Slides calculate spending and efficiency variances

Calculate Spending And Efficiency Variances Principles of Cost Analysis and Management © Dale R Geiger 2011 Why So Much? © Dale R Geiger 2011 Terminal Learning Objective • • Task: Calculate Spending And Efficiency Variances • Standard: with at least 80% accuracy 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 • • 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 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 paying more per gallon then you have an unfavorable spending variance If you are using more gallons than you should be you have an unfavorable efficiency variance These are common situations where we dig deeper into the root cause of variable cost changes © Dale R Geiger 2011 Getting to the Root Cause • Imagine that in a normal week of driving you expect to use 20 gallons and you Projected Cost Planned Resource Usage planned on spending $4 per gallon 20 gallons * Planned Price $4/gallon $80 © Dale R Geiger 2011 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 • Actual Cost Actual Resource Usage Note that your total variance is $10 18 gallons unfavorable * Actual Price $5/gallon $90 © Dale R Geiger 2011 What if No Price Change? • If the price were still $4 per gallon your more efficient driving would have spent $72 Projected Cost Efficiency Variance Actual Resource Planned Resource Usage • This is an Efficiency Variance of $8 favorable Usage 20 gallons 18 gallons * * Planned Price Planned Price $4/gallon $4/gallon $80 © Dale R Geiger 2011 Intermediate Product $8 $72 How Did Price Impact? Intermediate Product • This is a Spending Variance of $18 Unfavorable Cost Actual Resource Usage 18 gallons 18 gallons Planned Price Actual Price $4/gallon $72 However, instead you paid $5 per gallon for the 18 gallons: a total of $18 more Actual Spending Variance Actual Resource Usage • $5/gallon ($18) $90 © Dale R Geiger 2011 Putting it All Together Efficiency Projected Cost Variance Intermediate Product Spending Actual Variance 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) note that the net of efficiency and spending variance equals the total variance © Dale R Geiger 2011 $90 Relating to Volume Variance plan sales volume flexible performance actual variance plan variance results units fcst = actual = actual price/unit fcst = fcst = actual sales fcst = = = actual       = variable/unit fcst variable cost fcst Efficiency and Spending Variances fixed cost fcst fcst = actual = = = actual = fcst = actual are going one level deeper in trying   to understand the root cause of the profit fcst   = =   = actual variable cost change 10 © Dale R Geiger 2011 Gasoline Example Projected Cost Efficiency Variance Planned Resource Usage Intermediate Product Spending Variance Actual Resource Usage Actual Cost Actual Resource Usage 1000 gallons 1200 gallons * * * Planned Price 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) © Dale R Geiger 2011 $4800 $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 © Dale R Geiger 2011 $20,000 $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 © Dale R Geiger 2011 $12,000 ($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) © Dale R Geiger 2011 $1,750 ($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 © Dale R Geiger 2011 $36 ($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 400 550 550 * * * Planned Price Planned Price Actual Price $.2/min $.2/min $.15/min $80 ($30) © Dale R Geiger 2011 $110 $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) © Dale R Geiger 2011 $125 $25 $100 29 Spreadsheet Exercises © Dale R Geiger 2011 30 ... variables and actors • • Identify and enter relevant scenario data into macro enabled templates to calculate Spending and Efficiency Variances Identify root causes of Spending and Efficiency Variances. .. • Task: Calculate Spending And Efficiency Variances • Standard: with at least 80% accuracy Condition: You are a cost advisor technician with access to all regulations/course handouts, and awareness... fcst variable cost fcst Efficiency and Spending Variances fixed cost fcst fcst = actual = = = actual = fcst = actual are going one level deeper in trying   to understand the root cause of the