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What is sales mix?

Definition of Sales Mix

Sales mix is the relative proportion or ratio of a business's products that are sold. Sales mix is important
because a company's products usually have different degrees of profitability. Sales mix also applies to
service businesses since the services provided will likely have different levels of profitability.

Example of Sales Mix

Let's assume that an automobile company plans to sell 100,000 units in the current year. The planned
sales mix is 20,000 units of very-low-profit models + 50,000 units of medium-profit models + 30,000
units of very-high-profit models. In other words, the planned sales mix is 20%, 50%, 30%. With this
volume and sales mix the company is planning to have a small operating loss.

Now let's assume that the total units actually sold were only 95,000 units. Having 5,000 fewer units sold
could mean a huge operating loss. However, the company's loss (or profit) depends on the actual sales
mix. What if the actual sales indicates that 15% of 95,000 units sold were the very-low-profit units, 45%
of the sales were the medium-profit units were sold, and 40% of the sales were the very-high-profit
units. In other words, this more favorable sales mix (15-45-40 instead of 20-50-30) could result in an
operating profit (instead of the planned loss) even with 5,000 fewer units sold.

Related Questions

Is the sales tax paid on merchandise that you will resell an expense?

What is the definition of net sales?

How do I calculate the amount of sales tax that is included in total receipts?

Are sales discounts reported as an expense?

What is a fixed budget?

What are sales?

To learn more, see the Related Topics listed below:

Related Topics

Break-even Point

Improving Profits

Related Business Forms

Contribution Margin Calculations

Break-even Point in Units (one product or one service)

Sales Needed for Desired Net Income (single or multiple products/services)

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Harold Averkamp

About the Author

Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and
consultant for more than 25 years. He is the sole author of all the materials on AccountingCoach.com

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