Applied overhead refers to the indirect costs allocated to produced goods or services in a firm’s manufacturing process. These include costs such as utilities, rent, and salaries of the administrative staff.
An assembly line is a production method requiring workers to perform a repetitive task on a product as it moves along on a conveyor belt or track. It brings significant advantages such as part standardization and rationalization of work.
A facility where a production line is located and where products are assembled using systematic stages of production. This plant is fundamental in manufacturing industries, especially for large-scale production.
Batch costing is a method of costing in which unit costs are expressed based on the cost of producing a specific batch, particularly useful in scenarios where individual unit costs are extremely low and production units are homogeneous.
Batch processing is a method of production where similar individual units are grouped together as a batch to streamline the production process and improve cost-efficiency. Often used when the goods produced are small or homogeneous, batch processing helps organizations manage resources more effectively.
Batch-level activities refer to tasks or processes that are performed each time a batch of units is produced, regardless of the number of units within that batch. These activities are essential for economies of production, particularly in manufacturing settings.
Big Steel refers to the large U.S. steel producers, most notably exemplified by the USX Corporation (formerly known as U.S. Steel Corporation). These producers are facing intense international competition, mainly from regions such as the Far East.
Blister packaging is a method used for packaging items in a clear plastic envelope or window, enabling customers to view the contents prior to purchase.
A by-product is a secondary product derived from a manufacturing process or chemical reaction, often with some economic value.
Understanding an organization’s maximum achievable output given the available resources such as labor and machinery, under specific conditions.
Capital goods are items used in the production of other goods, including industrial buildings, machinery, and equipment, as well as highways, office buildings, and government installations. These goods significantly determine a country's productive capacity.
A cellular layout is an organization of a production facility where items with similar processing requirements are grouped together.
A channel of distribution refers to the means or pathway used to transfer merchandise from the manufacturer to the end user. The intermediaries involved in this process are known as middlemen, and they can either take title to the merchandise or not.
Coincident indicators are economic indicators that coincide with the current pace of economic activity. They provide insight into the current state of the economy by measuring various key areas of economic performance.
Materials that are used in a production process but do not form part of the direct cost of sales, such as lubricants and sanding discs.
An industrial process that continuously receives raw materials and processes them through to completed units. Hospital healthcare is a 24-hour-a-day, 7-day-a-week continuous process.
Continuous production is a manufacturing process where raw materials are constantly fed into the production system to create a standardized product.
Cost of Goods Sold (COGS) represents the direct costs attributed to the production of goods sold by a company. COGS include the cost of materials, direct labor, and manufacturing overhead.
A cost unit represents a unit of production for which costs are aggregated. It can vary from a single item like a chair or light bulb to a sub-assembly in more complex products like an aircraft wing or gearbox. In cases where individual unit costs are minimal, cost units might be expressed as batches.
Decreasing returns to scale is a characteristic of the production of a good that requires proportionally higher amounts of inputs to produce each unit of output as the amount of output increases.
A business growth strategy where a company utilizes existing equipment to produce new products with minimal addition of materials.
The direct cost of sales, also known as the prime cost, refers to the aggregate expenses directly tied to the production of a good or service, encompassing direct materials, direct labor, and direct expenses, while excluding overhead costs.
Direct labor refers to the cost of personnel that can be directly identified in the production of a product, such as the salary of workers operating machines on a production line but not including administrative or janitorial staff.
Direct Labour refers to the labor involved in the production of goods or services, specifically attributable to specific cost units such as products, services, or machinery usages.
Direct material refers to the cost of material that can be specifically identified with the production of a product, such as wood and nails in furniture manufacturing. It does not include materials used indirectly in the production process, like gasoline for power saws used to fell trees for lumber.
Direct materials are those materials that are directly incorporated into the final product or cost unit of an organization. These raw materials are integral to the manufacturing process and can be easily traced back to the finished product.
Direct Materials Inventory represents raw materials in storage that await transfer to production, subsequently forming part of the work in progress.
Direct Materials Usage Variance measures the efficiency of a company's use of materials in the production process by comparing the actual quantity used to the standard quantity expected to be used.
Direct overhead refers to the portion of overhead costs allocated to manufacturing through a standard application of burden rate, impacting inventory costs and ultimately reflected in the cost of goods sold.
Direct production refers to the process where a firm has primary responsibility for the production of a particular item, making it the main producer.
An operator in an organization whose time is spent working on the product or cost unit to such an extent that the operator's time is traceable to the product as a direct cost.
Downtime refers to the period during which a system, service, or equipment is not operational or is unavailable. This term is often used in various fields including manufacturing, computing, and telecommunications.
An inventory decision model used to calculate the optimum amount to order, balancing the fixed costs of ordering and receiving against the carrying cost of inventory and sales. Utilized in both manufacturing and retail inventory management.
Effective Units, a concept closely linked with Equivalent Units, are used in cost accounting to determine the cost per unit in a production process, especially when dealing with incomplete goods. The aim is to assign accurate costs to partially completed items.
The Experience Curve is a production phenomenon where unit costs decline as volume increases. This concept highlights the cost advantages gained from efficiency improvements, skill enhancements, process optimizations, and material cost reductions associated with increased production.
Factory costs, also known as factory expenses, are expenditures incurred by the manufacturing section of an organization. This includes direct materials, direct labor, direct expenses, and manufacturing overheads. It excludes markup or profit.
Finished goods inventory represents the value of products that have completed the manufacturing process and are ready for sale to customers. This inventory is crucial for accurate financial reporting and operational planning.
Hard manufacturing involves the use of fixed production equipment designed for large production runs of similar items, representing significant fixed costs and limited adaptability to new products.
Heavy industry refers to traditional production industries such as auto manufacturing, steel production, rubber processing, petroleum refining, and raw material extraction, which require massive capital investment and produce large quantities of goods. These industries employ large numbers of workers and often have significant environmental impacts.
Idle capacity refers to the portion of an organization’s budgeted capacity that is not utilized, resulting in unused hours. It is often measured in hours and indicates the gap between actual hours worked and budgeted available hours.
In manufacturing, an indirect cost refers to expenses that cannot be directly attributed to specific products. Examples include electricity, hazard insurance on the factory building, and real estate taxes.
Indirect materials are those materials that do not feature in the final product but are necessary to carry out the production process. Examples include machine oil, cleaning materials, and consumable materials.
Indirect production refers to the creation of goods or services that are not directly consumed but are essential for the production of final products or services.
An industrial park is a designated area zoned specifically for manufacturing and related activities, often complete with necessary infrastructure to support industrial operations.
An industry is a group of companies that are related based on their primary business activities. In modern economies, there are dozens of industry classifications, which are typically grouped into larger categories called sectors.
Interindustry competition refers to the competition that develops between companies operating in different industries. For example, an automobile company may compete with an aerospace company for a government manufacturing contract for a military subsystem.
Intermediate goods are materials or components that are transformed by production processes into another form, often used to create final goods. For example, steel is an intermediate good that can be transformed into automobiles or ships.
A job card, also known as a job ticket, is a document that contains written instructions detailing the operations needed to complete a specific job. These instructions can take various formats, including physical cards or digital printouts.
A job cost sheet is a detailed record of the budgeted or actual costs of materials and labor required to produce a specific product. It plays a critical role in job costing systems used primarily in manufacturing.
A job lot is a form of contract authorizing the completion of a particular order size, particularly related to a production run dictated by a job order.
A job order is an internal management authorization for the production of a specified number of goods or services. It guides the workflow, ensures accountability, and streamlines the production process.
A job ticket, also known as a job card, is a document used in manufacturing and service industries to track the working hours, materials used, and the progress of a job or a service request. It provides detailed instructions and specifications necessary to complete a job efficiently and accurately.
An approach to manufacturing designed to match production to demand by only supplying goods to order. This has the effect of reducing stocks of raw material and finished goods, encouraging those production activities that add value to the output, and minimizing levels of scrap and defective units.
A technique that takes into account the reduction in time taken to carry out production as the cumulative output rises.
A standard unit of measure achieved after considerable experience; highly predictable sequence of actions in production.
A term used to describe products or materials that are of lower quality. Low-grade items often lack the durability, strength, or aesthetic appeal of higher-grade alternatives.
Low-tech products use earlier or less developed technology, often characterized by simplicity and ease of use. These products typically have fewer technological complexities and are designed to fulfill basic needs or functions without incorporating advanced technical elements.
The primary product that results from a manufacturing or production process, holding the greatest economic significance compared to any by-products or joint products.
The cost to a manufacturing company of making a product, consisting of direct materials, direct labor, and factory overhead; also called manufacturing expense.
A manufacturing operation at the U.S.-Mexican border, usually comprising two plants on either side of the border, designed to capitalize on free trade benefits, low Mexican wages, and U.S. distribution facilities.
Mass customization refers to the methods used to produce customized goods and services on a large scale. Combining elements of mass production with individualized customization, it's a key strategy in contemporary business that enhances customer satisfaction while maintaining cost efficiency.
Mass production refers to the manufacturing or processing of uniform products in large quantities using interchangeable parts and machinery. It can be either a wholly automated process or a series of short, repetitive procedures.
Materials represent the production supplies that are acquired by an organization as revenue expenditure from third parties. These are essential for manufacturing final products and are categorized into direct and indirect materials.
Material control is the management term referring to the process of ensuring that the necessary materials for production are available at the required place, time, and quantity while maintaining proper accountability and avoiding overstocking.
Material Requirements Planning (MRP) is a production planning, scheduling, and inventory control system used to manage manufacturing processes. Most notably, it ensures that materials are available for production, products are available for delivery to customers, and inventories are maintained at the lowest possible level.
Materials oncost represents the additional expenses associated with materials beyond their initial purchase price, including handling, storage, and transportation.
Materials variances measure the differences between expected and actual costs related to direct materials used in the production process. These variances help in controlling and analyzing cost efficiency and effectiveness in manufacturing.
An Order Number is a reference number used by a wholesaler, manufacturer, or retailer to identify a particular order. This unique identifier helps in tracking and managing orders effectively.
An Original Equipment Manufacturer (OEM) is a company that produces parts and equipment that are used in another company's end product. OEM parts are typically considered to be of higher quality compared to aftermarket parts.
Output refers to the amount produced, whether it's the results provided by a computer system or the tangible results of a production process.
The concept of overrun in production refers to exceeding predefined production limits, often due to estimation errors, reduction in order size, or attempts to utilize excess materials.
Plant and equipment, often referenced as property, plant, and equipment (PP&E), are long-term assets essential to manufacturing, production, and operations. It includes real estate, machinery, vehicles, and significant fixtures integral to the business.
Practical Capacity is the highest activity level at which a factory can operate efficiently, considering unavoidable losses of productive time such as vacations, holidays, and equipment repairs. It is also known as maximum practical capacity.
Prime cost is a crucial accounting term reflecting the direct costs of production, typically including direct materials and direct labor expenses.
Process costing is a method of costing used primarily in manufacturing where goods or services result from a sequence of continuous or repetitive operations.
Process costing is a method of cost accounting used where production is continuous, and the cost per unit is derived by spreading production costs equally across all units produced in a specific time period.
The term 'produce' refers to both the act of creating or manufacturing goods and the classification of agricultural products like fruits and vegetables.
The Producer Price Index (PPI) measures wholesale prices across various stages of production and distribution before goods and services reach the consumer market. It is released monthly by the U.S. Bureau of Labor Statistics.
An item, sub-assembly, part, or cost unit manufactured or sold by an organization.
Product-sustaining-level activities are activities that are necessary to support a specific product regardless of the volume of production. These activities ensure the possible production and effective marketing of the product.
Production refers to the processes and methods employed to transform inputs (like raw materials, labor, and machinery) into finished products or services. The volume of production can be quantified in units, direct labor hours, machine hours, or direct labor costs.
The planning, coordination, and controlling of an organization's resources to efficiently facilitate the production process, encompassing key issues such as location, labor, transportation costs, and production forecasting.
Production control involves planning, routing, scheduling, dispatching, and inspecting the operations or items being manufactured to ensure efficiency and quality in the production process.
A section of an organization in which production is carried out, focusing on transforming raw materials into finished goods through various processes and workflows.
Production forecasting is the process of judging how much production is required to meet estimated sales in a particular forecasting period. Considerations include previous sales, the general state of the economy, consumer preferences, and competitive products. Production forecasting decisions affect budgetary and scheduling decisions.
Production overhead, also known as manufacturing overhead, refers to the indirect costs associated with manufacturing a product. These costs are not directly tied to the production process but are necessary expenses for running a manufacturing operation.
Production planning is the administrative operation that ensures material, labor, and other resources necessary for the production process are available when and where needed in the required quantities.
The production rate is a vital metric in manufacturing, representing the speed at which a production line manufactures products. It informs stakeholders about productivity efficiency and capacity utilization.
An in-depth look at organizations primarily focused on the production of goods and services, their operations, and their strategic significance.
The Production-Unit Method is a technique for calculating depreciation where the depreciation charge is based on the number of units produced by machinery over its useful life.
Productivity variance measures the differences between expected and actual output levels and efficiency, helping businesses refine production processes.
Quality Control (QC) is the process of ensuring that products are manufactured to consistently high standards of quality. This often involves inspecting goods at various points in their manufacture using either human or machine resources.
Raw material refers to the primary substances used as a component in the manufacturing process of finished goods. For instance, wool serves as the raw material in the production of woolen sweaters.
Raw materials are the basic materials that are used at the very beginning of a production process, essential for manufacturing final products.
The inventory of raw materials held at a specified time, which appears on the balance sheet under the heading of current assets.
A recall study is an investigation conducted by a manufacturer or governmental authority to assess the necessity of recalling a product due to defects or safety issues. This process evaluates if the defect is isolated or widespread and determines actions such as returning, repairing, or replacing the product.
Routing refers to the production method used to determine the sequence of manufacturing steps necessary to complete a product. The routing process is influenced by the type of product and its associated production process.
Scheduled production refers to the planning and timetabling of the production process for specific products, detailing when and how each production sequence is to occur.
In process costing, the separation point, also known as the split-off point, is where by-products or joint products emerge and begin their independent processing paths.
Costs associated with establishing a new manufacturing procedure. Setup costs include design costs, acquisition and location of machinery, and employee hiring and training.
