What is the key factor in determining sales mix if a company has limited resources?

Contribution margin per unit of limited resource

Explanation:

When a company has a limited resource on which the generation of income depends, it is to decide that the company cannot generate more income because it does not have more of that resource, for example space in M2 for commercialization or storage, or a manufacturing equipment, it must Investigate what is the contribution margin to the unit of that limited resource and manage the product that has the greatest.

The key factor is the Contribution margin per unit of limited resources.

Explanation:

To begin with, it is important to understand the concept of contribution margin.

Contribution margin is simply the figures arrived at by netting off variable elements of cost against the selling price. That is, a contribution margin is derived when the sales is subjected to variable components of cost that generate it.

Now, we have the Contribution margin per unit of the limited resources. This is simply a study targeted at knowing, per unit basis, an organization's contribution margin. Thus, contribution margin per unit of the limited resources can be derived by dividing the total contribution available with the total number of the limited resources.

That is = Contribution margin/number of limited resources available.

The strategic importance of contribution margin per unit of the limited resources is that, an organization is able to underline its financial performance, and how well it can cater for its fixed cost, after considering the variable elements.

To then determine the effective sales mix, it is important to take a proper look at the contribution margin. A good Sales mix will often have an exerted direct influence on contribution margin. Sales is an integral component is determining the unit contribution of a product. Hence, the key factor in determining the proper and effective sales mix is the contribution margin per unit of limited resources.

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