XMANAC1

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)

Gross Profit Variation Analysis

Where, Q = change in quantity P = change in selling price per unit C = change in cost per unit Q1 = previous years quantity, in some cases, the budgeted quantity Q2= current years quantity, in some cases, the actual quantity P1 = previous years selling price per unit, in some cases, the budgeted selling price per unit P2 = current years selling price per unit, in some cases, the actual selling price per unit C1 = previous years cost per unit, in some cases, the budgeted cost per unit C2 = current years 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.

METHODS USED INCREASE (DECREASE) IN SALES AND COST OF SALES Increase (Decrease) in Sales Quantity Factor Price Factor Quantity/Price Factor Increase (Decrease) in Cost of Sales Quantity Factor Cost Factor Quantity/Cost Factor

Q x P1 Q1 x P Q x P

Q x C1 Q1 x C Q x C

FACTORS QUANTITY FACTOR Sales this year at last years 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 years price(s) Increase (Decrease) in Gross Profit COST FACTOR Cost this year Less: Cost this year at last years cost Increase (Decrease) in Gross Profit (Q2 x C2) (Q2 x C1) (Q2 x C) (Q2 x P2) (Q2 x P1) (Q2 x P)

A.Y. 2013 2014

David, C.