Page 175 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Management Control Systems

Notes Sales Mix Variance = (Actual Sales Qty. in Actual Mix – Actual Sales Qty. in Budgeted
Mix)  Budgeted Price Per Unit

Actual Sales Actual Qty. in
Qty. Budgeted Mix
Jug wine 1100 1350 250 (A)  5 = 1250 A
Premium Wine 700 450 250 (F)  16 = 4000 F
1800 1800 2750 (F)
It can be calculated by sales value in the flexible budget based on actual sales mix minus sales
value in the flexible budget based on budgeted sales mix

= 16700 – (1350  5 + 450  16)
= 16700 – 13950
= 2750 (F)
Sales Qty. Variance = Budgeted Price per unit of budgeted mix

(Total Actual Quantity – Total Budget Quantity)
12400
= × (1800 – 1600)
1600
= 1550 (F)

It can be calculated by the difference between sales value in the flexible budget based on actual
sales volume at budgeted sales mix and that amount in static budget based on budgeted selling
price

= (1350 × 5 + 450 × 16) – 12400
= 13950 – 12400
= 1550 (F)

8.2.4 Profit or Sales Margin Method

The purpose of measuring the variances under the method is to identify the effect of changes in
sales quantities and selling prices on the profits of the company.

Notes The quantity and mix variances should be analysed in conjunction with each other
because the sales manager is responsible for both these variances.

There are five distinct variables that can cause actual performance to differ from budgeted
performance. They are:
1. Direct substitution of products.

2. Actual quantity of the constituents of sales being different from the budgeted quantity.
3. Actual total quantity being different from budgeted total quantity.
4. Difference between actual and budgeted unit cost.

5. Difference between actual and budgeted unit sale price.
The sales management should consider particularly the interaction of more than one variable in
making decisions.

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