Sales-Mix Variance

The Sales-mix variance is the difference between (1) the budgeted contribution margin for the actual sales mix and (2) the budgeted contribution margin for the budgeted sales mix. The formula and computations (using data from section Sales Variances) are as follows:

A table shows formula and computations for the sales-mix variance
The table depicts actual units of all Provalues sold times the quantity actual sales-mix percentage minus budgeted sales-mix percentage times budgeted contribution margin per unit equals sales-mix variance. The details of the table are as follows:
  1. Wholesale
    • Actual units of all Provalues sold: 150,000 units
    • Times
    • The quantity actual sales-mix percentage minus budgeted sales-mix percentage: 0.66667 minus 0.60
    • Times
    • Budgeted contribution margin per unit: 225 dollars per unit
    • Equals
    • Sales-mix variance: 2,250,000 dollars F
  2. Business-sales
    • Actual units of all Provalues sold: 150,000 units
    • Times
    • The quantity actual sales-mix percentage minus budgeted sales-mix percentage: 0.33333 minus 0.40
    • Times
    • Budgeted contribution margin per unit: 275 dollars per unit
    • Equals
    • Sales-mix variance: 2,750,000 dollars U
  3. Total sales-mix variance: 500,000 dollars U

A favorable sales-mix variance arises for the wholesale channel because the 66.67% actual sales-mix percentage exceeds the 60% budgeted sales-mix percentage. In contrast, the ­business-sales channel has an unfavorable variance because the 33.33% actual sales-mix percentage is less than the 40% budgeted sales-mix percentage. The total sales-mix variance is unfavorable because the actual sales mix shifted toward the less profitable wholesale channel relative to the budgeted sales mix.

The concept underlying the sales-mix variance is best explained in terms of composite units. A composite unit is a hypothetical unit with weights based on the mix of individual units. Given the budgeted sales for 2019, the composite unit consists of 0.60 units of sales to the wholesale channel and 0.40 units of sales to the business-sales channel. Therefore, the budgeted contribution margin per composite unit for the budgeted sales mix is as follows:

0.60×$225+0.04×275=245*

*Budgeted contribution margin per composite unit can be computed in another way by dividing total budgeted contribution margin of $37,975,000 by total budgeted units of 155,000 (page 616): $37,975,000/155,000 units=$245 per unit.

Similarly, for the actual sales mix, the composite unit consists of 0.66667 units of sales to the wholesale channel and 0.33333 units of sales to the business-sales channel. The budgeted contribution margin per composite unit for the actual sales mix is therefore

0.66667 × $ 225 + 0.33333 × $ 275 = $ 241.6667

The impact of the shift in sales mix is now evident. The Provalue Division obtains a lower budgeted contribution margin per composite unit of $3.3333 ($245−$241.6667) For the 150,000 units actually sold, this decrease translates to a $500,000 U sales-mix variance ($3.3333 per unit×150,000 units).

Managers should probe why the $500,000 U sales-mix variance occurred in 2019. Is the shift in sales mix because profitable business customers proved to be more difficult to find? Is it because of a competitor in the business-sales channel providing better service at a lower price? Or is it because the initial sales-volume estimates were made without adequate analysis of the potential market?

Exhibit 15-12 uses the columnar format to calculate the sales-mix variance and the sales-quantity variances.

Exhibit 15-12

Sales-Mix and Sales-Quantity Variance Analysis of Provalue Division for 2019

Table shows the sales-mix and sales-quantity variance analysis of Provalue Division for 2019.

Details of wholesale channel, business sales channel and all Provalues are as follows:

(A) Panel A: Wholesale channel

1. Flexible budget is given actual units of all Provalues sold times actual sales mix times budgeted contribution margin per unit: $22,500,000 (product of 150,000, 0.6667, and $225)

2. Actual units of all Provalues sold times budgeted sales mix times budgeted contribution margin per unit: $20,250,000 (product of 150,000, 0.60, and $225)

3. Static budget is given by budgeted units of all Provalues sold times budgeted sales mix times budgeted contribution margin per unit: $20,925,000 (product of 155,000, 0.60, and $225)

Level 3

• Sales-mix variance: $2,250,000 Favorable is the difference of above (1) and (2).

• Sales-quantity variance: $675,000 Unfavorable is the difference of above (2) and (3).

Level 2 

• Sales-volume variance: $1,575,000 Favorable is the difference of above (1) and (3).

(B) Panel B: Business-sales channel

1. Flexible budget is given actual units of all Provalues sold times actual sales mix times budgeted contribution margin per unit: $13,750,000 (product of 150,000, 0.3333, and $275)

2. Actual units of all Provalues sold times budgeted sales mix times budgeted contribution margin per unit: $16,500,000 (product of 150,000, 0.40, and $275)

3. Static budget is given by budgeted units of all Provalues sold times budgeted sales mix times budgeted contribution margin per unit: $17,050,000 (product of 155,000, 0.40, and $275)

Level 3

• Sales-mix variance: $2,750,000 Unfavorable is the difference of above (1) and (2).

• Sales-quantity variance: $550,000 Unfavorable is the difference of above (2) and (3).

Level 2

• Sales-volume variance: $3,300,000 Unfavorable is the difference of above (1) and (3).

(C) Panel C: All Provalues

1. Flexible budget is given actual units of all Provalue sold times actual sales mix times budgeted contribution margin per unit: $36,250,000

2. Actual units of all Provalue sold times budgeted sales mix times budgeted contribution margin per unit: $36,750,000

3. Static budget is given by budgeted units of all Provalues sold times budgeted sales mix times budgeted contribution margin per unit: $37,975,000

Level 3

• Total sales-mix variance: $500,000 Unfavorable is the difference of above (1) and (2).

• Total sales-quantity variance: $1,225,000 Unfavorable is the difference of above (2) and (3).

Level 2

• Total sales-volume variance: $1,725,000 Unfavorable is the difference of above (1) and (3).