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Chapter 23 Salex Mix Constraints

Chapter 23 Salex Mix Constraints - 2 Turn that into a...

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Chapter 23 - Sales Mix Companies usually sell a variety of products – each with different gross profit margins and contribution margins. If resources are limited, sometimes management is left to decide what is the optimal mix of product that will meet the needs of their customers, yet at the same time return the highest profitability. In general, here are the steps to should follow to determine that optimal mix: 1. Calculate the Contribution Margin per unit. (We have done this many times in previous chapters.)
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Unformatted text preview: 2. Turn that into a Contribution Margin per Machine hour (CM per unit/MH per unit) 3. Take the highest CM per unit and focus the next step on it. 4. Make as many as possible of the highest per unit CM product, considering any internal constraints (machine availability) and external constraints (customer orders) 5. One you have maxed out on the most profitable unit, apply any remaining machine time to the other units in order of profitability. 6. As always, consider any other non-financial issues....
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