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Fixed costs

Fixed costs are costs that do not relatively change with the level production over the short term and are incurred even if there is no production. So if the level of production decreases, fixed costs remain unchanged and fixed cost per unit increases, and vice versa. Examples: CFO salary; rent

Semi-variable costs / Mixed costs

Semi-variable costs or mixed costs are costs that have both fixed and variable components.  They are variable until certain production level, then increase in step and after that grow variably again. (58) They include for example costs with a standing (fixed) fee and a variable comp

Distinction between economic and accounting profit

The general definition is valid for both economic and accounting profit: income - expenses But the terms differ in: what is included in the formula: economic profit: explicit (i.e. expenses in the profit and loss) and implicit costs (i.e. costs that would be sacrified if we would

Quick ratio / Acid test ratio

Quick ratio (Acid test ratio) is one of liquidity indicators, which informs us about how many times the firm would be able to pay its current liabilities, if it converts its short-term receivables and financial assets to cash. This indicator deducts the least liquid component from the current

Cash ratio / Absolute liquidity ratio

Cash ratio (Absolute liquidity ratio) is one of liquidity indicators which informs us about how many times the firm would be able to pay its current liabilities, if it converts its financial assets to cash. The indicator has only the most liquid component in the numerator - (short-term) financ

Forecasting and budgeting

The series aims to describe the fundamental aspects of forecasting and budgeting - planning process, the difference between forecast and budget and description of the basic types of budgets (fixed vs. flexible, static vs. continuous, incremental vs. zero-based budget and top-down or bottom-up budget

Costing methods according to the cost types included

Costing methods differ also in the cost types that will be included in the value of inventory (costs of goods sold) and which shall be booked directly to the statement of profit and loss as period costs.   Cost accounting methods include: Full costing or full production costing methods, e

Indirect costs (overheads)

Indirect costs are costs not directly and clearly identifiable with cost object (usually product or service). Together with direct (prime) costs they form total costs of the entity. Indirect costs can be both fixed and variable, production and non-production or external and internal. They are oft

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

Current liquidity ratio / Working capital ratio

Current liquidity ratio / Working capital ratio is one of liquidity indicators, which informs us how many times the firm would be able to pay its current liabilities, if it converts all of its current assets to cash.   Calculation formula     Disadvantages    &nb

Steps during budget preparation

  1. CEO appoints budget committee and budget coordinator. Budget committee is a group of people that are responsible for budget preparation, review and approval. It is usually formed by senior managers including finance director. (26)   2. Review the system of responsibility (budget) c

Cost accounting

Cost accounting is a set of management accounting methods, techniques and procedures used mainly to determine actual or planned costs of cost objects (cost center, product, cost unit, department, process, activity). Cost accounting is not an exact discipline.  It involves a set of well tried-o

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