Or alternatively: Actual sales quantity Standard Premium Deluxe
186,000 396,000 278,000
Actual sales at budget mix 193,500 387,000 279,500
Difference
Contribution
Variance
7,500 A 9,000 F 1,500 A
$0.65 $0.45 $1.14
$4,875 A $4,050 F $1,710 A $2,535 A
N.B. The analysis of the variances by product shown in the method above is not meaningful.
(e) By analysing the sales volume variance into sales quantity and mix variances we can explain how the sales volume variance has been affected by a change in the total quantity of sales and a change in the relative mix of products sold. From the figures calculated in part (d) we can say that the contribution would have been $43,155 higher if the increase in quantity sold had been in the budgeted sales mix. The change in the sales mix however has resulted in a reduction in profit of $2,535. The change in the sales mix has resulted in a relatively higher proportion of sales of the Premium product which is the product that earns the lowest contribution. This is important information for future planning and pricing purposes. An overall increase in quantity of products sold may not result in an increase in profits if the increased sales are from a lower margin product at the expense of products with a higher profit margin.
P1
8
May 2011