Marginal private cost is the change in cost when production or consumption of a good or service is changed by a single unit. It helps individuals and businesses determine if making a change is the best approach and can aid in budget planning and resource management. Marginal private cost is a term used to identify […]
Budget cuts in public schools mean parents may need to subsidize field trips. Parents who can’t afford it should explain to the teacher without embarrassment. Private schools may have different rules, but teachers want all children to benefit. Exploring options with the school can help. With the cost of public education rising, and with budget […]
Net present value calculations use a company’s cost of capital to discount future dollars to present value, allowing for dollar-to-dollar comparisons when making business decisions. Multiple cost of capital rates can be used for a more comprehensive analysis. Poor estimates or an inappropriate cost of capital formula can lead to poor results. Net present value […]
Current cost is the expense of replacing an asset with one of the same value, based on the current market value, age, and condition. It considers inflation and depreciation, and is more complex than historical cost. It can be applied to any asset and may indicate whether it’s a good time to replace it. Current […]
A cost estimator provides accurate cost and time estimates for potential projects, which are used for cost-benefit analysis and pricing decisions. They work in construction, manufacturing, and consulting industries, analyzing all aspects of the project to provide an accurate forecast. Incorrect estimates can lead to lost profits and customers. A cost estimator is the person […]
Opportunity cost is the value of the best alternative forgone when making a choice. It applies to both business and personal decisions, and can be used to determine the best alternative. For example, if a company chooses to produce diapers instead of wipes, the opportunity cost is the potential sales from wipes. Similarly, if a […]
Cost averaging is a strategy that assumes the average cost of assets or expenses in a common pool is equal to their value, and can be used to determine the average cost of shares or inventory. It works well with FIFO and LIFO accounting and can be useful for budgeting. Also known as the average […]
Cost basis regulations require reporting of the original value of assets at disposal to determine profit or loss for tax purposes. The US government issued more formal rules in 2008, requiring brokers and mutual funds to report cost basis. This generated discussion and critics argued it added to the cost of managing customer accounts. Cost […]
Calculating the cost basis of shares is important for determining the value of each share, capital gains tax, and after a split. Market value is crucial for determining the cost basis, and commissions must be added for realistic calculations. Small and big investors can determine the cost basis by knowing the total investment and number […]
Sunk costs are expenses that cannot be recovered or reversed, such as the cost of buying tickets to a sporting event or a new car. They are not a factor in budgeting or decision-making, as they only exist after a purchase has been made. Financial planners focus on potential costs instead. Also known as stranded […]
Marginal cost and revenue are used to determine the effects of producing one more unit. Firms aim for a production equilibrium where these are equal to maximize profit. Imbalances result in inefficiencies and economies of scale, and long-term calculations exclude fixed costs. Excessive production can lead to high costs without an increase in demand. Marginal […]
The expenditure approach calculates GDP by summing expenditures on goods and services, including consumption, investment, government spending, and exports. However, it has flaws, such as not counting goods and services produced for personal use. Analysts use different methods to study changes in GDP over time and learn more about economic conditions. The spending approach can […]
Indirect cost allocation is the process of accounting for costs that do not lead to a direct result. Overhead costs are difficult to allocate to one department, so companies use methods such as case-by-case or overhead rate allocation to distribute costs based on department size. Indirect cost allocation is the process of accounting for all […]
Carriage cost is the cost of holding inventory, taking into account factors such as storage, personnel, and potential loss or damage. Just in time manufacturing can reduce inventory and associated costs. Carriage cost is a measure of the cost associated with holding inventory for a specified period of time. The cost takes into consideration a […]
Cost structures are methods used by manufacturers to manage an operating budget for maximum profitability. There are three types: production site, process origin, and purchase structures. Fixed costs remain the same each month, while variable costs change. Managers must carefully align their budget to one of these structures to avoid strategic disadvantages. Cost structures are […]
Food costing is a strategy that helps restaurants evaluate the costs of food and determine what level of cost needs to be maintained to offer menu items at competitive prices. The basic formula involves determining the costs associated with ingredients and dividing them by the price of the item on the menu. This helps restaurants […]
The cost of capital and the capital asset pricing model (CAPM) are used to review and value investments. The cost of capital is the interest rate paid on funds used for business activities, while CAPM assesses risk versus return. They help companies select projects with strong financial returns, but cannot account for unexpected external factors. […]
Semi-variable costs transition from a variable to a fixed cost or vice versa over time. Customers are charged a fixed rate for a specified period, then the cost switches to a variable approach. This model can benefit both customers and suppliers, but some customers may prefer flat-rate pricing. Also known as a semi-fixed or blended […]
Companies must use an absorption cost income statement to report to external entities. This method includes all overhead costs in inventory costs, reducing gross profit and providing a more accurate picture of production costs. However, allocating costs to individual units can be challenging, and net income is affected by inventory levels. Some see this method […]
Forward pricing is a method used by investment companies to price shares of open-ended mutual funds based on the net asset value (NAV) after receiving an order. Late trading, allowing investors to receive the previous day’s share price after the pricing time has elapsed, is illegal in some countries. Forward pricing is a common stock […]
