Financial Terms
product complexity

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Definition of product complexity

Product Complexity Image 1

product complexity

an assessment about the number of components in a product

Related Terms:

Aggregate Production Function

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


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


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.


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

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

Product Complexity Image 2

Factor of Production

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

grade (of product or service)

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

Gross Domestic Product

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

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

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

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).

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.

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.

Product Complexity Image 3

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.

Non-production overhead

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

process complexity

an assessment about the number of processes through which a product flows

Process flow production

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

process productivity

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


Any item intended for sale.

product contribution margin

the difference between selling price and variable cost of goods sold

Product cost

The cost of goods or services produced.

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.

product cost

a cost associated with making or acquiring inventory

Product cost

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

Product cycle

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

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 market

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

product- (or process-) level cost

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

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.

Product/service mix

See sales mix.

product variety

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

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.

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


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



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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