Calculate Spending and Efficiency Variances
advertisement
Calculate Spending And Efficiency Variances Principles of Cost Analysis and Management © Dale R. Geiger 2011 1 Why So Much? © Dale R. Geiger 2011 2 Terminal Learning Objective • Task: Calculate Spending And Efficiency Variances • Condition: You are a cost advisor technician with access to all regulations/course handouts, and awareness of Operational Environment (OE)/Contemporary Operational Environment (COE) variables and actors. • Standard: with at least 80% accuracy • Identify and enter relevant scenario data into macro enabled templates to calculate Spending and Efficiency Variances • Identify root causes of Spending and Efficiency Variances © Dale R. Geiger 2011 3 Why So Much? • The gas pump is a calculator that charges based on number of gallons * price per gallon • Higher gas bills are caused by an increase in one or both of these variables • If you are using more gallons than you should be you have an unfavorable efficiency variance • If you are paying more per gallon then you have an unfavorable spending variance • These are common situations where we dig deeper into the root cause of variable cost changes © Dale R. Geiger 2011 4 Getting to the Root Cause • Imagine that in a normal week of driving you expect to use 20 gallons and you planned on spending $4 per gallon Projected Cost Planned Resource Usage 20 gallons * Planned Price $4/gallon $80 © Dale R. Geiger 2011 5 You Actually Spent • You cut down on driving last week and the pump registered only 18 gallons, but the cost per gallon went up to $5 • Note that your total variance is $10 unfavorable © Dale R. Geiger 2011 Actual Cost Actual Resource Usage 18 gallons * Actual Price $5/gallon $90 6 What if No Price Change? • If the price were still $4 per gallon your more efficient driving would have spent $72. • This is an Efficiency Variance of $8 favorable Projected Cost Efficiency Intermediate Variance Product Planned Resource Usage Actual Resource Usage 20 gallons 18 gallons * Planned Price * Planned Price $4/gallon $4/gallon $80 © Dale R. Geiger 2011 $8 $72 7 How Did Price Impact? Intermediate Product Spending Variance Actual Cost Actual Resource Usage Actual Resource Usage 18 gallons 18 gallons Planned Price Actual Price $4/gallon $5/gallon $72 ($18) $90 • However, instead you paid $5 per gallon for the 18 gallons: a total of $18 more • This is a Spending Variance of $18 Unfavorable © Dale R. Geiger 2011 8 Putting it All Together Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Planned Resource Usage Actual Resource Usage Actual Resource Usage 20 gallons 18 gallons 18 gallons * Planned Price * Planned Price * Actual Price $4/gallon $4/gallon $5/gallon $80 $8 $72 ($18) $90 note that the net of efficiency and spending variance equals the total variance 9 © Dale R. Geiger 2011 Relating to Volume Variance plan sales volume variance = = = flexible plan actual fcst = performance variance = = = actual results actual actual actual = = = actual actual actual units price/unit sales fcst fcst fcst variable/unit variable cost fixed cost fcst fcst fcst = = = fcst = fcst profit fcst = = = actual flex budget variable cost efficiency variance intermediate product spending variance actual results variable cost = ∆ = ∆ = Efficiency and Spending Variances are going one level deeper in trying to understand the root cause of the variable cost change resource quantity should have used X price per resource should have paid resource quantity actually used X resource quantity actually used X price per resource should have paid price per resource actually paid 10 © Dale R. Geiger 2011 Other Applications • There are many, many application of spending and efficiency variances • People cost is hours*rate/hour • Material cost is parts*cost/part • Tank Maintenance is miles*cost/mile • There are many other types of variance • Some of which are useful in certain circumstances • All of which follow the same logic you have learned here © Dale R. Geiger 2011 11 Check on Learning • What does the efficiency variance reveal? • The spending variance is favorable but the efficiency variance is unfavorable. How would you describe the situation? © Dale R. Geiger 2011 12 Exercises • Evaluate Efficiency and Spending Variances for each of the scenarios below: Gas Staff Maint Edits Elect Tele Food Planned Resource Usage 1000 gal 500 hrs 600 miles 200 pages 150 kw 400 min 2000 cal Planned price $4 / gal $50 / hr $20 / mile $5 / page $.3 / kw $.2 / min $.05 / cal Actual resource usage 1200 gal 400 hrs 600 miles 350 pages 120 kw 550 min 2500 cal $3.9 / gal $50 / hr $25 / mile $6 / page $.5 / kw Actual price © Dale R. Geiger 2011 $.15 / $.04 / min cal 13 Gasoline Example Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Planned Resource Usage Actual Resource Usage Actual Resource Usage * Planned Price * Planned Price * Actual Price © Dale R. Geiger 2011 14 Gasoline Example Projected Cost Planned Resource Usage Efficiency Variance Intermediate Product Spending Variance Actual Cost Actual Resource Usage Actual Resource Usage * Planned Price * Actual Price 1000 gallons * Planned Price $4/gallon $4000 © Dale R. Geiger 2011 15 Gasoline Example Projected Cost Planned Resource Usage Efficiency Variance Intermediate Product Actual Resource Usage 1000 gallons * Planned Price Spending Variance Actual Cost Actual Resource Usage 1200 gallons * Planned Price * Actual Price $4/gallon $3.9/gallon $4000 $4680 © Dale R. Geiger 2011 16 Gasoline Example Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Planned Resource Usage Actual Resource Usage Actual Resource Usage 1000 gallons 1200 gallons 1200 gallons * Planned Price * Planned Price * Actual Price $4/gallon $4/gallon $3.9/gallon $4000 ($800) $4800 © Dale R. Geiger 2011 $120 $4680 17 Staff Example Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Planned Resource Usage Actual Resource Usage Actual Resource Usage * Planned Price * Planned Price * Actual Price © Dale R. Geiger 2011 18 Staff Example Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Planned Resource Usage Actual Resource Usage Actual Resource Usage 500 400 400 * Planned Price * Planned Price * Actual Price $50 $50 $50 $25,000 $5,000 $20,000 © Dale R. Geiger 2011 0 $20,000 19 Maintenance Example Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Planned Resource Usage Actual Resource Usage Actual Resource Usage * Planned Price * Planned Price * Actual Price © Dale R. Geiger 2011 20 Maintenance Example Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Planned Resource Usage Actual Resource Usage Actual Resource Usage 600 miles 600 miles 600 miles * Planned Price * Planned Price * Actual Price $20/mile $20/mile $25/mile $12,000 0 $12,000 © Dale R. Geiger 2011 ($3000) $15,000 21 Editing Example Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Planned Resource Usage Actual Resource Usage Actual Resource Usage * Planned Price * Planned Price * Actual Price © Dale R. Geiger 2011 22 Editing Example Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Planned Resource Usage Actual Resource Usage Actual Resource Usage 200 pages 350 pages 350 pages * Planned Price * Planned Price * Actual Price $5/page $5/page $6/page $1000 ($750) $1,750 © Dale R. Geiger 2011 ($350) $2100 23 Electricity Example Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Planned Resource Usage Actual Resource Usage Actual Resource Usage * Planned Price * Planned Price * Actual Price © Dale R. Geiger 2011 24 Electricity Example Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Planned Resource Usage Actual Resource Usage Actual Resource Usage 150 kw 120 kw 120 kw * Planned Price * Planned Price * Actual Price $.3/kw $.3/kw $.5/kw $45 $9 $36 © Dale R. Geiger 2011 ($24) $60 25 Telephone Example Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Planned Resource Usage Actual Resource Usage Actual Resource Usage * Planned Price * Planned Price * Actual Price © Dale R. Geiger 2011 26 Telephone Example Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Planned Resource Usage Actual Resource Usage Actual Resource Usage 400 min 550 min 550 min * Planned Price * Planned Price * Actual Price $.2/min $.2/min $.15/min $80 ($30) $110 © Dale R. Geiger 2011 $27.50 $82.50 27 Food Example Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Planned Resource Usage Actual Resource Usage Actual Resource Usage * Planned Price * Planned Price * Actual Price © Dale R. Geiger 2011 28 Food Example Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Planned Resource Usage Actual Resource Usage Actual Resource Usage 2000 cal 2500 cal 2500 cal * Planned Price * Planned Price * Actual Price $.05/cal $.05/cal $.04/cal $100 ($25) $125 © Dale R. Geiger 2011 $25 $100 29 Spreadsheet Exercises © Dale R. Geiger 2011 30
