Math behind figuring out variance impact to a weighted average cost/price per unit
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I'm trying to figure out the correct methodology for analyzing price/mix variances and an impact on a weighted average price per unit (not your typical impact to sales or profit margin). In particular, I've found two calculations for Mix variance but can't seem to figure out mathematically why one is correct over the other. Screenshot of the two outputs of each method
Method 1
(Actual Product A Mix % - Budgeted Product A Mix %) * (Actual Product A price per unit - Weighted Average price per unit of all Products)
I apply similar equations for product B and C.
Method 2
(Actual Product A Mix % - Budgeted Product A Mix %) * (Actual Product A price per unit)
They both give similar answers at a total level but give different answers when trying to figure out a single product's contribution to the variance. Method 1's results seem intuitively correct to me, but I don't quite understand the math behind it and why it would be.
Any help would be much appreciated! Thanks so much.
finance
asked Dec 21 '18 at 6:01
user333333user333333
1
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add a comment |
$begingroup$
I'm trying to figure out the correct methodology for analyzing price/mix variances and an impact on a weighted average price per unit (not your typical impact to sales or profit margin). In particular, I've found two calculations for Mix variance but can't seem to figure out mathematically why one is correct over the other. Screenshot of the two outputs of each method
Method 1
(Actual Product A Mix % - Budgeted Product A Mix %) * (Actual Product A price per unit - Weighted Average price per unit of all Products)
I apply similar equations for product B and C.
Method 2
(Actual Product A Mix % - Budgeted Product A Mix %) * (Actual Product A price per unit)
They both give similar answers at a total level but give different answers when trying to figure out a single product's contribution to the variance. Method 1's results seem intuitively correct to me, but I don't quite understand the math behind it and why it would be.
Any help would be much appreciated! Thanks so much.
finance
asked Dec 21 '18 at 6:01
user333333user333333
1
$endgroup$
$begingroup$
Different variances are thinkable to be calculated. $1.$ total variance of the prices, $2.$ total variance of the units, $3.$ total variance of the turnover (price * units). At the moment it is not clear to me which kind of variance you want to evaluate. Please note if you calculate variances you always have to square something.
$endgroup$
– callculus
Dec 21 '18 at 8:39
$begingroup$
In this case, I'm trying to figure out the change in variance due to a change in product mix. In the example of the screenshot, the total weighted average price of all products goes from $1.96 to $2.04 (a change of 8 cents). I specifically am trying to isolate how much of that 8 cents was attributable to a change in mix for product A, a change in mix for Product B and a change in mix for Product C.
$endgroup$
– user333333
Dec 26 '18 at 22:48
add a comment |
$begingroup$
I'm trying to figure out the correct methodology for analyzing price/mix variances and an impact on a weighted average price per unit (not your typical impact to sales or profit margin). In particular, I've found two calculations for Mix variance but can't seem to figure out mathematically why one is correct over the other. Screenshot of the two outputs of each method
Method 1
(Actual Product A Mix % - Budgeted Product A Mix %) * (Actual Product A price per unit - Weighted Average price per unit of all Products)
I apply similar equations for product B and C.
Method 2
(Actual Product A Mix % - Budgeted Product A Mix %) * (Actual Product A price per unit)
They both give similar answers at a total level but give different answers when trying to figure out a single product's contribution to the variance. Method 1's results seem intuitively correct to me, but I don't quite understand the math behind it and why it would be.
Any help would be much appreciated! Thanks so much.
finance
asked Dec 21 '18 at 6:01
user333333user333333
1
$endgroup$
I'm trying to figure out the correct methodology for analyzing price/mix variances and an impact on a weighted average price per unit (not your typical impact to sales or profit margin). In particular, I've found two calculations for Mix variance but can't seem to figure out mathematically why one is correct over the other. Screenshot of the two outputs of each method
Method 1
(Actual Product A Mix % - Budgeted Product A Mix %) * (Actual Product A price per unit - Weighted Average price per unit of all Products)
I apply similar equations for product B and C.
Method 2
(Actual Product A Mix % - Budgeted Product A Mix %) * (Actual Product A price per unit)
They both give similar answers at a total level but give different answers when trying to figure out a single product's contribution to the variance. Method 1's results seem intuitively correct to me, but I don't quite understand the math behind it and why it would be.
Any help would be much appreciated! Thanks so much.
finance
finance
asked Dec 21 '18 at 6:01
user333333user333333
1
asked Dec 21 '18 at 6:01
user333333user333333
1
asked Dec 21 '18 at 6:01
user333333user333333
1
asked Dec 21 '18 at 6:01
user333333user333333
1
asked Dec 21 '18 at 6:01
user333333user333333
1
1
$begingroup$
Different variances are thinkable to be calculated. $1.$ total variance of the prices, $2.$ total variance of the units, $3.$ total variance of the turnover (price * units). At the moment it is not clear to me which kind of variance you want to evaluate. Please note if you calculate variances you always have to square something.
$endgroup$
– callculus
Dec 21 '18 at 8:39
$begingroup$
In this case, I'm trying to figure out the change in variance due to a change in product mix. In the example of the screenshot, the total weighted average price of all products goes from $1.96 to $2.04 (a change of 8 cents). I specifically am trying to isolate how much of that 8 cents was attributable to a change in mix for product A, a change in mix for Product B and a change in mix for Product C.
$endgroup$
– user333333
Dec 26 '18 at 22:48
add a comment |
$begingroup$
Different variances are thinkable to be calculated. $1.$ total variance of the prices, $2.$ total variance of the units, $3.$ total variance of the turnover (price * units). At the moment it is not clear to me which kind of variance you want to evaluate. Please note if you calculate variances you always have to square something.
$endgroup$
– callculus
Dec 21 '18 at 8:39
$begingroup$
In this case, I'm trying to figure out the change in variance due to a change in product mix. In the example of the screenshot, the total weighted average price of all products goes from $1.96 to $2.04 (a change of 8 cents). I specifically am trying to isolate how much of that 8 cents was attributable to a change in mix for product A, a change in mix for Product B and a change in mix for Product C.
$endgroup$
– user333333
Dec 26 '18 at 22:48
$begingroup$
Different variances are thinkable to be calculated. $1.$ total variance of the prices, $2.$ total variance of the units, $3.$ total variance of the turnover (price * units). At the moment it is not clear to me which kind of variance you want to evaluate. Please note if you calculate variances you always have to square something.
$endgroup$
– callculus
Dec 21 '18 at 8:39
$begingroup$
Different variances are thinkable to be calculated. $1.$ total variance of the prices, $2.$ total variance of the units, $3.$ total variance of the turnover (price * units). At the moment it is not clear to me which kind of variance you want to evaluate. Please note if you calculate variances you always have to square something.
$endgroup$
– callculus
Dec 21 '18 at 8:39
$begingroup$
In this case, I'm trying to figure out the change in variance due to a change in product mix. In the example of the screenshot, the total weighted average price of all products goes from $1.96 to $2.04 (a change of 8 cents). I specifically am trying to isolate how much of that 8 cents was attributable to a change in mix for product A, a change in mix for Product B and a change in mix for Product C.
$endgroup$
– user333333
Dec 26 '18 at 22:48
$begingroup$
In this case, I'm trying to figure out the change in variance due to a change in product mix. In the example of the screenshot, the total weighted average price of all products goes from $1.96 to $2.04 (a change of 8 cents). I specifically am trying to isolate how much of that 8 cents was attributable to a change in mix for product A, a change in mix for Product B and a change in mix for Product C.
$endgroup$
– user333333
Dec 26 '18 at 22:48
add a comment |
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$begingroup$
Different variances are thinkable to be calculated. $1.$ total variance of the prices, $2.$ total variance of the units, $3.$ total variance of the turnover (price * units). At the moment it is not clear to me which kind of variance you want to evaluate. Please note if you calculate variances you always have to square something.
$endgroup$
– callculus
Dec 21 '18 at 8:39
$begingroup$
In this case, I'm trying to figure out the change in variance due to a change in product mix. In the example of the screenshot, the total weighted average price of all products goes from $1.96 to $2.04 (a change of 8 cents). I specifically am trying to isolate how much of that 8 cents was attributable to a change in mix for product A, a change in mix for Product B and a change in mix for Product C.
$endgroup$
– user333333
Dec 26 '18 at 22:48