Question

Using the budget information and sales figures provided about products.Choose one product or the overall total and write a brief description to explain the variance. 100–150 words

Budget

Product	Cost price	Sale price	Total budget sales last month		Total costs on sales	Gross profit budget last month		Profit % per item on sale price
			#	$		per item	on sales
A	$7.50	$12.00	500	$6,000	$3,750	$4.50	$2,250	38%
B	$9.25	$17.00	400	$6,800	$3,700	$7.75	$3,100	46%
C	$10.00	$30.00	300	$9,000	$3,000	$20.00	$6,000	67%
Total			1,200	$21,800	$10,450		$11,350

Sales

Product	Cost price	Sale price	Total sales last month		Total costs on sales	Gross profit last month		Profit % per item on sale price
			#	$		per item	on sales
A	$7.50	$12.00	650	$7,800	$4,875	$4.50	$2,925	38%
B	$9.25	$17.00	500	$8,500	$4,625	$7.75	$3,875	46%
C	$10.00	$30.00	200	$6,000	$2,000	$20.00	$4,000	67%
Total			1,350	$22,300	$11,500		$10,800

Product	Gross profit budget ($)	Gross profit actual ($)	Variance ($)
A	$2,250.00	$2,925.00	$675.00
B	$3,100.00	$3,875.00	$775.00
C	$6,600.00	$4,000.00	($2,000.00)
Total	$11,350.00	$10,800.00	($550.00)

Answer 1

The variance analysis is an important controlling tool. It compares actual results with the budgeted estimates. The causes of variance between actual and budgeted, if any are identified and measures to control them are initiated. Here, for all products the cause of variance is sales volume as actual and budgeted cost and sales price per unit are same. It is only the difference in sales volume which results into the variance. When the actual sales volume is higher than budgeted sales volume, the variance is favorable. When the actual sales volume is lower than the budgeted sales volume, the variance is unfavorable. For the product A and B gross profit variance is favorable as more units are sold than estimated. For the product C, gross profit variance is unfavorable as less units are sold than estimated.