Question

Comfort Textiles is engaged in the production and sale of two products-towels and socks. In
the previous period a total of 6,220 units were sold (3,300 units of towels and the remaining for
socks). In the current period, total sales (in units) has increased by 370 units (3,950 units of
socks and the remaining for towels).
Firm’s accounting records provide that following cost and revenue information for the two
periods.

Period-1 (Previous) Period-2 (Current)
Unit Cost Unit Sale Price Unit Cost Unit Sale Price
Towels 210 350 230 380
Socks 140 200 160 220
The sales manager is confused that despite an increase in both, total units sold and the sales
price, gross profit has decreased in the current period. You are required to solve his puzzle by
working on the following lines.
Required:
a) Reflect information as to revenue, cost and gross profit (along with changes therein) for
each year and each product in a simplest form.
b) An analysis of the change in gross profit, indicating various factors causing the profit to
increase or decrease.
c) A proof of the variances calculated in part (b).

Answer 1

Analysis of Change in Gross Profits
	Period 1	Period 2	Increase / Decrease
	Towels	Socks	Towels	Socks	Towels	Socks
Units Sold	3,300	2,920	3,950	2,640	650	-280
Sale Price	350	200	380	220	30	20
Revenue	11,55,000	5,84,000	15,01,000	5,80,800	3,46,000	-3,200
Cost of Unit	210	140	230	160	20	20
Cost of Sales	6,93,000	4,08,800	9,08,500	4,22,400	2,15,500	13,600
Gross Profit	4,62,000	1,75,200	5,92,500	1,58,400	1,30,500	-16,800
Total		6,37,200		7,50,900		1,13,700
As we can see from above table Gross Profit of Towels is increased because selling price is increased as compared to Period 1 also no of units sold is increased whereas reason of reduction of gross profit of Socks is decreasing no of units sold also there is not net increase in gross profits because Sale price is increasing by 20 Per unit at the same time cost is also increasing by 20 Per unit.