Sales mix and quantity variances

When calculating sales variances as part of variance analysis, one issue that arises is when a company sells more than one product. Two possible scenarios can occur:

• If customers are unlikely to buy one product instead of another from the same company, then separate sales volume variances can be calculated
• If, on the other hand, customers might substitute one product for another, then the concept of sales mix is important and separate sales volume variances can be replaced by a  combined sales mix variance.

Calculation

Sales variances can be explained as follows :

(1)  Sales price variances are calculated by comparing the actual selling price per unit and the budgeted selling price per unit;each price variance is multiplied by the number of units for each type of product.

(2)  A sales volume variance is the difference between the actual number of units sold, and the budgeted number. Each difference is multiplied by the budgeted profit per unit. Sales volume in turns splits into a sales mix variance and a sales quantity variance.

(3)  A sales mix variance indicates the effect on profit of changing the mix of actual sales from the standard mix. A Sales Mix variance can be calculated in one of two ways :

(a)  The difference between the actual total quantity sold in the standard mix and the actual quantities sold, valued at the standard profit per unit;

(b)  The difference between the actual sales and budgeted sales, valued at the standard profit per unit less the budgeted weighted average profit per unit.

(4) A sales quantity variance indicates the effect on profit of selling a different total quantity from the budgeted total quantity. Like the mix variance, it can be calculated in one of two ways :

(a) The difference between actual sales volume in the standard mix and budgeted sales valued at the standard profit per unit.

(b) The difference between actual sales volume and budgeted sales valued at the weighted average profit per unit.

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