Desired Profit in Sales Dollars
Let’s assume a company needs to cover $2,400 of fixed expenses each week plus earn $1,200 of profit each week. In essence the company needs…
Desired Profit in Sales Dollars
Break-even Point in Units
The break-even point in units for Oil Change Co. is the number of cars it needs to service in order to cover the company’s fixed…
Ideal vs. Practical Standards
Ideal standards allow for no machine break-downs or work interruptions, and can be attained only by working at peak effort 100 percent of the time….
Break Even Analysis – Contribution Margin
An important term used with break-even point or break-even analysis is contribution margin. In equation format it is defined as follows: Contribution Margin = Revenues…
Direct labor standards
The standard rate per hour for direct labor should include all the costs of direct labor workers, including: Hourly wage rates. Fringe benefits. Employment taxes….
Cost-volume relationships
A person starting a new business often asks, “At what level of sales will my company make a profit?” Established companies that have suffered through…
Standard Cost System
Standard costing is an important subtopic of cost accounting. Standard costs are usually associated with a manufacturing company’s costs of direct material, direct labor, and…
Times interest earned ratio
Why is it possible to talk of a “rule-of-thumb” number, such as 2.0, for the current ratio, but not have a comparable rule-of-thumb number for…
If the value of one of a firm’s ratios is cut in half, can we be sure that the firm’s condition has improved?
No. While a decrease in some ratios indicates improvement (collection period is an example), this is not true for ratios in general. For many ratios,…
Which ratios would be of most interest to
Since financial ratios can provide insights into a company’s health and financial results, each of these groups would be interested in all financial ratios. However,…