Real-Life Math
You work in a government department that deals with transportation.
An important part of your job is to assess whether projects that you help
oversee are on budget.
This is called variance analysis.
The
project you're working on right now is expected to cost $45,000 -- labor is
expected to cost $30,000 and supplies are expected to cost $15,000.
The
project is expected to last six months, and you are required to do a variance
analysis at the end of each month. If the variance, or difference, is greater
than 25 percent or $12,000 -- whichever is the lowest amount -- you have to
report the potential overrun.
Here are the figures from the budgets
over the six months:
| Expenditure | Committed | Planned future |
| to date | funds | expenses |
| Month 1 | $ 0 | $10,000 | $35,000 |
| Month 2 | $10,000 | $15,000 | $12,000 |
| Month 3 | $25,000 | $15,000 | $12,000 |
| Month 4 | $34,500 | $10,000 | $12,000 |
| Month 5 | $39,500 | $15,000 | $ 2,500 |
| Month 6 | $43,000 | $12,000 | $ 0 |
(Please note: not all the committed funds ended up being
spent)
Do a variance analysis on each month and determine whether you
will have to report any potential overruns.