See death spiral.
See death spiral.
volume cannot support its administrative expenses. The death spiral is also known as the downward demand spiral. Example of Death Spiral Assume that a company manufactures a wide variety of products that require...
, if the manufacturer’s production and sales have declined and it fails to cut fixed costs, the manufacturer could be worse off by increasing selling prices. It could even lead to a death spiral. Examples of Elastic...
The repeated elimination of products without a corresponding decrease in overhead costs. As a result the amount of overhead allocated to each unit of product increases. If selling prices are increased to cover the higher...
This term refers to checking account balances. On a bank’s balance sheet, demand deposits are reported as current liabilities.
The situation where the number of units sold is not influenced by a change in selling price. In other words, a price increase does not have a corresponding decrease in the number of units sold.
of the bond. The market interest rate—the rate that bond buyers demand—is changing daily. To illustrate, let’s assume that a 6% bond will mature in ten years and has a maturity value of $100,000. This means that...
to as the optimum lot size. The formula to calculate the economic order quantity (EOQ) is the square root of [(2 times the annual demand in units times the incremental cost to process an order) divided by (the...
(estimate) of annual demand, there is a risk that demand will be greater than the estimate used. Let’s say that the company’s EOQ is 1,000 units. As a precaution, the company may decide to always have an additional...
The bank account on which checks are written or drawn. A bank refers to checking accounts as demand deposits.
A bank or investment account with a fluctuating interest rate. Usually the funds can be withdrawn on demand, even though the account is not a checking account.
A formula that calculates the optimum quantity to be purchased (or produced) so as to minimize the combined total cost of carrying inventory and processing additional purchase orders (or production setups). The formula...
A reduction of a markup. In the retail method of estimating inventory, it could mean the elimination of part or all of the additional markup. For example, if an item with a cost of $10 would normally be priced at $15,...
with recently deposited checks from customers, the money in a checking account is available on demand. (This is why banks refer to the amounts in their customers’ checking accounts as demand deposits.) The balances in...
, employees, lenders, and others. Monitoring the inventory levels (total amount and individual items) may result in: Reducing the number of units purchased or produced to match lower customer demand Reducing the number...
What is a promissory note? Definition of Promissory Note A promissory note is a written promise to pay an amount of money by a specified date (or perhaps on demand). The maker of the promissory note agrees to pay the...
. The bank will record the loan by increasing a current asset such as Loans to Customers or Loans Receivable and increasing a current liability such as Customer Demand Deposits. Example of a Company Recording a Loan from...
This could be the difference between cost and the selling price. For example, a retailer may markup its cost by 50% to arrive at a selling price. In the retail method of costing inventory, markup is used to mean the...
referred to as a __________–__________ cost. 5. The additional quantity of inventory held by a company so that it will not run out of stock when there is an unexpected increase in demand for its product is known as...
debit card, the bank’s liability account such as Customer Checking Accounts or Demand Deposits will be reduced. To reduce the normal credit balance in the bank’s liability account, a debit entry is required. The...
, and the bank credits its liability account Customer Deposit Accounts. The liability is appropriate since the bank has the obligation to return the customer’s money on demand). The bank’s liability is reduced when...
to provide electricity on peak demand days) A variable amount based on the number of kilowatt hours of electricity actually used by the company The manufacturer’s electricity cost is also semivariable in relation to...
, unattractive, etc. New technologies that disrupt the way things are done Decline in overall demand for the items Arrival of unique competitors Consequences of Obsolete Inventory When inventory items become obsolete,...
by a patent and trademark, and the demand for the product is high, customers may accept a selling price that is unusually high. In other words, the value of the product is much greater than the costs identified with the...
equipment manufacturer with a high demand product that takes six months to manufacture. If this manufacturer has few or no competitors, a great product, and an excellent reputation for service, its profit margin can be...
to $80,000+. The reasons for the wide pay range include the company’s size and industry, supply and demand for accountants in the company’s geographic area, the responsibilities of the accountant, the accountant’s...
of inventory so that it can meet the fluctuating demand of its customers, avoid disruptions in production, and minimize holding costs. Since the costs of the items purchased or produced are likely to change (especially...
the amount of the write-down (reduction) as a loss on its income statement. Examples of Impairment A meat packing plant in recent years invested large amounts in its plant and equipment. Since then, the company...
of a decentralized corporation such as related subsidiary corporations, separate divisions of a corporation, or some other subunits. Depending on the production capacity and the demand for each subunit’s goods or...
to give the money to ABC on demand is also increased. Therefore, the bank will debit its general ledger Cash account and will credit its liability account Demand Deposits. 2. ABC Co.’s bank statement indicates that a...
. This is also true for the firm’s brand names that resulted from effective marketing, highly satisfied service, and expertise in specialty services that are in great demand. Another limitation of the balance sheet...
on the traditional method of allocating factory overhead for pricing decisions, the company may demand that the customer pay more for the product that required no additional activities. If the customer refuses to accept...
Our Explanation of Working Capital and Liquidity provides you with an in-depth look at the components of working capital and the challenges of converting current assets to cash before obligations come due. You will see...
Our Explanation of Bonds Payable covers the recording of bonds, the accrual of interest expense, and the amortization of the discount and premium on bonds payable. You gain an understanding on why the market value of...
Our Explanation of Bank Reconciliation will show you the needed adjustments to the balance on the bank statement and also the adjustments needed to the balance in the related general ledger account. A comprehensive...
Our Explanation of Stockholders' Equity covers the unique terminology for a corporation's paid-in capital, retained earnings, treasury stock, and accumulated other comprehensive income. Included are cash dividends, stock...
. If a corporation issues 10% Preferred Stock $100 Par on a day when the financial markets demand 9%, this corporation's 10% Preferred Stock will sell for __________ more than its par value. 11. If a common stock...
Our Explanation of Financial Ratios includes calculations and descriptions of 15 financial ratios. As you calculate the financial ratios you will also gain a deeper understanding of a company's operations and financial...
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