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Factor of Production |
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Definition of Factor of ProductionFactor of ProductionA resource used to produce a good or service. The main macroeconomic factors of production are capital and labor.
Related Terms:ADF (annuity discount factor)the present value of a finite stream of cash flows for every beginning $1 of cash flow. Aggregate Production FunctionAn equation determining aggregate output as a function of aggregate inputs such as labor and capital. Amortization factorThe pool factor implied by the scheduled amortization assuming no prepayemts. Annuity factorPresent value of $1 paid for each of t periods. annuity factorPresent value of an annuity of $1 per period. Conversion factorsRules set by the Chicago Board of Trade for determining the invoice price of each cost of production reporta process costing document that critical success factors (CSF)any item (such as quality, customer Discount factorPresent value of $1 received at a stated future date. discount factorPresent value of a $1 future payment. economic production run (EPR)an estimate of the number equivalent units of production (EUP)an approximation of the number of whole units of output that could have been FactorA financial institution that buys a firm's accounts receivables and collects the debt. FactorAn agent who buys and sells goods on behalf of others for a commission. Factor analysisA statistical procedure that seeks to explain a certain phenomenon, such as the return on a Factor modelA way of decomposing the factors that influence a security's rate of return into common and Factor portfolioA well-diversified portfolio constructed to have a beta of 1.0 on one factor and a beta of FactoringSale of a firm's accounts receivable to a financial institution known as a factor. FactoringThe sale of accounts receivable to a third party, with the third party bearing FactoringThe discounting, or sale at a discount, of receivables on a nonrecourse, notification FactoringType of financial service whereby a firm sells or transfers title to its accounts receivable to a factoring company, which then acts as principal, not as agent. Factory overheadAll the costs incurred during the manufacturing process, minus the Interest FactorNumbers found in compound interest and annuity tables. Usually called the FVIF or PVIF. Lean productionThe technique of stripping all non-value-added activities from Limiting factorThe production resource that, as a result of scarce resources, limits the production of goods Maturity factoringfactoring arrangement that provides collection and insurance of accounts receivable. Multifactor CAPMA version of the capital asset pricing model derived by Merton that includes extramarket Net benefit to leverage factorA linear approximation of a factor, T*, that enables one to operationalize the Non-production overheadA general term referring to period costs, such as selling, administration and financial expenses. Old-line factoringfactoring arrangement that provides collection, insurance, and finance for accounts receivable. One-factor APTA special case of the arbitrage pricing theory that is derived from the one-factor model by Pool factorThe outstanding principal balance divided by the original principal balance with the result PPF (periodic perpetuity factor)a generalization formula invented by Abrams that is the present value of regular but noncontiguous cash flows that have constant growth to perpetuity. Present value factorfactor used to calculate an estimate of the present value of an amount to be received in Process flow productionA production configuration in which products are continually Production-flow commitmentAn agreement by the loan purchaser to allow the monthly loan quota to be Production overheadA general term referring to indirect costs. Production payment financingA method of nonrecourse asset-based financing in which a specified Production yield varianceThe difference between the actual and budgeted proportions Reported factorThe pool factor as reported by the bond buyer for a given amortization period. Scrap factorAn anticipated loss percentage included in the bill of material and Shrinkage factorThe expected loss of some proportion of an item during the Single factor modelA model of security returns that acknowledges only one common factor. Two-factor modelBlack's zero-beta version of the capital asset pricing model. UNITS OF PRODUCTIONA depreciation method that relates a machine’s depreciation to the number of units it makes each accretionan increase in units or volume caused by the addition Circular FlowIncome payments to factors of production are spent to buy output. The receipts from these sales are used to pay factors of production, creating a circular flow of income. flexible manufacturing system (FMS)a production system in which a single factory manufactures numerous variations overheadany factory or production cost that is indirect to product costThis is a key factor in the profit model of a business. Product
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