Answer (C) is correct . The sales mix variance is a sum of variances. For each product in the mix, the difference between units sold and expected to be sold is multiplied by the difference between the budgeted UCM for the product and the budgeted weighted-average UCM for all products. The results of these computations are then added to determine the mix variance. This variance measures the effect of the change in the weighted-average UCM associated with the changes in the quantities of items in the mix. The sales mix variance is favorable when more units with a higher than average UCM are sold or when fewer units with a lower than average UCM are sold.
Answer (A) is incorrect because The sales mix variance is unaffected by a change in overall sales volume, assuming the proportions of products sold remain constant. However, an unfavorable sales quantity variance will arise given a 5% decrease in overall sales volume because a 5% decrease in contribution margin will occur. This variance is computed by holding the sales mix, budgeted prices, and budgeted costs constant. It measures the change in contribution margin caused by a change in overall volume.
Answer (B) is incorrect because The variance will be unfavorable.
Answer (D) is incorrect because This equation defines the materials mix variance.
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