Financial Terms
economic production run (EPR)

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Definition of economic production run (EPR)

Economic Production Run (EPR) Image 1

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

Related Terms:

Accelerated depreciation

Any depreciation method that produces larger deductions for depreciation in the
early years of a project's life. Accelerated cost recovery system (ACRS), which is a depreciation schedule
allowed for tax purposes, is one such example.

accelerated depreciation

(1) The estimated useful life of the fixed asset being depreciated is
shorter than a realistic forecast of its probable actual service life;
(2) more of the total cost of the fixed asset is allocated to the first
half of its useful life than to the second half (i.e., there is a
front-end loading of depreciation expense).

Accelerated depreciation

Any of several methods that recognize an increased amount
of depreciation in the earliest years of asset usage. This results in increased tax benefits
in the first few years of asset usage.

Accumulated depreciation

A contra-fixed asset account representing the portion of the cost of a fixed asset that has been previously charged to expense. Each fixed asset account will have its own associated accumulated depreciation account.

accumulated depreciation

A contra, or offset, account that is coupled
with the property, plant, and equipment asset account in which the original
costs of the long-term operating assets of a business are recorded.
The accumulated depreciation contra account accumulates the amount of
depreciation expense that is recorded period by period. So the balance in
this account is the cumulative amount of depreciation that has been
recorded since the assets were acquired. The balance in the accumulated
depreciation account is deducted from the original cost of the assets
recorded in the property, plant, and equipment asset account. The
remainder, called the book value of the assets, is the amount included on
the asset side of a business.

Accumulated depreciation

The sum total of all deprecation expense recognized to date
on a depreciable fixed asset.

Aggregate Production Function

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

Economic Production Run (EPR) Image 2

Book runner

The managing underwriter for a new issue. The book runner maintains the book of securities sold.

Classical Macroeconomics

The school of macroeconomic thought prior to the rise of Keynesianism.

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

Credit Crunch

A decline in the ability or willingness of banks to lend.


To allocate the purchase cost of an asset over its life.


A non-cash expense that provides a source of free cash flow. Amount allocated during the
period to amortize the cost of acquiring Long term assets over the useful life of the assets.


A technique by which a company recovers the high cost of its plant-and-equipment assets gradually during the number of years they’ll be used in the business. Depreciation can be physical, technological, or both.


An expense that spreads the cost of an asset over its useful life.


Refers to the generally accepted accounting principle of allocating
the cost of a long-term operating asset over the estimated useful
life of the asset. Each year of use is allocated a part of the original cost of
the asset. Generally speaking, either the accelerated method or the
straight-line method of depreciation is used. (There are other methods,
but they are relatively rare.) Useful life estimates are heavily influenced
by the schedules allowed in the federal income tax law. Depreciation is
not a cash outlay in the period in which the expense is recorded—just
the opposite. The cash inflow from sales revenue during the period
includes an amount to reimburse the business for the use of its fixed
assets. In this respect, depreciation is a source of cash. So depreciation is
added back to net income in the statement of cash flows to arrive at cash
flow from operating activities.


Reduction in value of fixed or tangible assets over some period
for accounting purposes. See Amortization.


Both the decline in value of an asset over time, as well as the gradual
expensing of an asset over time, roughly in accordance with its level of usage or
decline in value through that period.


a) Of capital stock: decline in the value of capital due to its wearing out or becoming obsolete.
b) Of currency: decline in the exchange rate.


The systematic and rational allocation of the cost of property, plant, and equipment
over their useful lives. Refer also to amortization and depletion.


Amortization of fixed assets, such as plant and equipment, so as to allocate the cost over their depreciable life.

Depreciation Allowances

Tax deductions that businesses can claim when they spend money on investment goods.

Depreciation expense

An expense account that represents the portion of the cost of an asset that is being charged to expense during the current period.

Depreciation tax shield

The value of the tax write-off on depreciation of plant and equipment.

depreciation tax shield

Reduction in taxes attributable to the depreciation allowance.


A prolonged period of very low economic activity with large-scale unemployment.

Double-declining-balance depreciation

Method of accelerated depreciation.

Earnings before interest, taxes, depreciation and amortization (EBITDA)

The operating profit before deducting interest, tax, depreciation and amortization.

Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)

An earningsbased measure that, for many, serves as a surrogate for cash flow. Actually consists of working
capital provided by operations before interest and taxes.

EBDDT - Earnings before depreciation and deferred taxes

This measure is used principally by
firms in the real estate industry, with the exception of real estate investment trusts, which typically
do not pay taxes.

Economic assumptions

economic environment in which the firm expects to reside over the life of the
financial plan.

economic components model

Abrams’ model for calculating DLOM based on the interaction of discounts from four economic components.
This model consists of four components: the measure of the economic impact of the delay-to-sale, monopsony power to buyers, and incremental transactions costs to both buyers and sellers.

Economic defeasance

See: in-substance defeasance.

Economic dependence

Exists when the costs and/or revenues of one project depend on those of another.

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.

Economic exposure

The extent to which the value of the firm will change because of an exchange rate change.

Economic income

Cash flow plus change in present value.

economic integration

the creation of multi-country markets
by developing transnational rules that reduce the fiscal and
physical barriers to trade as well as encourage greater economic
cooperation among countries

Economic life

The period over which a company expects to be able to use an asset.

economic order quantity

Order size that minimizes total inventory costs.

Economic order quantity (EOQ)

The order quantity that minimizes total inventory costs.

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

Economic rents

Profits in excess of the competitive level.

Economic risk

In project financing, the risk that the project's output will not be salable at a price that will
cover the project's operating and maintenance costs and its debt service requirements.

Economic surplus

For any entity, the difference between the market value of all its assets and the market
value of its liabilities.

Economic union

An agreement between two or more countries that allows the free movement of capital,
labor, all goods and services, and involves the harmonization and unification of social, fiscal, and monetary

Economic Value Added (EVA)

Operating profit, adjusted to remove distortions caused by certain accounting rules, less a charge
to cover the cost of capital invested in the business.

economic value added (EVA)

a measure of the extent to which income exceeds the dollar cost of capital; calculated
as income minus (invested capital times the cost of capital percentage)

economic value added (EVA)

Term used by the consulting firm Stern Stewart for profit remaining after deduction of the cost
of the capital employed.

economically reworked

when the incremental revenue from the sale of reworked defective units is greater than
the incremental cost of the rework


The study of the allocation and distribution of scare resources among competing wants.

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

Factor of Production

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

Great Depression

The period of very high unemployment during the early 1930s.

Leading economic indicators

economic series that tend to rise or fall in advance of the rest of the economy.

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.

Long run

A period of time in which all costs are variable; greater than one year.
Long straddle A straddle in which a long position is taken in both a put and call option.

Long run

A period of time in which all costs are variable; greater than one year.


The study of the determination of economic aggregates such as total output and the price level.


The study of firm and individual decisions insofar as they affect the allocation and distribution of goods and services.

Non-production overhead

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

Non-reproducible assets

A tangible asset with unique physical properties, like a parcel of land, a mine, or a
work of art.

On the run

The most recently issued (and, therefore, typically the most liquid) government bond in a
particular maturity range.


A manufactured or received quantity exceeding the planned amount.

Process flow production

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

Production-flow commitment

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

Production overhead

A general term referring to indirect costs.

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 yield variance

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

Registered representative

A person registered with the CFTC who is employed by, and soliciting business
for, a commission house or futures commission merchant.

Reprocessed material

Material that has been reworked and returned to stock.

Reproducible assets

A tangible asset with physical properties that can be reproduced, such as a building or


A run consists of a series of bid and offer quotes for different securities or maturities. Dealers give to and
ask for runs from each other.


the period before a formal announcement of a takeover bid in which one or more bidders are either preparing to make an announcement or speculating that someone else will.

Short-run operating activities

Events and decisions concerning the short-term finance of a firm, such as
how much inventory to order and whether to offer cash terms or credit terms to customers.

Straight line depreciation

An equal dollar amount of depreciation in each accounting period.


A depreciation method that depreciates an asset the same amount for each year of its estimated

straight-line depreciation

This depreciation method allocates a uniform
amount of the cost of long-lived operating assets (fixed assets) to each
year of use. It is the basic alternative to the accelerated depreciation
method. When using the straight-line method, a business may estimate a
longer life for a fixed asset than when using the accelerated method
(though not necessarily in every case). Both methods are allowed for
income tax and under generally accepted accounting principles (GAAP).

straight-line depreciation

Constant depreciation for each year of the asset’s accounting life.

Sum-of-the-years'-digits depreciation

Method of accelerated depreciation.

Supply-Side Economics

View that incentives to work, save, and invest play an important role in determining economic activity by affecting the supply side of the economy.

tax benefit (of depreciation)

the amount of depreciation deductible for tax purposes multiplied by the tax rate;
the reduction in taxes caused by the deductibility of depreciation

tax shield (of depreciation)

the amount of depreciation deductible
for tax purposes; the amount of revenue shielded
from taxes because of the depreciation deduction

Undepreciated Capital Costs

The tax definition of the value of an asset that is eligible for tax deprecation.


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.







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