Every organization needs to calculate future revenues in order to help the managers carry out their operations effectively. Cost volume is the approach used for this purpose. Cost Volume Profit analysis or CVP analysis helps in identifying the operating activity levels with a purpose to avoid any kind of losses and achieve profits. Moreover, it also helps the companies to plan their future operations and see whether their organizational performance is going on the right track or not. While conducting a business, the companies also have to face various risks and in order to counter those risks, CVP analysis is an effective tool. Cost volume profit analysis can also help the organizations in calculating the breakeven point which is the point at which the profits become equal to zero. This can be done by finding the break even volume and then using it to make graphical representations. The break even Continue reading
Economics Concepts
Cashless Economy – The Road Towards a Cashless World
A cashless economy is a system where payments are made by electronic means rather than using cash or check to pay for goods or services. In an economy that is “cashless”, a person would pay with plastic methods like credit cards, debit cards, or smart cards. This type of transaction electronically moves money from one account to another rather than using the traditional forms of exchanging printed currency or checks. Woodfords Model of Cashless Economy There has been much debate over Woodford’s model of a cashless economy by many experts in the field of economics. Most experts believe that although some of the ideas brought forth make sense, the model is still incomplete because, in real-world economics, central banks can affect nominal interest rates. In Woodford’s model, he assumes that this does not relate to the real-world economy. Woodford’s argument is that banks have committed themselves to straightforward objectives to Continue reading
Theories of Profit in Economics
In economics, profit is called pure profit, which may be defined as a residual left after all contractual costs have been met, including the transfer costs of management insurable risks, depreciation and payment to shareholders, sufficient to maintain investment at its current level. Theories of Profit in Managerial Economics There are various theories of profit in economics, given by several economists, which are as follows: 1. Walker’s Theory of Profit as Rent of Ability This theory is pounded by F.A. Walker. According to Walker, “Profit is the rent of exceptional abilities that an entrepreneur may possess over others”. Rent is the difference between the yields of the least and the most efficient entrepreneurs. In formulating this theory, Walker assumed a state of perfect completion in which all firms are presumed to possess equal managerial ability each firm receives only the wages which in Walker view forms no part of pure Continue reading
The Efficient Markets Hypothesis (EMH)
Market Efficiency The concept of market efficiency was first developed in the finance literature and its full form was first explained by Engene Fama. But now-a-days this concept is being used in other areas also. Market efficiency implies that prices reflect all available information, but it does not imply certain knowledge. Many pieces of information that are available and reflected in prices are fairly uncertain. Efficiency of markets does not eliminate that uncertainty and therefore does not imply perfect forecasting ability. By definition then there should not exist any unexplained opportunities for profit. “An ‘efficient’ market is defined as a market where there are large numbers of rational, profit-maximizers actively competing, with each trying to predict future market values of individual securities, and where important current information is almost freely available to all participants. In an efficient market, competition among the many intelligent participants leads to a situation Continue reading
Process Costing and Job Costing
Management accounting uses several costing techniques. Costing techniques are very important to the business management because they help them make sound decisions for the company. They also help companies keep track of the costs that they incur in the production process. Process costing and job order costing are two types of costing techniques that are have a similarity that they both analyze the costs that are incurred by the organization. Though these methods can be used to analyze costs, they differ in their approach. Process Costing This is a costing technique that is used in finding costs in homogeneous or products that are uniform. This technique makes averages of costs for all units to make per unit costs. Work in process account is used to track the process costs. Through this system, a continuous manufacturing process is used to produce identical goods. Computation Procedures for Process Costing Manufacturing costs are Continue reading
The Great Depression – Facts, Causes, and Effects
The Great Depression is a term denoting the economic crisis that emerged in the United States and some European countries. The crisis began in 1929 and continued until the end of the 1930s. The term “depression” is mostly used to refer to events solely in the U.S., where virtually entire American nation was particularly strongly affected by a depressive state in addition to the economic decline. The term “global economic crisis” is commonly used for other countries that have experienced the same events (UK, Germany, France, and other European countries to a lesser extent). Large industrial cities had suffered the most from the crisis, but rural areas were also affected. Crises in world history occur from time to time. However, according to the researchers, the Great Depression is one of the most prolonged crises in the history of the industrialized countries. It is considered that it started with the collapse Continue reading