -1200 A
1.50 3000 F
150 F
 Std profit per unit Sale qunatity variance ($)
8 320 F
6 360 F
4 400 F
1080 F

Std profit per unit Sale mix variance ($)E

8 -1120 A
6 240 F
4 400 F
-480 A
Planning variance ($) EFFECT
-320 A
-360 A
-400 A
A
EFFECT
A
F
F
F