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Opportunity Cost

This refers to the benefits lost by taking any decision. Opportunity cost recognises that every decision has disbenefits as well as benefits. For example, investing in new machinery to increase production capacity of a new product line will reduce the interest received on cash in the bank; it might also mean that the business stops… Read more

FIFO (first in, first out)

This refers to the inventory stock control and valuation method. Inventory is used and valued in the order in which it was purchased. FIFO minimises losses due to stock deterioration. FIFO (first in, first out) method is a term normally found in management accounting.

AVCO (average cost)

This refers to the inventory stock costing method. This assumes that stock used will be valued at an average cost.  The AVCO is derived by taking the total value of the stock (irrespective of the order in which it was purchased) and dividing it by the total units in stock thus finding the average price… Read more

NIFO (Next in, First out)

This refers to the inventory stock control and valuation method whereby stock is valued at its current replacement cost, not at its purchase cost. NIFO seeks to reflect production costs according to the accounting period in which the material was consumed not when it was bought. The NIFO (next in, first out) method is a… Read more

LIFO (last in, first out)

This refers to the inventory stock control and valuation method whereby it is assumed that the goods purchased most recently are sold or used first. LIFO may lead to older stock becoming unusable or obsolete. The LIFO (last in, first out) method is a term normally found in management accounting.

Normal loss

In financial management, this refers to the revenue for a product of service being lower than its cost, where normal market conditions are applying. In process management, normal loss refers to the amount of products which are lost during processing due to expected circumstances, for example 5% of potatoes picked may be expected to be… Read more

Transfer pricing

This refers to the internal pricing of goods or services which are used by another part of the organisation. Transfer pricing enables individual business units to calculate their independent profit and loss position. Poor transfer pricing policies can result in contrary behaviour with business units making decisions which are sub-optimal for the organisation as a… Read more

Market based cost

This refers to a technique for calculating an appropriate transfer price for internal goods or services. Market based, or arms length, transfer pricing assumes goods and services used internally are ‘sold’ in a similar way to external sales. There are no internal concessions or cost offsets; the approach assumes that, if the supplying unit is… Read more

Cash flow statement

This refers to the part of an organisation’s financial statements which forecasts receipts and expenditure over time. The cash flow statement shows the impact of the organisation’s activities in cash (typically bank transactions) terms. By period (typically monthly) it shows the sources of cash (for example sales receipts, grants received, sale of assets) and outgoings… Read more

Prevention cost

This refers to the costs incurred in preventing the production of products that do not conform to specification. Prevention costs include the costs of preventive maintenance, quality planning & training, and the extra incremental costs of acquiring high quality raw materials. Prevention costs is a term normally found in management accounting and performance management.