Question

Which of the following is a TRUE statement about sales mix?

Profits may decline with an increase in total dollars of sales if the sales mix shifts to sell more of the high contribution margin product.
Profits may decline with an increase in total dollars of sales if the sales mix shifts to sell more of the low contribution margin product.
Profits will remain constant with an increase in total dollars of sales if the total sales in units remains constant.
Profits will remain constant with a decrease in total dollars of sales if the sales mix also remains constant.

Answer 1

Profits may decline with an increase in total dollars of sales if the sales mix shifts to sell more of the low contribution margin product.

Step-by-step explanation:

A sales mix refers to the combination of different products or services that a company sells. It is important for businesses to understand the impact of sales mix on their profits. The true statement about sales mix is that profits may decline with an increase in total dollars of sales if the sales mix shifts to sell more of the low contribution margin product.

This means that if a company sells more of a product with a low contribution margin (the difference between the selling price and the variable cost per unit), even if the total sales increase, the profits may decline. This is because the low contribution margin product may not generate enough profit to cover its fixed costs, resulting in lower overall profits.