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    Unit V: Sales Mix Decision

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    Anon
    The document discusses how a company, ABC Ltd, produces two products, Product A and Product B, and needs to determine the optimal sales mix to maximize profits. Four alternative sales mix options are provided involving different production unit levels of Products A and B. After calculating the contribution margin per unit for each product and determining the profit levels of the four mixes, the solution recommends mix 4 (150 units of Product A and 350 units of Product B) as it generates the highest profit of ₹1,900.

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    Unit V: Sales Mix Decision

    Uploaded by

    Anon
    87 views3 pages
    The document discusses how a company, ABC Ltd, produces two products, Product A and Product B, and needs to determine the optimal sales mix to maximize profits. Four alternative sales mix options are provided involving different production unit levels of Products A and B. After calculating the contribution margin per unit for each product and determining the profit levels of the four mixes, the solution recommends mix 4 (150 units of Product A and 350 units of Product B) as it generates the highest profit of ₹1,900.

    Original Description:

    Sales Mix

    Original Title

    Unit 5.2

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    The document discusses how a company, ABC Ltd, produces two products, Product A and Product B, and needs to determine the optimal sales mix to maximize profits. Four alternative sales mix options are provided involving different production unit levels of Products A and B. After calculating the contribution margin per unit for each product and determining the profit levels of the four mixes, the solution recommends mix 4 (150 units of Product A and 350 units of Product B) as it generates the highest profit of ₹1,900.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    87 views3 pages

    Unit V: Sales Mix Decision

    Uploaded by

    Anon
    The document discusses how a company, ABC Ltd, produces two products, Product A and Product B, and needs to determine the optimal sales mix to maximize profits. Four alternative sales mix options are provided involving different production unit levels of Products A and B. After calculating the contribution margin per unit for each product and determining the profit levels of the four mixes, the solution recommends mix 4 (150 units of Product A and 350 units of Product B) as it generates the highest profit of ₹1,900.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    Unit V

    Sales Mix Decision


    Most of the companies produce multiple products. In such cases, they need to take decisions
    regarding the quantities of the various products to be produced and sold. Such decisions are
    again taken using CVP analysis and marginal costing techniques. For example, Apple may need
    to take decision about the number of units to be produced of their iPhone and their MacBook
    laptops. Following illustration clears this point.

    Example

    ABC Ltd. has provided you following data with regard to their product line. The company
    produces two products Product A and Product B and needs to decide proper sales mix.

    Direct materials A ` 16
    Direct Materials B ` 12
    Direct wages A 24 Hrs at 50 paise per hour
    Direct wages B 16 Hrs at 50 paise per hour
    Variable overheads 150% of wages
    Fixed overheads ` 1,500
    Selling price A ` 50
    Selling price B ` 40

    The directors want to be acquainted with the desirability of adopting any one of the following
    alternative sales mixes in the budget for the next period:

    1. 250 units of A and 250 units of B

    2. 400 units of B only

    3. 400 units of A and 100 units of B

    4. 150 units of A and 350 units of B

    State which of the alternative sales mixes you would recommend to the management?
    Solution:

    The first step is to determine the contribution margin per unit of A and B
    The determination of the contribution of product A and B are through the preparation of
    Marginal costing statement.

    Notes

    Particulars Product A (`) Product B (`)


    Selling price 50 40
    Less: Direct Materials 16 12
    Direct wages 12 8
    Variable overheads 18 12
    Variable cost 46 (16+12+18) 32 (12+8+12)
    Contribution 4 (50 – 46) 8 (40 – 32)

    The next step is to determine the profit level of every mix.

    1. 250 units of A and 250 units of B.

    The first step is to determine the total contribution of the mix. The main reason is to
    determine the profit level of the mix through the deduction of the
    fixed overheads
    `
    Product of A 250 units × 4 1,000
    Product of B 250 units × 8 2,000

    Contribution 3,000
    Fixed overheads 1,500

    Profit 1,500

    2. 400 units of B only

    Product B Contribution 400 units × ` 8 3,200

    Fixed overheads 1,500

    Profit 1,700

    3. 400 units of A and 100 units of B

    Product of A 400 units × ` 4 1,600


    Product of B 100 units × ` 8 800
    Contribution 2,400
    Fixed overheads 1,500

    Profit 900

    4. 150 units of A and 350 units of B

    Product A 150 units × ` 4 = 600


    Product B 350 units × ` 8 2,800

    Contribution 3,400
    Fixed overheads 1,500

    Profit 1,900

    Mix 1 2 3 4
    Contribution ` 1,500 1,700 900 1,900

    The profit level among the given various mixes, the mix (d) is able to generate highest volume of
    profit over the others.

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