SELECTING THE SUITABLE PRODUCT MIX - Accounts and Finance for Managers

In the market, dealership is offered by the various companies to the individual intermediaries in promoting the sale of products. Before reaching an agreement with the company to act as a dealer, normally every individual consider the profitability of the product mix offered by the firm. For e-g There are two different companies brought forth their advertisements in offering the dealership to the individual trading firms viz HCL and IBM.

The profitability under the dealership banner should be appropriately considered prior to take decision. To take rational decision, the firm should compare the profitability of both different dealership of two different giant industrial brands. The greater the share of the profitability in volume will be selected and vice versa.

Illustration

From the following information has been extracted of EXCEL rubber products ltd

extracted of EXCEL rubber products

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.
250 units of A and 250 units of B
400 units of B only
400 units of A and 100 units of B
150 units of A and 350 units of B
State which of the alternative sales mixes you would recommend to the management?
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.

The next step is to determine the profit level of every mix.250 units of A and 250 units of B.The first step is to determine the total contribution of the mix. Why the total contribution has to be found out?

The main reason is to determine the profit level of the mix through the deduction of the fixed overheads

contribution of product A and B

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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