What is relevant range? Definition of Relevant Range In accounting, the term relevant range usually refers to a normal range of volume or normal amount of activity in which the total amount of a company’s fixed costs...
What is relevant range? Definition of Relevant Range In accounting, the term relevant range usually refers to a normal range of volume or normal amount of activity in which the total amount of a company’s fixed costs...
What is transfer pricing? Definition of Transfer Pricing Transfer pricing involves setting a price that will be used when one responsibility center of a company sells goods or services to another responsibility center of...
What is the dividend payout ratio? The dividend payout ratio, or simply the payout ratio, is the percentage of a corporation’s earnings that is paid out in the form of cash dividends. The calculation of the dividend...
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 causes a variation in profit margin and turnover ratios between industries? Mega grocery stores, discount stores, and warehouse clubs often have small profit margins but have high turnover ratios. The small profit...
Why does the fixed cost per unit change? Definition of Fixed Cost per Unit Fixed costs such as rent, salaries, depreciation, etc. generally do not change in total within a reasonable range of volume or activity. On the...
How do I compute the product cost per unit? Definition of Product Cost per Unit In accounting, a product’s cost is defined as the direct material, direct labor, and manufacturing overhead. Other costs such as...
How do you calculate opportunity costs? Definition of Opportunity Costs Opportunity costs are the profits a company (or person) missed, or the contribution margin that was missed. Opportunity cost might be thought of as...
What is the meaning of fixed overhead absorbed? Definition of Fixed Overhead Absorbed Fixed overhead absorbed refers to a manufacturer’s fixed indirect manufacturing/production costs. Since these costs are indirect,...
What is a fixed expense? Definition of Fixed Expense A fixed expense is an expense whose total amount does not change when there is an increase in an activity such as sales or production. The words within a relevant or...
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...
What is the average collection period? Definition of Average Collection Period The average collection period is the average number of days between 1) the dates that credit sales were made, and 2) the dates that the money...
What are inventoriable costs? Definition of Inventoriable Costs Inventoriable costs are: A retailer’s cost of the goods (products) that it purchased for resale, and any additional cost to get the goods in place and...
What is a flexible budget? Definition of a Flexible Budget A flexible budget is a budget that adjusts or flexes with changes in volume or activity. The flexible budget is more sophisticated and useful than a static...
What is sales mix? Definition of Sales Mix Sales mix is the relative proportion or ratio of a business’s products that are sold. Sales mix is important because a company’s products usually have different degrees of...
What is a responsibility center? Definition of Responsibility Center A responsibility center is a part or subunit of a company in which the manager has some degree of authority and responsibility. The company’s...
What are mixed costs? Definition of Mixed Costs In accounting, the term mixed costs refers to costs and expenses that consist of two components: A fixed component, the total of which does not change as the volume of...
What is the production volume variance? Definition of Production Volume Variance The production volume variance is associated with a standard costing system used by some manufacturers. This variance arises when there is...
What is a variable cost? Definition of Variable Cost A variable cost is a constant amount per unit produced or used. Therefore, the total amount of the variable cost will change proportionately with the change in volume...
How do you determine the fixed portion of overhead cost? I suggest that the first step in determining the fixed portion of a mixed cost (a cost that is partially fixed and partially variable) is to graph the data. Label...
Is a favorable variance always an indicator of efficiency in operation? In a standard costing system, some favorable variances are not indicators of efficiency in operations. For example, the materials price variance,...
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....
Why do manufacturers use standard costs? One reason for a manufacturer to use standard costs is to plan carefully what its costs will be for the upcoming budgeting year and to then compare the actual costs with those...
How do you calculate the average balance in accounts receivable? The average will be more representative if you include additional balances in the computation. For example, if you compute the average balance for the year...
Is the depreciation of delivery trucks a period cost or is it manufacturing overhead? The depreciation on the trucks used to deliver products to customers is a period cost. The depreciation on delivery trucks will be...
What is the difference between a differential cost and an incremental cost? Definition of Differential Cost and Incremental Cost I use the terms differential cost and incremental cost to mean the same thing: the...
What is the difference between a budget and a standard? Definition of a Budget In business and other organizations, a budget often refers to a department’s or a company’s projected revenues, costs, or expenses....
What type of expense is the purchase of propane? Technically, the purchase of propane is not an expense. Depending on the business, the propane is an asset until it is used, resold, or included in a product that is sold....
What increases a break-even point? Definition of Break-even Point The break-even point is the volume of sales in units or in dollars that is equal to a company’s total expenses (including the cost of goods sold). In...
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...
What is the difference between correlation and cause and effect? Definition of Correlation Correlation refers to the association between two or more variables. The association is measured by a statistic known as the...
What are turnover ratios? Definition of Turnover Ratios In accounting, turnover ratios are the financial ratios in which an annual income statement amount is divided by an average asset amount for the same year....
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 the death spiral? Definition of Death Spiral In cost accounting and managerial accounting, the term death spiral refers to the repeated elimination of a manufacturer’s products which will result in spreading...
What is a dependent variable? In accounting, a dependent variable is likely to be the total of a mixed cost that will change as the result of several factors. A factor that causes the change in the total cost is referred...
What is the margin of safety? Definition of Margin of Safety In break-even analysis, the term margin of safety indicates the amount of sales that are above the break-even point. In other words, the margin of safety...
What is process costing? Definition of Process Costing Process costing is a term used in cost accounting to describe one method for collecting and assigning manufacturing costs to the units produced. A processing cost...
What is absorption costing? Definition of Absorption Costing Absorption costing (also known as full absorption costing) indicates that all of the manufacturing costs have been assigned to (absorbed by) the units of goods...
Why not use Sales in the Inventory Turnover Ratio? The short answer is: Because Inventory is at cost. Inventory is not on the company’s books at selling prices. The Inventory Turnover Ratio is Cost of Goods Sold...
What is meant by the full cost of a product? Many (perhaps most) accountants use the term full cost to mean the full manufacturing or production cost of a product. To these accountants this means a product’s cost of...
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