Definition of Product

Product

Any item intended for sale.

Gross domestic product (GDP)

The market value of goods and services produced over time including the
income of foreign corporations and foreign residents working in the U.S., but excluding the income of U.S.
residents and corporations overseas.

Gross national product (GNP)

Measures and economy's total income. It is equal to GDP plus the income
abroad accruing to domestic residents minus income generated in domestic market accruing to non-residents.

Investment product line (IPML)

The line of required returns for investment projects as a function of beta
(nondiversifiable risk).

Product cycle

The time it takes to bring new and/or improved products to market.

Product risk

A type of mortgage-pipeline risk that occurs when a lender has an unusual loan in production or
inventory but does not have a sale commitment at a prearranged price.

Production payment financing

A method of nonrecourse asset-based financing in which a specified
percentage of revenue realized from the sale of the project's output is used to pay debt service.

Production-flow commitment

An agreement by the loan purchaser to allow the monthly loan quota to be
delivered in batches.

UNITS OF PRODUCTION

A depreciation method that relates a machine’s depreciation to the number of units it makes each
accounting period. The method requires that someone record the machine’s output each year.

Non-production overhead

A general term referring to period costs, such as selling, administration and financial expenses.

Product cost

The cost of goods or services produced.

Product market

A business’s investment in technology, people and materials in order to make, buy and sell products or services to customers.

Product/service mix

See sales mix.

Production overhead

A general term referring to indirect costs.

product cost

This is a key factor in the profit model of a business. product
cost is the same as purchase cost for a retailer or wholesaler (distributor).
A manufacturer has to accumulate three different types of production
costs to determine product cost: direct materials, direct labor, and
manufacturing overhead. The cost of products (goods) sold is deducted
from sales revenue to determine gross margin (also called gross profit),
which is the first profit line reported in an external income statement
and in an internal profit report to managers.

by-product

an incidental output of a joint process; it is salable,
but the sales value of by-products is not substantial enough
for management to justify undertaking the joint process; it
is viewed as having a higher sales value than scrap

cost of production report

a process costing document that
details all operating and cost information, shows the computation
of cost per equivalent unit, and indicates cost assignment
to goods produced during the period

economic production run (EPR)

an estimate of the number
of units to produce at one time that minimizes the total
costs of setting up production runs and carrying inventory

equivalent units of production (EUP)

an approximation of the number of whole units of output that could have been
produced during a period from the actual effort expended
during that period; used in process costing systems to assign
costs to production

grade (of product or service)

the addition or removal of product
or service characteristics to satisfy additional needs, especially price

process productivity

the total units produced during a period
using value-added processing time

product complexity

an assessment about the number of components in a product

product contribution margin

the difference between selling price and variable cost of goods sold

product cost

a cost associated with making or acquiring inventory

productive capacity

the number of total units that could be
produced during a period based on available equipment time
productive processing time the proportion of total time that
is value-added time; also known as manufacturing cycle
efficiency

product- (or process-) level cost

a cost that is caused by the development, production, or acquisition of specific products or services

product life cycle

a model depicting the stages through
which a product class (not necessarily each product) passes

product line margin

see segment margin

product variety

the number of different types of products
produced (or services rendered) by a firm

By-product

A product that is an ancillary part of the primary production process, having
a minor resale value in comparison to the value of the primary product being
manufactured. Any proceeds from the sale of a by-product are typically offset
against the cost of the primary product, or recorded as miscellaneous revenue.

Joint product

A product that has the highest sales value from among a group of products
that are the result of a joint production process.

Product cost

The total of all costs assigned to a product, typically including direct
labor, materials (with normal spoilage included), and overhead.

Production yield variance

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

Aggregate Production Function

An equation determining aggregate output as a function of aggregate inputs such as labor and capital.

Factor of Production

A resource used to produce a good or service. The main macroeconomic factors of production are capital and labor.

Gross Domestic Product

Total output of final goods and services produced within a country during a year.

Gross National Product

Total output of final goods and services produced by a country's citizens during a year.

National Income and Product Accounts

The national accounting system that records economic activity such as GDP and related measures.

Net Domestic Product

GDP minus depreciation.

Net National Product

GNP minus depreciation.

Productivity

Output per unit of input, usually measured as output per hour of labor.

Sales Revenue Revenue recognized from the sales of products as opposed to the provision of

services.

By-product

A material created incidental to a production process, which can be
sold for value.

Lean production

The technique of stripping all non-value-added activities from
the production process, thereby using the minimum possible amount of resources
to accomplish manufacturing goals.

Process flow production

A production configuration in which products are continually
manufactured with minimal pauses or queuing.

Assets

A firm's productive resources.

Backwardation

A market condition in which futures prices are lower in the distant delivery months than in
the nearest delivery month. This situation may occur in when the costs of storing the product until eventual
delivery are effectively subtracted from the price today. The opposite of contango.

Car

A loose quantity term sometimes used to describe a the amount of a commodity underlying one
commodity contract; e.g., "a car of bellies." Derived from the fact that quantities of the product specified in a
contract used to correspond closely to the capacity of a railroad car.

Cash discount

An incentive offered to purchasers of a firm's product for payment within a specified time
period, such as ten days.

Deferred-annuities

Tax-advantaged life insurance product. Deferred annuities offer deferral of taxes with the
option of withdrawing one's funds in the form of life annuity.

Dollar duration

The product of modified duration and the initial price.

Economic earnings

The real flow of cash that a firm could pay out forever in the absence of any change in
the firm's productive capacity.

Economies of scale

The decrease in the marginal cost of production as a plant's scale of operations increases.

Enhancement

An innovation that has a positive impact on one or more of a firm's existing products.

Financial engineering

Combining or dividing existing instruments to create new financial products.

Fixed asset

Long-lived property owned by a firm that is used by a firm in the production of its income.
Tangible fixed assets include real estate, plant, and equipment. Intangible fixed assets include patents,
trademarks, and customer recognition.

Fixed cost

A cost that is fixed in total for a given period of time and for given production levels.

Fundamental beta

The product of a statistical model to predict the fundamental risk of a security using not
only price data but other market-related and financial data.

Growth phase

A phase of development in which a company experiences rapid earnings growth as it produces
new products and expands market share.

Guaranteed investment contract (GIC)

A pure investment product in which a life company agrees, for a
single premium, to pay the principal amount of a predetermined annual crediting (interest) rate over the life of
the investment, all of which is paid at the maturity date.

Hell-or-high-water contract

A contract that obligates a purchaser of a project's output to make cash
payments to the project in all events, even if no product is offered for sale.

Horizontal merger

A merger involving two or more firms in the same industry that are both at the same
stage in the production cycle; that is two or more competitors.

Index and Option Market (IOM)

A division of the CME established in 1982 for trading stock index
products and options. Related: Chicago Mercantile Exchange (CME).

Inflation-escalator clause

A clause in a contract providing for increases or decreases in inflation based on
fluctuations in the cost of living, production costs, and so forth.

Input-output tables

Tables that indicate how much each industry requires of the production of each other
industry in order to produce each dollar of its own output.

Insured plans

Defined benefit pension plans that are guaranteed by life insurance products. Related: noninsured plans

Investment decisions

Decisions concerning the asset side of a firm's balance sheet, such as the decision to
offer a new product.

Just-in-time inventory systems

Systems that schedule materials/inventory to arrive exactly as they are
needed in the production process.

Materials requirement planning

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

Non-insured plans

Defined benefit pension plans that are not guaranteed by life insurance products. Related:
insured plans

PSA

A prepayment model based on an assumed rate of prepayment each month of the then unpaid principal
balance of a pool of mortgages. PSA is used primarily to derive an implied prepayment speed of new
production loans, a 100% PSA assumes a prepayment rate of 2% per month in the first month following the
date of issue, increasing at 2% per month thereafter until the 30th month. Thereafter, 100% PSA is the same as
6% CPR.

Price risk

The risk that the value of a security (or a portfolio) will decline in the future. Or, a type of
mortgage-pipeline risk created in the production segment when loan terms are set for the borrower in advance
of terms being set for secondary market sale. If the general level of rates rises during the production cycle, the
lender may have to sell his originated loans at a discount.

Private Export Funding Corporation (PEFCO)

Company that mobilizes private capital for financing the
export of big-ticket items by U.S. firms by purchasing at fixed interest rates the medium- to long-term debt
obligations of importers of U.S. products.

Speculator

One, who attempts to anticipate price changes and, through buying and selling contracts, aims to
make profits. A speculator does not use the market in connection with the production, processing, marketing
or handling of a product.
See: trader.

Structured settlement

An agreement in settlement of a lawsuit involving specific payments made over a
period of time. Property and casualty insurance companies often buy life insurance products to pay the costs
of such settlements.

Supply shock

n event that influences production capacity and costs in an economy.

Take-or-pay contract

A contract that obligates the purchaser to take any product that is offered to it (and pay
the cash purchase price) or pay a specified amount if it refuses to take the product.

Throughput agreement

An agreement to put a specified amount of product per period through a particular
facility. For example, an agreement to ship a specified amount of crude oil per period through a particular
pipeline.

Universal life

A whole life insurance product whose investment component pays a competitive interest rate
rather than the below-market crediting rate.

Value-added tax

Method of indirect taxation whereby a tax is levied at each stage of production on the value
added at that specific stage.

Variable cost

A cost that is directly proportional to the volume of output produced. When production is zero,
the variable cost is equal to zero.

Vertical acquisition

Acquisition in which the acquired firm and the acquiring firm are at different steps in the
production process.

Vertical merger

A merger in which one firm acquires another firm that is in the same industry but at another
stage in the production cycle. For example, the firm being acquired serves as a supplier to the firm doing the acquiring.

MERCHANDISE INVENTORY

The value of the products that a retailing or wholesaling company intends to resell for a profit.
In a manufacturing business, inventories would include finished goods, goods in process, raw materials, and parts and components that will go into the end product.

PROPERTY AND EQUIPMENT

Assets such as land, buildings, machinery, and equipment that the business will use for several
years to make the product or provide the service that it sells. They are shown at the cost a company paid to buy or build them minus the amount they’ve depreciated since they were bought or built. (Except for land, which is not depreciated.)

RETURN ON INVESTMENT (ROI)

In its most basic form, the rate of return equals net income divided by the amount of money invested. It can be applied to a particular product or piece of equipment, or to a business as a whole.

Absorption costing

A method of costing in which all fixed and variable production costs are charged to products or services using an allocation base.

Accounts

‘Buckets’ within the ledger, part of the accounting system. Each account contains similar transactions (line items) that are used for the production of financial statements. Or commonly used as an abbreviation for financial statements.

Activity-based costing

A method of costing that uses cost pools to accumulate the cost of significant business activities and then assigns the costs from the cost pools to products or services based on cost drivers.

Allocation base A measure of activity or volume such as labour

hours, machine hours or volume of production
used to apportion overheads to products and
services.

Batch

A group of similar products produced together.

Bill of materials

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

Capacity

The maximum volume of products or services that can be produced given limitations of space,
people, equipment or financial resources.

Capacity utilization

The proportion of capacity that is able to be utilized to fulfil customer demand for products
or services.

Cost behaviour

The idea that fixed costs and variable costs react differently to changes in the volume of
products/services produced.

Cost control

The process of either reducing costs while maintaining the same level of productivity or maintaining costs while increasing productivity.

Cost driver

The most significant cause of the cost of an activity, a measure of the demand for an activity
by each product/service enabling the cost of activities to be assigned from cost pools to products/services.

Cost of quality

The difference between the actual costs of production, selling and service and the costs that would be incurred if there were no failures during production or usage of products or services.

Cost-plus pricing

A method of pricing in which a mark-up is added to the total product/service cost.

Direct costs

Costs that are readily traceable to particular products or services.

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