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This is a method of variance analysis which reports mix variances
between products. For example, take the following information:
Volume: Rate:
Product Actual Budget Actual Budget
A 700 400 3 4
B 100 300 2 1
C 300 300 1 2
Total 1100 1000 2.36 2.50
The Answer:
Budget
Actual
Profit Rate
Budget Profit
Budget Mix
Actual Mix
Volume
Mix
Total
A (Budget)
400
0
4
1600
0.40
0.00
-940
-660
-1600
A (Actual)
0
700
3
0
0.00
0.64
1750
350
2100
B (Budget)
300
0
1
300
0.30
0.00
-795
495
-300
B (Actual)
0
100
2
0
0.00
0.09
250
-50
200
C (Budget)
300
0
2
600
0.30
0.00
-765
165
-600
C (Actual)
0
300
1
0
0.00
0.27
750
-450
300
Total
1000
1100
2.50
2500
1.00
1.00
250
-150
100
The Answer Explanation:
BPRDiff = (Budgeted Product Profit Rate - Budgeted Group Profit Rate)
MixVar = (Actual Product Sales Mix - Budgeted Product Sales Mix)
The effect on mix variance of the group is a direct function of total actual sales for the group (TotActGrpSls). Given these component parameters, we can measure the impact of any given product's mix variance on the group (Mix Variance = MV) as follows:
MV = (TotActGrpSls x MixVar x BPRDiff)
The only other component of the product's profit variance is volume variance (VV). Order of calculation is important; MV must be calculated before VV. VV is a simple residual calculation:
VV = [(TotActPrdSls - TotBudPrdSls) x Budgeted Product Profit Rate] - MV
For Product A (Budget) :
BPRDiff = 4 - 2.50
BPRDiff = 1.50
MixVar = 0.00 - 0.40
MixVar = -0.40
MV = 1100 x -0.40 x 1.50
MV = -660
VV = ((0 - 400) x 4) - (-660)
VV = -940
Note: The above calculations apply equally to both unit profitability (shown) or dollar profitability.
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