Sales mix and quantity variances calculation

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LECTURE 15 - Advanced Variance Calculation - Sales Mix and Quantity Variances - Material Mix and Yield (Part 1)

--->Sales mix and quantity variances:

Sales Mix and quantity variances which are both part of sales volume are calculated only when there is more than one product being sold and the products are to some degree inter-changeable. In addition, the manager must be able to control the proportions of units sold (e.g. complementary products, same products in different sizes such as Dixan etc)

2. --> For absorption we use the standard profit (standard selling price - standard cost) but for marginal costing we use contribution.

-Sales price variance: we compare actual sales revenue always using actual production with what we should have received according to the budget and determine if it's favourable or adverse.

-Sales volume profit variance: we compare actual sales with budgeted sales. After we find the variance in units we multiply by the standard profit and determine if it's favourable or adverse.

-sales mix profit variance: We compare ASAM with ASSM find the variance and multiply by the standard profit. (only mixture changes we take actual sales). Sales mix indicates the effect on profit of changing the mixture of actual sales compared to the standard mixture.

-sales quantity profit variance: We compare ASSM with SSSM find the variance and multiply by the standard profit. (only sales change we take the standard mixture). Sales quantity indicates the effect on profit of selling different total quantity from the budgeted quantity.

δ3. --> Materials Mix and Yield variances. Material Cost is divided into price and usage. Usage is subdivided into mix and yield. Material mix( adding a greater proportion of one material mix cheaper or more expensive than expected. Material yield (the efficiency of the combined material usage may change, thus actual production may be less or more than expected).

-Material mix and yield variances are only appropriate when:

a) Proportions of material in a mix are changeable and controllable.

b) Usage variance is of limited value because of the variability of the mix (materials blended).

c) Materials must be more than one, not product.

For example for tables (wood and metal) we shouldn't analyse variances further for mix and yield (not meaningful)

-Material price variance is calculated by using the actual production and comparing the actual material cost with the cost that we should have paid (standard). E.g. overall we paid more for material because of price: higher quality, careless purchasing , we didn't gain the expected discount, market shortage->increase in material cost, change of supplier.

-Material usage (if we used more or less material) variance is calculated by comparing the actual quantity with the standard quantity.)

-Material mix ( how we use proportions of products differently) variance is calculated by comparing AQAM with AQSM (only the mixture changes). We find the variance and then multiply by the standard cost. A favourable total mix variance would suggest that a higher proportion of a cheaper material is being used hence reducing the overall average cost per unit.

-Material yield variance we compare AQSM with SQSM find the variance and multiply by sd cost. Note: An adverse yield variance suggests that less output has been achieved for a given input because of the change in the mixture.

Alternative approach for yield: using actual quantity - actual yield

using actual quantity should have yield ...

Find the diference in units and muliply by sd cost.

4. --> Material Mix and Yield with Losses

Price and mix variances are calculated in the same way as in the case of no losses!

Usage and yield are affected by the loss.

Actual loss is used nowhere...

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