(or to products, departments, etc.). An example is the depreciation of a building. Mark as wrong Mark as right expenses Under the accrual method of accounting, these costs have expired, have been consumed, were needed...
(or to products, departments, etc.). An example is the depreciation of a building. Mark as wrong Mark as right expenses Under the accrual method of accounting, these costs have expired, have been consumed, were needed...
when a corporation’s 1) cash dividend per share of common stock is divided by 2) the earnings per share of common stock. Mark as wrong Mark as right book value of a corporation This value is equal to the amount of...
What is simple linear regression analysis? What is Simple Linear Regression Analysis Simple linear regression analysis is a statistical tool for quantifying the relationship between one independent variable (hence...
Is rent expense a period cost or a product cost? Definition of Rent Expense Rent expense is often a monthly amount paid by a company for use of a building. Typically, the rent is due on the first day of every month that...
What is a fixed cost? Definition of Fixed Cost A fixed cost is one that does not change in total within a reasonable range of activity. Since the fixed cost remains constant in total, the fixed cost per unit of activity...
What is the break-even point? Definition of Break-even Point In accounting, the break-even point refers to the revenues necessary to cover a company’s total amount of fixed and variable expenses during a specified...
What are production costs? Definition of Production Costs In managerial accounting and cost accounting, production costs are the costs that occur in the manufacturing facilities. Production costs are also referred to as...
How can a manufacturer determine the precise cost of its products? A manufacturer may never be able to determine the precise cost of its individual products. The reason is that most of the manufacturing costs (other than...
%). If the corporation’s income tax rate on this increment is 30%, the corporation will save paying income taxes of $240,000 ($800,000 X 30%). Due to the income tax savings, the net cost of the borrowed money is...
What is the difference between normal costing and standard costing? Definition of Normal Costing Normal costing for manufactured products consists of following: Actual cost of materials Actual cost of direct labor...
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...
What is the interest coverage ratio? Definition of Interest Coverage Ratio The interest coverage ratio is a financial ratio used as an indicator of a company’s ability to pay the interest on its debt. (The required...
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 does stepped cost mean? Stepped cost refers to the behavior of the total cost of an activity at various levels of the activity. When a stepped cost is plotted on a graph (with the total cost represented by the...
is approximately 2.75 years ($30,000 + $40,000 + $30,000 of Year 3’s $40,000). Limitations of Payback Period The payback period has two limitations or drawbacks: The net cash inflows are typically not adjusted for the...
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...
Is the rental cost of a building considered overhead? Definition of Rent as Overhead The rental cost of a building used in manufacturing is part of manufacturing overhead. Manufacturing overhead is assigned or allocated...
machine hour (due to high depreciation, electricity, maintenance, etc.) Dept #2 rate: $20 per machine hour Dept #3 rate: $15 per machine hour Now, let’s assume that the manufacturer’s Product A requires 7 hours in...
What are pro forma financial statements? Definition of Pro Forma Financial Statement A pro forma financial statement is one based on certain assumptions and projections (as opposed to the typical financial statement...
What causes an unfavorable fixed overhead budget variance? An unfavorable fixed overhead budget variance results when the actual amount spent on fixed manufacturing overhead costs exceeds the budgeted amount. The fixed...
What is synergy? In business the term synergy is often associated with the merger or acquisition of companies. Synergy implies that the outcomes resulting from the merger of two companies will be greater than the sum...
What is the materials usage variance? Definition of Materials Usage Variance The materials usage variance or materials quantity variance is associated with a standard costing system. This variance results when the actual...
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...
What are the benefits of a revenue budget? The main benefit of a revenue budget is that it requires looking into the future. The revenue budget should contain the assumptions made about the future and the details about...
Our Explanation of Accounts Receivable and Bad Debts Expense helps you understand the accounting for the losses associated with selling goods and providing services on credit. You will understand the impact on the...
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...
A non-operating item resulting from the sale of this long-term asset for less than its carrying amount (or book value).
An asset having accumulated depreciation equal to its depreciable cost (cost minus estimated salvage value). The use of an asset after it is fully depreciated will mean no depreciation expense for those accounting...
A non-operating item resulting from the sale of this long-term asset for less than its carrying amount (or book value).
The difference between the call price of a bond or preferred stock and its stated or par value.
A contra asset account arising when the present value of a note receivable is less than the face amount of the note. The credit balance in this account will be amortized to interest revenue over the life of the note.
In estimating the ending inventory under the retail method the cost ratio is the cost of goods available divided by the retail value of the goods available.
An interest rate that is not explicitly stated. For example, instead of paying $100 cash a person is allowed to pay $9 per month for 12 months. The interest rate is not stated, but the implicit rate can be determined by...
A phrase that indicates a transaction was between two independent parties and that the resulting amount is a fair representation of the value.
The accounting focused on determining the cost per unit of a manufacturer in order to value inventory and cost of goods sold. It is also used to determine unit costs of items processed in service businesses, such as a...
A non-operating item resulting from the sale of this long-term asset for less than its carrying amount (or book value).
Part of stockholders’ equity representing the fair market value of an asset at the time it was received as a gift. For example, a corporation may be given a large tract of land from a community if the corporation...
A report prepared by a professional appraiser with detailed information on the calculation of an asset’s current market value.
A decrease in the value of a long term asset to an amount that is less than the amount shown under the cost principle.
Featured Review
"AccountingCoach PRO - a great learning experience at a very low cost. I would like to thank Harold Averkamp and all the staff behind it for preparing course material that contains all the essentials for a successful career in the accounting field and for giving lifetime access to the materials. The materials are very easy to follow. I am particularly impressed with your ability to explain so beautifully the accounting concepts and debits and credits. I feel that even a beginner can understand them easily. All my interactions have been great! I recommend this excellent accounting course to all." - Valsa G.
Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials
Read all 2,645 reviews
For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.
We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping: