Businesses generally have a sales mix consisting of a range of products. The most successful products are not calculated by the volume of sales and the selling price, but more appropriately by how much the product contributes to the fixed costs of the business. The sales mix variance will tell you the difference between the budgeted contribution and the contribution generated by the actual sales.

## Calculating the sales mix variance

Deduct the variable costs from each of the products individual budgeted selling prices to find the contribution it makes. Multiply the contribution per unit with the number of budgeted sales for each product in the mix to provide the total budgeted contribution for the period.

Divide the sum total of all budgeted contributions for the entire product mix with the sum total budgeted sales units to provide the standard weighted average contribution per unit in the standard mix. This gives an overall average contribution that will be earned if the projected number of sales are made.

Take the budgeted sales for each of the products and divide this by the total budgeted sales for the entire sales mix to find the percentage contribution that each product makes to the total sales mix. Then multiply the total for all of the actual sales by these percentages to give a figure for the actual sales in the standard mix.

Compare the actual sales units with the actual sales in the standard mix to find the variance.

Finally take the contribution per unit and deduct the standard weighted average contribution (see step 2). Multiply the variance with this figure to determine the sales mix contribution variance. Whether this is favourable or adverse will be determined by the budgeted sales and the actual sales and how the variance impacts on the contribution to the fixed costs.

#### Warning

Remember that the sales mix variance is concerned with the impact of the contribution from each of the products in the sales mix and not the variances in selling prices.