|Average-Cost Inventory Method|
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Definition of Average-Cost Inventory Method
Average-Cost Inventory Method
The inventory cost-flow assumption that assigns the average
Accelerated cost recovery system (ACRS)
Schedule of depreciation rates allowed for tax purposes.
Agency cost view
The argument that specifies that the various agency costs create a complex environment in
The incremental costs of having an agent make decisions for a principal.
Total costs, explicit and implicit.
Arithmetic average (mean) rate of return
Arithmetic mean return.
An arithmetic mean of selected stocks intended to represent the behavior of the market or some
Average accounting return
The average project earnings after taxes and depreciation divided by the average
Average age of accounts receivable
The weighted-average age of all of the firm's outstanding invoices.
Average collection period, or days' receivables
The ratio of accounts receivables to sales, or the total
Average cost of capital
A firm's required payout to the bondholders and to the stockholders expressed as a
Also referred to as the weighted-average life (WAL). The average number of years that each
The average time to maturity of securities held by a mutual fund. Changes in interest rates
Average (across-day) measures
An estimation of price that uses the average or representative price of a
Average rate of return (ARR)
The ratio of the average cash inflow to the amount invested.
Average tax rate
Taxes as a fraction of income; total taxes divided by total taxable income.
Bankruptcy cost view
The argument that expected indirect and direct bankruptcy costs offset the other
Blanket inventory lien
A secured loan that gives the lender a lien against all the borrower's inventories.
A method of constructing a replicating portfolio in which the manager purchases a
costs that increase with increases in the level of investment in current assets.
Cost company arrangement
Arrangement whereby the shareholders of a project receive output free of
Cost of capital
The required return for a capital budgeting project.
Cost of carry
Related: Net financing cost
Cost of funds
Interest rate associated with borrowing money.
Cost of lease financing
A lease's internal rate of return.
Cost of limited partner capital
The discount rate that equates the after-tax inflows with outflows for capital
The net present value of an investment divided by the investment's initial cost. Also called
Current rate method
Under this currency translation method, all foreign currency balance-sheet and income
Days' sales in inventory ratio
The average number of days' worth of sales that is held in inventory.
Direct estimate method
A method of cash budgeting based on detailed estimates of cash receipts and cash
Dow Jones industrial average
This is the best known U.S.index of stocks. It contains 30 stocks that trade on
Equivalent annual cost
The equivalent cost per year of owning an asset over its entire life.
The difference between the execution price of a security and the price that would have
Financial distress costs
Legal and administrative costs of liquidation or reorganization. Also includes
A cost that is fixed in total for a given period of time and for given production levels.
The practice of reporting to shareholders using straight-line depreciation and
costs, both implied and direct, associated with a transaction. Such costs include time, effort,
Incremental costs and benefits
costs and benefits that would occur if a particular course of action were
Transaction costs that include the assessment of the investment merits of a financial asset.
For companies: Raw materials, items available for sale or in the process of being made ready for
A secured short-term loan to purchase inventory. The three basic forms are a blanket
The ratio of annual sales to average inventory which measures the speed that inventory
Just-in-time inventory systems
Systems that schedule materials/inventory to arrive exactly as they are
Log-linear least-squares method
A statistical technique for fitting a curve to a set of data points. One of the
Market impact costs
Also called price impact costs, the result of a bid/ask spread and a dealer's price concession.
Market timing costs
costs that arise from price movement of the stock during the time of the transaction
Monetary / non-monetary method
Under this translation method, monetary items (e.g. cash, accounts
Used in charts and technical analysis, the average of security or commodity prices
Net financing cost
Also called the cost of carry or, simply, carry, the difference between the cost of financing
The practice of making a charge in the income account equivalent to the tax savings
Opportunity cost of capital
Expected return that is foregone by investing in a project rather than in
The difference in the performance of an actual investment and a desired investment
Price impact costs
Related: market impact costs
Accounting for an acquisition using market value for the consolidation of the two entities'
cost to replace a firm's assets.
A method of allocating the purchase price for the acquisition of another firm among the
Round-trip transactions costs
costs of completing a transaction, including commissions, market impact
costs associated with locating a counterparty to a trade, including explicit costs (such as
costs that fall with increases in the level of investment in current assets.
Simple compound growth method
A method of calculating the growth rate by relating the terminal value to
Simple moving average
The mean, calculated at any time over a past period of fixed length.
A method of cash budgeting that is organized along the lines of the statement of cash flows.
costs that have been incurred and cannot be reversed.
Under this currency translation method, the choice of exchange rate depends on the
costs of buying and selling marketable securities and borrowing. Trading costs include
The time, effort, and money necessary, including such things as commission fees and the
True interest cost
For a security such as commercial paper that is sold on a discount basis, the coupon rate
A cost that is directly proportional to the volume of output produced. When production is zero,
Weighted average cost of capital
Expected return on a portfolio of all the firm's securities. Used as a hurdle
Weighted average coupon
The weighted average of the gross interest rate of the mortgages underlying the
Weighted average life
Weighted average maturity
The WAM of a MBS is the weighted average of the remaining terms to maturity
Weighted average remaining maturity
The average remaining term of the mortgages underlying a MBS.
Weighted average portfolio yield
The weighted average of the yield of all the bonds in a portfolio.
An asset’s purchase price, plus costs associated with the purchase, like installation fees, taxes, etc.
Cost of goods sold
The cost of merchandise that a company sold this year. For manufacturing companies, the cost of raw
The number of times a company sold out and replaced its average stock of goods in a year. The formula is:
MACRS (Modified Accelerated Cost Recovery System)
A depreciation method created by the IRS under the Tax Reform Act of 1986. Companies must use it to depreciate all plant and equipment assets installed after December 31, 1986 (for tax purposes).
The value of the products that a retailing or wholesaling company intends to resell for a profit.
An inventory valuation method that calculates a weighted average cost per unit for all the goods available for sale.
A method of costing in which all fixed and variable production costs are charged to products or services using an allocation base.
A method of costing that uses cost pools to accumulate the cost of significant business activities and then assigns the costs from the cost pools to products or services based on cost drivers.
costs that are identifiable with and able to be influenced by decisions made at the business
The amount of cash expended.
A resource sacrificed or forgone to achieve a specific objective (Horngren et al.), defined
The idea that fixed costs and variable costs react differently to changes in the volume of
A division or unit of an organization that is responsible for controlling costs.
The process of either reducing costs while maintaining the same level of productivity or maintaining costs while increasing productivity.
The most significant cause of the cost of an activity, a measure of the demand for an activity
Anything for which a measurement of cost is required – inputs, processes, outputs or responsibility centres.
Cost of capital
The costs incurred by an organization to fund all its investments, comprising the risk-adjusted
Cost of goods sold
See cost of sales.
Cost of manufacture
The cost of goods manufactured for subsequent sale.
Cost of quality
The difference between the actual costs of production, selling and service and the costs that would be incurred if there were no failures during production or usage of products or services.
Cost of sales
The manufacture or purchase price of goods sold in a period or the cost of providing a service.
A method of pricing in which a mark-up is added to the total product/service cost.
The costs of (cross-functional) business processes, irrespective of the organizational structure of the business.
Cost–volume–profit analysis (CVP)
A method for understanding the relationship between revenue, cost and sales volume.
costs that are readily traceable to particular products or services.
costs that do not change with increases or decreases in the volume of goods or services
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