Paris Perfumery (Paris) sells two perfumes, L’Amour and Plaisir. The expected sales mix is one bottle of L’Amour to five bottles of Plaisir. Planned sales and variable costs for last period were as follows:
L'Amour Plaisir Total
Units 10,000 50,000 60,000
Sales $600,000 $400,000 $1,000,000
Variable costs 200,000 230,000 430,000
Contribution margin $400,000 $170,000 $ 570,000
During the period there was an economic downturn. Sales of L’Amour dropped off, so Paris reduced its price. Actual sales were as follows:
L'Amour Plaisir Total
Units 7,500 36,000 43,500
Sales $337,500 $288,000 $625,500
Variable costs 165,000 153,000 318,000
Contribution margin $172,500 $135,000 $ 307,500
Which one of the following is the total sales mix variance (in CM) for the period?
A. $12,621 F
B. $9,150 F
C. $4,813 F
D. $224,168 U
Answer: B.
Solutions:
The company sold more L’Amour, with a higher contribution margin than Plaisir, the product with a lower contribution margin in the sales mix. Therefore, the total sales mix is favourable.
(Actual mix − budgeted mix) × Actual total units × Budgeted CM/unit = Sales mix variance
L'Amour (7,500/43,500 − 10,000/60,000) 43,500 $400,000/10,000 = $40.00 $10,000 F
Plaisir (36,000/43,500 − 50,000/60,000) 43,500 $170,000/50,000 = $3.40 850 U
$9,150 F
Can you please explain the solution step by step. I didn't understand the calculation.
