Financial Terms
UNITS OF PRODUCTION

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Definition of UNITS OF PRODUCTION

UNITS OF PRODUCTION Image 1

UNITS OF PRODUCTION

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.



Related Terms:

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


Piece Rate Plan

A wage calculation method based on the number of units of production
completed by an employee.


process costing system

a method of accumulating and assigning costs to units of production in companies producing large quantities of homogeneous products;
it accumulates costs by cost component in each production department and assigns costs to units using equivalent units of production


Aggregate Production Function

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


Asian currency units (ACUs)

Dollar deposits held in Singapore or other Asian centers.



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


UNITS OF PRODUCTION Image 2

Factor of Production

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


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.


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.


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.


total units to account for

the sum of the beginning inventory
units and units started during the current period


UNITS OF PRODUCTION Image 3

units started and completed

the difference between the number of units completed for the period and the units in beginning inventory; it can also be computed as the number of units started during the period minus the units in ending inventory


ABM

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



accretion

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


continuous loss

any reduction in units that occurs uniformly
throughout a production process


discrete loss

a reduction in units that occurs at a specific
point in a production process


FIFO method (of process costing)

the method of cost assignment that computes an average cost per equivalent
unit of production for the current period; keeps beginning
inventory units and costs separate from current period production
and costs


First in, first-out costing method (FIFO)

A process costing methodology that assigns the earliest
cost of production and materials to those units being sold, while the latest costs
of production and materials are assigned to those units still retained in inventory.


normal loss

an expected decline in units during the production process


shrinkage

a decrease in units arising from an inherent characteristic
of the production process; it includes decreases
caused by evaporation, leakage, and oxidation


weighted average method (of process costing)

the method of cost assignment that computes an average cost per
equivalent unit of production for all units completed during
the current period; it combines beginning inventory units
and costs with current production and costs, respectively,
to compute the average



 

 

 

 

 

 

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