PROFITABILITY &

SALES MIX

Learning Objective 4
Analyze the profitability and sales

mix of a multiple-product firm.

Multi-product firms are firms that produce

multiple goods, and therefore have to deal with

allocating inputs more properly in order to attain
higher production levels.

Definitions
Profitability
The state or condition of

yielding a financial profit

or gain

Sales Mix
Refers to the relative
portion of unit or dollar
sales that are derived
from each product

Cost-Volume-Profit Model
Unit cost information is not always

available with multiple product firms

Dollar Break Even Point
Dollar break even point =
Fixed Cost
Contribution Margin Ratio
Assuming sales mix is constant

Target Dollar Sales Volume

Target Dollar Sales Volume = (Fixed Cost + Desired Profit)
Contribution Margin Ratio

Contribution Income Statement

Chillin Time
Contribution Income Statement
For a Monthly Volume of 6,950 Ice Cream Bars

$10,425.
Sales (6,950 x $1.50)
Less variable costs:
Direct materials (6,950 x $0.43)
Direct labor (6,950 x $0.32)
Manufacturing overhead (6,950 x $0.20)
Selling and administrative (6,950 x $0.15)
Contribution margin (6,950 x $0.40)
Less fixed costs:
Manufacturing
Selling and administrative

$2,988
2,224
1,390
1,043

1,200
580

(7,645)
2,780.

(1,780)

Sales Mix Analysis

When sales mix is constant??

When Sales mix is not constant??

Mid-Point Assessment
Definition of Profitability??
Definition of Sales Mix??
Constant Sales Mix??
Non-Constant Sales Mix??

Unit Sales Analysis

Chillin Time now has 2 products--ice cream bars
and popsicles, with the following information:
Ice Cream Bars

Unit sales
Selling price per unit
Variable cost per unit
Fixed costs per month
Sales revenue
Variable costs
Contribution margin
Contribution margin ratio

5,000
$1.50
$1.10

Popsicles

5,000
$0.50
$0.25

Total

10,000

$ 1,780
$7,500
5,500
$ 2,000
0.267

$2,500
1,250
$1,250
0.500

$10,000
6,750
$ 3,250
0.325

Current sales mix based on units: 5,000 to 5,000 or 1 to 1.

Chillin Time sells 1 ice cream bar for every 1 popsicle.

Unit Multiproduct Break-Even Example

Average contribution margin per unit
= [($0.40 1) + ($0.25 1)] 2 units= $0.325
Unit break-even point =
Fixed costs
Contribution margin per unit
$1,780
= 5,476.9 5,477 units
=
$0.325
Ice cream bars: 5,477 1/2 = 2,739*
and
Popsicles: 5,477 1/2 = 2,739*

Unit Multiproduct Break-Even Example

If the sales mix changes to 4:1, how much will
the unit break-even sales volume be?
Average
Average contribution
contribution margin
margin per
per unit
unit

==

[($0.40
[($0.40 4)
4) ++ ($0.25
($0.25 1)]
1)] 55 units
units == $0.37
$0.37

Unit break-even point with new sales mix =

Fixed costs
Contribution margin per unit
$1,780
=
= 4,811 units
$0.37

Ice cream bars: 4,811 4/5 = 3,849

and
Popsicles: 4,811 1/5 = 962

Comparing Break-Even Example

Break-even units
Sales mix
1 to 1

Ice cream bars: 5,477 1/2 = 2,739*

and
Popsicles: 5,477 1/2 = 2739*

Sales mix
4 to 1

Ice cream bars: 4,811 4/5 = 3,849

and
Popsicles: 4,811 1/5 = 962

The change in sales mix causes the total number of

units needed to break even to change because of the
different contribution margins for the two products.

Verification of Understanding
What did the 2 analysis we discussed focus on??

Units, Unit Contribution Margin

If there is a 3:1 sales with t-shirts to jeans what does

this mean??

What does a constant sales mix ratio look like??

Questions??