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QuoteCOST CHEAT SHEET – ADVANCED (with Formulas & Cable Factory Examples)

1. COGS (Cost of Goods Sold)
Direct costs tied to production of goods.

Formula:

Code Select Expand

COGS = Direct Materials + Direct Labor + Manufacturing Overhead

Example (Cable Factory):

Code Select Expand

Direct Materials = $10,000 (Copper, PVC)
Direct Labor = $5,000 (Line workers)
Manufacturing Overhead = $2,000 (Depreciation, electricity)
COGS = $17,000

2. COST TYPES

Fixed Costs	Constant regardless of production.
Example:	Rent, Factory Manager Salary
Variable Costs	Change with output level.
Example:	Raw materials, machine operator wages
Semi-Variable	Both fixed + variable parts.
Example:	Electricity: $500 base + $0.10/kWh used

3. INDIRECT COSTS
Not directly linked to production.
- Examples: Office rent, HR staff salaries, legal fees

Accounting Note: Shown under "Operating Expenses" on the Income Statement.

4. INVENTORY FLOW

Code Select Expand

Raw Materials → Work-in-Progress → Finished Goods

→ If Sold → COGS
→ If Unsold → Ending Inventory (Balance Sheet)

5. COSTING METHODS
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• Absorption Costing (Includes fixed overheads in unit cost)
• Variable Costing (Only variable costs in unit cost)
• Activity-Based Costing (Cost based on activity usage)
• Standard Costing (Preset expected costs)
• Job Order Costing (Cost per project or batch)
• Process Costing (Mass production)
• Marginal Costing (Cost of one extra unit)

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Example (ABC Method):

Code Select Expand

Machine hours → Cable Insulation → Overhead rate = $2/hour
Assembly time → Cable Cutting → Overhead rate = $3/hour

6. CAPEX vs OPEX

CAPEX	OPEX
Long-term assets	Daily business expenses
Capitalized on balance sheet	Expensed in income statement
Depreciated over years	Used up in the same period
Examples: Machinery, ERP software	Examples: Salaries, Rent, Utilities

7. OPERATING LEVERAGE

Definition: Measures how profit changes with revenue due to fixed costs.

Formula:

Code Select Expand

Operating Leverage = Contribution Margin / Operating Income

Where:

Code Select Expand

Contribution Margin = Sales - Variable Costs

Example (Cable Factory):

Code Select Expand

Sales = $50,000
Variable Costs = $30,000
Fixed Costs = $15,000
Operating Income = $5,000

→ Contribution Margin = $20,000
→ Operating Leverage = 20,000 / 5,000 = 4.0

Interpretation:
A 10% increase in sales will increase profit by 40% (4.0 × 10%).