Accounting: November 2011

Saturday, 5 November 2011

What is cash cow product

Cash cow product has high market share with limited growth opportunity. The organization must invest in the product to maintain this position. Competitive pricing may be used as policy to retain the market share. The retaining market share strategy known as hold.

What is star product

Star product is a product which has high market share with high growth opportunity. These product need investment to remain start and future gains. The investment strategy for star product may be referred as harvest.

What is price sensitivity

The price sensitivity is the concern of a particular group about the price. The one group may be sensitive than other group. The price sensitivity varies group to group. Price sensitivity is very important concept for price setting for a segment of market.

Penetration strategy of price is followed in price sensitive segment i.e. charging low price at the launch of product and skimming price strategy may followed for less price sensitive segment i.e. charging high price at the launch of product.

What is competitive advantage

Competitive advantage is something which gives entity an edge over its rivals. There are different sources of competitive advantage which vary from place, use of technology, efficient processes, management skills etc. There are two famous competitive strategies one is cost leadership and other is differentiation.

What is Minimum Price

The incremental cost of making a product is minimum price. The any amount above that incremental cost would be a contribution to cover the fixed cost. The minimum price is not calculated for the purposes of charging that price.

Minimum price information helps Management to set a price above the minimum price to achieve desired profit level. If Spare capacity available if entity has more free credit available then the minimum price may improve the liquidity of the entity. If the receivable turnover is more than payable turnover.

What are indirect expenses

Expenses which are not directly traceable to a product but otherwise are form important part of production process. Example is lightening in the factory and deprecation of plant and machinery

What is indirect labour

The labour does not directly participate in the production process and therefore not directly traceable to product. Example of such labour is supervisions and management.

What are overheads

Overhead are normally those cost which are not directly related to production but otherwise form an important part of production process. These include indirect material, indirect labour and other indirect expenses. Overhead are charged to the product cost under conventional costing method i.e absorption costing.

Factory cost figures is calculated by adding the overheads expenses into the prime cost.

What is financial Management

The management need finance (resources) to run the business. The finance is a primary need of the need and therefore requires an effective management. Finance management include the where to arrange the finance and how to utilized the finance. Financial decision can be categorized as investment decision, dividend decisions and financial structure decisions.

What are the management functions

Primary functions of management are controlling, decision making and planning. The management function can also be categorized as planning and controlling, formulating strategies, allocating resources, safeguarding the assets, establishing the internal control and compliance with rules and regulation.

What is management accounting?

Management accounting is basically providing information to perform the management function. The information is generated and processed in a way that it facilitates the management function in the organization.

What is cost accounting

Cost accounting is basically a part of management accounting. However, cost accounting provides lot information for financial accounting as well. It has special relevance in production industry where the more detailed analyses of costs are required involved.

Cost accounting provides useful information to management to establish cost of goods produced, set selling price and put a stock value. Cost accounting help full in determine the future cost. Cost accounting also facilitates the costs comparison for control purposes.

Friday, 4 November 2011

What is Factoring

Factoring is arrangement where third party collects the debts on behalf of the entity. Factoring company charges fees for collection. Factoring company some money advance to the entity and remaining amount is given when the debt are collected. Factoring arrangement improves entity liquidity position.

What is budgetary slack

Budgetary slack is overestimating the expenses or underestimating the revenue in budget. Budgetary slack are basically used to keep the budget targets within an achievable range so that manager cannot be blamed for poor performance. Expenditure is over quoted to allow them a freedom of spending without any question. Similarly revenue is understated to cover the under performance of sales department.

What is benchmarking

Benchmarking basically a performance comparison exercise to improve the performance. Highest performing department or individual or company is a benchmark standard for other to follow. Data is gathering and analyzed to compare the performance. Performance can be compared within organization and can also be compared outside the organization

What is backflush accounting

Backflush accounting a a cost accounting methodology which use the concept of Just in time production. The details costs accounts are not maintained in backflush accounting and cost are charged to production when the good are completely produced. Backflush accounting focuses on output for costing purposes and costs are backward traced.

What is attributable cost

Attributable cost which can be identified to a responsibility center i.e cost center, profit center or investment center. As Attributable can be directly identified to a center therefore there is no need of apportionment of attributable cost. Normally attributable cost can be controlled by the responsibility center manager.