PROFIT RECONCILIATION STATEMENT • PROFIT RECONCILIATION STATEMENT IS USED TO SUM UP ALL VARIANCES • IT CAN HELP THE TOP MANAGEMENT TO EXPLAIN THE MAJOR REASONS FOR THE DIFFERENCE BETWEEN BUDGETED AND ACTUAL PROFITS
• THE SALES MARGIN VARIANCE AND FIXED OVERHEADS VARIANCE ARE DIFFERENT BETWEEN ABSORPTION AND MARGINAL COSTING SYSTEM
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PROFIT RECONCILIATION STATEMENT • PROFIT RECONCILIATION STATEMENT IS USED TO SUM UP ALL VARIANCES • IT CAN HELP THE TOP MANAGEMENT TO EXPLAIN THE MAJOR REASONS FOR THE DIFFERENCE BETWEEN BUDGETED AND ACTUAL PROFITS
• THE SALES MARGIN VARIANCE AND FIXED OVERHEADS VARIANCE ARE DIFFERENT BETWEEN ABSORPTION AND MARGINAL COSTING SYSTEM
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Profit Reconciliation Statement $ Budgeted profit Sales variances Sales margin price 8000 F Sales margin volume 3400 A Materials cost variance Materials price 480 A Material usage 2400 F Labour cost variance Labour rate 3200 A Labour efficiency 4000 A Variable overhead variance VO Expenditure 900 F VO Efficiency 1600 A Fixed overhead expenditure variance
$
$ 14000
4600 F
1920 F
7200 A
700 A 400F
Actual profit
980 A 13020
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Profit Reconciliation Statement Budgeted profit Sales variances Sales margin price Sales margin volume Materials cost variance Materials price Material usage Labour cost variance Labour rate Labour efficiency Variable overhead variance VO Expenditure VO Efficiency Fixed overhead variance FO expenditure FO Volume
14000
8000 F 2800 A
5200 F
480 A 2400 F
1920 F
3200 A 4000 A
7200 A
900 F 1600 A
700 A 400F 600 A
Actual profit
200 A
980 A 13020
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REASONS FOR VARIANCES SALES MARGIN PRICE VARIANCE
• • • •
CHANGE IN THE PRICING STRATEGIES OF THE COMPANY RESPONSE TO THE CHANGE OF PRICING POLICIES OF ITS COMPETITORS HIGHER PROFIT MARGIN WITH GROWING DEMAND FOR THE PRODUCT LOWER PROFIT MARGIN FOR SIMULATING SALES
SALES MARGIN VOLUME VARIANCE
• •
CHANGE IN PRICES AND DEMAND
CHANGE IN THE MARKET SHARE OF ITS COMPETITORS
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THANK YOU
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