Gross Profit Analysis Solved Problems:

Learning Objective:

1. Calculate sales price variance, sales volume variance, cost price variance, cost volume variance, sales mix variance, and final sales volume variance.

Problem 1:

A cost analyst of the Memphis Company has prepared a monthly gross profit analysis, comparing actual to budget for its two products, Alco and Bacco. June actual and budget data show:

 Sales Cost of Goods Sold Gross Profit Units Unit Price Amount Unit Cost Amount Per unit Amount Budget: Alco 8,000 \$20.00 \$160,000 \$16.00 \$128,000 \$4.00 \$32,000 Bacco 4,200 14.00 58,800 12.00 50,400 2.00 8,400 ———- ———- ———- ———– ———- ———- ———– Total budget 12,200 \$17.9344* \$218,800 \$14.6229* \$178,400 \$3.3115* \$40,400 ====== ====== ====== ====== ====== ====== ====== Actual: Alco 7,500 \$21.00 \$157,500 \$16.50 \$123,750 \$4.50 \$33,750 Bacco 4,500 13.50 60,750 11.50 51,750 2.00 9,000 ———- ———- ———– ———– ———- ———– ———– Total actual 12,000 \$18.1875* \$218,250 \$14.625* \$175,500 \$3.5625* \$42750 *Weighted average

Required:

• Calculate price and volume variances for sales and cost.
• Calculate sales mix variance and final sales volume variances.

Solution:

 Actual sales \$218,250 Actual sales at budgeted price: Alco: 7,500 @ \$20 \$150,000 Bacco: 4,500 @ 14 63,000 213,000 ————– Favorable sales price variance \$5,250 ======= Actual sales at budgeted price 213,000 Budgeted sales 218,800 ————– Unfavorable sales volume variance \$5,800 ======= Cost of goods sold actual \$175,500 Budgeted costs of actual units sold: Alco: 7,500 @ \$16 \$120,000 Bacco: 4,500 @ \$12 54,000 ————— 174,000 ————– Unfavorable cost price variance \$1,500 ======== Budgeted costs of actual units sold \$174,000 Budgeted costs of budgeted units sold 178,400 ————— Favorable cost volume variance \$4,400 ========

Interim Recapitulation:

 Favorable sales volume variance \$5,250 Less unfavorable volume variance (net) consisting of: Unfavorable sales volume variance \$5,800 Less favorable cost volume variance 4,400 ———- 1,400 ——- \$3,850 Less unfavorable cost price variance 1,500 ———- Increase in gross profit \$2,350 =======

Problem 2:

The Summers Sporting Goods Shop presents the following data for two types of racquetball gloves, leather and fabric, for 19A and 19B.

 19A 19B Units Per unit Amount Units Per unit Amount Sales: Leather racquetball gloves 8,000 \$8.00 \$64,000 12,000 \$10.00 \$120,000 Fabric racquetball gloves 8,000 \$4.00 \$32,000 20,000 \$6.00 \$120,000 ———- ——— \$96,000 \$240,000 ======= ====== Cost of Goods Sold Leather racquetball gloves 8,000 \$6.00 \$48,000 12,000 9.00 \$108,000 Fabric racquetball gloves 8,000 \$3.00 \$24,000 20,000 5.00 100,000 ———— ———- \$72,000 \$208,000 ———— ———- Gross profit 16,000 \$1.50 \$24,000 32,000 \$1.00 \$32,000 ======= ======

Required:

• Calculate price and volume variances for sales and cost.
• The sales mix and final sales volume variances.