DEFINITION of 'Sales Mix Variance'
The difference in the quantity of customer purchases of each product or service compared to the quantities that a business expected to sell. Sales mix variance compares the actual mix of sales to the budgeted mix. The metric can be used for analyzing the company's profitability since some products and services usually have higher profit margins than others.
Sales mix variance is the sum of all product line calculations as follows:
Sales Mix Variance = (actual sales at the expected mix - expected sales at expected mix) * expected contribution margin per unit.
Sales Mix Variance = total units actually sold * (actual sales mix % - expected sales mix %) * expected contribution margin per unit
INVESTOPEDIA EXPLAINS 'Sales Mix Variance'
Analyzing sales mix variance can help a company detect trends in the popularity of its different offerings and compare the results on profit. For example, If a company expected to sell 600 As and 900 Bs, its expected sales mix would be 40% A (600/1,500) and 60% B (900/1,500). If the company actually sold 1,000 units of product A and 2,000 units of product B, its actual sales mix would have been 33.3% A (1,000/3,000) and 66.6% B (2,000/3,000).
We can use the expected mix on the actual sales to get comparable numbers. So A would be 3000 x 0.4 = 1200 and B would be 0.6 x 3000 = 1,800. Now we can see A was under expectations by 200 units and B exceeded by 200 units. Using the expected contribution margin per unit - lets use $12 per unit for A and $18 for B - you find an unfavorable variance of $2,400 for A and a favorable variance of $3,600 for B, so the total sales mix variance is $1,200.
Using the second equation from above: 3,000*(0.33333-.04)*$12 = -$2,400
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