CMA (ICMAI) Formula Sheet
Ten formulas, what each one is for, and a worked example.
Cost accounting is the core of the CMA course, and most of its numerical questions use a small set of formulas: inventory control, marginal costing and standard costing variances.
These ten formulas cover them, with a worked margin of safety example.
The 10 Formulas
1
Formula
Economic order quantity
Expression
EOQ = √(2 × Annual demand × Ordering cost ÷ Carrying cost per unit)
Use it for
Optimal order size.
2
Formula
Re-order level
Expression
Maximum usage × Maximum lead time
Use it for
Stock level at which to place an order.
3
Formula
P/V ratio
Expression
Contribution ÷ Sales × 100
Use it for
Profitability of each rupee of sales.
4
Formula
Break-even sales
Expression
Fixed costs ÷ P/V ratio
Use it for
Sales at which there is no profit or loss.
5
Formula
Margin of safety
Expression
Actual sales − Break-even sales
Use it for
How far sales can fall before losses start.
6
Formula
Material cost variance
Expression
Standard cost of actual output − Actual cost
Use it for
Total material variance.
7
Formula
Material price variance
Expression
Actual quantity × (Standard price − Actual price)
Use it for
Variance from paying more or less than standard.
8
Formula
Material usage variance
Expression
Standard price × (Standard quantity − Actual quantity)
Use it for
Variance from using more or less material.
9
Formula
Labour efficiency variance
Expression
Standard rate × (Standard hours − Actual hours worked)
Use it for
Variance from working faster or slower.
10
Formula
Overhead absorption rate
Expression
Budgeted overheads ÷ Budgeted base (e.g. machine hours)
Use it for
Charging overheads to products.
| # | Formula | Expression | Use it for |
|---|---|---|---|
| 1 | Economic order quantity | EOQ = √(2 × Annual demand × Ordering cost ÷ Carrying cost per unit) | Optimal order size. |
| 2 | Re-order level | Maximum usage × Maximum lead time | Stock level at which to place an order. |
| 3 | P/V ratio | Contribution ÷ Sales × 100 | Profitability of each rupee of sales. |
| 4 | Break-even sales | Fixed costs ÷ P/V ratio | Sales at which there is no profit or loss. |
| 5 | Margin of safety | Actual sales − Break-even sales | How far sales can fall before losses start. |
| 6 | Material cost variance | Standard cost of actual output − Actual cost | Total material variance. |
| 7 | Material price variance | Actual quantity × (Standard price − Actual price) | Variance from paying more or less than standard. |
| 8 | Material usage variance | Standard price × (Standard quantity − Actual quantity) | Variance from using more or less material. |
| 9 | Labour efficiency variance | Standard rate × (Standard hours − Actual hours worked) | Variance from working faster or slower. |
| 10 | Overhead absorption rate | Budgeted overheads ÷ Budgeted base (e.g. machine hours) | Charging overheads to products. |
Worked Example: Margin of Safety
Actual sales are ₹10,00,000 and break-even sales are ₹6,00,000.
- 1
Margin of safety
10,00,000 − 6,00,000 = ₹4,00,000.
- 2
As a percentage
4,00,000 ÷ 10,00,000 × 100 = 40%.
- 3
Link to profit
Profit = Margin of safety × P/V ratio, which is a quick check on your answer.
Real questions from the subjects on this page.
Favourable or Adverse?
With the formulas written as standard minus actual, a positive variance is favourable and a negative one adverse. Stick to one convention and label every answer, since examiners mark the sign as well as the number.
FAQs
Which CMA papers use these formulas?expand_more
Mainly Cost Accounting at Intermediate, then Strategic Cost Management at Final, which builds on them.
Do material price and usage variances add up to the cost variance?expand_more
Yes. Price variance plus usage variance equals the material cost variance, which is a useful check.
What's the difference between re-order level and EOQ?expand_more
Re-order level says when to order. EOQ says how much to order.
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