Cost Accounting (14th Edition)

SALES VARIANCES 521
managers can gain substantial insight into the sales-volume variance by subdividing it into
the sales-mix variance and the sales-quantity variance.
Sales-Mix Variance
The sales-mix variance is the difference between (1) budgeted contribution margin for the
actual sales mix and (2) budgeted contribution margin for the budgeted sales mix. The
formula and computations (using data from p. 519) are as follows:
Budgeted
Actual Units
Actual Budgeted
Contribution
of All £ Sales - Mix - Sales - Mix≥
Margin Sales-Mix
Products Sold : Percentage Percentage : per Unit Variance
Wholesale 900,000 units * (0.84 – 0.80) * $0.49 per unit = $17,640 F
Retail 900,000 units * (0.16 – 0.20) * $0.98 per unit = ƒ35,280 U
Total sales-mix variance
$17,640 U
A favorable sales-mix variance arises for the wholesale channel because the 84% actual
sales-mix percentage exceeds the 80% budgeted sales-mix percentage. In contrast, the
retail channel has an unfavorable variance because the 16% actual sales-mix percentage is
less than the 20% budgeted sales-mix percentage. The sales-mix variance is unfavorable
because actual sales mix shifted toward the less-profitable wholesale channel relative to
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 June 2012, the composite unit consists of
0.80 units of sales to the wholesale channel and 0.20 units of sales to the retail channel.
Therefore, the budgeted contribution margin per composite unit for the budgeted sales
mix is as follows:
(0.80) * ($0.49) + (0.20) * ($0.98) = $0.5880.
8
Similarly, for the actual sales mix, the composite unit consists of 0.84 units of sales to the
wholesale channel and 0.16 units of sales to the retail channel. The budgeted contribution
margin per composite unit for the actual sales mix is therefore as follows:
(0.84) * ($0.49) + (0.16) * ($0.98) = $0.5684.
The impact of the shift in sales mix is now evident. Spring obtains a lower budgeted contribution
margin per composite unit of $0.0196 ($0.5880 – $0.5684). For the 900,000 units
actually sold, this decrease translates to a $17,640 U sales-mix variance ($0.0196 per
unit * 900,000 units).
Managers should probe why the $17,640 U sales-mix variance occurred in June
2012. Is the shift in sales mix because, as the analysis in the previous section showed,
profitable retail customers proved to be more difficult to find? Is it because of a competitor
in the retail 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 14-10 uses the columnar format to calculate the sales-mix variance and the
sales-quantity variances.
Sales-Quantity Variance
The sales-quantity variance is the difference between (1) budgeted contribution
margin based on actual units sold of all products at the budgeted mix and (2) contribution
margin in the static budget (which is based on budgeted units of all products to
8 Budgeted contribution margin per composite unit can be computed in another way by dividing total budgeted contribution
margin of $523,320 by total budgeted units of 890,000 (p. 519): $523,320 ÷ 890,000 units = $0.5880 per unit.