# A Puzzle: Separating a Cost Increase into Price and Quantity variances/pieces

I realize this is probably a simple problem for most of you, but let's say that the price of a product you purchase increases from, say:
--\$5 in Year 1 to \$10 in Year 2, for a \$5 increase in price--
Let's say that the quantity you purchase increases from, say:
--50 widgets in Year 1 to 70 widgets in Year 2, for a 20 widget increase--
So total cost in Year 1 is \$5 multiplied by 50 widgets for a total cost of \$250.
Total cost in Year 2 is \$10 multiplied by 70 widgets for a total cost of \$700.
Year 2 cost has increased \$450 from \$250 in Year 1 to \$700 in Year 2.
So I think what would be interesting to see is a breakdown of this \$450 increase into a price change factor/contribution amount and a quantity change/contribution amount.
The question I want to answer for the price contribution amount is: what is the contribution of the price increase to the total cost increase? In my mind, this question assumes quantity is held at the Year 1 level because you're wanting to analyze change in price, and changing quantity would muddy the waters. So the answer is price increased by \$5.
Multiply this \$5 price increase by the Year 1 quantity of 50 and you get \$250.
I now want to answer the same question for the quantity contribution portion. Quantity increased by 20 widgets. The Year 1 price is \$5. 20 times \$5 is \$100. So quantity changes alone, without regard to price changes, contributed \$100 to the price increase.
So we have accounted for \$250 + \$100 = \$350 of the \$450 increase. I want obviously to add up to the total increase. What remains to be added is the increase in price multiplied by the increase in quantity. This is \$5 times 20 = \$100. \$350 + \$100 = \$450 total increase. But in this case for the \$100, I don't know of a way to break this down between quantity and price. It is a combination of both. Is there a standard method to break this out? In a report, it would seem confusing to see a price contribution, a quantity contribution, and then a mixed contribution, so I would like to somehow break this mixed method up. Any advice?
Thanks.
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>

## Site Timeline

• ### Application of customer payments against Invoices

• - next thread in General Accounting
• ### Donee's Cost basis when gifting securities to an individual

• - the site's newest thread. Posted in Taxes General Forum
• Share To

BeanSmart.com is a site by and for consumers of financial services and advice. We are not affiliated with any of the banks, financial services or software manufacturers discussed here. All logos and trade names are the property of their respective owners.

Tax and financial advice you come across on this site is freely given by your peers and professionals on their own time and out of the kindness of their hearts. We can guarantee neither accuracy of such advice nor its applicability for your situation. Simply put, you are fully responsible for the results of using information from this site in real life situations.