The sales mix variance measures the difference in unit volumes in the actual sales mix from the planned sales mix. There is almost always a difference between planned and actual sales, so the sales mix variance is quite useful as a tool for learning about where sales varied from expectations. The following steps show how to calculate it at the individual product level:
- Subtract budgeted unit volume from actual unit volume and multiply by the standard contribution margin. Contribution margin is revenue minus all variable expenses.
- Do the same for each of the products sold.
- Aggregate this information to arrive at the sales mix variance for the organization.
The formula is:
(Actual unit sales – Budgeted unit sales) × Budgeted contribution margin
= Sales mix variance
For example, a company expects to sell 100 platinum harmonicas, which have a contribution margin of $12 per unit, but actually sells only 80 units. Also, the company expects to sell 400 stainless steel harmonicas, which have a contribution margin of $6, but actually sells 500 units. The sales mix variance is:
Platinum harmonica: (80 actual units – 100 budgeted units) × $12 contribution margin = -$240
Stainless steel harmonica: (500 actual units – 400 budgeted units) × $6 contribution margin = $600
Thus, the aggregated sales mix variance is $360, which reflects a large increase in the sales volume of a product having a lower contribution margin, combined with a decline in sales for a product that has a higher contribution margin.