What Is Sales Mix Variance?

Sales mix variance is the difference between a company’s budgeted sales mix and the actual sales mix. Sales mix is the proportion of each product sold relative to total sales. Sales mix affects total company profits because some products generate higher 澳洲幸运5官方开奖结果体彩网:profit margins than others. Sales mix va♈riance includes each produc🎉t line sold by the firm.

Understanding Sales Mix Variance

A variance is the difference between budgeted and actual amounts. Companies review sales mix variances to identify which products and product lines are performing well and which ones are not. It tells the "what" but not the "why." As a result, companies use the sales mix variance and other analytical data before making changes. For example, companies use profit margins (net income/sales) to compare the 澳洲幸运5官方开奖结果体彩网:profitability of different products.

Assume, for example, that a hardware store sells a $100 trimmer and a $200 lawnmower and earns $20 per unit and $30 per unit, respectively. The profit margin on the trimmer is 20% ($20/$100), while the lawnmower’s profit margin is 15% ($30/$200). Although the lawnmower has a higher sales price and generates more revenue, the trimmer earns a higher profit per dollar sold. The hardware store budgets for the units sold ꧟and the profit generated for each product the business sells.

Example of Sales Mix Variances

澳洲幸运5官方🥀开奖结果体彩网: Sales mix variance is based on this formula:

 $\begin{aligned} &\text{SMV} = ( \text{AUS} \times ( \text{ASM} - \text{BSM} ) ) \times \text{BCMPU} \\ &\textbf{where:} \\ &\text{AUS} = \text{actual units sold} \\ &\text{ASM} = \text{actual sales mix percentage} \\ &\text{BSM} = \text{budgeted sales mix percentage} \\ &\text{BCMPU} = \text{budgeted contribution margin per unit} \\ \end{aligned}$​SMV=(AUS×(ASM−BSM))×BCMPUwhere:AUS=actual units soldASM=actual sales mix percentageBSM=budgeted sales mix percentageBCMPU=budgeted con🙈tribution𝕴 margin per unit​

Analyzing the sales mix variance helps a company detect trends 📖and consider the impact they on company profits.

Assume that a company expected to sell 600 units of Product A and 900 units of Product B. Its expected sales mix would be 40% A (600 / 1500) and 60% B (900 / 1,500). If the company sold 1000 units of A and 2000 units of B, its actual sales mix would have been 33.3% A (1,000 / 3,000) and 66.6% B (2,000 / 3,000). The firm canꦉ apply the expected sales mix percentages to actual sales; A would be 1,200 (3,000 x 0.4) and B would be 1,800 (3,000 x 0.6).

Based on the budgeted sales mix and actual sales, A’s sales are under expectations by 200 units (1,200 budgeted units - 1,000 sold). However, B's sales exceeded expectations by 200 units (1,800 budgeted units - 2,000 sold).

Assume also that the budgeted contribution margin per unit is $12 per unit for A and $18 for B. The sales mix variance for A = 1,000 actual units sold * (33.3% actual sales mix - 40% budgeted sales mix) * ($12 budgeted contribution margin per unit), or an ($804) unfavorable variance. For B, the sales mix variance = 2,000 actual units sold * (66.6% actual sales ♌mix - 60% budgeted sales mix) * ($18 budgeted contribution margin per unit), or a 🌠$2,376 favorable variance.