|Economies of scale|
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Definition of Economies of scale
Economies of scale
The decrease in the marginal cost of production as a plant's scale of operations increases.
Scope economies exist whenever the same investment can support multiple profitable
A scale in which equal proportions are shown as equal distances so that, for example, a doubling from 2 to 4 is represented by one inch, as is a doubling from 4 to 8.
See logarithmic scale.
A bank that offers to pay different rates of interest on CDs of varying rates is said to "post a scale."
Describes a project that is in the same risk class as the whole firm.
When a trader or investor gradually takes a position in a security or market over time.
Capital rationing that under certain circumstances can be violated or even viewed
The ability to produce a good or service with fewer resources than competitors. See also comparative advantage.
Rule in bankruptcy proceedings whereby senior creditors are required to be paid in full
Goods may be returned to the seller by the purchaser without restrictions.
A method of costing in which all fixed and variable production costs are charged to products or services using an allocation base.
a cost accumulation and reporting
A methodology under which all manufacturing costs are assigned
Schedule of depreciation rates allowed for tax purposes.
Total liabilities exceed total assets. A firm with a negative net worth is insolvent on
acid test ratio (also called the quick ratio)
The sum of cash, accounts receivable, and short-term marketable
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.
activity based costing (ABC)
A relatively new method advocated for the
activity-based costing (ABC)
a process using multiple cost drivers to predict and allocate costs to products and services;
Activity-based costing (ABC)
A cost allocation system that compiles costs and assigns
The actual expenditure made to acquire an asset, which includes the supplierinvoiced
actual cost system
a valuation method that uses actual direct
Adjusted Cash Flow Provided by Continuing Operations
Cash flow provided by operating
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.
Aggregate Production Function
An equation determining aggregate output as a function of aggregate inputs such as labor and capital.
Aggressive Cost Capitalization
cost capitalization that stretches the flexibility within generally
Total costs, explicit and implicit.
All or none
Requirement that none of an order be executed unless all of it can be executed at the specified price.
An arrangement whereby a security issue is canceled if the underwriter is unable
cost of a security adjusted for the amortization of any purchase premium or
a quality control cost incurred for monitoring
An option is at-the-money if the strike price of the option is equal to the market price of the
attribute-based costing (ABC II)
an extension of activitybased costing using cost-benefit analysis (based on increased customer utility) to choose the product attribute
Average-Cost Inventory Method
The inventory cost-flow assumption that assigns the average
Average cost of capital
A firm's required payout to the bondholders and to the stockholders expressed as a
costs that are identifiable with and able to be influenced by decisions made at the business
a streamlined cost accounting method that speeds up, simplifies, and reduces accounting effort in an environment that minimizes inventory balances, requires
Bankruptcy cost view
The argument that expected indirect and direct bankruptcy costs offset the other
A cost that is incurred when a group of products or services are produced,
a cost that is caused by a group of things
a planned expenditure
Business Expansion Investment
The use of capital to create more money through the addition of fixed assets or through income producing vehicles.
Call money rate
Also called the broker loan rate , the interest rate that banks charge brokers to finance
Canadian Life and Health Insurance Association (CLHIA)
An association of most of the life and health insurance companies in Canada that conducts research and compiles information about the life and health insurance industry in Canada.
Capital Cost Allowance (CCA)
The annual depreciation expense allowed by the Canadian Income Tax Act.
capital investment analysis
Refers to various techniques and procedures
Money used to purchase fixed assets for a business, such as land, buildings, or machinery. Also, money invested in a business on the understanding that it will be used to purchase permanent assets rather than to cover day-to-day operating expenses.
capitalization of costs
When a cost is recorded originally as an increase
Capitalized Cost An expenditure or accrual that is reported as an asset to be amortized against
costs that increase with increases in the level of investment in current assets.
the total variable cost of carrying one unit of
The cost of holding inventory, which can include insurance,
costs of maintaining current assets, including opportunity cost of capital.
The amount of cash expended.
cash flow from operating activities, or cash flow from profit
This equals the cash inflow from sales during the period minus the cash
Cash flow from operations
A firm's net cash inflow resulting directly from its regular operations
Cash Flow Provided by Operating Activities
With some exceptions, the cash effects of transactions
Cash Flow Provided or Used from Financing Activities
Cash receipts and payments involving
Cash Flow Provided or Used from Investing Activities
Cash receipts and payments involving
CASH FLOWS FROM FINANCING ACTIVITIES
A section on the cash-flow statement that shows how much cash a company raised by selling stocks or bonds this year and how much was paid out for cash dividends and other finance-related obligations.
CASH FLOWS FROM INVESTING ACTIVITIES
A section on the cashflow statement that shows how much cash came in and went out because of various investing activities like purchasing machinery.
CASH FLOWS FROM OPERATIONS
A section on the cash-flow Stockholders’ equity statement that shows how much cash came into a company and how much went out during the normal course of business.
Also called horizon matching, a variation of multiperiod immunization and cash
A strategy in which a put and with the same strike price and expiration are either both
a cost related either to the long-term investment
company cost of capital
Expected rate of return demanded by investors in a company, determined by the average risk of the company’s assets and operations.
The collection of money managers of similar investment style used for assessing
Raw materials or subassemblies used to make either finished goods
A type of bond that has an infinite life but is not issued in the U.S. capital markets.
Consolidated Omnibus Budget Reconciliation Act (COBRA)
A federal Act
The combining of two or more firms to form an entirely new entity.
A summarization of the financial statements of a parent company and
A merchant banking subsidiary set up by several banks that may or may not be of the
a cost over which a manager has the ability to authorize incurrence or directly influence magnitude
Refers to the sum of manufacturing direct labor and overhead
the total of direct labor and overhead cost;
A resource sacrificed or forgone to achieve a specific objective (Horngren et al.), defined
the cash or cash equivalent value necessary to attain an
The expense incurred to create and sell a product or service. If a product is not
a discipline that focuses on techniques or
Cost Accounting Standards Board (CASB)
a body established by Congress in 1970 to promulgate cost accounting
the approach to product costing that determines
the assignment, using some reasonable basis,
the practice of finding acceptable alternatives
An asset’s purchase price, plus costs associated with the purchase, like installation fees, taxes, etc.
The idea that fixed costs and variable costs react differently to changes in the volume of
The calculation and comparison of the costs and benefits of a policy or project.
cost-benefit analysis the analytical process of comparing the
relative costs and benefits that result from a specific course
The net present value of an investment divided by the investment's initial cost. Also called
a responsibility center in which the manager has
A division or unit of an organization that is responsible for controlling costs.
Cost company arrangement
Arrangement whereby the shareholders of a project receive output free of
a company-wide attitude about the topics
the practice of minimizing, to the extent
The process of either reducing costs while maintaining the same level of productivity or maintaining costs while increasing productivity.
cost control system
a logical structure of formal and/or informal
A method of expensing the cost of a resource consumed by first determining
The most significant cause of the cost of an activity, a measure of the demand for an activity
a factor that has a direct cause-effect relationship
A factor that directly impacts the incidence of a cost, and which is generally
cost driver analysis
the process of investigating, quantifying,
cost leadership strategy
a plan to achieve the position in a
cost management system (CMS)
a set of formal methods
Anything for which a measurement of cost is required – inputs, processes, outputs or responsibility centres.
An item for which a cost is compiled. For example, this can be a product,
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