Gross Profit difference between sales and cost of goods sold

The actual Gross Profit during a given period may be compared with any of the following:

a. the immediately preceding period's figures or any figures selected as the base for comparison.

b. the same period's budgeted or standard figures.

Changes in gross profit may be attributed to the change in any, or a combination of the following factors:

Selling price(s) of the product(s)

Volume or Quantity of product(s) sold which in turn, may be due to change in:

a. number physical units sold

b. product mix or sales mix which refers to the composition of the products sold

Cost of the product sold

a. for merchandising firms, cost refers to the net purchase cost of the product

b. for manufacturing firms, cost includes the three manufacturing cost elements,namely, materials, labor, and factory overhead

Procedures for Analyzing Gross Profit Variations

Different ways of analyzing Gross Profit Variances

4 - way analysis

6 - way analysis

3 - way analysis

4 - way analysis

Sales Variance:

Sales Price Factor:

19B Sales xx

Less: 19B Sales @ 19A Sales Price xx xx

Sales Volume Factor:

19B Sales @ 19A Sales Price xx

Less: 19A Sales xx xx xx

Cost Variance:

Cost Price Factor:

19B Cost of Sales xx

Less: 19B Cost of Sales @ 19A cost price xx xx

Cost Volume Factor:

19B Cost of Sales @ 19A cost price xx

Less: 19B Cost of Sales xx xx xx

xx

Simplified Form:

4 - Way Analysis

Sales Variance:

Price Factor = Difference in selling price x 19B units .

Volume or Quantity = Difference in units x 19A selling price

Factor

Cost Variance:

Price Factor = Difference in selling price x 19B units .

Volume or Quantity = Difference in units x 19A cost price

Factor

3 - Way Analysis

Sales Variance:

Volume or Quantity = Difference in units x 19A Gross Profit per unit

Price Factor = Difference in selling prices x 19B units .

Cost Factor = Difference in cost price x 19B units

Gross Profit Variance for two or more Products

GOAL!

**Analysis of Variation in Gross Profit**

19B - Actual

19A - Budgeted

Standard

6 - Way Analysis

Sales Variance:

Price Factor = Difference in selling price x 19A units .

Volume or Quantity = Difference in units x 19A selling price

Factor

Price-volume Factor = Difference in selling price x Difference in units

Cost Variance:

Price Factor = Difference in cost price x 19A units .

Volume or Quantity = Difference in units x 19A cost price

Factor

Price-volume Factor = Difference in cost price x Difference in units

19B - Actual

19A - Budgeted

Standard

Sales Mix Variance:

19B units @ 19A sales price xx

Less 19B units @ 19A cost prices xx

Difference xx

Less: 19B units @ 19A average Gross profit xx

Sales Mix Variance xx

Final Sales Volume Variance:

19B units @ 19A ave. Gross Profit xx

Less: 19A Gross Profit xx

Final Sales Volume Variance xx

19B - Actual

19A - Budgeted

Standard