Garrison/Libby/Webb Managerial Accounting 11th Edition

Formula Summary

Chapter 2

1. Cost of goods sold (merchandising) = Beginning merchandise inventory + Purchases – Ending

merchandise inventory
2. Cost of goods sold (manufacturing) = Beginning finished goods inventory + Cost of goods
manufactured – Ending finished goods inventory

Chapter 3

1. Cost formula: Y = a + bX
Change in cost
2. Variable cost formula = Change in activity
3. Contribution margin = Sales – Variable expenses

Chapter 4

1. Profit = (Sales – Variable expenses) – Fixed expenses

Contribution margin
2. Contribution margin ratio = Sales
Variable expenses
3. Variable expense ratio = Sales
Fixed expenses
4. Break-even in units sold = Unit contribution margin
Fixed expenses
5. Break-even in total sales dollars = Contribution Margin Ratio
Fixed expenses+Target operating profit
6. Unit sales to attain target profit = Unit contribution margin
Fixed expenses+Target operating profit
7. Dollar sales to attain target profit = Contribution margin ratio
8. Profit after taxes = Before-tax profit – Taxes
Fixed expenses+[(Target operating profit)/(1−Tax rate)]
9. Unit sales to attain target profit after taxes = Unit contribution margin
Fixed expenses+[(Target operating profit)/(1−Tax rate)]
10. Dollar sales to attain target profit after taxes = Contribution margin ratio
11. Margin of safety = Total budgeted (or actual) sales – Break-even sales
Margin of safety in dolalrs
12. Margin of safety percentage = (or
Total budgeted actual)sales
Contribution margin
13. Degree of operating leverage = Operating income
14. % change in operating income = Degree of operating leverage x % change in sales
Fixed expenses
15. Multi-product break-even in total sales dollars = Overall Contribution Margin Ratio
Fixed expenses
16. Multi-product break-even in unit sales = Weighted−average contribution margin per unit
17. Multi-product dollar sales to attain target profit after taxes =
Fixed expenses+[(Target operating profit)/(1−Tax rate)
Overall contribution margin ratio

Page 1 of 4
Chapter 5

1. Predetermined overhead rate = Estimated total manufacturing overhead costs

Estimated total units in the allocation base

2. Overhead applied to a particular job = Predetermined overhead rate x Amount of allocation base
incurred by job

Chapter 6

1. Unit product cost = Total manufacturing cost (including overhead)/ Total units produced
2. Equivalent units = Number of partially completed units x percentage completion

Weighted average method of process costing:

3. Equivalent units of production = Units transferred to the next + Equivalent units in ending
department or finished goods work in process inventory

4. Cost per equivalent unit = Cost of beginning WIP + Costs added during the period
Equivalent units of production

Appendix 6A

FIFO method of process costing:

1. Equivalent units of production = Equivalent units to complete beginning WIP inventory*
+ Units started and completed during the period
+ Equivalent units in ending WIP inventory
*Equivalent units to complete beginning WIP inventory =
Units in beg. WIP x (100% - % completion of beg. WIP)

2. Cost per equivalent unit = Costs added during the period

Equivalent units of production

Chapter 7

1. Activity rate = Total cost in cost pool / total activity level

2. Indirect costs applied to cost object = Activity rate x Activity level incurred by cost object

Appendix 9A

√2𝑄𝑃
1. Economic order quantity = 𝐶
2. Reorder point = Lead time x Average daily or weekly usage

Page 2 of 4
Chapter 10

1. Total flexible budget variance = Price variance – Quantity variance

Actual quantity of inputs = AQ Actual Price = AP
Standard quantity of inputs = SQ Standard price = SP
2. Price variance = (AQ x AP) – (AQ x SP)
a. Use this formula for Materials price variance, Labour rate variance and Variable
overhead spending variance
3. Quantity variance = (AQ x SP) – (SQ x SP)
a. Use this formula for Materials quantity variance, Labour efficiency variance and
Variable overhead efficiency variance
4. Direct materials variances when the amount purchased differs from amount used:
a. Price variance = (AQ x AP) – (AQ x SP)
b. Quantity variance = (AQ x SP) – (SQ allowed for actual output x SP)
5. Predetermined overhead rate = Overhead from flexible budget at denominator level of activity
Denominator level of activity
6. Applied overhead costs in a standard costing system = Standard hours allowed for actual output
x Predetermined overhead rate
7. Total fixed overhead variance = Budget variance + Volume variance
8. Budget variance = Actual fixed overhead cost – Flexible budget fixed overhead csot
9. Volume variance =Flexible budget fixed overhead cost – Fixed overhead cost applied to WIP
= Fixed portion of the predetermined overhead rate x (denominator hours –
standard hours allowed)

Appendix 10A

M = Actual quantity of inputs at standard mix

1. Total flexible budget variance = Price variance + Quantity variance

= Price variance + [Mix variance + Yield variance]
2. Price variance = (AQ x AP) – (AQ x SP)
3. Mix variance = (AQ x SP) – (M x SP) = (AQ – M) SP
4. Yield variance = (M x SP) – (SQ x SP) = (M-SQ)SP

Chapter 11

1. Return on Investment = Operating income / Average operating asset

2. Return on Investment = Margin x Turnover
= Operating Income x Sales
Sales Average operating assets
3. Residual income= Operating income – (Average operating assets x min req’d rate of return)

Page 3 of 4
Appendix 12A

1. Selling price in cost plus pricing = Cost + (Markup percentage x cost)

2. Markup % on absorption cost = (Required ROI x Investment) + Selling and admin expenses
Unit sales x Unit product cost
3. Markup % on total variable cost = (Required ROI x Investment) + Total fixed expenses
Unit sales x Unit total variable costs

Chapter 13

Present value of net cash inflows

1. Project profitability index = Investment required
Investment required
2. Payback period = Net annual cash inflow
Incremental operating income
3. Simple rate of return = Initial investment

Appendix 13B

1. Tax savings from CCA tax shield = Tax rate x CCA deduction
Cdt 1+0.5k
2. Present value of CCA tax shields = d+k x 1+k
Sdt
3. Present value of CCA tax shields lost upon disposal = d+k x (1 + k)-n

Page 4 of 4