XMANAC1 Gross Profit Variation Analysis

GROSS PROFIT VARIATION ANALYSIS

Where,
GROSS PROFIT – the difference of sales and cost of sales; the ∆Q = change in quantity
portion earned after deducting manufacturing costs. ∆P = change in selling price per unit
∆C = change in cost per unit
GROSS PROFIT VARIATION – changes in gross profit
Q1 = previous year’s quantity, in some cases, the budgeted
GROSS PROFIT VARIATION ANALYSIS – evaluation of gross quantity
profit, changes in gross profit and the root of the changes. 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
Factors affecting gross profit P2 = current year’s selling price per unit, in some cases, the
actual selling price per unit
1. Change in selling price per unit
C1 = previous year’s cost per unit, in some cases, the budgeted
2. Change in volume
cost per unit
3. Change in cost per unit
C2 = current year’s cost per unit, in some cases, the actual cost
4. Change in sales mix (for multi-product analysis)
per unit

METHODS USED Exercise 1:

Tsokoleyt Corporation sells its only product, Ultrachocolate bars.

INCREASE (DECREASE) IN SALES AND COST OF SALES
Tsokoleyt has provided the following data for two years:
Year 2 Year 1
Increase (Decrease) in Sales
Selling price per unit P887.50 P772.50
▪ Quantity Factor ∆Q x P1
Cost per unit 455.00 455.25
▪ Price Factor Q1 x ∆P
Gross profit per unit
▪ Quantity/Price Factor ∆Q x ∆P
Unit sales 215,000 200,000

Increase (Decrease) in Cost of Sales

Requirements:
▪ Quantity Factor ∆Q x C1
1. Determine the increase(decrease) in sales that resulted from
▪ Cost Factor Q1 x ∆C
the change in selling price and quantity.
▪ Quantity/Cost Factor ∆Q x ∆C
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

FACTORS
change in sales volume.
QUANTITY FACTOR 4. Determine the change in gross profit that resulted from the
change in selling price.

Sales this year at last year’s price(s) (Q2 x P1) 5. Determine the change in gross profit that resulted from the

Less: Sales last year (Q1 x P1) change in cost per unit.

Increase (Decrease) in Sales (∆Q x P1) 6. Determine the net change in gross profit.

Multiply by: GP rate last year (GPR1) 7. Provide an analysis of the results of your computations from

Increase (Decrease) in Gross Profit [(∆Q x P1)xGPR1) requirements number 1 to 6.
8. Explain the probable reason why there has been an increase
PRICE FACTOR in unit sales in spite of the increase in selling price.

Sales this year (Q2 x P2)

Less: Sales this year at last year’s price(s) (Q2 x P1)

Increase (Decrease) in Gross Profit (Q2 x ∆P)

COST FACTOR

Cost this year (Q2 x C2)

Less: Cost this year at last year’s cost (Q2 x C1)

Increase (Decrease) in Gross Profit (Q2 x ∆C)

A.Y. 2013 – 2014 David, C.