Vocabulary

benchmark

standard of performance that companies or managers can measure against

benchmarking

process of measuring the quality of a company's products, performance, or processes against specific standards

direct labor

hours spent producing a product or providing a service that can easily be traced to the product or service

direct materials

raw goods that can be traced directly to, or easily identified with, a product

direct materials price variance

difference between the standard (or expected) cost of materials for a process or project and the actual cost for the actual quantity of material purchased

direct materials quantity variance

difference between the actual amount of materials used in the production process and the amount that a company expected to use

fixed overhead

costs that stay constant no matter how much or how little a business produces

indirect labor

wages and benefits paid to workers who support the manufacturing process but do not actually create the product or service

labor efficiency variance

difference between a company's actual time used for production and the standard or projected time

labor rate variance

difference between the standard cost of work hours for a process or project and the actual cost paid for the actual number of hours

price variance

difference between the actual amount paid for an input and the standard amount that should have been paid, multiplied by the actual amount of input purchased

quantity variance

difference between how much input was actually used and how much should have been used

stakeholder

person who has an interest in a company; may include investors, employees, customers, union members, and community members

standard cost per unit

predetermined dollar amount that one item of a finished product should cost during an accounting period

standard cost variance

difference between how much a company predicted an expense would be and how much it actually is

standard hours per unit

amount of labor time that should be required to complete a single unit of output

standard price per unit

uniform cost for a good or service, based on its historical cost, its replacement cost, or an analysis of its competitive position in the market

standard quantity allowed

result of multiplying actual units of production by the standard material amount each unit requires

standard quantity per unit

amount of materials that should have been used to manufacture units of output during a period

variable manufacturing overhead

costs that are directly related to making goods but cannot be linked to one product. These costs rise or fall depending on how many items the business produces.

variable overhead

indirect costs as a result of manufacturing a product. These costs fluctuate based on how many units a company produces.

variable overhead efficiency variance

difference between the actual and budgeted hours worked, which is then applied to the standard variable overhead rate per hour

variable overhead rate

rate that is computed by dividing total variable overhead cost by expected number of standard hours for producing the product

variance

difference between an expected cost or output and an actual cost or output