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Gross Profit Variation Analysis Overview

The document discusses analyzing gross profit variation for multiple products using four factors: price, cost, quantity, and sales mix. It provides examples of calculating gross profit variance for different products between two periods by comparing sales, cost of sales, units sold, prices, costs, and gross profits at current year and last year levels. The document also discusses calculating basic and diluted earnings per share, with examples of how preference shares, convertible bonds, share options impact diluted EPS calculation.

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Joey Wassig
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626 views12 pages

Gross Profit Variation Analysis Overview

The document discusses analyzing gross profit variation for multiple products using four factors: price, cost, quantity, and sales mix. It provides examples of calculating gross profit variance for different products between two periods by comparing sales, cost of sales, units sold, prices, costs, and gross profits at current year and last year levels. The document also discusses calculating basic and diluted earnings per share, with examples of how preference shares, convertible bonds, share options impact diluted EPS calculation.

Uploaded by

Joey Wassig
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
  • Gross Profit Variation Analysis: Introduces the concept of analyzing gross profit variations across multiple products.
  • Overview of Analysis Factors: Details the four factors used to analyze gross profit: Price, Cost, Quantity, and Sales Mix.
  • Examples of Gross Profit Analysis: Presents illustrative examples demonstrating the application of gross profit analysis across different scenarios.
  • Earnings Per Share Analysis: Explores the calculation and implications of earnings per share (EPS) for the company.
  • EPS Example Calculation: Provides a detailed example problem to calculate both basic and diluted EPS, illustrating the application of learned concepts.

GROSS PROFIT

VARIATION
ANALYSIS
FOR MULTIPLE PRODUCTS
GPVA for multiple products
• Gross profit for multiple products are analyzed in to
4 factors
• Price factor
• Cost factor
• Quantity factor
• Sales mix factor
Price factor

Sales this year XX


Less: Sales this year at last year’s price (itemized for each product)
Product A (quantity TY @ LY’s price) XX
Product B (quantity TY @ LY’s price) XX XX
Favorable (unfavorable) variance XX
Cost factor

Cost of sales this year XX


Less: COS this year at last year’s cost (itemized for each product)
Product A (quantity TY @ LY’s cost) XX
Product B (quantity TY @ LY’s cost) XX XX
Unfavorable (favorable) variance XX
Quantity factor
Total quantity sold this year XX
Less: Total quantity sold last year XX
Increase (decrease) in quantity sold XX
Multiply: Average gross profit per unit last year XX
Favorable (unfavorable) variance XX

OR
Units sold this year @ LY’s ave GP/u XX
Less: Last year’s gross profit XX
Favorable (unfavorable) variance XX

  𝑇𝑜𝑡𝑎𝑙 𝑔𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡


𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑔𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡=
𝑇𝑜𝑡𝑎𝑙 𝑢𝑛𝑖𝑡𝑠 𝑠𝑜𝑙𝑑
Sales mix factor
Average gross profit this year @ last year’s gross profit XX
Less: Average gross profit per unit last year XX
Difference XX
Multiply: Units sold this year XX
Favorable (unfavorable) variance XX

OR

Units sold this year @ LY’s GP (itemized)


Product A (quantity TY @ LY’s gross profit XX
Product B (quantity TY @ LY’s gross profit XX XX
Less: Units sold this year @ LY’s ave GP/u XX
Favorable (unfavorable) variance XX
• Example 1

Product UnitsSP/u Cost GP/ Sales COS GP


/u u
A 400 90 60 30 36,000 24,000 12,000
2017 B 700 40 30 10 28,000 21,000 7,000
C 600 70 35 35 42,000 21,000 21,000
Total 1,700 106,000 66,000 40,000

A 500 80 50 30 40,000 25,000 15,000


2018 B 1,000 50 25 25 50,000 25,000 25,000
C 800 60 40 20 48,000 32,000 16,000
Total 2,300 138,000 82,000 56,000

Variance 600 32,000 16,000 16,000


• Example 2

2017 Red Blue Yellow Total


Sales 12,000 2,400 12,800 27,200
COS 9,600 1,800 11,200 22,600
GP 2,400 600 1,600 4,600
Units 600 200 800 1600

2018
Sales 19,200 1,600 14,400 35,200
COS 14,400 1,280 12,000 27,680
GP 4,800 320 2,400 7,520
Units 800 160 800 1,760
EARNINGS PER
SHARE
Basic EPS
•  For companies without preference shares

• For companies with preference shares


Diluted EPS
• 
• Potential diluters:
• Convertible preference shares
• Convertible bonds
• Share options
• Stock warrants
• Example 1
Phi Co. declared a net income of P1,500,000 for the
year 2018. Their share capital is composed of 6%
preference shares of P3,000,000 and P15 par
ordinary shares of P2,376,000. The company also has
outstanding convertible bonds amounting to
P400,000. Each P1,000 bond can be converted into
50 ordinary shares. Additionally, the company issued
share options to its employees that allows the
employees to acquire 10,000 of the company’s
ordinary shares.
What is the company’s basic and diluted EPS?

GROSS PROFIT VARIATION ANALYSIS FOR MULTIPLE PRODUCTS
GPVA for multiple products • Gross profit for multiple products are analyzed in to 4 factors • Price factor • Cost factor •
Price factor Sales this year XX Less: Sales this year at last year’s price (itemized for each product) Product A (quantity TY
Cost factor Cost of sales this year XX Less: COS this year at last year’s cost (itemized for each product) Product A (quantit
Quantity factor Total quantity sold this year XX Less: Total quantity sold last year XX Increase (decrease) in quantity sold
Sales mix factor Average gross profit this year @ last year’s gross profit XX Less: Average gross profit per unit last year X
• Example 1 Product Units SP/u Cost /u GP/ u Sales COS GP A 400 90 60 30 36,000 24,000 12,000 2017 B 700 40 30 10 28,000 21,0
• Example 2 2017 Red Blue Yellow Total Sales 12,000 2,400 12,800 27,200 COS 9,600 1,800 11,200 22,600 GP 2,400 600 1,600 4,60
EARNINGS PER SHARE
Basic EPS • For companies without preference shares • For companies with preference shares •  

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