Topic 10: Gross Profit Variance Analysis – Supplement Lecture

NOTES:
• The ratio of the actual units sold at budgeted sales price (1) to the budgeted units sold at budged
sales price (2) has ALWAYS THE SAME RATIO as the actual units sold at budgeted cost price (1) to the
budgeted units sold at budged cost price (2).
USING THE SAME SAMPLE PROBLEM: Gross Profit Variance Analysis – Single Product

Practical Corp. prepares the static master budget and the actual result of its operation for the month of July:

Budget (in Peso) - 8,000 units Actual (in Peso) - 9,600 units
Sales 800,000 1,056,000
Cost of Goods Sold 480,000 556,800
Gross Profit 320,000 499,200
The Managers of Practical Corp. demands explanation of the Php 179,200 computed favorable gross profit
variance.

Solution:
LOOK:

Notes:
• The actual units sold at budgeted sales price (960,000) divided by the budgeted units sold at budged
sales price (800,000) will give you a ratio of 1.2.
• The actual units sold at budgeted cost price (576,000) divided by the budgeted units sold at budged
cost price (480,000) will give you a ratio of 1.2.
• As we observed, the ratio of the two above should always be the same i.e. 1.2 = 1.2. Keep this always
in mind since there are problems relating to Gross Profit Variance Analysis that you are going to use
this.