The product mix is all the products that a company offers for sale. The structure of product mixes have dimensions both in breadth and depth. Its breadth is measured by the number of product lines it offers, its depth by the variety of sizes, colors, and models offered within each product line.
A company's product mix can be described by its breadth, depth, and consistency.
The breadth of the product mix refers to the number of different product lines handled by the company.
The depth of the product mix indicates how many versions of each product are offered within the line.
Product Mix Consistency refers to how similar your various product lines are in terms of end use, production requirements, distribution channels, or other factors.
PRODUCT LINE
The Product Line is a broad group of products that are created for fundamentally similar uses and that possess reasonably similar physical characteristics.
A product line can also be expanded by adding new items within the same category. There are a number of reasons to fill a product line: seeking additional profit, trying to satisfy distributors, trying to capitalize on excess capacity, trying to run a full-line company, and filling in the gaps to keep competitors away.
Below we present the different lines and mix of Gillete products; in order to more clearly illustrate the above concepts.
After having reviewed these concepts, we will now move on to the practical part of this topic, in which we will learn to determine the safety margin for a set of product lines, unlike yesterday where we reviewed that concept applied only to a single product.
PRODUCTS MIXTURE
When a company sells more than one product, the Cost - Volume - Profit analysis is carried out using an average marginal contribution ratio for a given sales mix or a marginal contribution for profit.
If the actual mix of products sold differs from the products on which the analysis was based, a divergence will arise between the expected profit, based on the Cost-Volume-Profit model, and the actual profit. Furthermore, the Breakeven Point will not be the same if the mix of products actually sold differs from the mix of products used in the analysis.
MARGINAL CONTRIBUTION
RESOLUTION OF AVERAGE MARGINAL CONTRIBUTION
The Global Breakeven volume is calculated, based on the average marginal contribution ratio (% Marginal Contribution), for the determined sales mix.
GLOBAL BALANCE POINT IN TERMS OF INCOME
DISTRIBUTION OF SALES AT THE BALANCE POINT
CHECKING THE BALANCE POINT
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