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TOPIC
profit or gross margin is the excess of sales over cost of goods sold. Gross profit is calculated as: Gross
profit analysis is designed to pick apart the reasons why the gross profit margin changes from period to period, so that management can take steps to bring the gross margin in line with expectations.
IST YEAR
2ND YEAR
CHANGES
Sales
120000
100000 20000
140000
110000 30000
+20000
+1000 10000
C.G.S G.P
MAIN CONCERN!!!
OUR CONCERN IN THIS ANALYSIS IS TO CHECK THAT NET INCREASE IN THE GROSS PROFIT Lies IN WHAT PORTION LIES IN SALES PRICE, COST,SALESMIX ,NO. OF UNITS SOLD.
The gross profit figure is usually a good index of the adherence of a company's operation to its budget plan. No preferential treatment should be afforded to any expenses, whether above or below the gross profit figure. The gross profit figure is merely a convenient and conventional checkpoint.
STANDARD COST
The
word standard means a benchmark or yardstick. The standard cost is a predetermined cost which determines in advance what each product or service should cost under given circumstances.
VARIANCE?????
Variance is the difference between the estimated figure and the actual cost
* If actual costs are greater than standard costs the variance is unfavorable. An unfavorable variance tells management that if everything else stays constant the company's actual profit will be less than planned. * If actual costs are less than standard costs the variance is favorable. A favorable variance tells management that if everything else stays constant the actual profit will likely exceed the planned profit.
Difference between actual selling price per unit and the budgeted selling price per unit, multiplied by the actual number of units sold.
VOLUME VARIANCE
Difference between the actual number of units sold and the budgeted number, multiplied by the budgeted selling price per unit; also called sales quantity variance.
Products mix or sales mix refers to the composition of the products sold. Prices and costs, and the gross profit per product, are different. A shift from one product to another may influence the gross profit figure because of changes in sales mix or product mix.
Net volume variance is the composition of sales volume variance and the cost volume variance.
Final volume variance is the difference between the budgeted units and actual units sold multiplied by average of unit gross profit .
EXAMPLES
Product X Y Z
2000 sales qty unit price 8000 5 7000 4 20000 2.60 TOTAL SALES
YEAR 2001
sales Products X Y Z quantity 10,000units 4,000 20,000 unit price 6.60 3.50 3.00 Total sale Total 66,000 14,000 60,000 140,000 CGS Unit cost 4.00 3.50 2.80 Total cost Total 40,000 14,000 56,000 110,000
actual 2001 sales. Actual 2001 sales at 2000prices: X:10,000 units @5.00.50,000 Y:4,000 Z:20,000 @4.00.16,000 @2.6052,000
140,000
favorable sales price variance. Actual 2001 sales at 2000 price Actual 2001(used as standard )..... Unfavorable sales volume variance.
12,500
Actual 2001 sales at 2000 costs . 97,500 Cost of good sold in 2000 (used as standard). Favorable cost volume variance 100,000 2,50
22,000
500 22,500
12,500
10,000
2001sales at 2000 gross profit favorable sales mix 2001sales at 2000 gross profit Total 2000 sales 120000 100000 unfavorable sales volume variance
CHECK Favorable sales mix variance Un favorable final volume variance Net favor able volume
RECAPITULATION OF VARIANCE
Gain loss
Gain due to increased sale price Loss due to increased cost Gain due to shift in sales mix Loss due to decrease in units sold
573 ------13073
Analysis
Cost of goods sold ----actual. 122,125 Budgeted cost of actual units sold... 113,093 Unfavorable cost price variance 9,032
Budgeted cost of actual units sold.113,093 Budgeted cost of budgeted units sold. Favorable cost volume variance.. 115,750 2,657
138,226.00
113,093.00 25,133.00
Budgeted gross profit actual units sold (10,425 actual units .2.50 budgeted gross profit per unit ).. 26,062.50
929.50
26,062.50
26,250.00 187.50
RECAPITULATION OF VARIATION. THE VARIANCE IDENTIFIED IN THE PRECEDING COMPUTATION ARE SUMMARIZED BELOW:
gain
losses
Gain due to increase sales prices 4,007 Loss due to increased cost .. Loss due to shift in sale mix... Loss due to decrease in unit sold 9,032.00 929.50 187.50
10,149.00
4,007.00 6,142.00