Publications
Publications
- May 2022
- Issues in Accounting Education
Variance Analysis: New Insights from Health Care Applications
By: Robert S. Kaplan and Susanna Gallani
Abstract
We use a health care application to illustrate how variance analysis can be used to benchmark costs across similar service delivery sites. Variances for personnel costs, typically the largest cost component in service organizations, are calculated for price, quantity, and skill mix components. Skill mix is important since employees with different compensation often work together to produce service outputs. We find that the joint variance, which arises when both prices and quantities differ, has more managerial implications when assigned to the quantity variance, rather than its traditional allocation to the price variance. Using time-driven activity-based costing also leads to a new variance that reflects the impact of personnel capacity differences between sites. Finally, we introduce two new visualization tools to display the variances. Educators can teach
students how variance analysis reveals opportunities to reduce personnel costs by identifying and
transferring best practices across sites.
Keywords
Variance Analysis; Benchmarking; Time-Driven Activity-Based Costing; Health Care; Activity Based Costing and Management; Health Care and Treatment; Service Delivery; Service Industry
Citation
Kaplan, Robert S., and Susanna Gallani. "Variance Analysis: New Insights from Health Care Applications." Issues in Accounting Education 37, no. 2 (May 2022): 27–36.