## Explanation: Sales Mix

Basically, Sales Mix is the ratio of each product that contributed to the total sales. The concept behind Sales Mix is to assess the changing of profit as the result of changing the Sales Mix Ratio.

Management of the entity needs to understand how much the sales of each product that contribute to the breakeven points of the entity.

And how does changing in sales performance could affect total breakeven? That is the reason why controlling sales mix mater.

Let me clarify this. For example, the total sales budget for 2015 is 200,000 Units. And this comes from 60% of products A and 40% product B. That means Sales Mix of budget sales are 60% and 40%. The changing Sales Mix could lead to changing in profit.

For example, the profit for product A is higher than product B. And the actual sales are 180,000 units while actual Sales Mix are Product A got 40% and product B is 60%.

This changing Sales Mix will lead to a decrease in profit in 2015. We will discuss later in the sales mix variance.

## Explanation: Sales Mix Variance

Sales Mix Variance basically the changing between the budgets Sales Mix and the actual Sales Mixed at the Standard Price. The concept of Sales Mix or Sales Mix Analysis has come from Sale Mix Variance.

It is very important for management to manage the contribution of the company. To calculate this, you need to know budgets sales mixed, actual sales mix and standard prices of each product.

The Formula of Sales Mix Variance

Sales Mix variance Per Product = (Actual Sales Mix Ratio – Budget Sales Mix Ratio) * Actual Units Sold * Budget Contribution Margin Per Product

• The actual Sales Mix Ratio is the ratio of the actual contribution of each product to total sales as the result of actual sales during the period. To get this ratio, we need to take the actual sales and perform recalculation.
• Budget Sales Mix Ratio is normally the annual budget of each product that contributes to total sales during the period.

## Example:

For example, the standard prices of product A about is 5\$ and Product B is 10\$

• Sales Mix Variance for product A = 180,000 Units * (40% – 60%) * 5 = – 180,000\$
• Sales Mix Variance for product B = 180,000 Units * (60% – 40%) * 10 = 360,000\$
• Total effect of Sales Mix Variance = 180,000\$ ( \$360,000 – \$180,000)

## Sales Volume Variance Definition

Basically, Sales Volume Variance measures the sales performance as the result of differences between actual products sold during the period compared to budget at the standard price, standard profit or standard contribution.

This variance is quite important as it helps management to assess how volume variance adversely affects the performance of the company.

We use standard price if we want to assess how the variance affect total sales are.

We use standard profit if we want to assess how the variance affects total profit are, where the marginal cost is using. The standard contribution is used when the marginal cost is using.

## Sales Volume Variance Formula

In general, the formula of Sales Volume Variance is

Sales Volume Variance = (Actual units sold – Budgeted units sold) x standard price per unit

Here is the list of Variance Formula you may looking for, Variance Formula

This formula will provide us with the total effect on Total Sales. However, if we want to know how the sales variance affects the profit, we use standard profit (absorption costing) or standard contribution marginal costing).

So, in order to calculate Sales Volume Variance, what you need to know are:

• Actual Units Sold: This is the actual sales performance during the period.
• Budgeted Units Sold: The budget set by top management or board of directors for sale departments or the holding company.
• Standard Price: the standard price calculates by a specific product.

Noted: The calculation should be done product-by-product for a higher level of accuracy.

## Sales Volume Variance Example

Here is the easy example, and it only gives you some basic to reflect the formula and definition about only. In real cases, it is expected to be more difficult.

For example, ABC Company has annual budget sales volume for product A-amount of 100,000 units.

The standard price for this product is \$30 per unit. You are the performance management accountant, and you are requested to calculate Sales Volume Variance of product A. Actual Sale for this product is 90,000 unit

Based on formula

• Sales volume variance = (Actual units sold – Budgeted units sold) x standard price per unit
• Actual Unit Sold = 90,000 units
• Budgeted Unit Sold = 100,000 Units
• Standard Price per unit = \$30

Therefore, Sales Volume Variance for product A is (90,000 – 100,000) * 30 = \$ 300,000 (Unfavorable variance). In this case, the Sales Volume Variance is unfavourable as the actual sales volume is lower than its budget.

It means that the sales performance of product A is not good. Further investigation probably requires to make sure the performance is justified.

## List of 15 Variance Analysis and Variance Formula

Variance Analysis is very important as it helps the management of an entity to control its operational performance and control direct material, direct labor, and many other resources.

The following are the list of 15 Variance Formula along with detail of Variance Analysis for your reference.

Each variance listed below has a clear explanation, formula, example, and definition to help you get better to understand both for your example and practice.

## List of Variance Formula:

### Sales Volume Variance:

Sales Volume Variance is the difference between actual sales in quantity and its budget at the standard profit per unit.

This variance help management to assess the effect of entity profit as the result of differences between the target sales in the unit and actual sales at the end of the period.

Sales Volume Variance normally measure in monetary term (USD), not in the unit. One is Sales Mixed Variance and another is Quantity Variance. See the picture below for detail:

Here is the Sales Volume Variance Formula,

Sales Volume Variance = (Actual Sales at Actual Mix – Budget Sales at Standard Mix) X Contribution Per Unit

### Sales Mix Variance:

Sales Mix Variance is basically the difference between the entity’s Standard Sales Mix and its Actual Sales Mix. But, what is Sales Mix?

Well, Sales Mix is simply meant the proportion of each product to the total product. For example, assuming that Apple has four products: MacBook, iPhone, iPod, and IPad.

In 2017, Apple has budget sales for the amount of its product USD 100 Million. The proportion of this sale from every four products is MacBook 40%, iPhone 40%, IPod 10%, and IPad 10%. Well, you can break it down into the unit if you like.

So, that is the Sales Mix. and the Sales Mixed Variance of Apple is the difference between the above budget and actual sales during the period.

Here is the Sales Mix Variance Formula:

Sales Mix Variance Formula = (Actual Sales at Actual Mix  –  Actual Sales at Standard Mix) X Contribution Per Unit

Easy right?

### Sales Quantity Variance:

Variance Formula:

If Marginal Costing is used,

Sales Quantity Variance Formula = (Actual Sales at Standard Mix – Budget Sales at Standard Mix) X Contribution Per Unit

Different between Sales Volume Variance  and Sales Quantity Variance is:

• Sales Quantity Variance compare Actual Sales at Standard Mix and Budget Sales at Standard Mix and,
• Sales Volume Variance compare Actual Sales at Actual Mix and Budget Sales at Standard Mix

Sale Volume Variance measures the high-level different while Sale Quantity Variance measure low-level variance. See the picture above.

No more confusing, okay?

### Sales Price Variance:

Sales price variance measures the effect of profit from the actual price at the actual unit sold with the standard price at the actual unit.

Assuming Apple has the standard price for iPhone 7 Plus per unit \$800 and during the year, the actual price that is obtained from customers is \$850 per unit. So what is the Sales Price Variance of iPhone 7 Plus? During the year, 700 Units sold.

Variance Formula:

Sales Price Variance = Actual Sales Revenue – Actual Sales at Standard Price

Sales Price Variance of iPhone 7 Plus = USD 595,000 – USD 560,000 = USD 35,000

### Direct Material Price Variance:

Direct material Price Variance help management to measure the effect of the price of raw material that entity purchase during the period and its standard price.

This direct material price variance normally affects the price that the entity paid to its suppliers rather than the way how an entity uses raw material in the production.

This variance assesses the economy rather than the efficiency of the way an entity using its resources.

Variance Formula:

Direct Material Price Variance = (Actual Quality X Actual Price) – (Actual Quantity X Standard Price)

or ( Actual Price – Standard Price) X Actual Quantity

### Direct Material Usage Variance:

Direct Material Usage Variance measure how efficiently the entity’s direct materials are using. This variance compares the standard quantity or budget quantity with the actual quantity of direct material at the standard price.

If the actual quantity of direct materials is higher than the standard once, the variance is unfavorable.

Here is the Variance Formula:

Direct Material Usage Variance = (Actual Quantity X Standard Price) – (Standard Quantity X Standard Price)

I think this variance is quite straight forward and no need to have an example. But, if you have any questions related to this variance, drop it below.

### Direct Material Mix Variance:

Direct Material Mix Variance measures the cost of direct material in the productions.

This ratio compares the Actual Mix quantity of direct material with standard mix quantity of direct material at a standard price. For example, a product required material at standard mix as follow:

• Material a = 10 Units and Price 10 \$ Per Unit
• Material b = 20 Units and Price 10 \$ Per Unit
• Material c = 30 Units and Price 10 \$ Per Unit

Then, the actual material used is:

• Material a = 15 Units
• Material b = 20 Units
• Material c = 35 Units

What is Direct Material Mix Variance?

Variance Formula:

Direct Material Mix Variance = (Actual Mix Quantity X Standard Price) – Standard Mix Quantity X Standard Price

The variance will be

• 15 – 10 = 5
• 20 – 20 = 0
• 35 – 30 = 5

Total Variance is 10 X 10 = 100 \$

### Direct Material Yield Variance:

Variance Formula:

Direct Material Mix Variance = (Actual Quantity X Standard Price) – (Standard Mix Quantity X Standard Price)

### Direct Labor Rate Variance:

Variance Formula:

Direct Labor Rate Variance = (Actual Quantity X Actual Rate) – Actual Quantity Rate

### Direct Labor Efficiency Variance:

Variance Formula:

Direct Labor Effciency Variance = (Actual Hours X Standard Rate) – Standard Hours X Standard Rate

### Direct Labor Idle Time Variance:

Variance Formula:

Direct Labor Idle Time Variance = Number of Idle Time Hours of the Labor X Standard Labor Rate Per Hour

Variance Formula:

Idle Time Variance = Number of Idle Time X Standard Labor Rate

Variance Formula:

Variable Overhead Efficiency Variance = (Standard Hours X Standard Variance Overhead Rate Per Hour) – ( Actual Hours X Standard Variable Overhead Per Hour