# Sales Mix Variance

## What is the ‘Sales Mix Variance’

Sales mix variance is the difference between a company’s budgeted sales mix and the actual sales mix that the firm sells to customers. Sales mix is defined as the proportion of each product a business sells, relative to total sales, and sales mix impacts total company profit, because some products generate higher profit margins than other products. Sales mix variance includes each product line sold by the firm.

## Explaining ‘Sales Mix Variance’

A variance is the difference between budgeted and actual amounts, and companies review variances to make changes in the business. Companies use profit margin to compare the profitability of different products, and profit margin is defined as (net income / sales).

## The Differences Between Profit Levels

Assume, for example, that a hardware store sells a \$100 trimmer and earns \$20 per unit, and the store also sells a \$200 lawnmower and earns \$30 per mower. The profit margin on the trimmer is (\$20 / \$100), or 20%, while the lawnmower’s profit margin is (\$30 / \$200), or 15%. Although the lawnmower has a higher sales price and generates more revenue, the trimmer earns a higher profit per dollar sold. The hardware store budgets for the units sold and the profit generated for each product the business sells.

## Examples of Sales Mix Variances

Sales mix variance is based on this formula: (actual units sold * (actual sales mix % – budgeted sales mix %) * budgeted contribution margin per unit). Analyzing the sales mix variance helps a company detect trends in the popularity of its different offerings and consider the impact on company profits.