Sales and Sales Mix Variance
1. Introduction
- Variance analysis is not limited to costs—it also applies to revenues.
- Actual sales and profit can deviate from budgeted values.
- Due to fixed costs, it's better to analyze contribution margin instead of profit.
- Key types of revenue-related variances:
- Sales Price Variance
- Sales Volume Variance
- Sales Mix Variance
- Contribution Margin Variance
2. Single-Product Sales Variance Example
Scenario: Book Publisher
| Metric | Budgeted Value | Actual Value |
|---|---|---|
| Units Sold | 4000 | 3600 |
| Selling Price | Rs. 300 | Rs. 260 |
| Variable Cost | Rs. 180 | — |
| Contribution per Unit | Rs. 120 | Rs. 80 |
| Total Sales Revenue | Rs. 12,00,000 | Rs. 9,36,000 |
| Total Contribution | Rs. 4,80,000 | Rs. 2,88,000 |
Variance Calculations
- Total Sales Variance = Rs. 9,36,000 − Rs. 12,00,000 = Rs. 2,64,000 Adverse
- Total Contribution Variance = Rs. 2,88,000 − Rs. 4,80,000 = Rs. 1,92,000 Adverse
Split into Components:
-
Price Variance = (Actual Price − Budgeted Price) × Actual Quantity
= (260 − 300) × 3600 = Rs. 1,44,000 Adverse -
Volume Variance = (Actual Quantity − Budgeted Quantity) × Budgeted Price
= (3600 − 4000) × 300 = Rs. 1,20,000 Adverse -
Contribution Margin Variance (Volume effect):
= (3600 − 4000) × Rs. 120 = Rs. 48,000 Adverse
🔍 Insight: Most loss in contribution was due to price realization drop.
3. Multi-Product Sales Mix Variance Example
Scenario: Deodorant Manufacturer
| Brand | Budgeted Mix | Budgeted CM/KL | Budgeted Volume (KL) |
|---|---|---|---|
| Royal | 0.40 | Rs. 20,000 | 8000 |
| Cool | 0.35 | Rs. 12,000 | 7000 |
| Spice | 0.25 | Rs. 9,000 | 5000 |
| Total | — | — | 20,000 KL |
| Budgeted CM | — | — | Rs. 28.90 cr |
Actual Values
| Brand | Actual Mix | Actual CM/KL | Actual Volume (KL) |
|---|---|---|---|
| Royal | Lower | Rs. 22,000 | Less than 8000 |
| Cool | Lower | Rs. 8,000 | Less than 7000 |
| Spice | Higher | Rs. 9,000 | More than 5000 |
| Total | — | — | 22,000 KL |
| Actual CM | — | — | Rs. 26.90 cr |
4. Contribution Margin Variance Analysis
Total CM Variance
-
Total CM Variance = Actual CM − Budgeted CM =
Rs. 26.90 cr − Rs. 28.90 cr = Rs. 2.00 cr Adverse
Step-by-Step Breakdown
| Column | Description |
|---|---|
| C2 | Actual CM (Actual Volume × Actual Mix × Actual CM) |
| C3 | Budgeted CM for Actual Volume and Actual Mix |
| C4 | Budgeted CM for Actual Volume and Budgeted Mix |
| C5 | Budgeted CM for Budgeted Volume and Mix |
Variance Decomposition
-
CM Rate Variance = C2 − C3 =
Rs. 1.60 cr Adverse (due to lower contribution margins) -
Sales Volume Variance = C3 − C5 =
Rs. 0.40 cr Adverse (due to overall sales volume differences) -
Sales Mix Variance = C3 − C4 =
Rs. 3.29 cr Adverse (shift from profitable mix) -
Sales Quantity Variance = C4 − C5 =
Rs. 2.89 cr Favourable (due to volume increase)
5. Summary Table
| Type of Variance | Description | Result |
|---|---|---|
| Total CM Variance | Overall deviation in contribution margin | Rs. 2.00 cr Adv. |
| CM Rate Variance | Actual mix, actual quantity but change in CM rates | Rs. 1.60 cr Adv. |
| Sales Volume Variance | Change in volume at budgeted mix & CM rates | Rs. 0.40 cr Adv. |
| Sales Mix Variance | Change in mix at actual quantity, standard CM | Rs. 3.29 cr Adv. |
| Sales Quantity Variance | Change in volume at standard mix | Rs. 2.89 cr Fav. |
6. Managerial Insights
- Even with higher total sales, contribution margin dropped due to:
- Change in sales mix (more of less-profitable product)
- Drop in contribution rate (discounting, market dynamics)
- Suggestion:
- Automate variance analysis with templates
- Let managers focus on decisions, not calculations
7. Sales Variance Formulas
| Variance Type | Formula |
|---|---|
| Sales Price Variance | (Actual Price − Budgeted Price) × Actual Quantity |
| Sales Volume Variance | (Actual Quantity − Budgeted Quantity) × Budgeted Price |
| CM Rate Variance | (Actual CM − Budgeted CM) × Actual Quantity |
| Sales Mix Variance | (Actual Mix − Budgeted Mix) × Standard CM × Actual Volume |
| Sales Quantity Variance | (Actual Volume − Budgeted Volume) × CM @ Budgeted Mix |