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Definition of Product

Product Image 1


Any item intended for sale.

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 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 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 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

product complexity

an assessment about the number of components in a product

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 Image 4

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.


see activity-based management
abnormal loss a decline in units in excess of normal expectations
during a production process

Absorption costing

A method of costing in which all fixed and variable production costs are charged to products or services using an allocation base.

absorption costing

a cost accumulation and reporting
method that treats the costs of all manufacturing components
(direct material, direct labor, variable overhead, and
fixed overhead) as inventoriable or product costs; it is the
traditional approach to product costing; it must be used for
external financial statements and tax returns

Absorption costing

A methodology under which all manufacturing costs are assigned
to products, while all non-manufacturing costs are expensed in the current period.


‘Buckets’ within the ledger, part of the accounting system. Each account contains similar transactions (line items) that are used for the production of financial statements. Or commonly used as an abbreviation for financial statements.


an increase in units or volume caused by the addition
of material or by factors inherent in the production process

activity analysis

the process of detailing the various repetitive actions that are performed in making a product or
providing a service, classifying them as value-added and
non-value-added, and devising ways of minimizing or eliminating
non-value-added activities

activity-based budgeting (ABB)

planning approach applying activity drivers to estimate the levels and costs of activities necessary to provide the budgeted quantity and
quality of production

Activity-based costing

A method of costing that uses cost pools to accumulate the cost of significant business activities and then assigns the costs from the cost pools to products or services based on cost drivers.

activity based costing (ABC)

A relatively new method advocated for the
allocation of indirect costs. The key idea is to classify indirect costs,
many of which are fixed in amount for a period of time, into separate
activities and to develop a measure for each activity called a cost driver.
The products or other functions in the business that benefit from the
activity are allocated shares of the total indirect cost for the period based
on their usage as measured by the cost driver.

activity-based costing (ABC)

a process using multiple cost drivers to predict and allocate costs to products and services;
an accounting system collecting financial and operational
data on the basis of the underlying nature and extent
of business activities; an accounting information and
costing system that identifies the various activities performed
in an organization, collects costs on the basis of
the underlying nature and extent of those activities, and
assigns costs to products and services based on consumption
of those activities by the products and services

Activity-based costing (ABC)

A cost allocation system that compiles costs and assigns
them to activities based on relevant activity drivers. The cost of these activities can
then be charged to products or customers to arrive at a much more relevant allocation
of costs than was previously the case.

activity-based management (ABM)

a discipline that focuses on the activities incurred during the production/performance process as the way to improve the value received
by a customer and the resulting profit achieved by providing
this value

activity center

a segment of the production or service
process for which management wants to separately report
the costs of the activities performed

activity driver

a measure of the demands on activities and,
thus, the resources consumed by products and services;
often indicates an activity’s output


One who uses statistical information to evaluate the probability of future events and prices insurance products.


A payment made by a customer to the company, or by the company to a
supplier, in advance of the performance of any associated service or delivery of

Advance material request

Very early orders for materials before the completion
of a product design, given the long lead times required to supply some items.

Aggregate planning

A budgeting process using summary-level information to
derive various budget models, usually at the product family level.

Allocation base A measure of activity or volume such as labour

hours, machine hours or volume of production
used to apportion overheads to products and

applied overhead

the amount of overhead that has been assigned to Work in Process Inventory as a result of productive activity; credits for this amount are to an overhead account

approximated net realizable value at split-off allocation

a method of allocating joint cost to joint products using a
simulated net realizable value at the split-off point; approximated
value is computed as final sales price minus
incremental separate costs

asset turnover

a ratio measuring asset productivity and showing the number of sales dollars generated by each dollar of assets


A firm's productive resources.


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All life insurance companies authorized to sell in Canada are required, by the federal, provincial and territorial regulators, to become members of Assuris. Members cannot terminate their membership as long as they are licensed to write business in Canada or have any in force business in Canada.
If your life insurance company fails, your policies will be transferred to a solvent company. Assuris guarantees that you will retain at least 85% of the insurance benefits you were promised. Insurance benefits include Death, Health Expense, Monthly Income and Cash Value. Your deposit type products will also be transferred to a solvent company. For these products, Assuris guarantees that you will retain 100% of your Accumulated Value up to $100,000. Deposit type products include accumulation annuities, universal life overflow accounts, premium deposit accounts and dividend deposit accounts. The key to Assuris protection is that it is applied to all benefits of a similar type. If you have more than one policy with the failed company, you will need to add together all similar benefits before applying the Assuris protection. The Assuris website can be found at

attribute-based costing (ABC II)

an extension of activitybased costing using cost-benefit analysis (based on increased customer utility) to choose the product attribute
enhancements that the company wants to integrate into a product

Average Collection Period

Average number of days necessary to receive cash for the sale of
a company's products. It is calculated by dividing the value of the
accounts receivable by the average daily sales for the period.

Back flush

The subsequent subtraction from inventory records of those parts used
to assemble a product, based on the number of finished goods produced.


A market condition in which futures prices are lower in the distant delivery months than in
the nearest delivery month. This situation may occur in when the costs of storing the product until eventual
delivery are effectively subtracted from the price today. The opposite of contango.


A group of similar products produced together.

Batch cost

A cost that is incurred when a group of products or services are produced,
and which cannot be identified to specific products or services within each group.

Bill and Hold Practices

products that have been sold with an explicit agreement that delivery
will occur at a later, often yet-to-be-determined, date.
Capitalize To report an expenditure or accrual as an asset as opposed to expensing it and charging it against earnings currently.

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

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.

Blend off

The reintroduction of a faulty product into a process production flow by
adding it back in small increments.
1Copied with permission from Appendix B of Bragg, Inventory Best Practices, John Wiley
& Sons, 2004.


An operation in the midst of a manufacturing or service process in which the
required production level matches or exceeds the actual capacity.

Breakeven point

The sales level at which a company, division, or product line makes a
profit of exactly zero, and is computed by dividing all fixed costs by the average
gross margin percentage.

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

build mission

a mission of increasing market share, even at
the expense of short-term profits and cash flow; typically
pursued by a business unit that has a small market share
in a high-growth industry; appropriate for products that
are in the early stages of the product life cycle


The maximum volume of products or services that can be produced given limitations of space,
people, equipment or financial resources.


a measure of production volume or some other activity base

Capacity utilization

The proportion of capacity that is able to be utilized to fulfil customer demand for products
or services.


a) Physical capital: buildings, equipment, and any materials used to produce other goods and services in the future rather than being consumed today.
b) Financial capital: funds available for acquiring real capital.
c) Human capital: the value of the education and experience that make people more productive.


Expenditures Purchases of productive long-lived assets, in particular, items of property,
plant, and equipment.

capital asset

an asset used to generate revenues or cost savings
by providing production, distribution, or service capabilities
for more than one year


A loose quantity term sometimes used to describe a the amount of a commodity underlying one
commodity contract; e.g., "a car of bellies." Derived from the fact that quantities of the product specified in a
contract used to correspond closely to the capacity of a railroad car.

Cash Cycle

The length of time between a purchase of materials and collection of accounts receivable generated by the sale of the products made from the materials.

Cash discount

An incentive offered to purchasers of a firm's product for payment within a specified time
period, such as ten days.

Cash Flow Provided or Used from Investing Activities

Cash receipts and payments involving
long-term assets, including making and collecting loans and acquiring and disposing of
investments and productive long-lived assets.

Channel Stuffing

Shipments of product to distributors who are encouraged to overbuy under
the short-term offer of deep discounts.

Circular Flow

Income 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.

Comparative Advantage

A country has a comparative advantage over another country in the production of good A if to produce a unit of A it forgoes more of the production of good B than would the other country when it produces a unit of good A. Its efficiency in the production of good A relative to its efficiency in the production of good B is greater than is the case for the other country. See also absolute advantage.







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