Penalty on Exam: Severe
In the worst case, screwing up a formula can completely eliminate the skill that the instructor was trying to test you on and can be a major deduction (up to 80%). This happens often in trigonometry and precalculus courses when a student writes a trigonometric identity incorrectly and ends up stopping very early in the solution process because their wrong formula leads to "no solutions." This effectively avoids the bulk of the work the instructor meant for the student to show.
Example: A very ommon mistake that elementary and intermediate algebra students make is to forget that the quadratic formula is a single raction (see images below). I have seen some students lose entire letter grades in the course because they cannot seem to understand that the quadratic formula is a single fraction.