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Cost tracking, productivity and profitability · Lesson 3 of 4

Cost tracking, productivity and profitability: methods and worked application

The weekly loop, a job cost sheet, three worked examples in sheets and hours, forecasting a finish, why percent complete can mislead, a learning-curve model, and the difference between margin and markup.

You will be able to: Run the weekly job-cost loop, compute a material quantity variance, a labor time variance and an earned value checkpoint with its forecast range, read a percent complete critically, and convert margin and markup.

14 min · 12 slides · 10 questions

All lessons in this module
Slide 1 of 12

The weekly job-cost loop

Each week the same loop runs: set the baseline, record, measure output, compare, verify the data, explain, act, and feed back.

OpenStax says management should investigate an unfavorable variance to find its cause before responding.

The last step feeds actual yield and hours back into the next estimate as a new dated version, as AFS does with prices, never as an overwrite.

The weekly job-cost loopEight steps in a loop: A baseline, B record, C measure, D compare, E verify the data, F explain, G act, H feed back as a new dated version, then back to the baseline. Colours group the steps: blue plan, teal collect and check, navy compare and act. A panel lists what AFS records about a job and what it does not.ABaselineBRecordCMeasureDCompareEVerifyFExplainGActHFeed backPlanCollect, checkCompare, actWhat AFS records about a job+ times bending started and finished+ the invoice, copied from the approved quoteNot recorded there: hours by person,sheets actually used. Keep your own.Teaching sequence, not an AFS procedure.

Eight steps in a loop: baseline, record, measure, compare, verify the data, explain, act, feed back, then back to the baseline. A panel lists what AFS records about a job and what it does not.

A
Baseline: the estimate and the standards, in hours, sheets and feet
B
Record: time tickets and material issued, each against one job and one operation
C
Measure output by a physical count: pieces, feet or bends formed
D
Compare actual with baseline: variances, CPI and SPI
E
Verify the data: reconcile sheets and hours before trusting an index
F
Explain: find the cause before acting
G
Act: correct, re-plan, or change the next quote
H
Feed back as a new dated version of the estimate, never an overwrite
A teaching sequence, not an AFS procedure. AFS's Shop View records when bending started and finished and an invoice is copied from the approved quote; hours by person and sheets used are kept by the shop.

Sources

  • 8.2 Compute and Evaluate Materials Variances - OpenStax, Principles of Accounting, Volume 2: Managerial Accounting
  • AFS price book and quote history rules: prices are versioned and dated, an edit adds a new version and never overwrites, an issued quote keeps the prices it was built on, and a finished job raises its invoice from the approved quote - Architectural Flashing Supply

Glossary

Variance
Actual minus standard. Favorable means less was spent or used than the standard allowed for the output; unfavorable means more. OpenStax says to investigate an unfavorable variance to find its cause.
Earned value
The budget for the work actually completed (GAO's BCWP). It is credited in the units that were planned, such as dollars, labor hours or other quantifiable units.
CPI and SPI
Cost performance index (earned value divided by actual cost) and schedule performance index (earned value divided by planned value). Above 1.0 is better than planned, below 1.0 is worse (GAO).
Estimate at completion (EAC)
A forecast of total cost at finish: actual cost plus the remaining budget divided by an efficiency index. GAO says to develop a range of them.
Learning curve
The idea that as total quantity doubles, hours per unit fall by a fixed percentage; the slope has to come from historical data (GAO).
Margin and markup
Working definitions in this module: margin is profit divided by price, markup is profit divided by cost, so a 25 percent markup is a 20 percent margin.