Profit variance is the difference between the profits earned by a company in a year to the projected profit. Profit variance is considered to be best or positive if the actual profit surpasses the budgeted profit or expected profit. On a general basis, we have an idea that the aim of every business is to get good positive profit analysis. Profit analysis is dependent on sales volume, sales price and cost.
Profit analysis: the reason behind positive and negative analysis
There are many grounds for a company to have a positive or negative profit analysis.
- A different labour cost can derail the profit of an enterprise in a year. There are occasions in which the company is forced to shell out large changes in labour cost, and that will increase the overall cost of the enterprise. The company in certain cases may not be able to recover the cost by adding the increased labour cost to cost of finished goods. The reason is that because of high competition.
- Inflation may add to the price and bring down the profit. The government policies may also bring a change in the profit. Sometimes certain governments may remove the tariff charges involved in exporting, and that can bring a positive impact on the profit. There are cases in which government can issue curb on export that can bring down the profit of the company.
- The change in the tax policy can bring change in the fortunes of the company. There are occasions when government would increase the tax on raw material. That can change the final cost of the product. The chances are high that when product price increases, sales may dwindle leading to profit loss.
Types of profit variance
Gross profit variance is a type of profit variance. The gross profit variance will ensure or check the ability of a company to generate profit from sales and manufacturing. The variable and fixed production costs are also considered to find the gross profit variance.
Operating profit variance measures only the operations and would show the business core is functioning.
Net profit variance is the normally used profit variance, and this covers all the aspects well. If fixed costs are avoided, and if the profit variance is found out then that method is called contribution margin variance and would help in profit variance analysis.
Profit variance analysis is computed for single firms that produce a single product differently. There are some companies which give a different interpretation for comparing one profit analysis with another year.
A company that produces multi products will use another set of profit variance to find the real profit. The variance value will change when different products have different profit margins. The actual sales volume can also differ when compared with the budgeted figure. The total number of units sold may differ from the total aggregate value in a financial year.
The difference between expected revenue and the actual revenue is the revenue variance. This variance would throw out the real data of sales. Revenue variance shows the attractiveness of a company product to people and would give insights to company management to continue with high return products.
Many car manufacturers have discontinued various car models by inferring from revenue variance. The old models or the models that do not bring in the required revenue are discontinued. Online experts use these types of real life business examples in revenue and profit variance analysis homework answers. Such details are highly beneficial for the student asking help in their assignments.
Types of revenue variance
Sales volume variance throws out the data between actual and expected number of units sold or sales made during a year. This finds out the real number of units sold, and these types of variances are well explained with detail by online experts in revenue and profit variance analysis homework answers.
Selling price variance is a type of revenue variance when actual and budgeted unit price difference is multiplied by the actual number of units sold during a year. The price at which the consumer gets the product is a very important decision. Sometimes the company is forced to go for discounted sales due to intense competitions.
Sales mix variance is another important revenue variance that the financial student should know. The difference between the actual and budgeted unit price when multiplied by the actual number of units sold would make sales variance. The overall sales margin is found out in this method. Online experts well explain such type of complicated variances for Revenue and Profit Variance Analysis Homework Answers.
Why revenue variance occurs?
A rival company may come out with a product that is considered more superior to the company whose revenue variance is falling. The reason is that rival company has tapped the minds of consumers looking for a change and would improve their market share. This, in turn, would eat into the profit of the company.
Price changes by competitors would affect the revenue variance of a company. Industries like automobiles and sweet fizzy drinks companies do witness high price changes.
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