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Liquidity ratios
Liquidity refers to the ability of concern to meet its current obligations as and when these become due. The short term obligations are met by realizing amounts from current floating or circulating assets. The current assets should either be liquid or near liquidity. These should be convertible into cash for paying obligations of short term nature.
The sufficiency or insufficiency of current assets should be assessed by comparing term with short term (current) liabilities. If current assets can pay off current liabilities then liquidity position will be satisfactory. On the other hand if current liabilities may not be easily met out of current assets then liquidity position will be bad.
Economies or Diseconomies of Scale The costs of a value activity are often subject to economies or diseconomies of scale. Economies of scale occur from the capability to perfo
Correlation coefficient (r) Correlation coefficient measures the degree of association between two variables such as the cost and the activity level. r = nΣxy - Σx Σy
Laplace Criterion of Rationality This criterion holds that if decision makers do not know the probabilities of the various states of nature and have no reason to think otherwis
Gather data concerning the relationship among the dependent and independent variables Collecting data is generally the most hard and time-consuming element of CER development.
Relevant costs and benefits for operating decisions: In operating decisions, concentration is on best use of existing capacity. Incremental analysis based on differential cost
The Rohr Company’s old equipment for making subassemblies is worn out. The company is considering two courses of action: (a) Completely replacing the old equipment with new equipme
Disadvantages of ratio analysis 1) False results: ratios are based upon the financial statement. In case financial ratio is incorrect or the data upon which ratios are based
What is Cost unit While the cost centres assists in ascertaining costs by location, person, equipment, operation or process, cost unit is a unit of product, service or a combin
Basic Assumption of Transportation Model The basic assumption of the model is that the transportation cost on a given route is directly proportional to the number of units tran
advantage and disadvantage of incremental budget
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