Calinog, Kailah Christynah R.

AMN1Ar

EXERCISES ON GROSS PROFIT VARIATION ANALYSIS

1. (ONE PRODUCT LINE – COMPLETE RECORDS) The following comparative operating data for 2009 and 2010 for
STAGS Company were made available for your analysis:

2010 2009
Sales P165,000 P 100,000
Cost of Sales (90,000) (50,000)
Gross profit P 75,000 P 50,000
Units sold 1,500 units 1,000 units
Unit selling price P 110 P 100
Unit cost P 60 P 50

Prepare a Statement Accounting for Gross profit Variation for the year 2010 using: 2-way analysis.

INDIRECT APPROACH

SALES VARIANCES:
SALES PRICE VARIANCE (110-100) x 1,500 units 15,000 F
SALES QUANTITY VARIANCE (1,500-1,000) x 100 50,000 F
COST OF SALES VARIANCE: 65,000 F
COST PRICE VARIANCE (60-50) x 1,500 units 15,000 UF
COST QUANTITY VARIANCE (1,500-1,000) x 50 25,000 UF 40,000 UF
NET INCREASE/DECREASE IN GROSS PROFIT 25,000 F

DIRECT APPROACH

PRICE VARIANCES
(110-100) x 1,500 units 15,000 F
(60-50) x 1,500 units 15,000 F
QUANTITY VARIANCES
(1,500-1,000) x 100 50,000 F 25,000 F
(1,500-1,000) x 50 25,000 F
NET GROSS PROFIT VARIANCE 25,000 F

2. The ALTAS Company mines selum, a commonly used mineral. Following is the company’s report of operations:

ALTAS COMPANY
Report of Operation
For the Years ended December 31, 2010 and 2011

2011 2010 Increase (decrease)

Net sales P 891,000 P 840,000 P 51,000
Cost of goods sold 688,500 945,000 (256,500)
Gross profit (loss) P 202,500 P(105,000) P 307,500

The following information pertaining to the company’s operations:

1) The sales price of selum was increased from P8 to P11 per ton on January 1, 2011
2) New mining machinery was placed in operation on January 1, 2011 which reduced the cost of mining from P9 per
ton to P8.50 per ton.
3) There was no change in ending inventories which were valued on the LIFO basis

Required: Prepare an analysis accounting for the change in gross profit of the ALTAS Company. The analysis should
account for the effect of the changes in price, volume, and volume-price factors upon (1) sales and (2) cost of goods
sold.

INDIRECT APPROACH

SALES VARIANCES:
SALES PRICE VARIANCE (11-8) x 81,000 units 243,000 F
SALES QUANTITY VARIANCE (81,000-105,000) x 8 (192,000) UF
COST OF SALES VARIANCE: 51,000 F
COST PRICE VARIANCE (8.5-9) x 81,000 units (40,500) F
COST QUANTITY VARIANCE (81,000-105,000) x 9 (216,000) F (256,500) F
NET INCREASE/DECREASE IN GROSS PROFIT 307,500 F
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 Calinog, Kailah Christynah R. AMN1Ar

DIRECT APPROACH

PRICE VARIANCES
(11-8) x 81,000 units 243,000 F
(8.5-9) x 81,000 units (40,500) F 283,500 F
QUANTITY VARIANCES
(81,000-105,000) x 8 (192,000) UF (24,000) F
(81,000-105,000) x 9 (216,000) F
NET GROSS PROFIT VARIANCE 307,500 F

3-WAY ANALYSIS

SALES VARIANCES
SALES PRICE VARIANCE (11-8) x 105,000 units 315,000 F
SALES QUANTITY VARIANCE (81,000-105,000) x 8 (192,000) UF
JOINT SALES PRICE-QUANTITY (11-8) (81,000- 105,000) (72,000) UF
VARIANCE
TOTAL SALES VARIANCE 51,000 F
COST OF SALES VARIANCE
COST PRICE VARIANCE (8.5-9) X 105,000 units (52,500) F
COST QUANTITY VARIANCE (81,000-105,000) x 9 (216,000) F
JOINT COST PRICE-QUANTITY VARIANCE (8.5-9)(81,000-105,000) 12,000 UF
TOTAL COST OF SALES VARIANCE 256,500 F
NETINCREASE/DECREASE IN
GROSS PROFIT 307,500 F

3. (INCOMPLETE RECORDS) Using the following operating data, prepare the Statement Accounting for Gross Profit
Variation for RED LIONS Company in 2011 under each of the independent cases given below:

2010 2011
Sales P 200,000 P 276,000
Cost of Sales (150,000) (189,750)
Gross profit P 50,000 P 86,250

Cases:
I) Selling price increased by 20 percent in 2011
II) Units sold increased by 10 percent in 2011
III) Unit cost decreased by 5 percent in 2011

I.

120% sales this year P 276,000

20% P 46,000 F
100% sales this year at P230,000 P 76,000 F
last year’s price
Sales last year P 200,000
15% P 30,000 F

II.

110% sales this year P 276,000

10% P 250,090 F
100% sales this year at P250,909 P 76,000 F
last year’s price
Sales last year P 200,000
25.45% P 50,909 F

III.

95% cost of sales P 189,750

5% P 9,488 F
100% cost of sales this P199,737 P 39,750 UF
year at last year’s price
Cost of sales last year P 150,000
33.16% P 49,737 F

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