Imagine Rajesh & Co. Pvt. Ltd. makes two products — a premium chair and a basic stool. Both are profitable. But raw material is scarce. Which one should they push harder? That's the Sales Mix Decision — choosing the best combination of products to maximise profit when a limiting factor (also called a key factor or bottleneck resource) exists.
Here's the core rule: when a limiting factor exists, rank products by Contribution per unit of the limiting factor — NOT by contribution per unit alone. The limiting factor is whatever resource is in short supply — machine hours, labour hours, raw material kg, etc. You divide each product's contribution per unit (Selling Price minus Variable Cost) by the units of the limiting factor it consumes. The product with the highest ratio gets produced first. Fill demand for that product, then move to the next, until the resource runs out.
When there is no limiting factor, every unit of every product that earns a positive contribution should be produced — just sell as much as demand allows. The mix problem only gets interesting (and exam-worthy) when supply is constrained. Also watch out: if the question gives a fixed sales mix (say, always 2 units of A for every 3 of B), then calculate a weighted average P/V ratio using that mix and apply it to find the overall Break-Even Point. The formula is: BEP (₹) = Fixed Costs ÷ Weighted Average P/V Ratio. This multi-product BEP variant is asked frequently as a 5-mark question in Paper 4. One more nuance — always check maximum demand constraints. Even if Product A ranks #1, you can only produce up to its maximum demand before shifting remaining resources to Product B.