XMASREV

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 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

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:
Budoy Corporation sells its only product, Ultrachocolate bars.
Budoy 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 years cost
Increase (Decrease) in Gross Profit

A.Y. 2013 2014

(Q2 x C2)
(Q2 x C1)
(Q2 x C)

David, C.