Gross Profit Variation Analysis 4k6826

XMANAC1

Gross Profit Variation Analysis

GROSS PROFIT VARIATION ANALYSIS GROSS PROFIT – the difference of sales and cost of sales; the portion earned after deducting manufacturing costs. GROSS PROFIT VARIATION – changes in gross profit GROSS PROFIT VARIATION ANALYSIS – evaluation of gross profit, changes in gross profit and the root of the changes. Factors affecting gross profit 1. 2. 3. 4.

Change in selling price per unit Change in volume Change in cost per unit Change in sales mix (for multi-product analysis)

METHODS USED



INCREASE (DECREASE) IN SALES AND COST OF SALES Increase (Decrease) in Sales ▪ Quantity Factor ▪ Price Factor ▪ Quantity/Price Factor

∆Q x P1 Q1 x ∆P ∆Q x ∆P

Increase (Decrease) in Cost of Sales ▪ Quantity Factor ▪ Cost Factor ▪ Quantity/Cost Factor

∆Q x C1 Q1 x ∆C ∆Q x ∆C

FACTORS QUANTITY FACTOR

Sales this year at last year’s price(s) (Q2 x P1) Less: Sales last year (Q1 x P1) Increase (Decrease) in Sales (∆Q x P1) Multiply by: GP rate last year (GPR1) Increase (Decrease) in Gross Profit [(∆Q x P1)xGPR1)

PRICE FACTOR

Sales this year Less: Sales this year at last year’s price(s) Increase (Decrease) in Gross Profit

Where, ∆Q = change in quantity ∆P = change in selling price per unit ∆C = change in cost per unit Q1 = previous year’s quantity, in some cases, the budgeted quantity Q2= current year’s quantity, in some cases, the actual quantity P1 = previous year’s selling price per unit, in some cases, the budgeted selling price per unit P2 = current year’s selling price per unit, in some cases, the actual selling price per unit C1 = previous year’s cost per unit, in some cases, the budgeted cost per unit C2 = current year’s cost per unit, in some cases, the actual cost per unit Exercise 1: Tsokoleyt Corporation sells its only product, Ultrachocolate bars. Tsokoleyt has provided the following data for two years: Year 2 Year 1 Selling price per unit P887.50 P772.50 Cost per unit 455.00 455.25 Gross profit per unit Unit sales 215,000 200,000 Requirements: 1. Determine the increase(decrease) in sales that resulted from the change in selling price and quantity. 2. Determine the increase(decrease) in cost of sales that resulted from the change in cost per unit and quantity. 3. Determine the changes in gross profit that resulted from the change in sales volume. 4. Determine the change in gross profit that resulted from the change in selling price. 5. Determine the change in gross profit that resulted from the change in cost per unit. 6. Determine the net change in gross profit. 7. Provide an analysis of the results of your computations from requirements number 1 to 6. 8. Explain the probable reason why there has been an increase in unit sales in spite of the increase in selling price.

(Q2 x P2) (Q2 x P1) (Q2 x ∆P)

COST FACTOR

Cost this year Less: Cost this year at last year’s cost Increase (Decrease) in Gross Profit

A.Y. 2013 – 2014

(Q2 x C2) (Q2 x C1) (Q2 x ∆C)

David, C.