Sales Mix and Sales Mix Variance: Explanation, Formula, and Example

Variance Formula

Explanation: Sales Mix

Basically, the 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 due to changing the Sales Mix Ratio.

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

And how do changes 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% of product B. That means the Sales Mix of budget sales is 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 the actual Sales Mix is 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.

Management needs 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.
Related article  Sales Volume Variance: (Definition, Formula, Example, and Analysis)

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)

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