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When finding the sales mix variance, do we use ‘standard profit’ or ‘standard contribution’?
I’ve been using standard contribution all along until I stumble upon this question:
the company uses absorption costing; selling prices & variable costs & fixed costs have all been given in the question. It asks “What is the sales mix variance?”
The solution uses the standard profit to find the variance. Does that have anything to do with absorption costing?
I’m sorry I couldn’t type out the question as it is a MCQ question. Would be too messy if I were to type out all the numbers.
Reference: Kaplan revision kit Q134.
It depends whether you are using absorption costing or marginal costing.
With absorption costing we use standard profit, with marginal costing we use standard contribution. Otherwise the working are the same.
Actually, it is for exactly the same reasons as when we calculate the normal sales volume variance when there is just one product being sold (so no mix variance and no quantity variance).
If you look back to the lectures on basic variances, then I do show it all both ways – marginal costing (which is always more likely in the exam) and absorption costing.
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