What is the break-even formula? Break-even Point in Units of Product The formula for determining the break-even point in units of product sold is: total fixed expenses divided by the contribution margin per unit. For...
What is the break-even formula? Break-even Point in Units of Product The formula for determining the break-even point in units of product sold is: total fixed expenses divided by the contribution margin per unit. For...
What is the coefficient of correlation? Definition of Coefficient of Correlation In simple linear regression analysis, the coefficient of correlation (or correlation coefficient) is a statistic which indicates an...
What is a budget variance? A budget variance results when an actual amount is different from a planned or budgeted amount. A budget variance can occur for revenues and for expenses. Join PRO to Track Progress Mark the...
How do I calculate IRR and NPV? Definition of IRR The internal rate of return (IRR) method or model determines the interest rate that discounts all cash inflows and cash outflows to a net present value of $0. In other...
What are out-of-pocket costs? Out-of-pocket costs are those costs or expenses that require a cash payment in the current period or during a project. For example, the wages of the person setting up a machine for a new...
What is the times interest earned ratio? Definition of Times Interest Earned Ratio The times interest earned ratio is an indicator of a corporation’s ability to meet the interest payments on its debt. The times...
What is managerial accounting? Definition of Managerial Accounting Managerial accounting is also known as management accounting and it includes many of the topics that are included in cost accounting. Some of the...
What is elastic demand? Definition of Elastic Demand Elastic demand is the situation in which demand for a product or service is sensitive to price changes. Elastic demand is a major concern for a manufacturer that...
What is a static budget? Definition of Static Budget A static budget is a budget in which the amounts will not change even with significant changes in volume. In contrast to a static budget, a company’s sales...
In accounting, what is meant by relevant costs? Definition of Relevant Costs Relevant costs are future costs that will differ between two or more alternative actions. Expressed another way, relevant costs are the costs...
In standard costing, how is the purchase price variance reclassified to arrive at actual cost? Definition of Purchase Price Variance In standard costing, the purchase price variance is the difference between the actual...
What is marginal cost? Definition of Marginal Cost Marginal cost is a manufacturer’s cost to produce one more unit of product. In other words, marginal cost is the change in total costs when one additional unit is...
What is trading on equity? Definition of Trading on Equity Trading on equity, which is also referred to as financial leverage, occurs when a corporation uses bonds, other debt, and preferred stock to increase its...
What is present value? Definition of Present Value In accounting, present value refers to the amount after discounting future cash amounts to the present. The present is depicted on a timeline as the point 0, which is...
What is the difference between Present Value (PV) and Net Present Value (NPV)? Definition of Present Value (PV) Present value or PV is the result of discounting one or more future amounts to the present. The greater the...
What does per annum mean? Definition of Per Annum Per annum means yearly or annually. It is a common phrase used to describe an interest rate. Often “per annum” is omitted, as in “I have a 4% mortgage loan.” or...
What causes an increase in break-even point? Definition of Break-even Point The break-even point is the sales volume or sales revenue that is needed to cover the company’s expenses. In other words, it is the point...
How do I calculate the after-tax cost of debt? Definition of After-Tax Cost of Debt The after-tax cost of debt is the interest paid on the debt minus the income tax savings as the result of deducting the interest expense...
Is depreciation an operating expense? Depreciation Could Be Either an Operating Expense or a Non-operating Expense Depreciation is an operating expense if the asset being depreciated is used in an organization’s main...
What is the contribution margin ratio? Definition of Contribution Margin Ratio The contribution margin ratio is the percentage of sales revenues, service revenues, or selling price remaining after subtracting all of the...
What is an implicit interest rate? Definition of Implicit Interest Rate An implicit interest rate is one that is not stated explicitly. Example of Implicit Interest Rate Assume that I lend you $4,623 and you agree to...
How do you calculate the actual or real interest rate on a bond investment? Definition of Actual or Real Interest Rate on a Bond Investment The actual or real interest rate on a bond payable is also known as effective...
What is a service department? Definition of Service Department A service department is usually associated with a manufacturer’s production departments. However, a service department does not produce any of the...
Are salaries and wages part of expenses on the income statement? Definition of Salaries and Wages Salaries and wages are forms of compensation paid to employees of a company. Salaries and Wages as Expenses on Income...
What is cost behavior? Definition of Cost Behavior Cost behavior is an indicator of how a cost will change in total when there is a change in some activity. In cost accounting and managerial accounting, three types of...
What is a non-discount method in capital budgeting? Definition of Non-discount Method of Capital Budgeting A non-discount method of capital budgeting is one that does not consider the time value of money. In other words,...
What is an unfavorable variance? Definition of a Variance In accounting the term variance usually refers to the difference between an actual amount and a planned or budgeted amount. For example, if a company’s budget...
Why doesn't AccountingCoach.com classify the financial ratios? We avoided classifying the financial ratios because a financial ratio may overlap several classifications, and there are several different titles for the...
What is trend analysis? Definition of Trend Analysis In the analysis of financial information, trend analysis is the presentation of amounts from several years all expressed as a percentage of a base year. Trend analysis...
What is zero-based budgeting? Definition of Zero-Based Budgeting Zero-based budgeting, or ZBB, is a rigorous budgeting process that requires that every dollar of every expense in the budget be justified, even if the...
What is theoretical capacity? Theoretical capacity is the level of a manufacturer’s production that would be attained if all of its equipment and operations performed continuously at their optimum efficiency....
What is net present value? Definition of Net Present Value Net present value is the combination of 1) the present value of cash inflows, and 2) the present value of the cash outflows. To arrive at these present value...
What is an independent variable? In accounting, an independent variable is ideally a factor that causes a change in the total amount of the dependent variable. In other words, an independent variable should be something...
What is decentralization? Definition of Decentralization Decentralization refers to a company’s top management delegating authority to subunits or segments of the company such as a company consisting of a consumer...
What are accounting ratios? Definition of Accounting Ratios Accounting ratios, which are also known as financial ratios, are one part of financial statement analysis. Accounting ratios will often relate one financial...
What is an annuity in present value calculations? In present value calculations, an annuity is a series of equal cash amounts occurring at equal time intervals. The identical cash amounts are sometimes referred to as...
What are the methods for separating mixed costs into fixed and variable? Definition of Mixed Costs Mixed costs are partially a fixed cost and partially a variable cost. Mixed costs are also known as semivariable costs....
What is the meaning of base year? In accounting, base year may refer to the year in which a U.S. business had adopted the LIFO cost flow assumption for valuing its inventory and its cost of goods sold. Under the...
How do we deal with a negative contribution margin ratio when calculating our break-even point? Definition of Negative Contribution Margin A negative contribution margin ratio indicates that a company’s variable costs...
How do you calculate Return on Capital Employed (ROCE)? Return on capital employed is used as a measurement of the performance of a division of a company. It assumes that the division is not responsible for its financing...
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