The college has recently added a fast-food style café to the student center, which has reduced the number of students eating at your restaurant. You are the manager of a sub shop located near a college campus.

For the sake of clarity, we will also assume that all costs are companywide costs, and each product contributes toward covering these companywide costs. We must also proceed under the assumption that the sales mix remains constant if it does change, the CVP analysis must be revised to reflect the change in sales mix. Performing a break-even analysis for these multi-product businesses is more complex because each product has a different selling price, a different variable cost, and, ultimately, a different contribution margin. If a company focuses on a sales mix heavy with low-margin items, overall company profitability will often suffer. Companies can maximize their profits if they are able to achieve a sales mix that is heavy with high-margin products, goods, or services. Sales mix is important to business owners and managers because they seek to have a mix that maximizes profit, since not all products have the same profit margin. A sales mix represents the relative proportions of the products that a company sells-in other words, the percentage of the company’s total revenue that comes from product A, product B, product C, and so forth. In order to perform a break-even analysis for a company that sells multiple products or provides multiple services, it is important to understand the concept of a sales mix. These profitability considerations are often what contributes substance to a sales mix decision The Basics of Break-Even Analysis in a Multi-Product Environment In addition, companies have limited resources, such as time and labor, and must decide which products to sell or produce and in what quantities, or which services to offer in order to be the most profitable. Companies price each one of their products or services differently, and the costs associated with each of those products or services vary as well. Most companies operate in a multi-product environment, in which they sell different products, manufacture different products, or offer different types of services. Up to this point in our CVP analysis, we have assumed that a company only sells one product, but we know that, realistically, this is not the case.

Break reminder 2.3