Sales MIX AND Quantity Variances PDF

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SALES MIX AND QUANTITY VARIANCES If a company sells more than one product , it is possible to analyse the overall sales volume variance into a sales mix variance and a sales quantity variance. A sales mix variance and a sales quantity variance are only meaningful where management can control the proportions of the products sold. Situations where management may be able to control the sales mix are: (a) Where management can control the allocation of the advertising and sales promotion budget between different products (b) Where the same basic product is sold in different sizes or packaging, such as large size and small Size The sales mix variance occurs when the proportions of the various products sold are different from those in the budget. The sales quantity variance shows the difference in contribution/profit because of a change in sales volume from the budgeted volume of sales. EXAMPLE ABC Company budgeted sales of 10,000 units and the budgeted sales mix was 2:3 for products X and Y respectively. The actual sales of X and Y were 3,000 units and 10,000 units respectively. Sales prices were $5 and $9 respectively. The variable costs are 50% of the sales prices. Required: Calculate total sales volume, Sales mix and sales Quantity variance. (under marginal costing) Total Sales volume variances products

Std c/ unit

x y

0.5*5= 2.5 0.5* 9= 4.5

Budgeted sales units 2/5*10,000=4000 3/5*10,000=6000

Actual sales units 3000 10,000

variance 2.5* (4000-3000)= 4.5* (6000-10,000)= Total sales volume variance

2,500A 18000 F 15500 F

Note that variable costs are 50% of selling price thus even contribution is the remaining 50% of selling price. That’s the reason we are multiplying the selling price by 0.5 to get the std contribution per unit Sales mix variance products

Std c/ unit

x y

2.5 4.5

Actual sales mix units 3,000 10,000 13,000 (total)

Std sales mix in actual total sales =2/5*13000= 5200 3/5 *13000= 7800

variance 2.5* (3000-5200)= 4.5* (10,000-7800)= Sale mix variance

5,500A 9900 F 4400 F

Sales quantity variance = weighted average std contribution per unit *(Total actual sales units- total budgeted sales units) Total actual sales units = 13000 units (for all the products) Total budgeted sales units= 10,000 units (for all the products) Weighted average std contribution per unit can be calculated as follows

product x y

Std c/unit 2.5 4.5

Std mix ratio 2 3 Total mix= 5

Std mix contribution 2* 2.5 = 5 3 * 4.5 = 13.5 Total = 18.5

= 18.5 /5 = 3.7 Sales quantity variance = 3.7* (13000-10000) = 11,100 F (Favorable because the total actual sales units are more than the total budgeted sales unit).

You can try the comprehensive past paper question below from the June 2013 sitting...