Electrical power passes through several transformers after generation through consumption. The final stage of any power system consists of many small-rating distribution transformers. Since the loads connected to these transformers vary with time, their effective design and operation with variable loading conditions are crucial for the system to operate efficiently and reliably. In most previous works, loads connected to these transformers are treated as constant power and stray losses of the transformers are neglected in the calculations. Neglecting the load variation and stray losses reduces the transformer life span noticeably and impairs grid quality and reliability. In this work, a small-rating distribution transformer is designed and analyzed analytically and numerically. Detailed procedures on the conventional design are presented with the general design issues. The effect of variable loading on the transformer’s power losses, efficiency, temperature rise, voltage regulation, and output voltage variation is analytically and numerically investigated. Results show that the rating and power factor of the load significantly influence the performance characteristics of the transformer.