Slides calculate spending and efficiency variances

Relating to Volume Varianceflex budget efficiency intermediate spending actual results resource quantity resource quantity resource quantity should have used actually used actually used

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Calculate Spending And Efficiency Variances

Principles of Cost Analysis and Management

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Why So Much?

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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

Spending and Efficiency Variances

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Why So Much?

number of gallons * price per gallon

variance

changes

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Getting to the Root Cause

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

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You Actually Spent

the pump registered only 18 gallons, but

the cost per gallon went up to $5

unfavorable

Actual Cost

Actual Resource Usage

18 gallons

* Actual Price

$5/gallon

$90

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What if No Price Change?

more efficient driving would have

spent $72.

favorable

Projected Cost Efficiency

Variance Intermediate Product

Planned Resource Usage Actual Resource

Usage

* Planned Price

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How Did Price Impact?

• However, instead you paid $5 per gallon for the 18 gallons: a total of

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Putting it All Together

Variance Intermediate Product

Spending Variance

Actual Cost

Planned Resource Usage Actual Resource Usage Actual Resource Usage

*

Planned Price

* Planned Price

* Actual Price

note that the net of efficiency and spending variance equals the total variance9

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Relating to Volume Variance

flex budget efficiency intermediate spending actual results

resource quantity resource quantity resource quantity

should have used actually used actually used

price per resource price per resource price per resource

should have paid should have paid actually paid

Efficiency and Spending Variances

are going one level deeper in trying

to understand the root cause of the

variable cost change

Efficiency and Spending Variances

are going one level deeper in trying

to understand the root cause of the

variable cost change

10

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Other Applications

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Check on Learning

How would you describe the situation?

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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

Actual price $3.9 / gal $50 / hr $25 / mile $6 / page $.5 / kw $.15 / min $.04 / cal

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Gasoline Example

Variance Intermediate Product Spending Variance

Actual Cost

* Planned Price

* Actual Price

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Gasoline Example

Actual Cost

1000 gallons

* Planned Price

* Actual Price

$4/gallon

$4000

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Gasoline Example

Actual Cost

* Planned Price

* Actual Price

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Gasoline Example

Actual Cost

* Planned Price

* Actual Price

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Staff Example

Actual Cost

* Planned Price

* Actual Price

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Staff Example

Actual Cost

* Planned Price

* Actual Price

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Maintenance Example

Actual Cost

* Planned Price

* Actual Price

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Maintenance Example

Actual Cost

* Planned Price

* Actual Price

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Editing Example

Actual Cost

* Planned Price

* Actual Price

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Editing Example

Actual Cost

* Planned Price

* Actual Price

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Electricity Example

Actual Cost

* Planned Price

* Actual Price

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Electricity Example

Actual Cost

* Planned Price

* Actual Price

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Telephone Example

Actual Cost

* Planned Price

* Actual Price

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Telephone Example

Actual Cost

* Planned Price

* Actual Price

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Food Example

Actual Cost

* Planned Price

* Actual Price

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Food Example

Actual Cost

* Planned Price

* Actual Price

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Spreadsheet Exercises

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