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Variance Analysis

Can someone help?

I want to analyse the impact of various drivers on a revenue variance.  I'll keep the example simple below:

Budget:  Orders (10) x Units/Order (5) x Price/Unit (£5) = Revenue £250

Actual: Orders (7) x Units/Order (7) x Price/Unit = Revenue £294

So I have a revenue upside of £44.  How can I isolate the variance in £ attributable to each of the drivers e.g. the order variance, the units/order variance and the Price/unit variance so that the sum of the three variances totals the £44 total variance??

Any help greatly appreciated!!

Many thanks.

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23rd Apr 2010 07:45

Guess what

When you were wondering at school why they tried to teach you algebra, this is it!

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23rd Apr 2010 11:22

Treat it as standard costing

Not a full answer but you can play around with it more if you wish:

Budget is for 50 units @ £5.00

Actual is 49 units @ £6.00

Volume variance (1) @ £5.00 = (£5.00)

Price varance = 49 @ £6.00 - £5.00 = £49.00

Variance analysis - Price £49.00, volume (£5.00), net £44.00 as per original question. You can apply the same logic to the order size etc.

 

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23rd Apr 2010 13:16

Standard Costing

I agree, it's pretty much textbook standard costing. I'm sure the formatting won't show this perfectly (i.e. no grid!) but, as an example, this is how I'd do it in Excel.

     A              B                     C                  D

1   Orders     Units/Order     Price/Unit     Revenue

2   10            5                     5                  250

3    7             7                     6                  294            -75                       70                           49

                                                                                  =(A3-A2)*B2*C2  =(A3*(B3-B2))*C2  =(A3*B3*C3)-(A3*B3*C2)

The formulae used are shown underneath the results in each calculation.

Cheers

Pat

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