Articles , Page 18
Liquidity indicators
Liquidity is the entity´s ability to convert its assets into cash for the purpose to settle its obligations, ideally with the lowest possible transaction costs. (14) Indicators of liquidity Liquidity indicators show the extent to which the current assets of the company in various forms cover its short-term obligations. Thus, the num...
Disadvantages of accounting profit
Profit as a basic profitability indicator used by companies has the following drawbacks: profit does not equal net inflow of money, costs do not equal expenditures and incomes do not equal receipts profit includes the results of operations that are ad-hoc and will not be repeated in the future various methodologies particularly in the ar...
Net present value (NPV)
Net present value (NPV) is a method for investment appraisal that is based on discounted cash-flow methodology. It shows the amount by which shareholder´s wealth would be increased. It is calculated as the total of present values of future relevant cash-flows over the project life. It comes out from relevant future cash-flows (free cash-flow)...
Standard costing
Standard costing is a cost accounting measurement basis that predicts unit costs and production quantities based on predetermined standards before the production even begins and as such it is an alternative method to historical cost accounting. It is suitable for production, which is standardized and mass or repetitive. Standard costing serves as...
Unit costing
Unit costing method (also known as output or single costing) is a type of costing method that calculates the costs per cost unit, i.e. usually per a single product. It is used if the production process is repetitive and only a few types of similar products are manufactured in masses. Examples of
Batch costing
Batch costing is a type of costing method that calculates first the costs per the entire production batch. Unit costs are then calculated as a division of total batch costs by the production quantity. Batch costing method is used if several identical products are manufactured in a single batch wher
Costing by simple division
Costing by simple division is costing method, or rather approach to costing, under which are indirect costs (overheads) allocated to the product by their division, i.e. by the formula: indirect costs / number of units. The method is applicable only if a single product is produced. When se
Apportionment of common costs to joint products
During the production process can be manufactured at once two or more products. If they are of similar economic importance and none of them is significantly more important than the other, they are so called joint products. But as the production or its part is common, joint costs are incurred and it
Difference between joint and main/by products in common production
In common production process are simultaneously processed two (or more) products. If both products are of similar economic importance, they are JOINT PRODUCTS. But if they are not, one is considered to be MAIN and the second BY-PRODUCT. And what are the factors to take into account to distin
Explicit costs
Explicit costs are costs that are really incurred by the entity. Opposite to explicit costs are implicit (opportunity) costs.
Process costing
Process costing method is a type of costing method that calculates first the costs per a single (production) process. The method is based on the assumption that the outputs of previous process are the material inputs to the following process. As the result, the costs per a single product are ascerta
Costing method by division using relative numbers
Costing method by division using relative numbers is costing method, or rather approach to costing, under which are indirect costs (overheads) allocated to the product by using a weight factor that is derived from the feature in which the products differ (e.g. size, time necessary for the production
Common (pre-separation) costs in joint and by product costing
Joint costs (also known as common or pre-separation costs) are costs common to the production process during which are simultaneously processed two or more different products. These costs can be assigned to the individual products by using a specific costing methods (see below). These are
Treatment of joint (common) costs in case of by-products
During the production process can be manufactured at once two or more products. If they are NOT of similar economic importance, then the more important product is called MAIN PRODUCT and the less important product BY-PRODUCT. As by-product´s value is usually negligible, net realizable value
Shut-down costs
Shut-down costs are unavoidable costs which will be incurred even if the production is shut down (e.g. rent which is the entity obliged to pay).
Differential costs
Differential cost is a difference in costs resulting from adopting different alternatives or costs in different time periods. They are opposites to sunk costs.