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Materials quantity variance

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Definition of Materials quantity variance

Materials Quantity Variance Image 1

Materials quantity variance

The difference between the actual and budgeted quantities
of material used in the production process, multiplied by the standard cost per
unit.



Related Terms:

Covariance

A statistical measure of the degree to which random variables move together.


Economic order quantity (EOQ)

The order quantity that minimizes total inventory costs.


Materials requirement planning

Computer-based systems that plan backward from the production schedule
to make purchases in order to manage inventory levels.


Mean-variance analysis

Evaluation of risky prospects based on the expected value and variance of possible outcomes.


Mean-variance criterion

The selection of portfolios based on the means and variances of their returns. The
choice of the higher expected return portfolio for a given level of variance or the lower variance portfolio for
a given expected return.


Mean-variance efficient portfolio

Related: Markowitz efficient portfolio


Minimum-variance frontier

Graph of the lowest possible portfolio variance that is attainable for a given
portfolio expected return.


Materials Quantity Variance Image 2

Minimum-variance portfolio

The portfolio of risky assets with lowest variance.
Minority interest An outside ownership interest in a subsidiary that is consolidated with the parent for
financial reporting purposes.


Portfolio variance

Weighted sum of the covariance and variances of the assets in a portfolio.


Serial covariance

The covariance between a variable and the lagged value of the variable; the same as
autocovariance.


Variance

A measure of dispersion of a set of data points around their mean value. The mathematical
expectation of the squared deviations from the mean. The square root of the variance is the standard deviation.


Variance minimization approach to tracking

An approach to bond indexing that uses historical data to
estimate the variance of the tracking error.


Variance rule

Specifies the permitted minimum or maximum quantity of securities that can be delivered to
satisfy a TBA trade. For Ginnie Mae, Fannie Mae, and Feddie Mac pass-through securities, the accepted
variance is plus or minus 2.499999 percent per million of the par value of the TBA quantity.


Bill of materials

A listing of all the materials and quantities that go to make up a completed product.


Raw materials

Unprocessed goods bought for manufacture, part of inventory.


Variance analysis

A method of budgetary control that compares actual performance against plan, investigates the causes of the variance and takes corrective action to ensure that targets are achieved.


Variance

The weighted average of the squared deviations from the
expected value


bill of materials

a document that contains information about
the product materials components and their specifications
(including quality and quantities needed)


budget variance

the difference between total actual overhead
and budgeted overhead based on standard hours allowed
for the production achieved during the period; computed
as part of two-variance overhead analysis; also
referred to as the controllable variance


controllable variance

the budget variance of the two variance approach to analyzing overhead variances


economic order quantity (EOQ)

an estimate of the number
of units per order that will be the least costly and provide
the optimal balance between the costs of ordering
and the costs of carrying inventory


fixed overhead spending variance

the difference between the total actual fixed overhead and budgeted fixed overhead;
it is computed as part of the four-variance overhead analysis


fixed overhead volume variance

see volume variance


labor efficiency variance

the number of hours actually worked minus the standard hours allowed for the production
achieved multiplied by the standard rate to establish
a value for efficiency (favorable) or inefficiency (unfavorable)
of the work force


labor mix variance

(actual mix X actual hours X standard rate) - (standard mix X actual hours X standard rate);
it presents the financial effect associated with changing the
proportionate amount of higher or lower paid workers in production


labor rate variance

the actual rate (or actual weighted average rate) paid to labor for the period minus the standard rate multiplied by all hours actually worked during the period;
it is actual labor cost minus (actual hours X standard rate)


labor yield variance

(standard mix X actual hours X standard rate) - (standard mix X standard hours X standard rate);
it shows the monetary impact of using more or fewer total hours than the standard allowed


material price variance

total actual cost of material purchased
minus (actual quantity of material  standard
price); it is the amount of money spent below (favorable)
or in excess (unfavorable) of the standard price for the
quantity of materials purchased; it can be calculated based
on the actual quantity of material purchased or the actual
quantity used


material quantity variance

(actual quantity X standard price) - (standard quantity allowed  standard price);
the standard cost saved (favorable) or expended (unfavorable)
due to the difference between the actual quantity
of material used and the standard quantity of material
allowed for the goods produced during the period


material mix variance

(actual mix X actual quantity X standard price) - (standard mix X actual quantity X standardprice);
it computes the monetary effect of substituting a nonstandard mix of material


materials requirements planning (MRP)

a computerbased information system that simulates the ordering and
scheduling of demand-dependent inventories; a simulation
of the parts fabrication and subassembly activities that are
required, in an appropriate time sequence, to meet a production
master schedule


material yield variance

(standard mix X actual quantity X standard price) - (standard mix X standard quantity X standard price);
it computes the difference between the
actual total quantity of input and the standard total quantity
allowed based on output and uses standard mix and
standard prices to determine variance


noncontrollable variance

the fixed overhead volume variance;
it is computed as part of the two-variance approach to overhead analysis


overhead efficiency variance

the difference between total budgeted overhead at actual hours and total budgeted
overhead at standard hours allowed for the production
achieved; it is computed as part of a three-variance analysis;
it is the same as variable overhead efficiency variance


overhead spending variance

the difference between total actual overhead and total budgeted overhead at actual
hours; it is computed as part of three-variance analysis; it
is equal to the sum of the variable and fixed overhead
spending variances


standard quantity allowed

the quantity of input (in hours or some other cost driver measurement) required at standard for the output actually achieved for the period


total overhead variance

the difference between total actual overhead and total applied overhead; it is the amount of underapplied or overapplied overhead


total variance

the difference between total actual cost incurred
and total standard cost for the output produced during
the period


variable overhead efficiency variance

the difference between budgeted variable overhead based on actual input activity and variable overhead applied to production


variable overhead spending variance

the difference between total actual variable overhead and the budgeted amount of variable overhead based on actual input activity


variance

a difference between an actual and a standard or
budgeted cost; it is favorable if actual is less than standard
and is unfavorable if actual is greater than standard


variance analysis

the process of categorizing the nature (favorable or unfavorable) of the differences between standard and actual costs and determining the reasons for those differences


volume variance

a fixed overhead variance that represents
the difference between budgeted fixed overhead and fixed
overhead applied to production of the period; is also referred
to as the noncontrollable variance


Covariance

A measure of the degree to which returns on two assets move in
tandem. A positive covariance means that asset returns move together; a
negative covariance means they vary inversely.


Variance

The dispersion of a variable. The square of the standard deviation.


Bill of materials

An itemization of the parts and subassemblies required to create a
product, frequently including assumed scrap rates that will arise as part of the production
process.


Direct materials cost

The cost of all materials used in a cost object, such as finished goods.


Direct materials mix variance

The variance between the budgeted and actual mixes of
direct materials costs, both using the actual total quantity used. This variance isolates
the unit cost of each item, excluding all other variables.


Labor efficiency variance

The difference between the amount of time that was budgeted
to be used by the direct labor staff and the amount actually used, multiplied
by the standard labor rate per hour.


Labor rate variance

The difference between the actual and standard direct labor rates
actually paid to the direct labor staff, multiplied by the number of actual hours
worked.


Materials price variance

The difference between the actual and budgeted cost to
acquire materials, multiplied by the total number of units purchased.


Production yield variance

The difference between the actual and budgeted proportions
of product resulting from a production process, multiplied by the standard unit cost.


Raw materials inventory

The total cost of all component parts currently in stock that
have not yet been used in work-in-process or finished goods production.


Selling price variance

The difference between the actual and budgeted selling price for
a product, multiplied by the actual number of units sold.


economic order quantity

Order size that minimizes total inventory costs.


variance

Average value of squared deviations from mean. A measure of volatility.


Quantity Adjuster

A firm that reacts to excess supply or excess demand by adjusting quantity rather than price. Contrast with price adjuster.


Quantity Theory of Money

Theory that velocity is constant, and so a change in money supply will change nominal income by the same percentage. Formalized by the equation Mv = PQ.


Bill of materials (BOM)

A listing of all parts and subassemblies required to produce one
unit of a finished product, including the required number of units of each part
and subassembly.


Breeder bill of materials

A bill of material that accounts for the generation and
cost implications of byproducts as a result of manufacturing the parent item.


Materials requisition

A document listing the quantities of specific parts to be withdrawn
from inventory.


Summarized bill of materials

A bill of materials format showing the grand total
usage requirement for each component of a finished product.


 

 

 

 

 

 

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