Excel Formula for Cost Variance Analysis

Objective

To create an Excel formula that calculates the possible decimal values that can be used while staying within a specified cost variance.

Key Inputs

1. Target Cost: The cost that you aim to achieve.
2. Allowed Variance: The maximum allowable deviation from the target cost.

Formula Explanation

The formula to determine the range of acceptable values takes the following form:

=Target_Cost - Allowed_Variance

and

=Target_Cost + Allowed_Variance

Logic

• The lower bound is calculated by subtracting the allowed variance from the target cost.
• The upper bound is calculated by adding the allowed variance to the target cost.

This provides a range (lower bound to upper bound) that reflects the acceptable cost values.

Implementation Steps

Assuming:

• Target Cost is in Cell A1
• Allowed Variance is in Cell B1

Step 1: Calculate Lower Bound

In a new cell (e.g., C1), input the following formula:

=A1 - B1

Step 2: Calculate Upper Bound

In another cell (e.g., D1), input:

=A1 + B1

Practical Example

Scenario

• Target Cost: $100 (in cell A1)
• Allowed Variance: $10 (in cell B1)

Step-by-Step Calculation

1. Input Values:

   • A1 = 100
   • B1 = 10

2. Calculate Lower Bound: In C1:

   =A1 - B1

   Result in C1: $90

3. Calculate Upper Bound: In D1:

   =A1 + B1

   Result in D1: $110

Summary of Results

The acceptable cost range is from $90 to $110, meaning any costs within this range will stay within the specified variance.

Conclusion

This formula effectively computes the acceptable cost range based on a target cost and allowed variance, assisting in budget management and cost control. For further enhancement of your Excel skills, consider exploring courses on the Enterprise DNA Platform, which focuses on advanced Excel techniques and data analysis capabilities.