# What is Sales Mix in Cost-Volume-Profit Analysis?

In business it’s important to understand the relationships between sales volume, costs, and profits. It is a useful technique for evaluating the potential financial impact of changes in factors such as selling price, variable costs, and fixed costs on the profitability of a business. One important concept in CVP analysis is sales mix, which refers to the proportion of different products or services a company sells.

Sales mix is an important consideration in CVP analysis because it can significantly impact a company’s profitability. The sales mix can influence the average selling price, contribution margin, and breakeven point of a company. Therefore, it is essential to understand the impact of sales mix changes on a company’s financial performance.

For example, let’s consider a company that sells two products, A and B. Product A has a selling price of \$10 and a variable cost of \$5, while Product B has a selling price of \$20 and a variable cost of \$15. The company’s fixed costs are \$10,000 per month. In the current period, the company sells 1,000 units of Product A and 500 units of Product B.

To calculate the sales mix of the company, we need to determine the proportion of sales for each product. In this case, the company’s sales mix is 67% for Product A and 33% for Product B. This means that the company is relying more on Product A for its revenue generation.

Now, let’s analyze the impact of sales mix on the company’s profitability. Suppose the company wants to increase its profitability by \$5,000 per month. To achieve this goal, the company can increase the sales of Product A or Product B or a combination of both.

If the company wants to increase the sales of Product A to achieve the target profit, it needs to sell an additional 333 units (1,333 units in total). On the other hand, if the company decides to increase the sales of Product B to achieve the target profit, it needs to sell an additional 125 units (625 units in total). Alternatively, the company can increase the sales of both products by selling an additional 187 units of Product A and 63 units of Product B.

The sales mix of the company will change depending on the strategy it chooses. For example, if the company decides to increase the sales of Product A only, the sales mix will change to 74% for Product A and 26% for Product B. This will result in a higher overall contribution margin per unit but may also result in a lower average selling price.

In conclusion, sales mix is an important factor in CVP analysis, as it can significantly impact a company’s profitability. Businesses need to understand the relationship between sales mix, contribution margin, and breakeven point to make informed decisions about their product mix and pricing strategy.

Caroline Grimm

Caroline Grimm is an accounting educator and a small business enthusiast. She holds Masters and Bachelor degrees in Business Administration. She is the author of 13 books and the creator of Accounting How To YouTube channel and blog. For more information visit: https://accountinghowto.com/about/