In international economics, the capability of one producer to produce a given good using fewer resources than any other producer.
Absorption rate, also known as overhead absorption rate or recovery rate, is a crucial concept in absorption costing systems used to allocate overhead costs to production. This detailed guide covers the calculation methods, usage, and comparisons with modern costing systems.
An activity measure in activity-based costing (ABC) systems is a metric that gauges the volume or rate of an activity. It serves as a basis for cost allocation within an activity cost pool, correlating changes in the measure with changes in total activity cost.
The Aggregate Supply (AS) Curve represents the total quantity of goods and services that firms in an economy are willing and able to produce at each price level within a given range of prices. Illustrated on a graph, the curve typically slopes upward, indicating that higher price levels generally encourage firms to increase production.
Batch-level activities refer to tasks or processes that are performed each time a batch of units is produced, regardless of the number of units within that batch. These activities are essential for economies of production, particularly in manufacturing settings.
A by-product is a secondary product derived from a manufacturing process or chemical reaction, often with some economic value.
Capital goods are items used in the production of other goods, including industrial buildings, machinery, and equipment, as well as highways, office buildings, and government installations. These goods significantly determine a country's productive capacity.
The relationship between the value of capital and the output it produces in a given period, usually a year; the lower the ratio, the more efficiently capital is being used to produce goods and services.
The foundational questions that address what a society decides to produce, the methods used for production, and the distribution of the products among its members.
Commodities are raw materials or primary agricultural products that can be bought and sold, ranging from grains and metals to livestock and other goods.
Computer Integrated Manufacturing (CIM) is an integrated computerized system combining all elements of Computer-Assisted Design (CAD) and Computer-Aided Manufacturing (CAM) to ensure efficient product development and manufacturing through real-time coordination.
Derived demand refers to the demand for capital goods and labor, used in production, which indirectly stems from the demand for the final goods and services that these inputs help to produce.
A direct hour is the time spent working directly on a product, service, or cost unit within an organization. It is measured in direct labor hours, machine hours, or standard hours.
An hour spent working on a product, service, or cost unit produced by an organization by those operators whose time can be directly traced to the production. Direct labour hours are sometimes used as a basis for absorbing manufacturing overheads to the cost unit in absorption costing.
The term 'economic' pertains to matters related to the economy or the study of economics, encompassing various aspects such as production, consumption, and distribution of goods and services within a society.
Economic efficiency refers to the optimal allocation of resources where they are most valued and the production and distribution of goods and services occurs at the lowest possible cost. It ensures that no further improvements can be made in one person's well-being without making someone else worse off.
Economic growth refers to the increase, from period to period, of the real value of an economy's production of goods and services, commonly expressed as an increase in Gross Domestic Product (GDP).
Economics is the study of how societies allocate scarce resources. It includes the examination of production, distribution, exchange, and consumption of goods and services.
Final goods, also known as consumer goods, are goods that are not used as inputs in the production of other goods but are intended for consumption by the end consumer.
Fixed Capital refers to the amount of an organization's capital that is invested in its fixed assets, such as buildings, machinery, and equipment, which are essential for ongoing operations and production.
A function in accounting refers to a specific section or department of an organization that carries out discrete activities managed by a director or manager. Functional budgets are often created for these sections. Examples include production, sales, finance, and personnel.
Wages and related costs of factory employees, such as inspectors and maintenance crews, whose time is not charged to specific finished products; sometimes combined with indirect materials costs, such as supplies, to derive indirect costs.
Indirect materials are those materials that do not feature in the final product but are necessary to carry out the production process. Examples include machine oil, cleaning materials, and consumable materials.
Products or services purchased for use in the production of other goods or services, in the operation of a business, or for resale to other consumers. Industrial products include heavy machinery, raw materials, tools, and computer equipment.
Intermediate goods are materials or components that are transformed by production processes into another form, often used to create final goods. For example, steel is an intermediate good that can be transformed into automobiles or ships.
The Law of Diminishing Returns, also known as the principle of diminishing marginal productivity, is an economic rule stating that if one factor of production is increased while other factors are fixed, a point will be reached at which additions of the factor will yield progressively smaller increases in output.
A standard unit of measure achieved after considerable experience; highly predictable sequence of actions in production.
A term with multiple meanings in business referring either to personnel involved in production or distribution, or the types of goods produced or carried.
Manufacturing expenses, often referred to as manufacturing costs, encompass all the financial expenditures required to produce goods. These costs are crucial for businesses as they significantly impact pricing, budgeting, and overall profitability.
Materials represent the production supplies that are acquired by an organization as revenue expenditure from third parties. These are essential for manufacturing final products and are categorized into direct and indirect materials.
The term 'Open-End' has several applications in the fields of broadcasting and production. In broadcasting, it refers to flexible scheduling and local advertising opportunities. In production, it describes the design of certain envelopes.
Output refers to the amount produced, whether it's the results provided by a computer system or the tangible results of a production process.
Overhead cost absorbed refers to the overhead costs allocated to the actual production during a period, calculated by multiplying actual production by the budgeted overhead absorption rate.
A product line refers to a group of products manufactured by a firm that are closely related in use and in production and marketing requirements. The depth of the product line indicates the number of different products offered within that line.
Production refers to the processes and methods employed to transform inputs (like raw materials, labor, and machinery) into finished products or services. The volume of production can be quantified in units, direct labor hours, machine hours, or direct labor costs.
An in-depth look at organizations primarily focused on the production of goods and services, their operations, and their strategic significance.
Productivity measures the relationship between the quantity and quality of units produced and the labor per unit of time.
The Scale Effect refers to the cost advantages that a business obtains due to the size, output, or scale of its operation. Primarily, the cost per unit of output generally decreases with increasing scale as fixed costs are spread out over more units of output.
The time taken to prepare a machine, process, or operation to carry out production. It may involve such operations as tool setting, calibration, and the initialization of the production process.
The short run is a period of time long enough for existing firms in an industry to increase production in reaction to changing economic conditions, but not long enough to allow them to increase capacity or for new firms to enter the industry.
Tax impact refers to the effect of a tax upon the production and consumption of the good being taxed, as well as the influence of the tax on broader economic processes such as production or consumption.
Unit Standard Operating Profit represents the standard operating profit expressed as a rate per unit of production or sales, crucial for assessing profitability on a per-item basis.
Value Added refers to the value of a product or output minus the costs of raw materials used in production. Essentially, it represents the increase in value created by the manufacturing process through the application of capital and labor.
Value Added Tax (VAT) is a consumption tax levied on the value added to goods and services at each stage of production or distribution and is ultimately borne by the end consumer.
Variable costs are expenses that change in proportion to the level of activity or volume of production a business undertakes.
Variable overhead costs represent the elements of an organization's indirect expenses for a product that change in total with fluctuations in production or sales levels. Examples include power, commissions earned by sales personnel, and consumable materials.
