Business Operations

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Budgets that Go into Creating a Master Budget

A master budget is a plan created to manage a company's manufacturing and sales activity to meet profit and cash flow goals. Creating a master budget requires careful coordination of several smaller budgets [more…]

What Is Mergers and Acquisitions?

M&A stands for mergers and acquisitions. Both a merger and an acquisition are forms of integration between corporations. Mergers and acquisitions aren’t the only types of corporate integration, but the [more…]

Mergers Combine Corporations into New Entities

A merger is really a rather strange thing. A mergeroccurs when two companies become each other or, more specifically, both companies cease to exist and a new company is formed out of the operations of [more…]

One Company Purchases Another in an Acquisition

So what the heck is an acquisition, anyway? An acquisition differs from a merger because it doesn’t combine two companies. Rather, in an acquisition, one company purchases the other as you would purchase [more…]

What Is a Buyout?

A buyout occurs when one corporation buys a controlling share of stock in another. A buyout is very similar to a partial acquisition. Some argue there’s no difference, which isn’t surprising because the [more…]

Forms of Corporate Integration/Cooperation

At the core of all M&A (mergers and acquisitions) is the idea of corporate integration. Companies can make corporate integration happen in several ways that aren’t technically mergers or acquisitions. [more…]

What Is a Divestiture?

When a company is looking to get rid of some of their operations, they will go through something called a divestiture. You’ve done awful, terrible things during your time managing M&A [more…]

What a Business Is Worth to You

Businesses don’t typically just advertise that they’re for sale and at what price they’re being sold. These transactions are all handled through very careful financial valuations, usually done separately [more…]

Methods of Financing Mergers and Acquisitions

Like all investments, the method of payment for mergers and acquisitions (M&A) plays a very significant role in whether or not making the investment at all is feasible. There are a number of methods available [more…]

W. Edwards Deming's PDCA Cycle for Continuous Improvement

W. Edwards Deming popularized a tool called the PDCA cycle for continuous improvement. Managerial accounting runs in cycles of different lengths. Certain sales reports and controls may be repeated every [more…]

How to Calculate Overhead Allocation

Not all companies manufacture products that require the same amount of overhead, and as a managerial account, you need to be able to calculate the overhead allocation. The following example is relatively [more…]

Activity-Based Costing for Overhead Allocation

A wide variety of factors can cause overhead to increase. To gain a better understanding of these factors, managerial accountants use activity-based costing. The assumption that the more direct labor your [more…]

Keep Records in a Job Order Cost System

A manufacturer who makes unique goods — or batches of goods — to order usually uses a job order cost system to determine how much each job costs to make. Such goods may include custom teddy bears, made-to-order [more…]

The Accounting for Job Order Costing

Recording journal entries and posting them to general ledger accounts in a managerial cost accounting system isn’t difficult. Because almost all accounts in managerial accounting are either assets or expenses [more…]

An Example of Accounting for the Job Order Costing System

Information about product cost helps managers to set and adjust prices and to decide how to best utilize limited production capacity. Here you use only two credit accounts: Accounts payable [more…]

Compare Process Costing and Job Order Costing

Process costing handles the same types of manufacturing costs as job order costing. Both systems deal with tracking how manufacturing costs such as direct materials, direct labor, and overhead flow through [more…]

How to Manage Processes with the Theory of Constraints

Manufacturing — and even services — often work a lot like traffic bottlenecks on your local freeway. To improve production, you need to focus on and then break the bottleneck or constraint. Dr. Eliyahu [more…]

How to Compute Contribution Margin

Contribution margin measures how sales affects net income or profits. To compute contribution margin, subtract variable costs of a sale from the amount of the sale itself: [more…]

How to Prepare a Cost-Volume-Profit Analysis

Contribution margin indicates how sales affects profitability. Cost-volume-profit analysis helps you understand different ways to meet your net income goals. When running a business, a decision-maker or [more…]

How to Generate a Break-Even Analysis

How much do you need to sell in order to break even? The break-even point (BE) is the amount of sales needed to earn zero profit — enough sales so that you don’t earn a loss, but insufficient sales to [more…]

How to Determine Target Profit with Contribution Margin Analysis

If you have set a specific goal for net income, contribution margin analysis can help you figure out the needed sales. This goal for net income is called target profit. [more…]

Managerial Accounting: How to Determine Margin of Safety

In managerial accounting, margin of safety is the difference between your actual or expected profitability and the break-even point. It measures how much breathing room you have — how much you can afford [more…]

Managerial Accounting: Take Advantage of Operating Leverage

In managerial accounting, operating leveragemeasures how changes in sales can affect net income. For a company with high operating leverage, a relatively small increase in sales can have a fairly significant [more…]

Managerial Accounting: Incremental and Opportunity Costs

Managerial accountants know that when faced with two or more alternatives, incremental costs are those costs that change depending on which alternative you choose. Suppose you want to buy a new bicycle [more…]

Managerial Accounting: The Cash Payback Method

The cash payback method is a tool that managerial accountants use to evaluate different capital projects and decide which ones to invest in and which ones to avoid. The cash payback method estimates how [more…]

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