Costing & FinanceFree referencePDF, Excel, Word exportDiscrete Manufacturing

Manufacturing Cost Accounting Formulas Cheat Sheet

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.

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Term	Formula	Group	Note
Prime cost	Direct material + Direct labor	Cost flow	Excludes all overhead.
Conversion cost	Direct labor + Manufacturing overhead	Cost flow	Cost of turning material into product.
Total manufacturing cost	Direct material + Direct labor + Manufacturing overhead	Cost flow	Costs added in the period.
Cost of goods manufactured	Beginning WIP + Total manufacturing cost - Ending WIP	Cost flow	Cost of units completed.
Cost of goods sold	Beginning finished goods + COGM - Ending finished goods	Cost flow	Expensed when sold.
Predetermined overhead rate	Estimated annual overhead / Estimated annual allocation base	Overhead	Base is often direct labor hours or machine hours.
Applied overhead	Predetermined rate x Actual base quantity	Overhead	What the job absorbs.
Over or under applied overhead	Applied overhead - Actual overhead	Overhead	Positive means over-applied.
Activity-based rate	Cost pool / Total driver volume	Overhead	One rate per activity pool.
Machine hour rate	Annual machine-related cost / Annual productive machine hours	Overhead	Use planned productive hours, not calendar hours.
Fully loaded labor rate	(Wage + Burden) / Productive hours per paid hour	Overhead	Burden covers benefits and payroll taxes.
Material price variance	(Actual price - Standard price) x Actual quantity purchased	Variance	Positive is unfavorable.
Material usage variance	(Actual quantity used - Standard quantity allowed) x Standard price	Variance	Standard quantity is based on actual output.
Labor rate variance	(Actual rate - Standard rate) x Actual hours	Variance	Positive is unfavorable.
Labor efficiency variance	(Actual hours - Standard hours allowed) x Standard rate	Variance	Standard hours allowed use actual output.
Variable overhead efficiency variance	(Actual hours - Standard hours allowed) x Standard variable overhead rate	Variance	Driven by the same hours as labor efficiency.
Fixed overhead volume variance	Budgeted fixed overhead - Applied fixed overhead	Variance	Arises from producing above or below normal volume.
Contribution margin	Sales - Variable costs	CVP	Available to cover fixed costs.
Contribution margin ratio	Contribution margin / Sales	CVP	Also 1 minus the variable cost ratio.
Break-even units	Fixed costs / Contribution margin per unit	CVP	Round up to whole units.
Break-even sales	Fixed costs / Contribution margin ratio	CVP	Useful when the mix is stable.
Margin of safety	(Actual sales - Break-even sales) / Actual sales	CVP	Cushion before losses start.
Degree of operating leverage	Contribution margin / Operating income	CVP	Sensitivity of profit to sales change.
Gross margin percent	(Price - Cost) / Price	Pricing	Based on price.
Markup percent	(Price - Cost) / Cost	Pricing	Based on cost, always larger than margin.
Price from target margin	Cost / (1 - Target margin)	Pricing	Not Cost x (1 + margin).
Target cost	Selling price - Required profit	Pricing	Used in design-to-cost.
Equivalent units (weighted average)	Units completed + (Ending WIP units x Percent complete)	Process costing	Compute separately for material and conversion.
Cost per equivalent unit	(Beginning WIP cost + Current period cost) / Equivalent units	Process costing	Weighted-average method.
Process yield	Good output / Total input	Yield and scrap	Express as a percent.
Cost per good unit	Total cost of run / Good units	Yield and scrap	Spreads scrap cost onto good parts.
Landed cost per unit	(Purchase price + Freight + Duty + Insurance + Handling) / Units	Material	Allocate shared charges by weight, value or volume.
Income difference, absorption vs variable	Change in inventory units x Fixed overhead per unit	Costing method	Absorption income is higher when inventory grows.

Variance signs vary by company convention. Check how your ERP posts favorable and unfavorable variances before comparing to this sheet.

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How to use the table

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.

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

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

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

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.

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

Frequently Asked Questions

Is markup or margin the right basis for quoting?

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?

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?

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?

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.

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.

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