Q-21-13 - Horngren'S Financial And Managerial Accounting

Question

 Explain how the sales mix can affect the profitability of a company.

Step-by-Step Solution

Answer

Answer

 

A sales mix is the combination of all the products sold and services rendered by the company.

Step 1: Sales mix

A sales mix is the combination of all the products sold and services rendered by the company. All products and services are considered separate businesses and individual profit is calculated for all the products and services.

Step 2: how sales mix can affect the profitability of a company.

The sales mix affects the profitability of a company because the different product has a different contribution margin per unit. A varying sales mix produces different profits for the company. For example, if the sales mix contains a larger portion of the product generating a low contribution margin per unit then the total profitability of the company comes down and vice versa.