Efficiency Variance

AAA

DEFINITION of 'Efficiency Variance'

The difference between the theoretical amount of inputs required to produce a unit of output and the actual amount of inputs used. In manufacturing, efficiency variance can be used to analyze the effectiveness with respect to labor, materials, machine time and other production factors.

INVESTOPEDIA EXPLAINS 'Efficiency Variance'

An important factor in measuring efficiency variance is the development of a set of realistic assumptions surrounding the theoretical amount of inputs that should be required. If the actual amount of inputs used exceeds the amount theoretically required, there is a negative efficiency variance. On the other hand, if actual inputs are less than the amounts theoretically required, then there would be a positive efficiency variance. Since the baseline theoretical inputs are often calculated for the optimal conditions, a slightly negative efficiency variance is normally expected.

RELATED TERMS
  1. Labor Productivity

    A measurement of economic growth of a country. Labor productivity ...
  2. Variance

    The spread between numbers in a data set, measuring Variance ...
  3. Yield Variance

    The difference between actual output and standard output of a ...
  4. Cost Of Labor

    The sum of all wages paid to employees, as well as the cost of ...
  5. Raw Materials

    A material or substance used in the primary production or manufacturing ...
  6. Capacity Utilization Rate

    A metric used to measure the rate at which potential output levels ...
RELATED FAQS
  1. Why does zero-based budgeting require ongoing evaluation and management?

    Zero-based budgeting must have ongoing evaluation and management due to the fact a zero-based budget requires management ... Read Full Answer >>
  2. What is the prime cost formula?

    The term "prime cost" refers to the direct costs of manufacturing an item. It is calculated by adding the cost of raw materials ... Read Full Answer >>
  3. How can I lower my effective tax rate without lowering my income?

    There are lots of ways to lower your effective tax rate, although your individual circumstances determine whether you can ... Read Full Answer >>
  4. How does the use of International Financial Reporting Standards (IFRS) affect key ...

    While much has been achieved since 2002 in convergence between international financial reporting standards (IFRS) and U.S. ... Read Full Answer >>
  5. What is the justification for allowing deferred tax liabilities?

    A deferred tax liability tracks the temporary difference that arises between a company's income taxes that will be due in ... Read Full Answer >>
  6. How is overhead distributed through total absorption costing?

    Through total absorption costing, overhead is distributed into indirect costs incurred from the manufacturing and production ... Read Full Answer >>
Related Articles
  1. Economics

    Globalization: Progress Or Profiteering?

    Proponents of globalization argue that it helps the economies of developing nations and makes goods cheaper, while critics say that globalization reduces domestic jobs and exploits foreign workers. ...
  2. Fundamental Analysis

    Vital Link: Manufacturing And Economic Recovery

    Manufacturing output is one of the clearest signs that an economy is recovering from a recession.
  3. Economics

    What Are Economies Of Scale?

    Is bigger always better? Read up on the important and often misunderstood concept of economies of scale.
  4. Investing

    Doing More With Less: The Sales-Per-Employee Ratio

    If used properly, this ratio can give you insight into a company's productivity and financial health.
  5. Investing Basics

    Explaining Write-Downs

    A write-down is a reduction in the book value of an asset because it is overvalued compared to the market value.
  6. Economics

    What are Noncurrent Assets?

    Noncurrent assets are property that a company owns that will last for more than one year.
  7. Investing Basics

    How Much Do CPAs Make?

    If you're considering becoming a CPA, here's what you might expect to earn.
  8. Economics

    Explaining Activity-Based Costing

    Activity-based costing (ABC) is a managerial accounting method that assigns certain indirect costs to the products incurring the bulk of those costs.
  9. Economics

    What is a Contra Account?

    A contra account is an offset that reduces the value of a related account.
  10. Fundamental Analysis

    What is Quantitative Analysis?

    Quantitative analysis refers to the use of mathematical computations to analyze markets and investments.

You May Also Like

Hot Definitions
  1. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  2. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  3. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  4. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  5. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  6. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
Trading Center