Introduction Financial Definitions

A cost of a business expense that doesn't change even when there's an increase or decrease in the number of goods and services produced or sold.
Fixed Costs are expenses that have to be paid by a company, independent of any business activity
Fixed costs are allocated in the indirect expense section of the income statement which leads to operating profit.
Depreciation is one common fixed cost that is recorded as an indirect expense.

A variable cost is a corporate expense that changes in proportion to how much a company produces or sells.
Variable costs are usually viewed as short-term costs as they can be adjusted quickly.
The variable cost of production is a constant amount per unit produced.
Variable costs increase or decrease depending on a company's production or sales volume—they rise as production increases and fall as production decreases.
Total Variable Cost = Total Quantity of Output X Variable Cost Per Unit of Output

The sales price is the price at which a certain class of goods or services is typically sold

Unit margin is also called Unit Contribution Margin
Unit margin can be stated on a gross or per-unit basis
Unit Margin is the amount of the product selling price over and above the variable cost per unit

Total Margin is the total amount of margin or profit made after deducting fixed costs

Ceteris paribus is translated into English as "all else being equal."
It is a Latin phrase that literally "holding other things constant,"
ceteris paribus is often used when making arguments about cause and effect
It acts as a shorthand indication of the effect one economic variable has on another, provided all other variables remain the same.
Many economists rely on ceteris paribus to describe relative tendencies in markets and to build and test economic models.

An unfavorable variance is an accounting term that describes instances where actual costs are greater than the standard or projected costs.
What Is Unfavorable Variance?
An unfavorable variance is an accounting term that describes instances where actual costs are greater than the standard or projected costs.
The sooner an unfavorable variance is detected, the sooner attention can be directed toward fixing any problems
The unfavorable variance could be the result of lower revenue, higher expenses, or a combination of both.

A favorable variance is where actual income is more than budget, or actual expenditure is less than budget.
This is the same as a surplus where expenditure is less than the available income.
Favorable variances related to price are only derived from the difference between actual and expected prices paid, and so have no bearing at all on the underlying efficiency of a company's operations.
Obtaining a favorable variance does not necessarily mean much, since it is based upon a budgeted or standard amount that may not be an indicator of good performance

A positive correlation is a relationship between two variables that tend to move in the same direction.
A positive correlation exists when one variable tends to decrease as the other variable decreases, or one variable tends to increase when the other increases.
In finance, correlations are used to describe how individual stocks move with respect to the wider market.
Beta is a common measure of market correlation, usually using the S&P 500 index as a benchmark.
A beta of 1.0 describes a stock that is perfectly correlated with the S&P 500. Values higher than 1.0 describe stocks that are more volatile than the S&P 500, while lower values describe stocks that are less volatile.

An inverse (or negative) correlation is when two variables in a data set are related such that when one is high the other is low.
Even though two variables may have a strong negative correlation, this does not necessarily imply that the behavior of one has any causal influence on the other.
The relationship between two variables can change over time and may have periods of positive correlation as well.

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