CIMA BA2 cheat sheet

Absorption rate = budgeted overhead ÷ budgeted activity level; the activity base may be labour hours, machine hours, or units.

Overhead absorbed = actual activity × predetermined absorption rate; under-absorption occurs when absorbed overhead is less than actual overhead, over-absorption when it is greater.

High-low variable cost per unit = (highest total cost − lowest total cost) ÷ (highest activity − lowest activity); fixed cost = total cost − variable cost per unit × activity.

Marginal cost-plus price = variable cost per unit + contribution markup; full cost-plus price = total absorption cost × (1 + markup percentage).

Target cost = target selling price − target profit; cost gap = current estimated cost − target cost.

Markup is based on cost and margin is based on selling price; price = cost ÷ (1 − margin percentage).

Life-cycle costing accumulates design, development, production, marketing, distribution, and disposal costs over a product's whole life.

Throughput = sales revenue − direct material cost; when a bottleneck exists, rank products by throughput per bottleneck unit, not by unit contribution.

Opportunity cost is the contribution forgone from the next best alternative and is relevant to pricing and short-term decisions even though it is not recorded in the ledger.

Production budget units = sales budget units + closing inventory units − opening inventory units.

Materials purchases = materials usage + closing material inventory − opening material inventory; materials usage = production units × material per unit.

Cash budget records receipts and payments when cash flows, including capital and financing flows, not when revenue or expense is recognised.

Rolling budget adds a new period and drops the expired period; zero-based budgeting justifies every activity and cost from zero each period.

Flexed budget adjusts revenue and variable costs to actual activity; comparing actual costs with the flexed budget isolates spending control from activity changes.

High-low method uses only the highest and lowest activity points; outliers can distort the estimated fixed and variable costs.

Additive seasonal index = average seasonal variation, adjusted so indices sum to zero; multiplicative seasonal index is adjusted so indices average one.

Regression line y = a + bx: b = covariance(x,y) ÷ variance(x), a = mean(y) − b × mean(x); R² is the proportion of variation explained.

Budgetary control cycle: set budget, record actual, compare actual with budget, calculate variances, investigate significant variances, and take corrective action.

Equivalent units = units completed + closing work in progress × degree of completion; weighted average costing combines opening WIP cost with current period cost.

FIFO equivalent units = opening WIP remaining work + units started and completed + closing WIP work done this period.

Normal loss is expected and usually valued at scrap value; abnormal loss is valued at full cost per good unit and written off, while abnormal gain is credited.

Joint product costs may be apportioned by physical units, sales value at split-off, net realisable value, or gross profit method; by-products are usually credited at net realisable value.

Material price variance = (standard price − actual price) × actual quantity; material usage variance = (standard quantity for actual output − actual quantity) × standard price.

Labour rate variance = (standard rate − actual rate) × actual hours; labour efficiency variance = (standard hours for actual output − actual hours) × standard rate.

Fixed overhead expenditure variance = budgeted fixed overhead − actual fixed overhead; fixed overhead volume variance = (standard hours for actual output − budgeted hours) × standard fixed overhead rate.

Activity-based costing assigns overheads to activity cost pools and then to products using cost drivers; it is most useful when overheads are high and products are diverse.

Job costing accumulates costs by job, process costing by process or department, and service costing uses composite cost units such as patient-days or passenger-miles.

Relevant costs are future incremental cash flows that differ between alternatives; sunk costs, committed costs, and non-cash book values are irrelevant.

Contribution per unit = selling price − variable cost per unit; total contribution = revenue − variable costs; profit = total contribution − fixed costs.

Break-even units = fixed costs ÷ contribution per unit; break-even revenue = fixed costs ÷ contribution margin ratio.

Margin of safety = budgeted or actual sales − break-even sales, expressed in units, revenue, or as a percentage of budgeted sales.

With one limiting factor, rank products by contribution per unit of the scarce resource and produce in rank order subject to demand and minimum requirements.

Make-or-buy compares relevant variable making costs plus avoidable fixed costs and opportunity costs with the relevant external purchase price.

A special order is accepted only if incremental revenue exceeds incremental costs and no better use of capacity exists; fixed costs are relevant only if they change.

ROI = divisional profit ÷ divisional investment; RI = divisional profit − imputed interest charge on divisional investment.

Balanced scorecard perspectives are financial, customer, internal business process, and learning and growth; measures should link to strategy.