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Explanations, exercises, problems, quizzes and calculators all together make up a complete learning combo for accounting students.
It is an important number for any business because it tells management how much reduction in revenue will result in break-even. The MOS can be computed for a month, a quarter or full year period. However, if significant seasonal variations in sales volume are involved, then monthly or quarterly computations would not make sense.
Having a positive net present value means the project promises a rate of return that is higher than the minimum rate of return required by management (20% in the above example). In the above example, the minimum required rate of return is 20%.
If the payback period of a project is shorter than or equal to the management’s maximum desired payback period, the project is accepted, otherwise rejected. For example, if a company wants to recoup the cost of a machine within 5 years of purchase, the maximum desired payback period of the company would be 5 years.
Accounting rate of return is simple and straightforward to compute. It focuses on accounting net operating income. Creditors and investors use accounting net operating income to evaluate the performance of management. Disadvantages: Accounting rate of return method does not take into account the time value of money.
The cost function. Like scatter graph method and least squares regression method, high-low point method follows the following cost function (also known as cost volume formula): Y = a + bX. Where, Y = total cost. a = total fixed cost. b = fixed cost. X = number of units. To make the procedure simple and easy to understand, we can divide the ...
Accounting equation describes that the total value of assets of a business entity is always equal to its liabilities plus owner’s equity. This equation is the foundation of modern double entry system of accounting being used by small proprietors to large multinational corporations.
EPS figure for only a single accounting period does not reveal the real earning potential of the business and should not be considered enough for making an investment decision.
Students may come across examination questions or home work problems in which the examiner or tutor provideds a current ratio number along with some additional information pertaining to a business entity and asks them to work out either total current assets or total current liabilities figure.
Beta company sells blouses in Washington, USA. Blouses are imported from Pakistan and are sold to customers in Washington at a profit. Salespersons are paid basic salary plus a decent commission of $14 on each sale made by them.