P1 formulas

multiply the change in inventory by the overhead absorption rate to give you the difference. If stocks have increases in the period absorption costing will be the higher profit

Direct material
Direct labour
Direct expenses
Production overheads

Costs which are charged in full to the P&L in the period in which they occured. These include admin costs, selling and distribution costs and finance costs

Direct Materials
Direct Labour
Direct Expense
NO OVERHEADS

Non production overheads (also called period costs which are charged in full to the P&L

average of X

the sum of

Profit

use actual production X the revised amounts

Times by the year you are going to, divide by the year you are

The proportion of Fixed costs to total costs
High operational gearing = high fixed costs, high breakeven point and high C/S ratio.
High operational gearing means profits increase rapidly after breakeven point
also means they would struggle in recession as Fixed costs hard to reduce

DOFPIS

Simplify the equations by using abbreviations for the products or variables ie use X and Y instead of product alpha and product bravo

Unless told otherwise the objective is usually to maximise contribution, so, you need to express this is a formula. For example if you are using X and Y as your variables and the contribution for each is 4X and 8Y then your forlual would be contribution = 4X + 8Y

Restate each of the contraints in a formula. For example
Dept A: 8X + 10Y < 11,000
Dept B: 4X + 10Y <9,000

you also need a non negative contraint, for example
X,Y > 0
which simply means X & Y cant be less than zero

Draw the constraint lines. If a constraint is 4X + 8Y < 8000 then make the X zero so that 8Y = 8000, this becomes 8000/8 = 1000. You can mark 1000 on the Y axis ( on the Y line) then do the same the other way around, 4X +8Y < 8000 becomes 4X + 0Y = 8000, which becomes 8000/4 = 2000. you can mark 2000 on the X axis line. Then you join the 2 points together. Repeat for each constraint. The area between zero and the crossover points is the feasable area.

There are 2 options.
. using simultaneous equations
. using an IS0- contribution line

Simultaneous equation = Calculate the coordinates for X and Y at each vertex (further points) on the feasible region. Then calculate the contribution for each vertex by substituting the values for X and Y into the objective function. The one with the highest contribution is the solution. If you cannot determine the numbers at all of the points then use the simultaneous equations. for example:-

if you have Dept A: 8x + 10y = 11,000
Dept B: 12x + 6y = 12000
multiply one of the sets of data to get one common denominator ie Dept A times 1.5 would mean that both x's are now 12, so this becomes
Dept A: 12x + 15y = 16,500
Dept B: 12x + 6y = 12,000
Then duduct one set of data from the other to leave 0x + 9y = 4,500. you can then dicide 4,500 by 9 to get the value for Y as 500. You can then use that value to solve the rest nto get the value of x

Iso contribution line = we need to maximise contribution so choose a value for you contributions ie if contribution is £4 for X and £8 for Y you could use 4X + 8Y = 4000. You can plot the this on the graph as y = 500 and x = 1000 for the 2 points (you changed one to zero and divided the 4000 by the remainder) then joint the 2 points to give your ISO line. Move this line outwards evenly and the last crossover point it touches in the feasible area is your optimal solution. Calculate the constribution for those levels of production

You do profit / CONTRIBUTION X 100

times by 100 to show as %