

Subject:
Product Mix Variances  Evaluating Rate Effects of Mix Changes
Category: Business and Money > Accounting Asked by: daz70rga List Price: $25.00 
Posted:
07 Apr 2006 08:05 PDT
Expires: 07 May 2006 08:05 PDT Question ID: 716474 
I require a method of variance analysis to better report mix variances between products. For example, take the following information? Product Volume Volume Rate Rate 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 Conventional variance analysis defines Volume Variance A = (700400) * 4 = 1200 B = (100300) * 1 = (200) C = (300300) * 2 = 0 Rate Variance A = (34) * 700 = (700) B = (2?1) * 100 = 100 C = (12) * 300 = (300) This does not address mix issues however, i.e. where the weighting of more or less profitable products may be different to budget mix. I am also aware that the Volume Variance can be broken down into two components named the ?SalesMix? and ?SalesQuantity? Variances. These are defined as follows: Sales Mix Variance (Act Vol ? ((Bud Vol/Tot Bud Vol) * Tot Act Vol)) * Bud Rate A = (700 ? ((400/1000)*1100)*4 = 1040 B = (100 ? ((300/1000)*1100)*1 = (230) C = (300 ? ((300/1000)*1100)*2 = (60) Sales Quantity Variance (((Bud Vol/Tot Bud Vol) * Tot Act Vol) ? Bud Vol) * Bud Rate A = (((400/1000) * 1100) ? 400)*4 = 160 B = (((300/1000) * 1100) ? 300)*1 = 30 C = (((300/1000) * 1100) ? 300)*2 = 60 I have managed to get this far but am unhappy with the results and believe that there must be a better way of measuring the mix effect. I am unhappy that the formula?s are limited to looking at the mix variance using only Budget Rate. I think that it would be more appropriate to take into consideration when selling more (or less) of a product, how its budgeted margin compares to the weighted average budget margin. Take product B for example, the analysis above is indicating an adverse mix variance of 230. However this product has a budgeted rate of only 1 which is well below the weighted average rate of 2.5. Hence there must exist some favourable variance given the fact that as a proportion of total sales product B is down from 30% in the budget to 9.1% in actuals. This led me to try and deconstruct the Sales Mix Variance into the following [A] (Act Vol ? ((Bud Vol/Tot Bud Vol) * Tot Act Vol)) * (Bud Rate ? Weighted Ave. Bud Rate) and [B] (Act Vol ? ((Bud Vol/Tot Bud Vol) * Tot Act Vol)) * (Weighted Ave. Bud Rate) [A] above I believe sort of gives me what I?m wanting in that it returns a favourable variance of 345 for product B. The second element [B] however returns an adverse of 575 which of course takes me back to my original adverse 230. OK now for my question. I need formulas which report to me the variances (however many are necessary) the volume, rate and mix issues present ? use the sample data to illustrate. I require that mix variances in particular take into account the weighted average budgeted rate. (It may need to take into account the weighted average Actual rate ? but I don?t think so). Of course the product variances need to add back to the grand total variance. I may be close to getting there or I may be well off track? 

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