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Variance analysis can be carried out for both costs and revenues. Variance analysis is usually associated with explaining the difference (or variance) between actual costs and the standard costs allowed for the good output. For example, the difference in materials costs can be divided into a materials price variance and a materials usage variance.
Activity-based costing also de-emphasizes direct labor as a cost driver and concentrates instead on activities that drive costs, as the provision of a service or the production of a product component. Other approach is the German Grenzplankostenrechnung (GPK) costing methodology.
The labor efficiency variance is (4500 - 5000) x $14 = $7000, where 5000 hours = 2.5 hours x 2000 units of output. This variance is favorable since the actual hours used are less than the standard hours allowed. This may be the result of efficient use of labor time due to automation or the use of improved production methods.
While (ABC) Activity-based costing may be able to pinpoint the cost of each activity and resources into the ultimate product, the process could be tedious, costly and subject to errors. As it is a tool for a more accurate way of allocating fixed costs into a product, these fixed costs do not vary according to each month's production volume.
In probability theory and statistics, variance is the expected value of the squared deviation from the mean of a random variable. The standard deviation (SD) ...
In variance analysis, direct material usage (efficiency, quantity) variance is the difference between the standard quantity of materials that should have been used for the number of units actually produced, and the actual quantity of materials used, valued at the standard cost per unit of material.
Production analysis. The input of production factors, the choice of the form of production organisation and the determination of the product structure can all be analysed and decided by creating mathematical models. Cost decision. Cost is a factor that directly affects profit, and is one of the most important concerns for enterprise development.
A first possible distinction in production systems (technological classification) is between continuous process production and discrete part production (manufacturing). Process production means that the product undergoes physical-chemical transformations and lacks assembly operations, and therefore the original raw materials cannot easily be ...