GROSS PROFIT VARIATION

ANALYSIS
By:
 MHARZAN
 MARIA

ANDRES &

LOURDES COMTIAG-AGMATA

GROSS PROFIT MARGIN/
GROSS PROFIT RATIO
SALES

COST OF GOODS SOLD
GROSS PROFIT

It provides the balance for
operating expenses, income tax and
return of the capital employed.

. Changes in sales prices of the products. 2. a. Changes in the types of products sold. Changes in volume sold. and overhead costs. b. .What causes change in the Gross Profit? 1. Changes in cost elements. often called the product mix or sales mix.e. labor. 3. i. materials. Changes in number of physical units sold.

GROSS PROFIT MARGIN/ GROSS PROFIT RATIO • It indicates the efficiency of the operation and the price policy of the management. • An indication of the extent of average mark-up on cost of goods • A test of efficiency of purchase and sales management. .

the cost price variance should be further analyzed to determine variances for materials. the shift in the sales mix. and factory overhead. To be of real value. . labor. The gross profit analysis brings together the two major functional areas of the firm (Marketing & manufacturing department) and points to the need for further study by both departments. The marketing department must explain the changes in the sales prices.Uses of Gross Profit Analysis The gross profit analysis based on budgets and standards costs depicts the weak spots in the year's performance. and the decrease in units sold. while the production department must account for the increase in cost.

Gross Profit Analysis Based on Budgets and Standard costs .Procedures for analyzing gross profit: 1. Gross Profit Analysis Based on the Previous Year’s Figures 2.

000 ---------+$10.000 --------$30.000 ======= 19B $140. Gross Profit Analysis based on the Previous Year’s Figures Sales Cost of goods sold Gross profit 19A (net)$120.000 $100.000 +$10.1.000 ======= Changes +$20.000 ---------$20.000 $110.000 ======= .

000 Y 7.00 $28.000 $32.60 $52.000 $3.000 Units $5.Additional data taken from various records indicate that the sales and the cost of goods sold figure can be broken down as follows: 19A Sales Product Quantity Unit Price Total 19A Cost of goods sold Unit Cost Total X 8.000 $4.000 Units$2.000 ======= ======= .500 $24.00 $40.000 $2.500 Z 20.175 $43.000 Units $4.000 ---------$100.500 ---------$120.

00 $40.000 20.000 4.000 3.000 $4.000 -------140.000 ===== .50 $14.00 $60.000 Units $3.000 ====== 2.80 $56.000 Units $3.000 ------110.50 $14.19B Sales Unit Product Quantity Price X Y Z Total 19B Cost of goods sold Unit Cost Total 10.60 $66.000 Units $6.

000 units @ $4.60 $52.000 Actual 19B sales at 19A price: X: 10.000 ======= Actual 19B sales at 19A price $118.000 units @ $2.000 ------ Unfavorable sales volume variance $2.000 ------- $118.000 Y: 4.000 ------- Favorable sales price variance $22.000 Total 19A sales (used as standard) $120.000 Z: 20.000 units @ $5.00 $50.Calculation of sales price and sales volume variance: Actual 19B sales $140.000 ====== .00 $16.

In analyzing: Sales and Costs in 19A will serve as basis for all comparisons  1. computation of the sales mix variance computation of the final sales volume variance . analyze the sales volume variance and cost volume variance  4. compute cost price variance and cost volume variance  3.  5. compute sales price variance and sales volume variance  2.

Calculation of Cost Price and Cost Volume Variance: The cost price and cost volume variances are calculated as follows.500 ======== $97.500 --------$12.175 Unfavorable cost price variance Actual 19B sales at 19A cost Cost of goods sold in 19Aused as standard Favorable cost volume variance $110.000 $14.000 Y: 4.000 units @ $4.500 $100.000 units @ $2.000 $43.500 ======== .000 --------$2.500 --------- $97.000 $40.000 units @ $3. Actual 19B cost of goods sold Actual 19B sales at 19A cost: X: 10.500 Z: 20.

Favorable sales price variance Favorable volume variance (net) consisting of: Favorable cost volume variance $2.The result of the preceding computations might explain the reason for the $10.000 -------Net favorable volume variance $22.500 Less unfavorable sales volume variance $2.500 ------10.000 increase in gross profit.000 Less unfavorable cost price variance $12.000 ===== Increase in gross profit $500 -------$22.500 .

000 ÷ 35.5714 average gross profit per unit sold in 19A is multiplied by the total number of units sold in 19B (34. The resulting $19.000 = $0.Calculation of the sales mix and final sales volume variance: Total gross profit ÷ Total number of units sold = $20.5714 The $0.427 is the total gross profit that would have been achieved in 19B if all units had been sold at 19A's average gross profit per unit.000 units). .

000 $ 97.000 standard) --------Unfavorable final sales volume variance $118.427 --------$ 1.073 ====== $19.500 ------------$20.500 $19.427 20.000 Cost of goods sold in 19A (used as 100.000 --------$573 ====== .The sales mix and final sales volume variance can now be calculated: Actual 19B sales at 19A sales price Actual 19B sales at 19A cost Difference 19B sales at 19A average gross profit Favorable sales mix variance 19B sales at 19A average gross profit Total 19A sales (used as standard) $120.

500 $573 --------$13073 .Recapitulations of Variances: The variances identified in the preceding calculations are summarized below: Gains Gain due to increased sales price $22.000 ======= Losses $12.000 Loss due to increased cost Gain due to shift in sales mix $1073 sold Loss due to decrease in units --------$23073 Total $13073 Less --------profit Net increase in gross$10.

An income statement prepared at the end of the period on the basis of actual sales at budgeted sales prices and at standard costs. The budgeted income statement prepared at the beginning of the period 2. 3. Gross Profit Analysis Based on Budgets and Standard Costs: As the basis for illustrating the analysis of gross profit using budgets and standard costs. three financial statements for a company are presented: 1. .2. The actual income statement prepared at the end of the period.

250 ===== ===== .00 $12.-------$2.00 ------$13.000 $8.25 $1.000 $2.000 ===== Cost Unit cost $12.00 $7.000 -------$142.02* ===== Amount $72.000 ------10.000 $1.000 $10.00 $18.250 ------.500 1.500 ===== *Weighted average Sales Unit price $15.750 ------$115.00 $8.50* $26.000 3.Statement 1: Income Statement (Budgeted) ProductUnits A B C 6.000 $35.52* ===== Amount $90.00 $10.000 $42.750 ===== Gross Profit Per unit Amount $3.75 ------$11.00 $10.

00 ------$13.00 $10.112 4.416 $1.00 $10.669 ------$113.133 ===== ===== .338 $2.85* ===== Amount $61.496 $11.Statement 2: Income Statement ProductUnits A B C 5.680 $50.-------$2.381 ------.00 $15.208 1.25 $1.093 ===== (actual) Gross Profit Per unit Amount $3.26* ===== *Weighted average Amount $76.00 $8.080 $9.00 $8.344 $42.226 ===== Cost Unit cost $12.105 ------10.050 -------$138.00 $12.425 ===== Sales Unit price $15.41* $25.75 ------$10.

Statement 3: Income Statement (Actual units at budgeted prices and costs) ProductUnits A B C 5.338 $42.26* ===== *Weighted average Cost Amount Unit cost $76.00 ------$13.25 $1.680 $12.112 4.105 ------10.093 $2.133 ===== ===== ===== .00 $12.226 $10.85* ===== ===== Gross Profit Amount Per unit Amount $61.75 -------------$138.080 $2.00 $15.381 -------------------$113.00 $11.416 $9.669 $1.00 $10.00 $50.050 $8.344 $3.41* $25.425 ===== Sales Unit price $15.496 $10.00 $8.208 1.

007 ======= $138. the sales price variance and sales volume variance for the company are calculated as follows: Actual sales Actual sales at budgeted price Favorable sales price variance Actual sales at budgeted price Budgeted sales Unfavorable sales volume variance $142.226 142.774 ======== .000 -----------$3.Calculation of sales price variance and sales volume variance: Using the figures from the statements above.226 ----------$4.233 $138.

657 ======== .125 $113. the cost price variance and cost volume variance for the company are calculated as follows: Cost of goods sold .093 ----------$9.032 ======= $113.093 115.Actual Budgeted cost of actual units sold Unfavorable cost price variance Budgeted cost of actual units sold Budgeted cost of budgeted units sold Favorable cost volume variance $122.570 -----------$2.Calculation of Cost Price Variance and Cost Volume Variance: Using the figures from the statements above.

774 $2.657 -------$1.Calculation of the Sales Mix and Final Sales Volume Variance: In the above calculation two volume variances appear: Unfavorable sales volume variance Favorable cost volume variance Net unfavorable volume variance $3.117 ===== .

00 --------------$187.093.50 --------------$929.00 Difference Budgeted gross profit of actual units sold 10.00 -------------$25.250.The net volume variance should be further analyzed to determine the sales mix and final sales volume variance.50 ======== .50 Unfavorable sales mix variance Budgeted gross profit of actual units sold Budgeted sales Budgeted cost of budgeted units sold Unfavorable final sales volume variance $142.133.50 ======= $26062.000 $115. Actual sales at budgeted prices Budgeted cost of actual units sold $138.425 actual units × $2.266.50 budgeted gross profit per unit $26062.750 ------------- 26.00 113.

007 Losses $9.50 --------------$10.032.149.00 --------------$6.00 ====== Net unfavorable volume variance Recapitulation of Variances: Gain due to increased sales prices Loss due to increased cost Loss due to shift in sales mix Loss due to decrease in units sold Total Less Net decrease in gross profit Gains $4.00 4.Check: Unfavorable sales mix variance Unfavorable final sales volume variance $929.007.00 ======= .00 929.50 187.117.142.50 187.50 ----------1.