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.

BREAKING DOWN '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. Yield Variance

    The difference between actual output and standard output of a ...
  2. Variance

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

    A periodic measure used by governments, corporations or individuals ...
  4. Sales Price Variance

    The difference between the amount of money a business expects ...
  5. Unfavorable Variance

    An accounting term that describes instances where actual costs ...
  6. Efficiency

    A level of performance that describes a process that uses the ...
Related Articles
  1. Investing

    Explaining Variance

    Variance is a measurement of the spread between numbers in a data set.
  2. Investing

    Calculating Portfolio Variance

    Portfolio variance is a measure of a portfolio’s volatility, and is a function of two variables.
  3. Small Business

    Explaining Efficiency

    Efficiency refers to the ability to make something with the fewest resources possible.
  4. Trading

    Exploring The Exponentially Weighted Moving Average

    Learn how to calculate a metric that improves on simple variance.
  5. Investing

    Using Historical Volatility To Gauge Future Risk

    Use these calculations to uncover the risk involved in your investments.
  6. Insights

    What Are Economies Of Scale?

    Is bigger always better? Read up on the important and often misunderstood concept of economies of scale.
  7. Personal Finance

    How Budgeting Works For Companies

    Learn how to break down and understand a corporate budget.
  8. Insights

    Explaining Economic Efficiency

    Economic efficiency is achieved when every resource is optimally allocated to minimize waste and best serve each person in that economy.
  9. Investing

    Market Efficiency Basics

    Market efficiency theory states that a stock’s price will fully reflect all available and relevant information at any given time.
  10. Insights

    What is Productivity?

    Productivity is an economic term describing the relationship between outputs as compared to inputs needed to produce those outputs.
RELATED FAQS
  1. What is price variance in cost accounting?

    Understand what price variance is in relation to cost accounting. Learn the most common way price variance arises and how ... Read Answer >>
  2. How is an unfavorable variance discovered?

    Learn how unfavorable variance is discovered through defining budget numbers, such as standard rates for labor and materials, ... Read Answer >>
  3. Is variance good or bad for stock investors?

    Learn how high variance stocks are good for some investors and how diversified portfolios can reduce variance without compromising ... Read Answer >>
  4. What is the difference between standard deviation and variance?

    Understand the difference between standard deviation and variance; learn how each is calculated and how these concepts are ... Read Answer >>
  5. How much variance should an investor have in an indexed fund?

    Learn more about the significance of variance in index funds, its value as a measure of volatility and other common analytical ... Read Answer >>
  6. How can I measure portfolio variance?

    Find out more about portfolio variance, the formula to calculate portfolio variance and how to calculate the variance of ... Read Answer >>
Hot Definitions
  1. IRS Publication 970

    A document published by the Internal Revenue Service (IRS) that provides information on tax benefits available to students ...
  2. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  3. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  4. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  5. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  6. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
Trading Center