Purpose
This measure evaluates the execution of cost increases by assessing whether price changes keep pace with underlying cost changes. It is used to detect potential margin compression resulting from insufficient price adjustments following cost increases.
Business Context
Cost Pass-Through Variance compares relative changes in prices and costs over two comparable time periods. It enables business users to understand whether cost inflation has been effectively passed on to customers or absorbed, intentionally or unintentionally, through reduced margins. This insight is particularly valuable during periods of volatile input costs.
Definition
The measure calculates the difference between the percentage change in price and the percentage change in cost across two time slices (for example, a previous period and a current period). The time slices are assumed to be defined or grouped by the Agent (typically covering comparable windows such as rolling three-month periods).
Business Formula
Cost Pass-Through Variance = Δ Price (%) − Δ Cost (%)
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Δ Price (%) – Represents the percentage change in weighted average price.
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Δ Cost (%) – Represents the percentage change in weighted average cost.
Agent Expression
(s1.CurrentPrice / NULLIF( s2.PreviousPrice,0)-1) - (s1.CurrentCostPerUnit / NULLIF(s2.PreviousCostPerUnit,0) -1)
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s1 – Current Period.
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s2 – Previous Period.
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Price
SUM(Revenue) / SUM(Quantity) -
Cost Per Unit
SUM(Cost) / SUM(Quantity)