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Gross Profit Variance Analysis

Gross profit variance analysis is a tool in controlling business operations because the sufficiency of gross
profit determines the result of operations. The amount of gross profit earned from operations must be
adequate to cover the operating costs and expenses, finance charges and income taxes and to achieve the
desired amount of income or return on investment. The amount of gross profit can also be used to evaluate
and control business performance.

Factors affecting Gross Profit


1. Sales Volume or the Volume Factor
2. Unit Selling Price or the Price Factor
3. Unit Cost or the Cost Factor
4. Sales Mix or Mix Factor (for companies with multiple products)

Formula:
Sales Price Variance (SPV) = Actual/Current Quantity x Selling Price
Cost Price Variance (CPV) = Actual/Current Quantity x Unit Cost
Volume Variance = Quantity x Budgeted Gross Profit per unit
or the sum/difference of:
Sales Volume Variance (SVV) = Quantity x Budgeted SP and
Cost Volume Variance (CVV) = Quantity x Budgeted Unit Cost

Alternative analysis:
Sales Variance
SPV = Actual Sales – (Actual Volume based on Budgeted SP)
SVV = (Actual Volume based on Budgeted SP) – Budgeted Sales

Cost Variance
CPV = Actual Cost of Goods Sold – (Actual Volume based on Budgeted Unit Cost)
CVV = (Actual Volume based on Budgeted unit cost) – Budgeted Cost of Goods Sold

For companies with Multiple Products


Sales Price Variance (SPV) = Actual/Current Quantity x Selling Price (individual products)
Cost Price Variance (CPV) = Actual/Current Quantity x Unit Cost (individual products)
Volume Variance = Quantity x Average Budgeted Gross Profit per unit
Mix Factor:
Ave.GP per unit based on Actual volume @ Budgeted Price P xx
Less: Average Budgeted GP per unit (xx)
Increase (decrease) in ave.GP per unit due to change in sales mix P xx
Multiplied by: Total actual quantity sold xx
Increase (decrease) in GP P xx

Exercises: GP Variance Analysis

1. ABC Company prepared the following budgetary information for December of 2013 for its toy gun:

Sales (12, 000 units) P432, 000


Cost of Goods Sold 288, 000
Gross Profit P144, 000

In December, actual operations resulted in the production and sale of 13, 000 units at an average selling
price of P34 per unit. The cost of goods sold per unit increased by P3.
1 | Page Gross Profit Variance Analysis
Required:
a. Overall GP Variance d. Cost Price Variance
b. Sales Price Variance e. Cost Volume Variance
c. Sales Volume Variance

(ReSA)

2. DEF Company has requested you to determine the cause of the difference between its 2012 and 2013
gross profit based on the following data:

2012 2013
Sales P200, 000 P252, 000
Cost of Goods Sold 120, 000 180, 000
Gross Profit P 80, 000 P 72, 000

No additional data was made available except that unit sales were determined to increased by 20%.

Required:
a. Overall GP Variance c. Price Factor
b. Volume Factor d. Cost Factor

(ReSA)

3. The management of FED Company asked you to submit an analysis of the increase in the gross profit in
2013 based on the past two-year comparative statements, which are shown below:

2013 2012
Sales P1, 237, 500 P1, 000, 000
Cost of Goods Sold 950, 000 800, 000
Gross Profit P 287, 500 P 200, 000

The selling price increased by 12. 5% beginning January 2013.

Compute the following:


a. Increase in gross profit due to increase in volume
b. Decrease in gross profit due to increase in cost
c. Increase in gross profit caused by increase in sales price
d. Percentage change in volume
e. Percentage change in cost

(ReSA)

4. The following data were taken from GHI Company:

2013 2012
Product A Product B Product A Product B
Sales Volume 6, 000 4, 000 3, 000 5, 000
Unit Selling Price P10 P6 P9 P5
Unit Cost 6 3 4 3

Required:
a. Overall GP variance d. Volume Factor
b. Price Factor e. Mix Factor
c. Cost Factor

(ReSA)

2 | Page Gross Profit Variance Analysis

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