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How Can You Impress Your Boss with Price Volume Mix Variance Calculations? - YouTube
Channel: The Bean Counter
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Hi, in this video I will be going through
a template that I built a long time ago that
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analyzes variances by calculating a total
overall variance and then the template examines
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the total variance for how price, volume,
and mix affect that overall variance.
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Many sources can teach you how to calculate
price and volume variances but few give you
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help on how to do a mix variance.
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So in part one here, in the first part of
this template, the calculation gives us the
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overall variance in comparing these two monthly
snapshots of my utility bill.
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In 2015 I used 470 units of electricity and
paid a total cost for that of $52.46.
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In 2016 I used 590 units of electricity and
paid a total cost of $65.36 and you can see
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I've also placed in this template my usage
for natural gas.
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The template comes up with an average cost
by dividing the units into the total cost.
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The same calculation is done for the natural
gas.
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Then the total variance is calculated by showing
the difference in units and the difference
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in costs thus when you compare October 2015
to October 2016 the total spending variance
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is $10.95.
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This is an unfavorable variance because I
did spend more in 2016 than in 2015.
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Now in the next calculation I'm looking at
how price affects that overall variance.
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The calculation uses the volume from 2016
and it is looking at the unit price difference
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between 2015 to 2016.
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In this calculation you can see that the price
impact is a positive one.
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From 2015 to 2016 the actual unit price fell
for both electricity and natural gas.
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In the next calculation the template is examining
how the mixture of products purchased has
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affected the total variance.
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What this does is it takes the 2015 total
units and recalculates the mix of products
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based on the mix in 2016.
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As you can see here natural gas is driving
a very positive variance.
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And finally this final calculation looks at
the effect of the volume on the total variance.
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In 2016 there was a much higher volume usage
and that higher volume drives a large volume
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variance.
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Thus, what we have here is an interesting
situation.
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If we only look at the total variance we might
not get the best picture of what has happened
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here.
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Once we calculate the individual contributing
variances of price, volume, and mix we see
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there are big swings in these factors.
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This helps us to have a very good idea of
what we can control and what we cannot control
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within these variances.
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I hope this template is useful to you.
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You can look at this with any data that has
units and dollars associated with it.
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You can compare sales or expenses it just
depends on what you need to do with the template.
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Also I have a second template for download
that has more granularity for costs.
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Meaning, that if you have something that has
freight costs or other charges, you can break
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out those prices as well.
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In addition, you can add lines so that you
can analyze more than two or three products.
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Enjoy the template - with this one tool you
can impress people with your financial intelligence.
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