Sales volume variance

For a single product, a favorable sales volume variance occurs when actual units exceed budgeted units - stronger-than-expected demand or successful sales efforts. An unfavorable variance occurs when actual units fall short of budget, possibly due to lower demand, market competition, or production constraints. With several products, the result also depends on the mix, as shown below.

For a single product, the sales volume variance is a one-step calculation; when a company sells several products, it splits into two parts:

1. the sales mix variance and
2. the sales quantity variance

both of which should add up to the sales volume variance.

How to compute standard mix (SM) and actual mix (AM) for the mix & quantity variances

Both variances use the same mix percentages.

Standard mix %
The standard mix is each product’s share of total budgeted units; standard mix percentages across all products sum to 100%.

$$\text{Standard mix (SM) \%}=\frac{\text{Standard sales quantity for the product}}{\text{Total standard sales in units}}$$

Actual mix %
The actual mix is each product’s share of total actual units sold; actual mix percentages across all products also sum to 100%.

$$\text{Actual mix (AM) \%}=\frac{\text{Actual sales quantity for the product}}{\text{Total actual sales in units}}$$

Sales mix variance

The sales mix variance measures the financial impact of deviations in the proportions of different products sold compared to the planned or standard sales mix. This variance occurs when the actual mix of products sold differs from the expected mix, potentially affecting overall revenue and profitability. It evaluates whether changes in the composition of products sold (i.e., selling more lower-priced products and fewer higher-priced products) have a favorable or unfavorable effect on sales revenue. The calculation involves comparing the following two amounts:

• standard revenue for the actual sales mix and
• standard revenue for the standard sales mix

Expressed in formula:

$$\text{Sales mix variance}=\text{Standard revenue for total actual sales in actual proportion}-\text{Standard revenue for total actual sales in standard proportion}$$

It can also be expressed in terms of other formulas:

$$\begin{array}{rl}\text{Sales mix variance}& =((\text{ASQ}\times \text{AM})-(\text{ASQ}\times \text{SM}))\times \text{BSP}\\ & =(\text{AS}-(\text{ASQ}\times \text{SM}))\times \text{BSP}\end{array}$$

Where:

• $\text{BSP}$ is the budgeted selling price of the product
• $\text{ASQ}$ is the total actual sales in units (total of all products)
• $\text{SM}$ is the standard mix of products expected to be sold (expressed in %)
• $\text{AM}$ is the actual mix of products sold (expressed in %)
• $\text{AS}$ is the actual units of specific product sold

It is good to note that $(\text{ASQ}\times \text{AM})$ is equal to $\text{AS}$ for that specific type of product and there is no need to perform computations for this part of the formula.

The formulas above are computed for each type of product sold and added together to form the total sales mix variance.

The sales mix variance is expected to be favorable when the actual mix shifts toward products with higher standard selling prices than planned, since gains on those products outweigh the offsetting losses on the lower-priced products whose share declined - recall that AM and SM must each sum to 100% across all products. Conversely, the variance is unfavorable when the mix shifts toward lower-priced products, reducing total revenue compared to expectations.

Sales quantity variance

The sales quantity variance measures the financial impact of deviations in the total number of units sold compared to the budgeted sales quantity. This variance occurs when the actual total sales volume differs from the expected total, regardless of the mix of products sold, potentially affecting overall revenue. It evaluates whether changes in the total quantity sold (i.e., selling more or fewer units than planned) have a favorable or unfavorable effect on sales revenue.

The calculation involves comparing the standard revenue for actual total sales to the standard revenue for budgeted total sales, assuming the standard sales mix. Expressed in formula:

$$\text{Sales quantity variance}=\text{Standard revenue for actual total sales in standard mix}-\text{Standard revenue for budgeted total sales in standard mix}$$

It can also be expressed in terms of other formulas:

$$\begin{array}{rl}\text{Sales quantity variance}& =((\text{ASQ}\times \text{SM})-(\text{BSQ}\times \text{SM}))\times \text{BSP}\end{array}$$

Where:

• $\text{BSQ}$ is the total budgeted sales in units (total of all products)

The formulas above are computed for each type of product sold and added together to form the total sales quantity variance.

The sales quantity variance is favorable when total actual units exceed total budgeted units, and unfavorable when they fall short. Exam questions may also ask for the quantity variance of a single product in the mix.

Example: Splitting the sales volume variance

Achievable Co. budgets 60 units of product A at $10 and 40 units of product B at $20. Actual sales were 70 units of A and 50 units of B, so $\text{BSQ}=100$, $\text{ASQ}=120$, and the standard mix is A $=60\%$, B $=40\%$.

• Sales volume variance - A: $(70-60)\times \$10=\$100$ F; B: $(50-40)\times \$20=\$200$ F; total $300 F
• Sales mix variance - A: $(70-72)\times \$10=-\$20$ (U); B: $(50-48)\times \$20=\$40$ F; total $20 F
• Sales quantity variance - A: $(72-60)\times \$10=\$120$ F; B: $(48-40)\times \$20=\$160$ F; total $280 F

Answer: $20 F mix + $280 F quantity = $300 F volume.

A full multi-product scenario, including the sales price variance, appears in the next page, Sales variance scenario: multiple products.

Sales margin variances

All the sales variances above, which are traditionally calculated based on selling prices, can also be analyzed in terms of sales margin variances by replacing the selling price with the budgeted contribution margin per unit. Actual contribution margin enters only the flexible-budget variance - the sales price variance plus the variable cost variances - which isolates price and cost changes separately from mix, quantity, and volume.

This approach shifts the focus from total revenue to profitability, highlighting how variations in sales mix, quantity, or volume impact the contribution margin and, ultimately, the bottom line. By using contribution margin instead of selling price, managers can better understand the effect of sales variances on operational profitability, enabling more targeted decisions to optimize product performance and cost management.

Substituting budgeted contribution margin for BSP in the example above would show whether that $20 F mix shift actually helped profitability or just revenue - if not, it’s a signal to revisit pricing or sales incentives for the affected products.