An efficiency variance indicates the gap between actual and budgeted input quantities, a key metric in resource utilization. Productive efficiency occurs without waste and is on the PPF curve, whereas allocative efficiency aligns production with societal values and preferences.
- An efficiency variance reflects the difference between an actual input quantity and a budgeted input quantity.
- In accounting and management, efficiency variance is key in understanding how well a company is utilizing its resources.
- Specifically, within the context of managerial accounting and cost management, this variance helps in identifying how actual resource usage deviates from what was expected or budgeted.
- When it comes to production processes, productive efficiency happens when production occurs without waste and on the production possibility frontier (PPF).
- To determine if a choice displays productive efficiency, you look to see if it's on the curve of the PPF.
- Conversely, allocative efficiency means that the specific mix of goods being produced represents the mix that society values the most, given the resources available.
- Allocative efficiency can be gauged by examining if the production choice is at a point where the marginal rate of transformation equals the marginal rate of substitution, implying that resources are allocated based on consumer preferences.