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Variance report:
$ %
Actual results Budget Actual
Variance Variance

Sales $ 3,394,247 $ 3,371,200 $ -23,047 -0.7%

- Cost of goods sold $ 1,934,721 $ 1,955,296 $ 20,575 1.1%

Gross profit $ 1,459,526 $ 1,415,904 $ -43,622 -3.0%

Gross profit % 43% 42% -1% -2.3%


Expenses
- Accounting Fees $ 2,500 $ 2,500 $ - 0.0%

- Interest expense $ 21,127 $ 28,150 $ 7,023 33.2%

- Bank charges $ 400 $ 380 $ -20 -5.0%


- Depreciation $ 42,500 $ 42,500 $ - 0.0%
- Insurance $ 3,348 $ 3,348 $ - 0.0%
- Store supplies $ 750 $ 790 $ 40 5.3%

- Advertising $ 200,000 $ 150,000 $ -50,000 -25.0%

- Cleaning $ 3,256 $ 3,325 $ 69 2.1%


- Repairs & Maintenance $ 16,068 $ 16,150 $ 82 0.5%
- Rent $ 660,127 $ 660,127 $ - 0.0%
- Telephone $ 2,999 $ 3,100 $ 101 3.4%
- Electricity expense $ 5,356 $ 5,245 $ -111 -2.1%
- Luxury car tax $ 12,000 $ 12,000 $ - 0.0%
- Fringe benefits tax $ 7,000 $ 7,000 $ - 0.0%
- Superannuation $ 37,404 $ 37,404 $ - 0.0%
- Wages & Salaries $ 415,600 $ 410,500 $ -5,100 -1.2%

- Payroll tax $ 19,741 $ 19,741 $ - 0.0%


- Workers' compensation $ 8,312 $ 8,312 $ - 0.0%
Total Expenses $ 1,458,488 $ 1,410,572 $ -47,916 -3.3%

Net profit (Before tax) $ 1,038 $ 5,332 $ 4,294 413.7%

Income Tax $ 311 $ 1,600 $ 1,289 414.5%

Net profit $ 727 $ 3,732 $ 3,005 413.3%


F or U

U
U

U
F
F

F
Issues and recommendations

For variance analysis, it is clearly evident that there is decline in sales by $ 23,047 or 0.7% of the
budgeted sales. The reason is that the economy is still in recession. Also, sales has an adverse varian
because of huge discounts were given to generate these sales. As the sales are gradually picking up
this should not be a problem in the next quarter. Company should spend on advertising as budgeted
rather than giving discounts to generate sales.
We can see that the cost of goods sold has an adverse variance which is not a good sign for the
Company.
Gross profit has a negative variance which is a result of increaed cost of goods sold as well as decreas
sales. Company will spend the surplus advertising budget of this quarter in comping quarters which w
help in increaseing sales as well as decreasing discount costs which will result in better gross profits f
the Company.
This is nothing but the gross profit in % terms. This will move in accordance with gross profit.

No variance
The interest expense has a huge adverse or unfavourable variance. This is because banks have starte
raising the interest rate inline with the international pressure which is adversely affecting Company'
interest expense budget. However, as the Company is planning to apply its surplus profit in repaying
the debts, it will help in reducing theinterest cost in future. Also, Company needs to work on its debto
front as we can see a big amount of $ 1,55,750 are overdue. The same needs to be followed up mor
rigorously which will result in improved cash flow and as a result of which interest expense will go dow
in future.
There is no significant variance. As the Company will start repaying its debt in future out of the
accumulated profit, this cost will come down.
No variance
No variance
This has a small unfavourable variance which might be because of some additional use of suuplies.

This has a positive variance because the Company could not get into some of thenational magazine
this quarter to promote various store offers. This was clearly visible as a result in decreasing sales in
spite of huge dicounts being offered to customers. Company is planning to spend this surplus budget
coming quarter which will help in increasing sales and decreasing the huge discount cost.

This has a small unfavourable variance which can be ignored based on materiality.
This has a small unfavourable variance which can be ignored based on materiality.
No variance
This has a small unfavourable variance which can be ignored based on materiality.
This has a small favourable variance.
No variance
No variance
No variance
Wages and salaries has a positive variance. This is in spite of the fact that industry average for wage
and salaries is 11% of sales whereas here the wages salaries cost is about 12.2% of sales. Though
wages and salaries are showing a positive variance, this is because of the fact that the budget itself
defined higher by 1.2% of sales as compare to industry benchmark. Hence, it seems that the Compan
needs to revisit its budgeted figures and revise accoring to industry benchmark of 11% of sales.

No variance
No variance
Total expenses have come down because of the fact that there is a big saving in advertising cost.
Profit has gone up because of the fact that the overall expenses came down as Company did not spen
as per the advertising budget. This resulted in excess discounts being passed on to customers leadin
to lower profits.
Income tax expense has gone up as profit gone up. This is an uncontrollable factor which the Compan
can not control and will move according to Company's profit in each quarter.
This is the final result of all the above activities and it has a positive variance as profit gone up. This w
automatically be controlled if the above activities are controlled.