Allocative efficiency is an economic concept that occurs when resources are distributed in a way that maximizes the net benefit to society. It reflects a situation where goods and services are produced according to consumer preferences, and marginal cost equals marginal benefit.
A graphical depiction of the average cost per unit to produce a product for a given level of output based on current technology and scale employed by existing firms.
The contribution margin is a key metric in marginal-costing systems, helping organizations determine the additional profit earned when production surpasses the breakeven point.
The expenditure on goods and services required to carry out the operations of an organization. Different methods of defining cost are used in accounting to reflect various aspects of financial reporting and decision making.
Dual-rate transfer pricing is a method where transfer prices are set at different levels for the supplying and receiving divisions within an organization, aimed at incentivizing internal transactions without penalizing either division.
A characteristic of a production process that becomes more efficient at larger levels of output. The marginal cost of producing each additional unit decreases, often due to high fixed costs relative to marginal costs.
Marginal cost represents the cost of producing one additional unit of a product. It includes both direct costs and variable overhead costs associated with the production process.
A graphical depiction representing the marginal cost experienced by a producer at various levels of production.
A method for setting transfer prices equal to marginal costs to help managers identify the optimal output levels for maximizing profits when there is no market for goods and services traded between divisions of an organization.
Variable cost refers to expenses that change in proportion to the production output or sales volume. They fluctuate based on the operational activity, such as material costs, labor costs, and utility expenses.
