GROSS MARGIN ANALYSIS

1. Garfield Company, which sells a single product, provided the following data from its income
statements for the calendar year 2004 and 2003:

Base
year Base year
2004 2003 2004 2003
Unit sold 150,000 180,000 Cost of sales 525,000 575,000
sales 750,000 720,000 Gross profit 225,000 145,000

In an analysis of variation of gross profit between two years, what would be the effects
of changes in sales price and sales volume?

SALES PRICESALES VOLUME SALES PRICE SALES VOLUME

a. 150,000 F 120,000 UF c. 180,000 F 150,000 UF
b. 150,000 UF 120,000 F d. 180,000 UF 150,000 F

A. 2004 unit selling price : (P750,000 / 150,000)= P5.00

2003 Unit selling price: (P720, 000 / 180,
000)= 4.00
Increase in selling price P1.00
x 2004 units sold 150,000
Sales price- favorable P150,000

decrease in units sold= (180,000-150,000)= 30,000

x 2003 selling price P4.00
sales volume- unfavorable P120,000

ITEMS 2 to 5 ARE BASED ON THE FOLLOWING INFORMATION:

Brown Company manufactures three consumer products, X, Y, and Z. Sales and

other information related to the said products are as follows:

2003 UNITS UNIT PRICE TOTAL SALES COST OF SALES

X 15,000 10 P150,000 P12,0000
Y 20,000 8 160,000 140,000
Z 5,000 6 30,000 22,500
 2004 UNITS UNIT PRICE TOTAL SALES COST OF SALES
X 20,000 12 P240,000 P180,000
Y 20,000 9 180,000 150,000
Z 4,000 5 20,000 16,000

Based on the above, an analysis of the gross profit would show the following changes:

2. The sales price factor shows a variance of

a. P56, 000 F b. P100, 000 UF c. P100, 000 F d. P56, 000 UF

A. 2004 Actual sales ( 240,000 + 180,000 + 20,000)= P440,000

2004 sales @ 2003 prices:
x- 20,000 x P10 = P200,000
y- 20,000 x P8 = 160,000
z- 20,000 x P6 = 24,000 384,000
sales price factor- favorable P56,000

3. The cost price factor shows a variance of

a. P28, 000 F b. P28, 000 UF c. P63, 500 F d. P63, 500 UF

B. 2004 Actual cost of sales ( 180,000 + 150,000 + 16,000)= P346,000

2004 cost of sales @ 2003 costs:
x- 20,000 x P8= P160,000
y- 20,000 x P7 = 140,000
z- 4,000 x P4.50 = 18,000 318,000
cost price factor- unfavorable P28,000

4. The quantity factor shows a variance of

a. P4, 000 F b. P4, 000 UF c. P5, 750 F d. P5, 750 UF
 C. 2003 sales ( 150,000 + 160,000 + 30,000 )= P340,000
2003 cost of sales :(120,000 + 140,000 +22,500)= 282, 500
2003 Gross profit 57, 500
2003 Average gross profit per unit = P57, 500 = P1.4375
(15,000+ 20,000+5,000)
Increase in units sold (44,000 -40,000) 4,000
x Average gross profit per unit P1.4375
Quantity factor- favorable P5, 750

5. The sales-mix factor shows a variance of

a. P2, 500 F b. P2, 500 UF c. P2, 750 F d. P2, 750 UF

C. 2004 sales @ 2004 prices P384, 000

2004 cost of sales @ 2003 costs 318,000
2004 gross profit @ 2003 prices and cost P66,000
2004 average GP/ unit @ 2003 prices (P66, 000 / 44,000) = P1.5000
2003 average GP/ unit 1.4375
increase in average GP / unit P0.0625
x 2004 units sold 44,000
sales mix factor- favorable P2, 750

ITEMS 6 TO 10 ARE BASED ON THE FOLLOWING INFORMATION:

The president of Pure Company, after being informed that the 2004 selling price was 6%
lower than 2003, would like to know other factors that changes the gross margin as shown
below:
2003 2004
Net sales P420, 000.00 P426, 384.00
Cost of sales 243, 600.00 276, 242. 40
Gross margin P176, 400.00 P150, 141.60

Based on the data, an analysis of changes in gross margin would show

6. An increase (decrease) in net sales due to sales price of
a. P33, 600 b. P27, 216 c. P(33,600) d. P(27,216)

D.
2004 actual sales P426, 384
2004 sales @ 2003 prices (426, 384/ 94%) = 453, 600
Decrease in net sales due to sales price P(27,216)

7. An increase (decrease) in cost of sales due to cost factor of

a. P19,488.00 b. 13,154.40 c. P(13,154.40) d. P(19,488.00)

B. 2004 sales @ 2003 prices (above) P453, 600

2003 actual sales 420,000
Increase in net sales due to volume P33, 600
Volume percent increase (P33, 600/ P420, 000) = 8%
2004 cost of sales P276, 242.40
2004 cost of sales @ 2003 costs ( 243, 600 x 108%) 263, 088.00
Increase in cost of sales due to cost factor P13, 154.40

8. An increase (decrease) in cost of sales due to volume of

a. 13,154.40 b. P19, 488.00 c. P(13,154.40) d. P(19,488.00)

B.
2004 Cost of sales at 2003 costs P 263, 088
2003 Cost of sales 243, 600
Increase in cost of sales due to volume P19, 488

9. A percent increase (decrease) in units sold of

a. 8% b. (6%) c. 5% d. (5%)

A. Volume percent increase (P33, 600 / 420, 000) = 8.0%

10. A percent increase (decrease) in unit cost of
a. 8% b. (6%) c. 5% d. (5%)

C. Percent increase in unit cost ( 13, 154.40 / 263, 088) = 5.0%

ITEMS 11 TO 15 ARE BASED ON THE FOLLOWING DATA:

The management of Batman Company asked you to submit an analysis of the increase in
their gross profit in 2004 based on their past two-year comparative income statements which
are shown below:

2003 2004
Net sales P1, 237, 500 P1, 000, 000
Cost of sales 950, 000 800,000
Gross margin P 287, 500 P200, 000

The only known factor given to you is that sales price increased 12.5% beginning January, 2004.

11. The increase in gross profit due to increase in volume is

a. P50, 000 b. P35, 000 c. P 20, 000 d. None of the above

C. 2004 sales @ 2003 prices (1,237,500/112.5%) P1,100,000

2003 actual sales 1,000,000
Increase in net sales due to volume P100, 000
percent increase in volume (P100,000/ P1,000, 000) = 10%
2004 cost of sales @ 2003 costs (800,000 x 110%) = P880, 000
2003 actual cost of sales 800, 000
Increase in cost of sales due to volume P80,000
Increase in gross profit due to volume (100,000 - 80,000) = P20, 000
12. Gross profit declined due to increase in cost in the amount of
a. P70, 000 b. P88, 000 c. P97, 500 d. None of the above

A.
2004 Cost of sales P 950, 000
2004 Cost of sales at 2003 costs (above) 880, 000
Decline in gross profit due to increase in costs 70,000

13. The increase in sales prices caused an increase in gross profit by

P100, 000 b P 137, 500 c. P110, 000 d. None of the above

B.
2004 actual sales P1,237,500
2004 sales @ 2003 prices 1,100,000
Increase in gross profit due to sales price 137, 500

14. The percent of change in volume is

a. 12.750% b. 11.000% c. 15.125% d. None of the above

D. Percent change in volume (100,000 / 1,000,000) = 10%

15. The percent of change in cost is

a. 10.794% b. 10.000% c. 8.675% d. None of the above

D. Percent change in cost (70,000 / 880,000) = 7.955%

ITEMS 16 THROUGH 20 ARE BASED ON THE FOLLOWING INFORMATION:

Manly Company has the following data available for gross profit analysis:
 2003 Prod. A Prod. B Prod. C Total
P225,
Sales 000 P240,000 P45,000 P510,000
Cost of sales 180,000 210,000 33,750 423,750
No. of units 22,500 30,000 7,500 60,000

2004 Prod. A Prod. B Prod. C Total

Sales P360,000 P270,000 P30,000 P660,000
Cost of sales 270,000 225,000 24,000 519,000
No. of units 30,000 30,000 6,000 66,000

16. The sales price factor shows a variance of

a. P150, 000 UF b. P150, 000 F c. P84, 000 UF d. 84, 000 F

D. 2004 actual sales P660, 000

2004 sales @ 2003 prices :
a - 30,000 x (225,000/22,500)= 300,000
b- 30,000 x (240,000/ 30,000)= 240,000
c- 6,000 x (45,000/7,500) = 36,000 576,000
sales price factor- favorable P84,000

17. The cost price factor shows a variance of

a. P95, 250 UF b. P61, 500 UF c. P42, 000 UF d. P33, 750 F

C.
2004 cost of sales P519, 000
2004 cost of sales @ 2003 prices :
a - 30,000 x (180,000/22,500)= 240,000
b- 30,000 x (210,000/ 30,000)= 210,000
c- 6,000 x (33,750/7,500) = 27,000 477,000
cost price factor- unfavorable P42,000
18. The 2004 average gross profit per unit at 2003 prices and costs is
a. P1.4375 b. P1.45 c. P1.50 d. P2.1363

C. 2004 average gross profit @ 2003 prices and cost =

(576, 000 -477, 000)/ 66, 000 = P1.50

19. The quantity factor shows a variance of

a. P8, 625 F b. P46, 125 UF c. P12, 816 F d. P9, 075 UF

A. 2003 average gross / unit (510, 000 423, 750)/ 60,000 = P1.4375
X Increase in units sold (66, 000 60,000) 6,000
Quantity factor- favorable P 8. 625

20. The sales-mix factor shows a variance of

a. P14, 124 F b. P 4, 125 UF c. P4, 125 F d. P14, 124 UF

C. 2004 average gross profit at 2003 prices and costs = P1.5000

2003 average gross profit / unit (510, 000- 423,750)/ 60,000= 1.4375
Increase in average GP/ unit P0.0625
X 2004 units sold 66,000
Sales mix factor- favorable P 4, 125

ITEMS 21 THROUGH 25 ARE BASED ON THE FOLLOWING INFORMATION:

For the year ended December 31, 2003 and 2004 the following data were presented to
the management of Leander Company:

Net sales Cost of sales Gross margin

2004 P1, 363, 000 P911, 800 P451, 200
2003 1, 250, 000 776, 000 474, 000
 The management requested you to determine the cause of the decline in gross profit on sales in
spite of the favorable information given by the sales division that the quantity sold in 2004 was
higher than in 2003 and that the production costs in 2004 were lower than that of 2003 by 6%.

21. The percent of change in volume is

a. 17.5% b. 14.0% c. 25.0% d. 20.0%

C. 2004 cost of sales @ 2003 costs (911, 800 / 94%) = P970,000

2003 cost of sales 776,000
Increase in cost of sales due to volume 194,000
percent increase in volume ( 194,000/ 776, 000) = 25%

22. The increase (decrease) in cost of sales due to cost factor is

a. (P135, 800) b. 135, 800 c. (58, 200) d. 58, 200

C.
2004 cost of sales = P911,800
2003 cost of sales at 2003 costs (911, 800 / 94%) 970,000
Decrease in cost of sales due to cost factor P(58, 200)

23. The percent of change in price is

a. (17.5%) b. 17.5% c. (12.768%) d. 12.768%

C.
2004 sales P1, 363, 000
2004 sales at 2003 prices (1,250,000 x 125%) = 1, 562,500
Decrease in net sales due in price factor P (199, 500)
Percent decrease in price (199,500)/ 1,562,500= (12.768%)

24. The increase (decrease) in net sales due to volume factor is

a. (P194, 000) b. P194, 000 c. (P312, 500) d. P312, 500

D.
2004 sales at 2003 prices (1,250,000 x 125%) = 1, 562,500
2003 sales 1,250,000
Increase in net sales due in volume factor P 312, 500

25. The increase (decrease) in net sales due to price factor is

a. (P113, 000) b. P113, 000 c. (P199, 500) d. P199, 500
 C. 2004 sales 1, 363,000
2004 sales at 2003 prices (1,363,000 x 87.232%) = 1,562,500
Decrease in net sales due to price factor P (199, 500)