I. Introduction
Two main issues discussed
(1) The Analysis of Sales Volume, Mix & Quantity Variances
(2) The Analysis of Production Efficiency, Mix & Yield Variances
II. Sales, Volume Qty & Mix Variances Most companies produce more than one product. Therefore, overall plans for revenue usually specify some combination of products to be sold (called sales mix). Managers often want help in understanding deviations from original plans. We have already noted how price and efficiency variances assist in this regard for individual products. We now explore the complications that may arise at the individual and aggregate levels when Sales Qty and Mix differ from original plans.
Note: Flexible budgeted units sold Actual units sold Master (static) budgeted units sold Budgeted units sold
Sales Volume Var. (SVV) (Flexible vud units – Static bud units) * Budgeted individual cm/unit(Flexible Bud units - Static Bud Units) X Budgeted Individual CM/unit = Actual units – Budgeted units * budgeted individual cm/unit (Actual units - Budgeted Units) X Budgeted Individual CM/unit
Intuition : What is the difference in Total Budgeted Contribution Margin (TBCM) due to the fact that the actual number of units sold differ from the original master (static) budgeted units.
NOTE that the sales volume variance (SVV) implicitly assumes that the Std selling prices (SPs) and Variable Costs & expenses (VCs) will be realized.
If actual SPs and VCs differ from the Std amounts, the price or contribution margin (CM) effect should be isolated first.
(A) CM/unit Variance = (Actual cm/u – std cm/u) * act qty sold . (or price changes per unit variance) The purpose of computing the contribution margin per unit variances is to exclude the often confounding effects of price and cost fluctuations from other variances. In the definition of the SVV (above), all unit prices and costs are held constant at Standard (Std) amounts.
Commonality - Sales $ As we move beyond one product situation, aggregated physical units fail to provide a common denominator for measuring overall volume (e.g. adding apples & oranges). Instead physical units are converted into monetary equivalent i.e. Sales dollars ($) Total SVV = SVVi
Sales Qty & Mix Variances Often higher mgt receives only summary figures. The Total SVV may be favorable. That is fine! But Why? Did physical volume of each product rise by 10%? OR did Sales of higher contribution margin products increase while the lower margin products fall? These questions are answered by the Sales Qty and Sales Mix Variances.
The aggregate SVV may be divided into Sales Qty Variance (SQV) and Sales Mix Var (SMV) i.e. SVVi = SQVi + SMVi But, SVVi SQVi + SMVi
(B) SVV = (Actual units - Bud units) x Bud individual cm/u .
(C) Sales Qty V = (Actual units - Bud units) x Bud Weighted Ave cm/u . Here Actual units > Budgeted Units Favorable .
(D) Sale Mix Variance (SMV) let AMP = Actual Mix Percentage BMP = Budgeted Mix Percentage TA = Total Actual Units Sold SMV={(AMP-BMP)TA}{Bud Ind. CM/u- Bud Wtd ave cm/u } For SQV, observe that the method weights all physical units of a single Bud Wtd Av CM/u However, for SMV purposes, the method measures the impact of the deviation of the Bud ind CM/u from the Bud Wtd Ave CM/u associated with a change in the quantity of a particular product.
4 Scenarios of SMV
(i) If you sell more (than budgeted) of a particular product line with a Bud Ind CM/u is greater than the Bud Wtd Av CM/u implies a Fav SMV
(ii) If you sell more of a particular product line with a Bud Ind CM/u less than the Bud Wtd Av CM/u implies an Unfav SMV
(iii) If you sell less of a particular product line with a Bud Ind CM/u more than the Bud Wtd Av CM/u implies an Unfav SMV
(iv) If you sell less of a particular product line with a Bud Ind CM/u less than the Bud Wtd Av CM/u implies a SMV
