Tab 1 — Inputs
This is the single source of truth for every figure in the model. Gold cells are editable — type a value directly, or click the slider icon to drag instead. Every other tab reads from here.
| Inputs | Budget | Actuals |
|---|---|---|
| Sales Quantity | ||
| Sales Price per unit sold | ||
| Revenue | ||
| Production Quantity | ||
| Opening Stock (quantity) | ||
| Closing Stock (quantity, calculated) | ||
| Material Cost | ||
| Price per unit of material | ||
| Quantity material used per sale item | ||
| Cost of material used (Calculated) | ||
| Labour Costs | ||
| Price per labour hour | ||
| Quantity labour hours required per unit made | ||
| Cost of Labour per unit | ||
| Variable Overhead Rate per Unit | ||
| Variable overhead rate per labour hour | ||
| Variable Overhead Cost per unit (Calculated) | ||
| Variable costs of sale per unit (Calculated) | ||
| Total Fixed Overhead Cost for the period | ||
| Standard Fixed OH absorption rate per unit | ||
How to use this sheet: Gold cells are inputs. Click the small slider icon next to any gold cell to reveal a drag slider instead of typing — click it again to hide the slider and type directly.
All other tabs in this model are read-only displays driven entirely by what you set here. The Fixed Overhead absorption rate is always struck on Budgeted Production
(not Budgeted Sales) — this matches standard costing convention, since overhead is incurred to make units, not to sell them.
Stage 2 — The Budget: What we planned to achieve
These figures come from Tab 1 — Inputs. This view is read-only; go back to Tab 1 to change anything. Watch how the income statement is built entirely from those figures.
📋 All inputs live on Tab 1. This stage shows what those numbers produce.
Budgeted Income Statement (Absorption basis)
Key ratios & insights
Budgeted Stock Movement (units)
What the budget tells us: This income statement is built entirely on standard (planned) figures,
using the absorption costing method. Every cost line is: Volume × Standard cost per unit.
If Budgeted Production differs from Budgeted Sales, a stock build or release is being planned —
a common, deliberate choice when smoothing production against seasonal demand. The budget is the benchmark — every actual result will be measured against this.
Stage 3 — What actually happened vs what we planned
These figures come from Tab 1 — Inputs. The two income statements sit side by side. Notice the profit gap — but can you explain why it happened?
📋 All inputs live on Tab 1. This stage shows what those numbers produce.
Budget Income Statement (Absorption)
Actual Income Statement (Absorption)
Stock Movement — Actual (units)
The profit gap is visible — but the income statement alone cannot tell you why it occurred.
Was it because we sold more units? Or charged a lower price? Or because costs were higher?
All of these blend into a single profit number. This is the limitation the CFO must overcome.
Stage 4 — Basic variances: The first layer of insight
We now split the profit gap into its components. But notice — each variance is still a blended number. A cost variance mixes price and efficiency together. The real story is still hidden.
Budget IS
Actual IS
Basic Variance Summary
The limitation of basic variances:
A material cost variance of — tells you costs were different — but was it because the price per kg changed, or because we used more kg per unit? These are completely different management problems requiring completely different actions.
Basic variance = Actual cost − Budgeted cost
This blends price and efficiency into one number. Standard costing separates them.
A material cost variance of — tells you costs were different — but was it because the price per kg changed, or because we used more kg per unit? These are completely different management problems requiring completely different actions.
Basic variance = Actual cost − Budgeted cost
This blends price and efficiency into one number. Standard costing separates them.
Stage 5 — Standard costing: Separating Price from Efficiency from Volume
These rates and quantities come from Tab 1 — Inputs. Watch how each blended variance splits into PV and EV.
📋 All inputs live on Tab 1. This stage shows what those numbers produce.
Basic variances (Stage 4)
Standard costing — PV & EV breakdown
The standard costing insight: Each blended variance now splits into two independent signals.
Price Variance = (Std price − Actual price) × Actual quantity
Efficiency Variance = (Std qty − Actual qty) × Std price
Price variances are usually a procurement / market issue. Efficiency variances are a production / operations issue. They require completely different management responses.
Price Variance = (Std price − Actual price) × Actual quantity
Efficiency Variance = (Std qty − Actual qty) × Std price
Price variances are usually a procurement / market issue. Efficiency variances are a production / operations issue. They require completely different management responses.
Stage 6 — Absorption vs Marginal: Two lenses, two different profit answers
The same data, the same period — but two costing philosophies can give different reported profits whenever production and sales volumes differ. Understanding why is essential for management decisions.
📦 Opening stock, production and sales all live on Tab 1.
Current Stock Position (units)
Opening stock
0 units
Closing stock
0 units
Absorption Costing — Operating Statement
Marginal Costing — Operating Statement
ABSORPTION COSTING
Fixed overhead is absorbed into each unit produced at a standard rate, and carried in stock value until the unit is sold.
Profit only reflects FOH for units actually sold this period.
Std FOH/unit = Budget FOH ÷ Budget units
FOH in Cost of Sales = Std FOH/unit × Units SOLD
If production exceeds sales, some FOH sits in closing stock instead of hitting the P&L — profit looks higher.
Std FOH/unit = Budget FOH ÷ Budget units
FOH in Cost of Sales = Std FOH/unit × Units SOLD
If production exceeds sales, some FOH sits in closing stock instead of hitting the P&L — profit looks higher.
MARGINAL COSTING
Fixed overhead is treated as a period cost — the full actual amount is deducted in the period incurred, regardless of how many units were produced or sold.
Contribution = Revenue − All variable costs
Profit = Contribution − Actual fixed overhead (in full)
No FOH is ever carried in stock. Closing stock is valued at variable cost only.
Contribution = Revenue − All variable costs
Profit = Contribution − Actual fixed overhead (in full)
No FOH is ever carried in stock. Closing stock is valued at variable cost only.
The management insight: The profit difference between absorption and marginal costing is not caused by the volume variance directly —
it is caused by fixed overhead sitting in closing stock under absorption costing. When production equals sales, no stock builds or depletes, and both methods report identical profit.
A CFO must always check the inventory movement before comparing profit figures prepared under the two methods.