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Could you please first correct me about the sales mix & sales quantity variances statements below and state more about these two variances and how do we interpret them?
(1) Sales mix variance occurs when the proportions of the various products sold are different from those in the budget.
(2) Sales quantity variance shows the difference in contribution/profit because of a change in sales volume from the budgeted volume of sales.
I watched your lecture but I was unable to understand them completely that is why I asked you here. I hope u don’t mind telling me 🙂
(1) is correct
(2) is correct but assumes that the mix between the products stays at standard.
The logic behind the quantity variance is that if we were (for example) budgeting that we would sell equal numbers of each product, then if we sold more in total (but still equal numbers of each product) then we would make more profit.
The logic behind the mix variance is that if instead of selling equal numbers of the two products we sold more of the more profitable product (and therefore less of the less profitable product) then even if the total sales did not change we would make more profit.
So there are two separate reasons why the profit will be different from budget – partly because of selling more (or less) in total, and partly because of changing the ratio of sales between more and less profitable products.
Could you please also tell me the logic behind the material mix variance and material yield variance?
Your last reply was really helpful. It would be kind of you if you can tell me the above question too.
THANKS for your support 🙂
The mix variance takes the total amount of materials that were used, and compares the actual usage with what should have been used if they were mixed in the standard mix.
The yield variance takes the total amount that should have been used for the actual production and compares it with the total amount that should have been used, using the standard mix for both.
In both cases all the costing is done at the standard cost.
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