376 ACCOUNTING FOR MANAGERS
Liquidity A measure of the ability of a business to pay its
debts as they fall due – see also working capital.
Long-term liabilities Amounts owing after more than one year.
Make-ready See set-up.
Management accounting The production of financial and non-financial
information used in planning for the future;
making decisions about products, services,
prices and what costs to incur; and ensuring that
plans are implemented and achieved.
Margin The amount added to a lower figure to reach a
higher figure, expressed as a percentage of the
higher figure, e.g. the margin that profit
represents as a percentage of selling price.
Marginal cost The cost of producing one extra unit.
Margin of safety A measure of the difference between the
anticipated and breakeven levels of activity.
Mark-up The amount added to a lower figure to reach a
higher figure, expressed as a percentage of the
lower figure, e.g. cost is marked up by a
percentage to cover the desired profit to
determine a selling price.
Matching See accruals accounting.
Net present value (NPV) A discounted cash flow technique used for
investment appraisal that calculates the present
value of future cash flows and deducts the initial
capital investment.
Net profit See operating profit.
Non-production overhead A general term referring to period costs, such as
selling, administration and financial expenses.
Operating profit The profit made by the business for an
accounting period, equal to gross profit less
selling, finance, administration etc. expenses, but
before deducting interest or taxation.
Opportunity cost The lost opportunity of not doing something,
which may be financial or non-financial, e.g.
time.
Optimum selling price The price at which profit is maximized, which
takes into account the cost behaviour of fixed
and variable costs and the relationship between
price and demand for a product/service.
Overhead Any cost other than a direct cost – may refer to
an indirect production cost and/or to a
non-production expense.