CMA Final: Comprehensive SCM Chapter-Wise Formula Handbook

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1. Marginal Costing & Decision-Making Tools

Fundamental Equations

• Basic Profit Equation: $Sales - Variable Cost = Contribution = Fixed Cost + Profit$
• Profit-Volume (P/V) Ratio:

$$P/V Ratio = \left(\frac{Contribution}{Sales}\right) × 100 = \left(\frac{Change in Profit}{Change in Sales}\right) × 100 = \left(\frac{Change in Contribution}{Change in Sales}\right) × 100$$

• Variable Cost Ratio: $Variable Cost Ratio = 100\% - P/V Ratio$

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Break-Even & Margin of Safety Analysis

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Indifference & Shut-Down Decisions

• Cost Indifference Point (Units):

$$Indifference Point (Units) = \frac{Difference in Fixed Costs}{Difference in Variable Cost per Unit}$$

• Sales/Revenue Indifference Point (₹):

$$Indifference Point (₹) = \frac{Difference in Fixed Costs}{Difference in P/V Ratio}$$

• Shut-Down Point (Units):

$$Shut-Down Point (Units) = \frac{Avoidable / Specific Fixed Costs}{Contribution per Unit}$$

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2. Advanced Standard Costing & Variance Analysis

A. Direct Material Variances

• Material Cost Variance (MCV): $(SQ × SP) - (AQ × AP)$
• Material Price Variance (MPV): $(SP - AP) × AQ$

(Note: If computed at purchase point, use $Actual Quantity Purchased$)

• Material Usage Variance (MUV): $(SQ - AQ) × SP$
• Material Mix Variance (MMV): $(RSQ - AQ) × SP$

Where $RSQ = Total Actual Input × Standard Proportion$

• Material Yield Variance (MYV): $(Actual Yield - Standard Yield for Actual Input) × Standard Cost per Unit of Output$

Or: $(SQ - RSQ) × SP$

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B. Direct Labour Variances

• Labour Cost Variance (LCV): $(SH × SR) - (AH × AR)$
• Labour Rate Variance (LRV): $(SR - AR) × AH Paid$
• Labour Idle Time Variance (ITV): $Idle Hours × SR \quad [Always Adverse (A)]$
• Labour Efficiency Variance (LEV): $(SH - AH Worked) × SR$
• Labour Gang/Mix Variance (LMV): $(RSH - AH Worked) × SR$
• Labour Sub-Efficiency / Yield Variance (LSYV): $(SH - RSH) × SR$

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C. Fixed Overhead Variances

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D. Planning and Operational Variances

• Total Planning Variance: $(Original Budgeted Margin/Cost) - (Revised Budgeted Margin/Cost)$
• Operational Variance: $(Revised Budgeted Margin/Cost) - (Actual Margin/Cost)$
• Market Size Variance: $(Actual Industry Volume - Budgeted Industry Volume) × Budgeted Market Share \% × Budgeted Margin per unit$
• Market Share Variance: $Actual Industry Volume × (Actual Market Share \% - Budgeted Market Share \%) × Budgeted Margin per unit$

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3. Activity-Based Cost Management (ABC) & Target Costing

Activity-Based Costing (ABC)

• Activity Cost Driver Rate:

$$Cost Driver Rate = \frac{Total Cost of Activity Pool}{Total Cost Driver Volume}$$

• Cost Allocated to Product:

$$Assigned Overhead = \sum (Actual Cost Driver Units Consumed × Cost Driver Rate)$$

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Target Costing

• Target Cost Computation:

$$Target Cost = Anticipated Selling Price - Desired Profit Margin (Target ROI/ROS)$$

• Target Cost Gap:

$$Cost Gap = Estimated Current Cost - Target Cost$$

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4. Transfer Pricing

General Transfer Pricing Rule

$$Minimum Transfer Price (Seller) = Additional Out-of-Pocket / Marginal Cost + Opportunity Cost per Unit$$

$$Maximum Transfer Price (Buyer) = Lower of: (External Market Price, Net Marginal Revenue to Buying Division)$$

$$Where: Net Marginal Revenue = Final Selling Price - Post-Transfer Processing \& Variable Costs$$

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Decision Scenarios Matrix

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5. Learning Curve Theory

Log-Linear Model Formula

$$Y = a \cdot X^b$$

• $Y$ = Cumulative Average Time (or Average Cost) per unit for $X$ units
• $a$ = Time (or Cost) required to produce the first unit ($X = 1$)
• $X$ = Cumulative number of units produced
• $b$ = Learning Index / Slope of Learning curve = $\dfrac{\log(Learning Rate)}{\log(2)} = \dfrac{\log(LR)}{0.3010}$

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Doubling Table Shortcut

(Where $r$ = Learning Curve Rate as a decimal, e.g., $80\% = 0.80$)

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6. Throughput Accounting & Theory of Constraints (TOC)

Core Performance Metrics

• Throughput ($T$):

$$Throughput = Sales Revenue - Direct Material Cost (Totally Variable Costs)$$

• Total Factory Cost ($TFC$):

$$Total Factory Cost = Direct Labour + Direct Expenses + All Production Overheads$$

• Throughput per Bottleneck Minute/Hour:

$$Throughput per Unit of Resource = \frac{Selling Price - Direct Material Cost}{Bottleneck Resource Time Required per Unit}$$

• Cost per Bottleneck Minute/Hour:

$$Cost per Factory Hour = \frac{Total Factory Cost (TFC)}{Total Bottleneck Resource Hours Available}$$

• Throughput Accounting (TA) Ratio:

$$TA Ratio = \frac{Throughput per Bottleneck Minute}{Cost per Bottleneck Minute} = \frac{Return per Factory Hour}{Cost per Factory Hour}$$ Decision Rule: If $TA Ratio > 1$, the product is viable/profitable.

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7. Strategic Performance Measurement & Valuation Metrics

Return on Investment (ROI) & Residual Income (RI)

• Return on Investment (ROI):

$$ROI = \left(\frac{Operating Profit / EBIT}{Capital Employed}\right) × 100 = Capital Turnover Ratio × Net Profit Margin$$

• Residual Income (RI):

$$RI = Operating Profit (EBIT) - (Capital Employed × Cost of Capital / Hurdle Rate)$$

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Economic Value Added (EVA)

$$EVA = NOPAT - (WACC × Capital Employed)$$

• $NOPAT$ (Net Operating Profit After Tax):

$$NOPAT = Operating Profit (EBIT) × (1 - Tax Rate) + Non-Cash Accounting Adjustments$$ (Add back items like capitalized R&D amortisation, non-operating provisions, goodwill amortisation).

• $Capital Employed (for EVA)$:

$$Capital Employed = Total Assets - Non-Interest Bearing Current Liabilities (NIBCL) + Capitalized Intangibles$$

• $WACC$ (Weighted Average Cost of Capital):

$$WACC = \left(K_e × \frac{E}{V}\right) + \left(K_d(1 - t) × \frac{D}{V}\right)$$

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8. Life Cycle Costing & Overall Pricing Formulas

• Total Life Cycle Cost:

$$Life Cycle Cost = R\&D / Design Costs + Manufacturing Costs + Marketing \& Distribution + Customer Service \& Disposal Costs$$

• Life Cycle Cost per Unit:

$$Life Cycle Cost per Unit = \frac{Total Life Cycle Cost of the Product}{Total Lifetime Production Volume (Units)}$$

• Target Selling Price (ROI Pricing):

$$Target Price = Total Cost per Unit + \frac{Required Rate of Return × Total Capital Invested}{Annual Output (Units)}$$

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💡 Exam Tip

• Standard Costing Calendar Variance Trap: When Calendar Variance is calculated, Capacity Variance is always calculated using Revised Budgeted Hours ($[Actual Hours - Revised Budgeted Hours] × Standard Rate$), not original budgeted hours.
• Idle Time: Always isolated under Labour variances and treated as strictly Adverse (A); efficiency variance is then computed on actual hours worked ($AH Worked$).
• Throughput Accounting Assumption: Direct labour is classified as a fixed factory cost in the short run—only direct material is treated as truly variable!

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