A deep-sea mining operation set a standard cost for diesel fuel at $1.00 per liter. During the year, a global crisis caused the market price of diesel to permanently jump to $1.50 per liter. The purchasing manager managed to negotiate a bulk rate of $1.40 per liter.

If the company uses planning and operational variances, how should the purchasing manager's performance be evaluated?

Planning and operational variances separate uncontrollable market factors from controllable managerial performance. The Planning Variance (uncontrollable) is the difference between the original standard ($1.00) and the revised standard based on market conditions ($1.50) = $0.50 Adverse. The Operational Variance (controllable) is the difference between the revised standard ($1.50) and the actual price paid ($1.40) = $0.10 Favorable. The purchasing manager should be praised for beating the revised market rate.