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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.

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.

Abnormal gain

This refers to proceeds or profits which exceed the typical levels for a commercial transaction. Abnormal gains typically occur when a business takes advantage of a distortion in the market, for example a sudden weather change enabling a monopoly rain-ware retailer to treble their price for umbrellas. Typically, abnormal gains are short term as the… Read more

Batch Costing

This refers to an approach that analyses the costs of a group of identical items, rather than each individual product. Batch costing is typically used where a large number of identical items are produced, for example 000’s of paper clips or printing 100 identical promotional pens. It enables meaningful analysis without fine levels of detail.… Read more

Abnormal loss

This refers to proceeds or profits which are below the typical levels for a commercial transaction. Abnormal losses typically occur when a competitor or customer takes advantage of a distortion in the market, for example a major customer demanding immediate discounts, knowing the supplier has stock which will shortly become obsolete. Typically, abnormal losses are… Read more

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