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Direct materials mix variance

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Definition of Direct materials mix variance

Direct Materials Mix Variance Image 1

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.



Related Terms:

asset mix

The weighting of assets in an investment portfolio among different asset classes (e.g. shares, bonds, property, cash, overseas investments.


Bill of materials

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


bill of materials

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


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.


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.


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


Direct Materials Mix Variance Image 2

controllable variance

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


Covariance

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


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.


direct cost

a cost that is distinctly traceable to a particular cost object


Direct cost

A cost that can be clearly associated with specific activities or products.


direct costing

see variable costing


Direct costing

A costing methodology that only assigns direct labor and material costs
to a product, and which does not include any allocated indirect costs (which are all
charged off to the current period).


Direct costs

Costs that are readily traceable to particular products or services.


Direct Deposit

The direct transfer of payroll funds from the company bank account
directly into that of the employee, avoiding the use of a paycheck.


direct deposit

A system where funds are electronically credited to your account by a financial institution or a payroll service. For example, you can arrange with your employer to have your pay cheques automatically deposited into your no fee bank account.


Direct estimate method

A method of cash budgeting based on detailed estimates of cash receipts and cash
disbursements category by category.



direct labor

the time spent by individuals who work specifically
on manufacturing a product or performing a service;
the cost of such time


Direct labor

Labor that is specifically incurred to create a product.


Direct lease

Lease in which the lessor purchases new equipment from the manufacturer and leases it to the
lessee.


direct material

a readily identifiable part of a product; the cost of such a part


Direct materials cost

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


Direct method

A method of preparing the operating section of the Statement of Cash Flows that uses the company’s actual cash inflows and cash outflows.


direct method

a service department cost allocation approach
that assigns service department costs directly to revenueproducing
areas with only one set of intermediate cost
pools or allocations


Direct-Method Format

A format for the operating section of the cash-flow statement that reports actual cash receipts and cash disbursements from operating activities.


Direct paper

Commercial paper sold directly by the issuer to investors.


Direct placement

Selling a new issue not by offering it for sale publicly, but by placing it with one of several
institutional investors.



Direct quote

For foreign exchange, the number of U.S. dollars needed to buy one unit of a foreign currency.


Direct-Response Advertising

Advertising designed to elicit sales to customers who can be
shown to have responded specifically to the advertising in the past. Such costs can be capitalized
when persuasive historical evidence permits formulation of a reliable estimate of the future revenue
that can be obtained from incremental advertising expenditures.


Direct search market

Buyers and sellers seek each other directly and transact directly.


Direct stock-purchase programs

The purchase by investors of securities directly from the issuer.


Direct write-off method

A method of adjusting accounts receivable to the amount that is expected to be collected by eliminating the account balances of specific nonpaying customers.


Director

A member of a company’s Board of directors.


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


Foreign direct investment (FDI)

The acquisition abroad of physical assets such as plant and equipment, with
operating control residing in the parent corporation.


indirect cost

a cost that cannot be traced explicitly to a particular
cost object; a common cost


Indirect cost

A cost that is not directly associated with a single activity or event. Such
costs are frequently clumped into an overhead pool and allocated to various activities,
based on an allocation method that has a perceived or actual linkage between
the indirect cost and the activity.


Indirect costs

Costs that are necessary to produce a product/service but are not readily traceable to particular products or services – see overhead.


Indirect labor

The cost of any labor that supports the production process, but which is
not directly involved in the active conversion of materials into finished products.


Indirect method

A method of preparing the operating section of the Statement of Cash Flows that does not use the company’s actual cash inflows and cash outflows, but instead arrives at the net cash flow by taking net income and adjusting it for noncash expenses and the changes from last year in the current assets and current liabilities.


Indirect-Method Format

A format for the operating section of the cash-flow statement that
presents the derivation of cash flow provided by operating activities. The format starts with net
income and adjusts for all nonoperating items and all noncash expenses and changes in working capital accounts.


Indirect quote

For foreign exchange, the number of units of a foreign currency needed to buy one U.S.$.


Indirect Taxes

Taxes paid by consumers when they buy goods and services. A sales tax is an example.


Interac® Direct Payment

Instead of paying with cash or a credit card, Interac direct Payment allows you to pay for your purchase with a debit card, such as your bank card. The amount of the purchase is electronically debited, or withdrawn, from your bank account (see debit card).
Here's how to pay for items using Interac direct Payment and your bank account:
1. Swipe your bank card (or debit card) through the point of sale (POS) terminal at the store's check-out
2. Enter your personal identification number (PIN), confirm the amount to be paid and indicate the account (chequing) from which the money is to be drawn.
3. The specified amount is then electronically debited from your account.


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 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 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 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.


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 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


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 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


Materials price variance

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


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.


Materials requirement planning

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


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


Materials requisition

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


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.


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.


mix

any possible combination of material or labor inputs


Mix ticket

A list of the ingredients required for a blending operation.


mixed cost

a cost that has both a variable and a fixed component;
it varies with changes in activity, but not proportionately


noncontrollable variance

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


optimal mix of capital

the combination of capital sources at which the lowest weighted average cost of capital is achieved


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


Portfolio variance

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


pre-authorized direct deposit

A system where funds are electronically credited to your account by a financial institution or a payroll service.


Product/service mix

See sales mix.


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

Unprocessed goods bought for manufacture, part of inventory.


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.


Sales mix

The mix of product/services offered by the business, each of which may be aimed at different customers, with each product/service having different prices and costs.


sales mix

the relative combination of quantities of sales of the various products that make up the total sales of a company


Selling price variance

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


Serial covariance

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


Summarized bill of materials

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


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 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

The weighted average of the squared deviations from the
expected value


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

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


variance

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


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 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


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.


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



 

 

 

 

 

 

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