Sales Mix Variance

What Is Sales Mix Variance?

Sales mix variance is the difference between a company's planned sales mix and the genuine sales mix. Sales mix is the extent of every product sold relative to total sales. Sales mix influences total company profits since certain products create higher profit margins than others. Sales mix variance incorporates every product line sold by the firm.

Understanding Sales Mix Variance

A variance is the difference among planned and genuine sums. Companies audit sales mix variances to recognize which products and product lines are performing great and which ones are not. It tells the "what" yet not the "why." subsequently, companies utilize the sales mix variance and other logical data before making changes. For instance, companies use profit margins (net pay/sales) to compare the profitability of various products.

Expect, for instance, that a hardware store sells a $100 trimmer and a $200 lawnmower and procures $20 per unit and $30 per unit, individually. The profit margin on the trimmer is 20% ($20/$100), while the lawnmower's profit margin is 15% ($30/$200). Albeit the lawnmower has a higher sales price and creates more revenue, the trimmer procures a higher profit for each dollar sold. The hardware store [budgets](/spending plan) for the units sold and the profit created for every product the business sells.

Sales mix variance is a valuable device in data analysis, however alone it may not give a complete image of why something is how it is (root source).

Illustration of Sales Mix Variances

Sales mix variance depends on this formula:
$\begin &\text = ( \text \times ( \text - \text ) ) \times \text \ &\textbf \ &\text = \text \ &\text = \text \ &\text = \text \ &\text = \text \ \end$
Investigating the sales mix variance assists a company with recognizing trends and consider the impact they on company profits.

Expect that a company expected to sell 600 units of Product An and 900 units of Product B. Its expected sales mix would be 40% A (600/1500) and 60% B (900/1,500). On the off chance that the company sold 1000 units of An and 2000 units of B, its real sales mix would have been 33.3% A (1,000/3,000) and 66.6% B (2,000/3,000). The firm can apply the expected sales mix rates to real sales; A would be 1,200 (3,000 x 0.4) and B would be 1,800 (3,000 x 0.6).

In view of the planned sales mix and real sales, A's sales are under expectations by 200 units (1,200 planned units - 1,000 sold). Notwithstanding, B's sales surpassed expectations by 200 units (1,800 planned units - 2,000 sold).

Expect likewise that the planned contribution margin per unit is $12 per unit for An and $18 for B. The sales mix variance for A = 1,000 real units sold * (33.3% genuine sales mix - 40% planned sales mix) * ($12 planned contribution margin per unit), or an ($804) unfavorable variance. For B, the sales mix variance = 2,000 genuine units sold * (66.6% real sales mix - 60% planned sales mix) * ($18 planned contribution margin per unit), or a $2,376 great variance.

Features

• The sales mix variance compares planned sales to genuine sales and recognizes the profitability of a product or product line.
• The sales mix compares the sales of a product to that of total sales.