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. Variance

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

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

    The sum of all wages paid to employees, as well as the cost of ...
  4. Labor Productivity

    A measurement of economic growth of a country. Labor productivity ...
  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 Articles
  1. Globalization: Progress Or Profiteering?
    Economics

    Globalization: Progress Or Profiteering?

  2. Vital Link: Manufacturing And Economic ...
    Fundamental Analysis

    Vital Link: Manufacturing And Economic ...

  3. What Are Economies Of Scale?
    Economics

    What Are Economies Of Scale?

  4. Doing More With Less: The Sales-Per-Employee ...
    Investing

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

Hot Definitions
  1. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  2. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  3. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  4. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  5. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  6. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
Trading Center