Cost Accounting Fundamentals: Cost Sheets and Cost Behaviour
Types of Cost Based on Cost Behaviour
Based on cost behaviour, costs are mainly divided into the following three types:
- 1. Fixed Cost:
Fixed cost remains constant regardless of the level of production or activity within a certain range.
Example: Rent of building, salary of manager, insurance premium. - 2. Variable Cost:
Variable cost changes in direct proportion to the level of production or activity.
Example: Direct materials, direct labour, packing expenses. - 3. Semi-Variable Cost:
Semi-variable cost contains
Essential Accounting Principles and Financial Ratios Study
Financial Statement Classification
Cash CA – Accounts Receivable CA – Inventory CA – Prepaid Expenses CA – Property, Plant, and Equipment NCA – Accounts Payable CL – Long-Term Debt NCL – Common Stock SE
a. Assets, liabilities, and shareholders’ equity → Balance Sheet
b. Revenues and expenses → Income Statement
Core Accounting Principles
Revenue Recognition – Revenues should be recognized when they are earned.
Matching Principle – Expenses should be associated with the revenues they
Corporate Finance Principles and Financial Ratio Analysis
Corporate Goals and Intrinsic Value
Maximizing Shareholder Wealth
The primary goal of a corporation is to maximize the long-term stock price (intrinsic value), rather than focusing on short-term profits. Ethical conduct is mandatory, as mistreating stakeholders ultimately destroys value. Intrinsic value represents the fundamental long-run value derived from cash flows and risk, whereas the stock price is a short-run price determined by marginal investors. In equilibrium, the price equals the intrinsic
Read MoreTax Planning Strategies and Accounting Principles
Tax Fundamentals and Revenue Formulas
The fundamental formula for taxation is: Tax Burden/Revenue = Tax Base × Tax Rate. The Tax Base represents the value subject to tax. Tax types and bases are identified by what triggers the tax: an event (something occurs), a transaction (buying or selling), or value (the worth of property).
Core Principles of Taxation
- Sufficiency: The tax system raises enough revenue to cover government expenditures.
- Simplicity: It is easy for the government to collect and for
Corporate Governance Principles, Theories and Regulations
Meaning and Definitions
“Governance” from Latin ‘gubernare’ = ‘to steer’ (as in steering a ship).
OECD (1999): “A set of relationships between a company’s board, its shareholders and other stakeholders. It also provides the structure through which the objectives of the company are set, and the means of attaining those objectives, and monitoring performance, are determined.”
Cadbury Committee (1999): “Concerned with holding the balance between economic and social goals and between individual and communal
Read MoreFinancial Management Formulas and Ratio Analysis
Cost-Volume-Profit (CVP) Analysis
- Contribution Margin (CM) per Unit = Selling Price − Variable Cost per Unit
- CM Ratio = (Selling Price − Variable Cost) ÷ Selling Price × 100
- Break-Even Units (BEU) = Fixed Expenses ÷ CM per Unit
- Break-Even Sales (BES) = Fixed Expenses ÷ CM Ratio
- Additional Units (AU) = Target Profit ÷ CM per Unit
- Total Units (TU) = BEU + AU
- Total Sales = TU × Selling Price
- Margin of Safety = Actual Sales − BES
Net Present Value (NPV) Analysis
- NPV = Σ (Cn × PV Factor) − Initial