Projected

Sales
Cost of Goods Sold
Gross Profit
Selling & Admin. Exp.
Net Income

Actual

13,000.00
8,197.00
(6,342.23)
(5,346.10)
6,657.77
2,850.90
(4,911.07)
(2412.83)
1,746.10
438.07
ICE WONDERS COMPANY

%change of actually
meeting the
projections for the
month
(Actual/projected)
63.05%
84.29%
42.82%
49.13%
25.09%

Income Statement
For the month ending July

Common size percentages:

Projected
100%
51.21%
48.79%
37.78%
11.01%

Sales
Cost of Goods Sold
Gross Profit
Selling & Admin. Exp.
Net Income

Actual
100%
65.22%
34.78%
29.43%
5.35%

Problems encountered:
The results above only show the percentage (%) of actually meeting the projected sale for the
month, projections as base period)
1. The projections for the months sales were not met as compared to the actual results.
Sales were relatively low, only 63.05% of the projected sales were met.
2. Cost of goods sold (inclusive of the direct materials, direct labor and factory overheads) is
relatively higher (84.29%) than expected which is not good because sale was only
63.05% of the projected.
The common size percentage in the above table shows the percentages of other accounts as
to sales.

Projected

Actual

Gross Profit Margin:

(gross profit/sales)

6,657.77 / 13,000.00 = 51.21%

Net Profit Margin:

(net profit/sales)

1,746.10 / 13,000.00 = 13.43%

2,850.10 /8,107.00= 34.78%

438.07 / 8,197.00 = 5.34%

Gross profit margin (GPM) shows the overall profitability of the company. Higher value indicates
favorable condition because more of profit will be available to cover for non-production cost.
Since GPM indicates the efficiency of operation, it shows that the company didnt do quite well
for the first month base on the projected sales. This is evident on the decline from 51.21% to
34.78% of the GPM from the projected to actual result comparison. This is also similar to the
decline in the Net Profit Margin indicating the companys profitability after taking account all
expenses. The decrease from 13.43% to 5.34% means the projected expenses were actually
higher than expected. Sale for the month was very low.

Causes of the problem:

1. 1. An increase in the COGS from 51.21% to 65.22% is not good because it indicates that
actual direct materials and factory overhead were higher than projected thus reducing the
gross profit from 48.79% to 34.78%, affecting the costs to cover for non-production costs
in the operations thereby decreasing the Net income to 5.35% from 11.01% of the
projected.
2. There was inefficiency in the use of materials for production. Sale for the month is very
low.
Proposed solution:
Maximize the use of materials for the production. Increase net income by increasing the
quantity of shake floats sold every day. Selling and admin expense were actually lower than
projected which is good because expenses were minimized. We can maintain this low % of
selling and administrative expense and make sure that we will reach our everyday quota of
shakes sold so we can make up for the expenses on operations.
There were numerous days of no class because of holidays and midterm exam days so the
company had to suspend operations for a couple of times which was actually not foreseen
on the projections for the month and the managers decided to closely consider these days
of suspended operations because it will definitely affect the companys sales.
Since it is the first month of operation, the company could improve on marketing the product
and also in the production to increase sales.