Sales mix

Definition

Sales mix is the proportion of different products or services that a company sells. It is crucial for determining overall profitability and conducting break-even analysis in multi-product environments.

5 Must Know Facts For Your Next Test

1. Changes in the sales mix can affect the company's overall profit margin.
2. A higher sales mix percentage of high-margin products increases total profitability.
3. The sales mix directly impacts the weighted average contribution margin used in break-even analysis.
4. To calculate the break-even point in units for multiple products, you need to know each product's contribution margin and its proportion of total sales.
5. Sensitivity analysis often involves changing the sales mix to see how different scenarios affect break-even points.

Review Questions

• How does a change in sales mix affect a company's overall profitability?
• Why is understanding the weighted average contribution margin important in a multi-product environment?
• What role does sensitivity analysis play when evaluating different sales mix scenarios?

Related terms

Contribution Margin:

The amount remaining from sales revenue after variable expenses have been deducted.

Break-Even Point:

The level of sales at which total revenues equal total costs, resulting in no profit or loss.

Sensitivity Analysis:

A technique used to predict the outcome of a decision given a certain range of variables.