EXERCISES ON GROSS PROFIT VARIATION ANALYSIS

1. (ONE PRODUCT LINE – COMPLETE RECORDS) The following comparative operating data for 2009
and 2010 for STAGS Company were made available for your analysis:

2010 2009
Sales P165,000 P 100,000
Cost of Sales (90,000) (50,000)
Gross profit P 75,000 P 50,000
Units sold 1,500 units 1,000 units
Unit selling price P 110 P 100
Unit cost P 60 P 50

Prepare a Statement Accounting for Gross profit Variation for the year 2010 using: 2-way analysis.

1) 2-WAY ANALYSIS
● INDIRECT APPROACH

SALES VARIANCES:
● SALES PRICE VARIANCE (P110-P100) X 1,500 UNITS P 15,000 F
● SALES QUANTITY VARIANCE (1,500-1,000) X P100 50,000 UF P 65,000F
COST OF SALES VARIANCE:
● COST PRICE VARIANCE (P60-P50) X 1,500UNITS P 15,000 UF
● COST QUANTITY VARIANCE (1,500-1,000)UF X P 50 25,000 UF P 40,000UF
NET INCREASE/DECREASE IN GROSS PROFIT P 25,000 UF

● DIRECT APPROACH:

PRICE VARIANCES:
● Sales price variances P 15,000 UF
● Cost price variances 15,000 UF 0
QUANTITY VARIANCES
● Sales quantity variances P 50,000 F
● Cost quantity variances 25,000 UF P 25,000F
NET GROSS PROFIT VARIANCE P 25,000UF

2. The ALTAS Company mines selum, a commonly used mineral. Following is the company’s report of
operations:

ALTAS COMPANY
Report of Operation
For the Years ended December 31, 2010 and 2011

2011 2010 Increase (decrease)

Net sales P 891,000 P 840,000 P 51,000
Cost of goods sold 688,500 945,000 (256,500)
Gross profit (loss) P 202,500 P(105,000) P 307,500

Units sold 81,000 units 105,000 units

 Unit selling price P 11 P8
Unit cost P 8.5 P9

The following information pertaining to the company’s operations:

1) The sales price of selum was increased from P8 to P11 per ton on January 1, 2011
2) New mining machinery was placed in operation on January 1, 2011 which reduced the cost of
mining from P9 per ton to P8.50 per ton.
3) There was no change in ending inventories which were valued on the LIFO basis

Required: Prepare an analysis accounting for the change in gross profit of the ALTAS Company. The
analysis should account for the effect of the changes in price, volume, and volume-price factors upon
(1) sales and (2) cost of goods sold.
● INDIRECT APPROACH

SALES VARIANCES:
● SALES PRICE VARIANCE (P11-P8) X 81 UNITS P 243,000 UF
● SALES QUANTITY VARIANCE (81,000-105,000) X P8 192,000 F P 51,000F
COST OF SALES VARIANCE:
● COST PRICE VARIANCE (P8.5-P9) X 81,000UNITS P 40,500UF
● COST QUANTITY VARIANCE (81,000-105,000) X P9 216,000 UF P 265,500UF
NET INCREASE/DECREASE IN GROSS PROFIT P307,500 UF

● DIRECT APPROACH:

PRICE VARIANCES:
● Sales price variances P 243,000 UF
● Cost price variances 40,500 UF P 283,500UF
QUANTITY VARIANCES
● Sales quantity variances P 192,000 F
● Cost quantity variances 216,000 UF P24,000F
NET GROSS PROFIT VARIANCE P307,500UF

3. (INCOMPLETE RECORDS) Using the following operating data, prepare the Statement Accounting for
Gross Profit Variation for RED LIONS Company in 2011 under each of the independent cases given
below:

2010 2011
Sales P 200,000 P 276,000 76,000
Cost of Sales (150,000) (189,750) 39,750
Gross profit P 50,000 P 86,250 36,250

Selling Price
Units sold
Unit cost
Cases:
I) Selling price increased by 20 percent in 2011
II) Units sold increased by 10 percent in 2011
III) Unit cost decreased by 5 percent in 2011
120% sales this year 276,000

20% SPV 46,000 F

100% Sales this year @ last year’s SP 230,00 SV 76,000F

15% SQV 30,000 F

Sales last year 200,000

110% COS this year 189,750

10% CPV 17,250 F

100% COS this year @ last year’s CP 172,500 CV 39,750

UF
15% CQV 22,500 F

COS last year 150,000

GP VARIANCE 36,250UF