The sales variance can be defined as the difference between the quantities of different types of products or product mix actually purchased by the business as compared to the quantity of product or service expected by the business to be sold. The major objective of the sales mix variance is to compare the actual sales mix of the business to that of the budgeted sales. This matrix is used by the business to measure its profitability and to find out whether the actual profit is equals to the projected profit. Moreover this can be used for measuring profitability as some products and services have a high profit margin as compared to other products and services.
Sales mix variance is the variance that is calculated by the sum of all the product lines. The formula of sales mix variance can be shown as under:-
Sales Mix Variance = (Actual Sales at Expected Mix – Expected Sales at Expected Mix) x Expected Contribution margin per unit of the product
This formula can be depicted in another way as well:-
Sales Mix Variance = Total Units Actually sold x (Actual Sales mix % – Expected sales mix %) x expected contribution margin per unit
With the help of sales mix variance a company can find out the trending popularity of its products and services and this helps the company in comparing profitability.
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