Question

A machine distributor sells two models, basic and deluxe. The following information relates to its master budget.

	Basic			Deluxe
Sales (units)		11,200			2,800
Sales price per unit	$	9,600		$	13,600
Variable costs per unit	$	8,960		$	10,200

Actual sales were 10,200 basic models and 3,600 deluxe models. The actual sales prices were the same as the budgeted sales prices for both models.

Is the sales mix variance for the basic model favorable or unfavorable?

explain how

Answer 1

Actual sales mix percentage = 10,200/13,800 = 73.91%

Budgeted sales mix percentage = 11,200/14,000 = 80%

Budgeted contribution margin = Selling price - Variable cost

= 9,600 - 8,960

= 640

Sales mix variance

= ( Actual units sold *( Actual sales mix percentage - Budgeted sales mix percentage) * Budgeted contribution margin

= (10,200*( 73.91% - 80%)*640

= (10,200*0.0609*640)

= 397,555 unfavorable

As the actual sales mix percentage is lower than the Budgeted sales mix percentage therefore the sales mix variance will be unfavorable variance.

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