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Articles

Inventory turnover ratio / Stock turnover ratio

Inventory turnover ratio (Stock turnover ratio) is one of the indicators of activity,  which shows how many times during the period (year) is a unit of inventories converted into revenues (i.e. is sold).   Calculation formula   Inventories are often the average from the beg

Payables turnover ratio

Payables turnover ratio is one of the indicators of activity,  which shows how many times during the period (year) is a unit of payables purchased.   Calculation formula   Trade payables are often the average from the beginning and final balance.   Interpretation and

Internal rate of return (IRR)

Internal rate of return is method used for investment appraisal that calculates the rate of return that is expected to be achieved by the project. IRR is related with NPV method as it is the discount rate at which NPV is zero. if IRR > target rate (often WACC) → the investment adds value

Absorption costing

Absorption costing is a type costing method or rather the approach to costing. It is sometimes called as full costing method as it values the product (or jobs, batches, processes etc.) by direct costs and allocated, apportioned and absorbed share of production indirect costs (production overheads)

Product´s life cycle

Product´s life cycle stages     Research and development product has not yet been launched to the market and pre-production costs such as research & development or costs of finding appropriate production premises are incurred this stage is included within introduction st

Measurement of inventories under IAS 2 Inventories

Under IAS 2 - Inventories, inventories are measured at the lower of cost and net realizable value. (5)   Measurement of costs cost of purchase: covering: purchase price import duties and irrecoverable taxes (e.g. VAT for entities not registered for VAT) transportation, hand

Gross margin

Gross margin is one of profitability indicators.   It can be expressed as a difference   %   Comparisons gross margin % will vary considerably between industries, so comparing companies in different industries makes little sense it makes sense to compare with the

Inventory period / Days inventory outstanding

Inventory period (Days inventory outstanding) is one of the indicators of activity,  which indicates how many days is the inventory held in stock before it is sold. If we divide number of days in the year (365) by the indicator of Inventory period, we get the indicator of Inventory turnover ra

Marginal (variable) costing

Marginal costing is a type of costing method under which only variable costs are included to the value of the product (or job, contract, batch, process, etc.). Therefore, fixed costs are not allocated to the product and are expensed.   It is also known as variable costing method.   Th

Activity based costing (ABC)

Activity based costing (ABC) is costing method, under which all costs are allocated to company activities according to what are the drivers of the activities. Costs are then allocated to products based on product´s consumption of these activities. ABC was developed to overcome the disadvanta

Difference between direct and indirect costs, their division and accounting

According to the traceability to cost object (usually a specific type of product or service) the costs can be divided into DIRECT COSTS (PRIME COSTS) and INDIRECT COSTS (OVERHEADS). The reason for such classification is especially appropriate inventory (and possibly other assets as well) valuation.

Differences between Absorption costing, Activity Based Costing, Marginal costing and Througput costing

The basic difference between these costing approaches is what costs are assigned to the product. However, Absorption costing method and Activity Based Costing use different approach, but more about it can be found  in separate articles.   Under Throughput costing, only direct material co

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