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    Chapter 3: Analysis of Changes in Sales, Cost of Sales, and Gross Margin Analysis of Variation in Gross Profit Gross Profit Variance Analysis

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    Angelica Magdaraog
    This chapter analyzes changes in sales, cost of sales, and gross margin through gross profit variance analysis. Gross profit is the difference between sales and cost of goods sold. Variations in gross profit can be analyzed by comparing actual figures to previous periods or by attributing changes to factors like selling price, quantity sold, or cost of goods sold. Common methods for analyzing gross profit variations include 4-way analysis, 6-way analysis, and 3-way analysis, which break down variances into price, quantity, and combined price-quantity effect components. An illustrative example is provided to demonstrate gross profit variance analysis for multiple products.

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    Chapter 3: Analysis of Changes in Sales, Cost of Sales, and Gross Margin Analysis of Variation in Gross Profit Gross Profit Variance Analysis

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    Angelica Magdaraog
    62 views3 pages
    This chapter analyzes changes in sales, cost of sales, and gross margin through gross profit variance analysis. Gross profit is the difference between sales and cost of goods sold. Variations in gross profit can be analyzed by comparing actual figures to previous periods or by attributing changes to factors like selling price, quantity sold, or cost of goods sold. Common methods for analyzing gross profit variations include 4-way analysis, 6-way analysis, and 3-way analysis, which break down variances into price, quantity, and combined price-quantity effect components. An illustrative example is provided to demonstrate gross profit variance analysis for multiple products.

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    This chapter analyzes changes in sales, cost of sales, and gross margin through gross profit variance analysis. Gross profit is the difference between sales and cost of goods sold. Variations in gross profit can be analyzed by comparing actual figures to previous periods or by attributing changes to factors like selling price, quantity sold, or cost of goods sold. Common methods for analyzing gross profit variations include 4-way analysis, 6-way analysis, and 3-way analysis, which break down variances into price, quantity, and combined price-quantity effect components. An illustrative example is provided to demonstrate gross profit variance analysis for multiple products.

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    62 views3 pages

    Chapter 3: Analysis of Changes in Sales, Cost of Sales, and Gross Margin Analysis of Variation in Gross Profit Gross Profit Variance Analysis

    Uploaded by

    Angelica Magdaraog
    This chapter analyzes changes in sales, cost of sales, and gross margin through gross profit variance analysis. Gross profit is the difference between sales and cost of goods sold. Variations in gross profit can be analyzed by comparing actual figures to previous periods or by attributing changes to factors like selling price, quantity sold, or cost of goods sold. Common methods for analyzing gross profit variations include 4-way analysis, 6-way analysis, and 3-way analysis, which break down variances into price, quantity, and combined price-quantity effect components. An illustrative example is provided to demonstrate gross profit variance analysis for multiple products.

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    Chapter 3: Analysis of Changes in Sales, Cost of Sales, and Gross Margin

    Analysis of Variation in Gross Profit


    Gross Profit Variance Analysis
    Gross profit is the difference between sales and cost of goods sold. It is very
    important figure in the income statement because it is one of the factors that
    determine the final result of the operations.
    To conduct a meaningful analysis of the variation in gross profit, the actual
    gross profit during a given period may be compared with any of the following:
    a. The immediately preceding periods figures or any previous periods selected
    as the base for comparison.
    b. Changes in gross profit may be attributed to the change in any, or a
    combination of the following factors:
    1. Selling price(s) of the product(s)
    2. Volume or quantity of product(s) sold which, in turn, may be due to
    change in:
    i. Number of physical units sold (when the company sells only one
    product line), and
    ii. Product mix or sales mix which refers to the composition of the
    products sold (this is applicable to companies selling more than
    one product line)
    3. Cost of the product sold:
    i. For merchandising firms, cost refers to the net purchase cost of
    the product
    ii. For manufacturing firms, cost includes the three manufacturing
    cost elements, namely, materials, labor and factory overhead.
    Procedures for Analyzing Gross Profit Variations
    4-Way Analysis

    Sales Variance:
    Price Factor = Difference in selling price x 20B units
    Volume or Quantity Factor = Difference in units x 20A selling price
    Cost Variance:
    Price Factor = Difference in cost prices x 20B units
    Volume of Quantity Factor = Difference in units x 20A cost price

    6-Way Analysis
    Sales Variance:
    Price Factor = Difference in selling price x 20A units
    Volume or Quantity Factor = Difference in units x 20A selling price
    Price-Volume Factor = Difference in Selling Price x Difference in Units
    Cost Variance:
    Price Factor = Difference in cost prices x 20B units
    Volume or Quantity Factor = Difference in units x 20A cost price
    Price-Volume Factor = Difference in Cost Price x Difference in Units
    3-Way Analysis
    Quantity or Volume Factor = Difference in units x 20A Gross profit per unit
    Price Factor = Difference in selling price x 20B units
    Cost Factor = Difference in Cost Price x 20B units
    ILLUSTRATIVE EXAMPLE:

    Gross Profit Variance Analysis for Two or More Products

    ILLUSTRATIVE EXAMPLE

    S
    SalesVolumein Units
    SellingPrices per Unit
    Cost per Unit

    400
    4.00
    1.60

    2015

    2015
    H
    350
    5.00
    2.00

    E
    1000
    3.00
    1.20

    S
    500
    4.20
    1.68

    2014
    H
    200
    4.50
    1.80

    E
    1000
    2.80
    1.12

    2014

    Sales:
    S
    H
    E

    1,600.00
    1,750.00
    3,000.00

    2,100.00
    900.00
    2,800.00

    Total Sales

    6,350.00

    5,800.00

    Less: Cost of Sales


    S
    H
    E

    640.00
    700.00
    1,200.00

    840.00
    360.00
    1,120.00

    Total Cost of Sales

    2,540.00

    2,320.00

    220.00 U

    3,810.00

    3,480.00

    330.00 F

    SalesMixvariance:
    2015 Sales
    2015 units@ 2014 salesprice
    S
    H
    E

    550.00 F

    6,350.00
    1,680.00
    1,575.00
    2,800.00

    QuantityFactor:
    2015 units@ 2014 sellingprices:
    2014 Sales

    6,055.00

    295.00
    F

    6,055.00
    5,800.00

    255.00
    F

    Cost of SalesVariance:
    Price Factor:
    2015 Cost of Sales
    2015 units@ 2014 cost Price
    S
    H
    E
    QuantityFactor:
    2015 units@ 2014 cost prices:
    2014 Cost of Sales

    550.00
    F

    2,540.00
    672.00
    630.00
    1,120.00

    2,422.00

    118.00
    U

    2,422.00
    2,320.00

    102.00
    U

    220.00
    U

    Net Gross Profit Variance

    330.00
    F

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