Ch3. ACCA — Performance Management (PM): CVP & Variance Analysis

Cost Classification

Variable vs. Fixed Costs

Type	Behaviour	Examples
Variable	Proportional to output	Direct materials, direct labour
Fixed	Unchanged with output	Rent, salaried management
Semi-variable	Fixed + variable element	Electricity, maintenance

Direct vs. Indirect Costs

• Direct: Directly traceable to a product (direct materials, direct labour)
• Indirect (Overhead): Shared costs requiring allocation to products

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CVP (Cost-Volume-Profit) Analysis

Core Concepts

Contribution Margin = Revenue − Variable Costs

Contribution per unit = Selling price − Variable cost per unit

C/S Ratio (Contribution/Sales) = Contribution / Revenue

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Break-Even Point (BEP)

BEP (units) = Fixed Costs / Contribution per unit

BEP (revenue) = Fixed Costs / C/S Ratio

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Target Profit

Units needed = (Fixed Costs + Target Profit) / Contribution per unit

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Margin of Safety

Margin of Safety (£) = Actual Revenue − Break-even Revenue

MoS % = Margin of Safety / Actual Revenue × 100

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Standard Costing and Variance Analysis

Material Variances

Price variance = (Actual price − Standard price) × Actual quantity

Usage variance = (Actual quantity − Standard quantity) × Standard price

Labour Variances

Rate variance = (Actual rate − Standard rate) × Actual hours

Efficiency variance = (Actual hours − Standard hours) × Standard rate

Favourable (F): Actual < Standard (cost saving)
Adverse (A): Actual > Standard (cost overrun)

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Performance Measurement Frameworks

Balanced Scorecard (BSC)

Perspective	Example Metrics
Financial	ROE, ROCE, EVA, revenue growth
Customer	Customer satisfaction, market share
Internal Process	Defect rate, order processing time
Learning & Growth	Training hours, employee turnover

SMART KPIs

• Specific | Measurable | Achievable | Relevant | Time-bound

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Chapter 4 Preview

Next: Financial Reporting (FR) — consolidated financial statements, goodwill calculation, IFRS 15, IFRS 16, and IFRS 9.