Sales mix is the components of Cost volume profit analysis.
CVP analysis expands
the use of information provided by breakeven analysis.
Assumptions:
1. The behavior of both
costs and revenue is linear throughout the relevant range of activity.
2. Costs can be
classified accurately as either fixed or variable. 3. Changes in activity are
the only factors those affects costs. 4. All units produced are sold.
5. When a company sells
more than one type of product, the sales mix will remain constant.
Applications:
CVP simplifies the
computation of breakeven in break-even analysis and more generally allows
simple computation of target income sales. It simplifies analysis of short run
trade - offs in operation decisions.
Limitations:-CVP
is a short run marginal analysis, it assumes that unit variable costs and unit
revenues are constant which is appropriate for small deviation from current
production and sales and assumes a neat division between fixed costs and
variable costs through in the long run all costs are variable. For longer term
analysis that considers the entire life-cycle of a product one therefore often
prefers activity-based costing.