1. Calculate Spending and Efficiency Variances ©1

2. Why So Much? ©2

3. Terminal Learning Objective Task: Calculate Spending and Efficiency Variances Condition: You are training to become an ACE with access to ICAM course handouts, readings, and spreadsheet tools and awareness of Operational Environment (OE)/Contemporary Operational Environment (COE) variables and actors. Standard: with at least 80% accuracy Identify root causes of Spending and Efficiency Variances Identify and enter relevant scenario data into macro enabled templates to calculate Spending and Efficiency Variances ©3

4. Why So Much? ©4

5. 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 ©5

6. 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 ©6

7. What if No Price Change? ©7

8. How Did Price Impact? ©8

9. Putting it All Together note that the net of efficiency and spending variance equals the total variance © 9

10. Relating to Volume Variance plansales volumeflexibleperformanceactual varianceplanvarianceresults unitsfcst=actual= price/unitfcst= =actual salesfcst===actual variable/unitfcst = =actual variable costfcst===actual fixed costfcst= =actual profitfcst===actual flex budgetefficiencyintermediatespendingactual results variable costvarianceproductvariancevariable cost =∆= ∆= resource quantity should have usedactually used XXX price per resource 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 © 10

11. 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 ©11

12. Learning Check What does the efficiency variance reveal? The spending variance is favorable but the efficiency variance is unfavorable. How would you describe the situation? ©12

13. Exercises Evaluate Efficiency and Spending Variances for each of the scenarios below: ©13

14. Gasoline Example ©14 Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Resource level should have used Resource level actually used * Price should have paid * Price should have paid * Price actually paid

15. Gasoline Example ©15 Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Resource level should have used Resource level actually used 1000 gallons * Price should have paid * Price should have paid * Price actually paid $4/gallon $4000

16. Gasoline Example ©16 Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Resource level should have used Resource level actually used 1000 gallons 1200 gallons * Price should have paid * Price should have paid * Price actually paid $4/gallon $3.9/gallon $4000 $4680

17. Gasoline Example ©17 Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Resource level should have used Resource level actually used 1000 gallons1200 gallons * Price should have paid * Price should have paid * Price actually paid $4/gallon $3.9/gallon $4000($800)$4800 $120$4680

18. Staff Example ©18 Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Resource level should have used Resource level actually used * Price should have paid * Price should have paid * Price actually paid

19. Staff Example ©19 Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Resource level should have used Resource level actually used 500400 * Price should have paid * Price should have paid * Price actually paid $50 $2500$500$2000 0

20. Maintenance Example ©20 Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Resource level should have used Resource level actually used * Price should have paid * Price should have paid * Price actually paid

21. Maintenance Example ©21 Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Resource level should have used Resource level actually used 600 miles * Price should have paid * Price should have paid * Price actually paid $20/mile $25/mile $12,0000 ($3000)$15,000

22. Editing Example ©22 Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Resource level should have used Resource level actually used * Price should have paid * Price should have paid * Price actually paid

23. Editing Example ©23 Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Resource level should have used Resource level actually used 200 pages350 pages * Price should have paid * Price should have paid * Price actually paid $5/page $6/page $1000($750)$1,750 ($350)$2100

24. Electricity Example ©24 Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Resource level should have used Resource level actually used * Price should have paid * Price should have paid * Price actually paid

25. Electricity Example ©25 Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Resource level should have used Resource level actually used 150 kw120 kw * Price should have paid * Price should have paid * Price actually paid $.3/kw $.5/kw $45$9$36 ($24)$60

26. Telephone Example ©26 Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Resource level should have used Resource level actually used * Price should have paid * Price should have paid * Price actually paid

27. Telephone Example ©27 Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Resource level should have used Resource level actually used 400 min550 min * Price should have paid * Price should have paid * Price actually paid $.2/min $.15/min $80($30)$110 $27.50$82.50

28. Food Example ©28 Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Resource level should have used Resource level actually used * Price should have paid * Price should have paid * Price actually paid

29. Food Example ©29 Projected Cost Efficiency Variance Intermediate Product Spending Variance Actual Cost Resource level should have used Resource level actually used 2000 cal2500 cal * Price should have paid * Price should have paid * Price actually paid $.05/cal $.04/cal $100($25)$125 $25$100

30. Spreadsheet Exercises ©30