Question

During an average month, Space toys plans to sell 125 units each of its standard and its deluxe product. Budgeted contribution margins are $175 and $250 per unit, respectively. Of the total actual sales of 260 units, 132 units were of the standard product. Determine the sales mix variance. Enter favorable variances as a positive value and unfavorable variances as a negative number. Do not enter $ sign or commas.

Answer 1

Calculate the sales mix variance.

Step 1: Calculate the standard mix ratio

Standard mix ratio:  

50% of standard and 50% deluxe

*  125/ (125 + 125) % = 50% standard product

** 125(125+125)% = 50% deluxe product

Step 2: Calculate the sales quantities in proportion to the standard mix

Total sales during the period: 260 units

Unit Sales at Standard Mix:

Sales of Standard Product in standard mix @ 50% of 260= 130 units

Sales of deluxe product in standard mix @ 50% of 260 = 130 units

Step 3: Calculate the difference between actual sales quantities and the sales quantities in standard mix

Standard Product = 132 - 130 = 2 units ( favourable)

Deluxe product = (260-132)-130 = 2 units (unfavourable)

Step 4: Calculate the variance for each product

Variance of each product = Contribution margin per unit × difference of sales quantity of products between actual and standard (Step 4)

Standard product = 2 unit × $175 = $350 (favourable)

Deluxe product = 2 units × $250 =$500 ( unfavourable)

Step 5: Add the individual variances

Sales Mix Variance =$ (350-500) = $150 (unfavourable)