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. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  2. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  3. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  4. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
  5. Earnings Multiplier

    An adjustment made to a company's P/E ratio that takes into account current interest rates. The earnings multiplier is used ...
  6. Macroeconomics

    The field of economics that studies the behavior of the aggregate economy. Macroeconomics examines economy-wide phenomena ...
Trading Center