# Manufacturing Cost Accounting Formulas Cheat Sheet > Source: https://netray.co/tools/manufacturing-cost-accounting-formulas-reference > Publisher: Netray (netray.co), AI and integration engineering for ERP and manufacturing systems. > Section: Free Tools ## Short answer A searchable lookup of the cost accounting formulas used in manufacturing: cost flows, overhead absorption, variances, break-even and pricing maths. ## Category cost-finance ## Industry Discrete Manufacturing ## Audience - Cost accountant - Estimator - Plant controller ## Tool **Kind:** worksheet **Mode:** reference **Columns:** #### Term **Key:** term **Type:** text #### Formula **Key:** formula **Type:** text #### Group **Key:** group **Type:** text #### Note **Key:** note **Type:** text **Rows:** #### Prime cost **Formula:** Direct material + Direct labor **Group:** Cost flow **Note:** Excludes all overhead. #### Conversion cost **Formula:** Direct labor + Manufacturing overhead **Group:** Cost flow **Note:** Cost of turning material into product. #### Total manufacturing cost **Formula:** Direct material + Direct labor + Manufacturing overhead **Group:** Cost flow **Note:** Costs added in the period. #### Cost of goods manufactured **Formula:** Beginning WIP + Total manufacturing cost - Ending WIP **Group:** Cost flow **Note:** Cost of units completed. #### Cost of goods sold **Formula:** Beginning finished goods + COGM - Ending finished goods **Group:** Cost flow **Note:** Expensed when sold. #### Predetermined overhead rate **Formula:** Estimated annual overhead / Estimated annual allocation base **Group:** Overhead **Note:** Base is often direct labor hours or machine hours. #### Applied overhead **Formula:** Predetermined rate x Actual base quantity **Group:** Overhead **Note:** What the job absorbs. #### Over or under applied overhead **Formula:** Applied overhead - Actual overhead **Group:** Overhead **Note:** Positive means over-applied. #### Activity-based rate **Formula:** Cost pool / Total driver volume **Group:** Overhead **Note:** One rate per activity pool. #### Machine hour rate **Formula:** Annual machine-related cost / Annual productive machine hours **Group:** Overhead **Note:** Use planned productive hours, not calendar hours. #### Fully loaded labor rate **Formula:** (Wage + Burden) / Productive hours per paid hour **Group:** Overhead **Note:** Burden covers benefits and payroll taxes. #### Material price variance **Formula:** (Actual price - Standard price) x Actual quantity purchased **Group:** Variance **Note:** Positive is unfavorable. #### Material usage variance **Formula:** (Actual quantity used - Standard quantity allowed) x Standard price **Group:** Variance **Note:** Standard quantity is based on actual output. #### Labor rate variance **Formula:** (Actual rate - Standard rate) x Actual hours **Group:** Variance **Note:** Positive is unfavorable. #### Labor efficiency variance **Formula:** (Actual hours - Standard hours allowed) x Standard rate **Group:** Variance **Note:** Standard hours allowed use actual output. #### Variable overhead efficiency variance **Formula:** (Actual hours - Standard hours allowed) x Standard variable overhead rate **Group:** Variance **Note:** Driven by the same hours as labor efficiency. #### Fixed overhead volume variance **Formula:** Budgeted fixed overhead - Applied fixed overhead **Group:** Variance **Note:** Arises from producing above or below normal volume. #### Contribution margin **Formula:** Sales - Variable costs **Group:** CVP **Note:** Available to cover fixed costs. #### Contribution margin ratio **Formula:** Contribution margin / Sales **Group:** CVP **Note:** Also 1 minus the variable cost ratio. #### Break-even units **Formula:** Fixed costs / Contribution margin per unit **Group:** CVP **Note:** Round up to whole units. #### Break-even sales **Formula:** Fixed costs / Contribution margin ratio **Group:** CVP **Note:** Useful when the mix is stable. #### Margin of safety **Formula:** (Actual sales - Break-even sales) / Actual sales **Group:** CVP **Note:** Cushion before losses start. #### Degree of operating leverage **Formula:** Contribution margin / Operating income **Group:** CVP **Note:** Sensitivity of profit to sales change. #### Gross margin percent **Formula:** (Price - Cost) / Price **Group:** Pricing **Note:** Based on price. #### Markup percent **Formula:** (Price - Cost) / Cost **Group:** Pricing **Note:** Based on cost, always larger than margin. #### Price from target margin **Formula:** Cost / (1 - Target margin) **Group:** Pricing **Note:** Not Cost x (1 + margin). #### Target cost **Formula:** Selling price - Required profit **Group:** Pricing **Note:** Used in design-to-cost. #### Equivalent units (weighted average) **Formula:** Units completed + (Ending WIP units x Percent complete) **Group:** Process costing **Note:** Compute separately for material and conversion. #### Cost per equivalent unit **Formula:** (Beginning WIP cost + Current period cost) / Equivalent units **Group:** Process costing **Note:** Weighted-average method. #### Process yield **Formula:** Good output / Total input **Group:** Yield and scrap **Note:** Express as a percent. #### Cost per good unit **Formula:** Total cost of run / Good units **Group:** Yield and scrap **Note:** Spreads scrap cost onto good parts. #### Landed cost per unit **Formula:** (Purchase price + Freight + Duty + Insurance + Handling) / Units **Group:** Material **Note:** Allocate shared charges by weight, value or volume. #### Income difference, absorption vs variable **Formula:** Change in inventory units x Fixed overhead per unit **Group:** Costing method **Note:** Absorption income is higher when inventory grows. **Notes:** Variance signs vary by company convention. Check how your ERP posts favorable and unfavorable variances before comparing to this sheet. ## Content **Intro:** This is a lookup table of the cost accounting formulas that estimators and controllers use every week. Search by term or group, copy the formula, and export the sheet for your team. **Sections:** #### How to use the table **Body:** Type part of a term in the search box, such as variance or break-even, and the table filters to matching rows. Each row gives the formula, the group it belongs to and a short note on the usual trap. Use the export buttons to take the full table into Excel or a PDF for onboarding a new estimator or for a month-end review binder. **Bullets:** - Filter by group: cost flow, overhead, variance, CVP, pricing - Check the note column before applying a formula - Export to Excel to add your own company rates #### Where the formulas come from **Body:** These are textbook management accounting relationships: the cost flow from material to cost of goods sold, overhead absorption using a predetermined rate, two-way and three-way variance analysis, and cost-volume-profit maths. They are not tied to one ERP. Inside SAP, Oracle, Epicor or SyteLine the same logic appears as standard cost estimates, absorption cost codes and variance categories, so a controller can trace a system number back to its formula here. #### Worked example **Body:** A job is quoted at 12 hours of machine time with a machine hour rate of 48 per hour and material of 310. Overhead on the job is the rate times hours, 576. If actual machine hours come in at 14, applied overhead is 672 and the job absorbs more than the quote assumed. Compare that to the labor efficiency variance formula, (14 - 12) x standard rate, to see how time overruns flow into both labor and overhead. #### Common mistakes **Body:** The most common error is confusing markup with margin: a 25 percent markup is a 20 percent margin, and quoting to the wrong one leaks profit. The second is using calendar hours instead of productive hours in a machine hour rate. The third is computing usage variance on budgeted rather than actual output. Always flex the standard to the units actually produced before comparing. **Bullets:** - Markup is on cost, margin is on price - Use productive hours in rates - Flex standards to actual output - Keep favorable and unfavorable sign conventions consistent **Cta:** If you want these calculations run automatically from your ERP job and cost data, Netray can build a read-only costing dashboard on your own server. **Faq:** #### Is markup or margin the right basis for quoting? **Answer:** Either works if you are consistent, but margin is easier to compare against financial statements because it is a percent of revenue. Markup is common in job shops. Always state which one a quote policy uses, because a 25 percent markup equals only a 20 percent gross margin. #### Why is my overhead over-applied or under-applied? **Answer:** The predetermined rate is based on estimates of annual overhead and activity. If actual overhead or actual activity differs, applied and actual overhead differ. Small balances are usually closed to cost of goods sold. Large balances should be prorated across WIP, finished goods and COGS. #### Do these formulas apply to every ERP? **Answer:** The accounting logic is general. Naming and sign conventions differ between systems, and some ERPs split variances into more categories than the two-way approach shown here. Check your system's variance categories before reconciling to this table. #### Which allocation base should I use for overhead? **Answer:** Use the driver that best explains why overhead is incurred. Machine-intensive shops usually use machine hours, labor-intensive shops use direct labor hours, and complex mixed shops often move to activity-based pools. Review the base when automation changes the cost mix. ## Search terms cost accounting formulas, manufacturing cost formulas cheat sheet, overhead absorption rate formula, material usage variance formula, break even formula manufacturing, markup vs margin formula, cost of goods manufactured formula, standard costing variance formulas --- Talk to an engineer: https://netray.co/contact?intent=erp_ai | Machine catalog: https://netray.co/agent/catalog.json