Financial Ratio Analysis Formula

Financial statement analysis can provide clues to underlying conditions that may not apparent from individual financial statement components.

Significant business decisions are frequently made using one or more of the analytical tool. Here illustrate a number of analytical tools that help business decision maker obtaining business objective.

Cost Accounting Planning & Control by Adolph, Usry

Book Name: Cost Accounting Planning & Control

 

Authors:

- Adolph Matz phd

Professor Emeritus of Accounting

The Wharton School

University of Pennsylvania

-Milton F. Usry phd, CPA

Regents Professor of Accounting

College of Business Administration

Oklahoma State University

Accounting Principles by Weygandt, Kieso & Kimmel

Book Name: Accounting Principles

Authors:

-Jerry J. Weygandt Phd. CPA

Arthur Andersen Alumni Professor of Accounting

University of Wisconsin

-Donald E. Kieso Phd. CPA

KPMG Emeritus Professor of Accounting

Northern Illinois University

Dekalb, Illinois

-Paul D. Kimmel Phd. CPA

Associate Professor of Accounting

University of Wisconsin Milwaukee

Milwaukee, Wisconsin

Publisher: John Wiley & Sons Inc.

Managing Accounting by H. Garrison, W. Noreen & C. Brewer

Book Name: Managing Accounting

Authors:

-Ray H. Garrison D.B.A CPA

Brigham Young University

-Eric W. Noreen, Ph.D, CMA

Professor Emeritus

University of Washington

-Peter C. Brewer, Ph.D., CPA

Miami University-Oxford, Ohio

Limitations of Backflush Costing

This system does not strictly adhere to Generally AcceptedAccounting Principles (GAAP). For example, work in process exists, but is not recognized in the financial statements.

Costs & Benefits of Backflush Costing

‘Backflush Costing’ by organization manufacturing in cells, reducing defects and manufacturing lead time, and ensuring timely delivered of materials, enables purchasing, production and sales to occur in quick succession with minimum inventories.

Difference between Backflush Costing and Conventional Costing

Two major differences between the two systems are:

Under conventional costing raw materials go to raw materials inventory, they are transferred to WIP. Under JIT/Backflush costing raw materials just go to RIP. In JIT raw materials are only ordered when required.

Under conventional costing, direct labor and overhead are charged direct to WIP. They are then moved to finished goods and cost of goods sold (sequential processing). 

Different Types of Costs

Cost
A sacrifice or giving up of resources for a particular purpose, frequently measured by the monetary units that must be paid for goods and services.
 
Expense
The expired portion of cost is called expense. In other words, decrease in ownership claims arising from delivery of goods and services or using up of assets.
 
Direct Cost
Costs that can be identified specifically and exclusively with a given cost objective in a economically feasible way.
 
Indirect Cost
Costs that can’t be identified specifically and exclusively with a given cost objective in a economically feasible way.
 
Product Cost
Costs that are necessary and integral part of producing the finished product. These costs don’t become expenses under the matching principles until the finished goods inventory is sold.
 
Period Cost
Costs are not related to the manufacture of a product, the costs that are identified with a specific time period rather than a saleable product.
 
Manufacturing Cost
Costs that are related to production of an item. They are composite of direct material, direct labour and manufacturing overhead costs.
 
Commercial Cost
All the costs incurred outside the factory e.g. selling & marketing expenses and also administrative expenses.
 
Assignable Cost
The costs which are easily allocable to the respective department is called assignable cost.
 
Common Cost
The cost of operating a facility, operation, activity area or like cost objective that is shared by two or more users.
 
Process Costing
A costing system in which the cost of a product or service is obtained by using broad averages to assign costs to masses of identical or similar units. The method of allocating costs to products by averaging costs over large number of nearly identical products.
 
Operation Costing
A hybrid costing system applied to batches of similar product.
 
Fixed Cost
Costs that remain unchanged in total for a given period.
 
Variable Cost
Costs that change in total proportion to changes in the related level of activity volume.
 
Mixed Cost
A cost that has both fixed and variable elements.
 
Inventoriable Costs
All costs of a product that are regarded as an asset when they are incurred and then become cost of goods sold when the product is sold.
 
Target Costing
An approach that determines what a product or service should cost based on its sales price less a target profit. Target costing uses market research to estimate what consumer will pay for a specific product.
 
Management Cost
All the costs which are related to current operation which must continue to be paid to ensure the continued operating existence of the company.
Example- management and staff salary.
 
Traceable Cost
Any cost that may be traced to other department if some economic activity is changed or deleted.
 
Non-traceable Cost
 
Joint Cost
Cost of a single process that yield multiple products simultaneously.
 
Separable Cost
Cost incurred beyond spilt off point that are assignable to individual products.
 
Financial Cost
Costs that are related to obtaining funds for the operation of the company.
 
Avoidable Cost
Any cost that can be eliminated if some economic activity is changed or deleted.
 
Unavoidable Cost
Cost that can be continued even if some operation is halted.
 
Conversion Costs
Is written off at month or year end.

Career Opportunity for Accounting Profession

Accounting has always been considered as the language and basic tool of business. Over the last two decades, the field of accounting has been changing dramatically in response to computer revolution, increased government regulations, frequent tax law changes, the globalization of business, and the on-going downsizing and restructuring of corporations. In this increasingly complex and competitive business environment, accounting skills are very much in demand and accounting has become a dynamic career. Accountants are now performing as prestigious role of financial experts, system professionals, management consultants, budget analysts, etc.

Generally Accepted Accounting Principles (GAAP)

GAAP are the foundation, and ground rules of accounting practice. GAAP are followed by accountants all over the world.

Definition of GAAP: The accounting profession has developed a common set of standards that are generally accepted and universally practiced. This common set of standards is called generally accepted accounting principles (GAAP).