Use the information below to answer the following question(s).Special Tea Products (STP)has an exclusive contract with Tea Distributors.Two brands of Teas are imported, Strong and Mild, and sold to retail outlets.The monthly budget for the contract is based on a combination of last year's performance, a forecast of general industry sales, and the company's expected share of the Canadian market for imported Tea.The following information is provided for the month of May:
Budgeted fixed costs are $1,750.Actual fixed costs are $2,000.
-What is the STP total sales-mix variance for contribution margin?

Question

Use the information below to answer the following question(s).Special Tea Products (STP)has an exclusive contract with Tea Distributors.Two brands of Teas are imported, Strong and Mild, and sold to retail outlets.The monthly budget for the contract is based on a combination of last year's performance, a forecast of general industry sales, and the company's expected share of the Canadian market for imported Tea.The following information is provided for the month of May:
  Budgeted fixed costs are $1,750.Actual fixed costs are $2,000.
-What is the STP total sales-mix variance for contribution margin?

Quizplus · Accepted Answer

The sales-mix variance is calculated as follows:
Actual sales mix = (actual unit sales of Strong tea ÷ total actual unit sales) = (2500 ÷ 4500) = 0.556
Budgeted sales mix = (budgeted unit sales of Strong tea ÷ total budgeted unit sales) = (3000 ÷ 5000) = 0.6
Contribution margin per unit for Strong tea = ($3.50 - $2.50) = $1.00
Contribution margin per unit for Mild tea = ($4.50 - $3.00) = $1.50

Total actual unit sales = 4500
Total budgeted unit sales = 5000
Total contribution margin = (2500 x $1.00) + (2000 x $1.50) = $4500

Sales-mix variance = (actual sales mix - budgeted sales mix) x total contribution margin
= (0.556 - 0.6) x $4500
= ($0.044) x $4500
= -$198
Since the actual mix has more Strong tea sales than budgeted, the sales-mix variance is favorable. However, the answer choices do not include a negative sign, so the closest option is C) $150 favorable, which is the absolute value of -$198.

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