How to use this guide
This material splits into two halves that use the same habit of mind. The decision half (relevant costs, pricing, transfer prices) keeps asking one question: which numbers change if we pick this option? Ignore everything else. The planning and control half (budgets, flexible budgets, standard costs) builds a plan, then measures how far reality drifted from it and labels each gap favourable or unfavourable.
Topic order. Work the tabs left to right. 01 Relevant costs covers special orders, make or buy, processing further, replacing equipment, dropping a segment and scarce resources. 02 Pricing sets a price from a target or from cost. 03 Transfer pricing prices goods moving between divisions of one company. 04 Operating budgets chains sales into production, materials and labour, and 05 Cash budget turns those plans into cash and borrowing. 06 Flexible budgets compares actual results with the right budget, and 07 Variances splits each cost gap into price and quantity.
Inside each topic: read the idea, do each worked example on paper before opening the solution (they run simplest first), then break the lab by changing numbers. Finish with the Drill until you get several in a row right.
| Level | What it asks | Example |
|---|---|---|
| Beginner | One definition, or one formula in one step | Is this cost sunk? Units to produce this month; one materials price variance |
| Intermediate | A standard calculation with a few steps | Make or buy with avoidable fixed costs; a cost-plus selling price; labour variances |
| Exam level | A full exam-style question with several parts | A cash budget with borrowing and repayment; all four overhead variances |
| Hard | Twists: combining ideas, working backwards, traps | The lowest price for an order that bumps regular sales; actual quantity from a quantity variance |
The drill starts at Beginner and steps up a level after three correct answers in a row; you can also pick a level yourself. The written questions, multiple choice and flashcards are ordered easy → hard, so working through them in order builds each idea from the ground up.
The core formulas
- Change in net income = incremental revenue − incremental costs (− lost contribution margin if capacity is full)
- Scarce resource: rank by CM ÷ units of the constrained resource
- Target cost = market price − desired profit · price = cost base × (1 + markup %)
- Minimum transfer price = variable cost per unit + opportunity cost per unit
- Production = sales + desired ending FG − beginning FG · purchases = needed + desired ending RM − beginning RM
- Flexible budget = fixed costs + variable rate × actual activity
- MPV = TAQ × (AP − SP) · MQV = SP × (TAQ − TSQA) · LPV = TAH × (AR − SR) · LQV = SR × (TAH − TSHA)
- Overhead: spending, efficiency, fixed spending (budget) and volume variances
Rules people forget: memorize
- Sunk costs (book value, money already spent, joint costs before the split-off) never change a decision
- Allocated fixed costs that stay either way are irrelevant
- Special orders: fixed costs only matter if the order adds them; at full capacity add the lost CM
- Rank scarce resources by CM per hour (or per kg), not CM per unit
- Ending inventory of one month is the beginning inventory of the next
- Depreciation is not a cash payment: leave it out of the cash budget
- Interest = principal × annual rate × months ÷ 12
- Costs: actual above budget = U; revenue: actual above budget = F
- Variances use the standard quantity allowed for actual output, never the master budget quantity (except the fixed overhead budget)
Exam format, weight and allowed aids differ between sections and terms. Check your own course outline.
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This is the first section. The full guide has every topic, the labs and the practice questions.
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