5 - Operations Management Flashcards
Variance analysis
Costs that are associated with the production of specific revenue and attach to the physical good/service. These costs are expensed in the period when the good is sold
Product costs
Costs that cannot be associated with specific revenue, such as rent or insurnace
Period costs
The costs of materials that are directly incorporated into production of a finished product
Direct materials
The wages and salaries of those employees who are directly involved in the production of a good
Direct labor
The cost of other items that support the production process but are not easily traceable to the final product
Factory overhead costs
Direct materials and direct labor together are known as
Prime costs
Direct labor and manufacturing overhead costs together are known as
Conversion costs
Formula to determine labor rate variance
(Actual hours x actual rate) - (Actual hours x standard rate)
Formula to determine labor efficiency variance
(Actual hours x standard rate) - (Standard hours x standard rate)
Formula to determine materials price variance
(Actual material price x actual materials purchased) - (Standard material price x actual materials purchased)
Formula to determine material usage variance
(Actual materials used x standard material price) - (Standard materials used x standard material price)
