What sales mix will maximize profits for State Strect Books Corporation?
The optimal sales mix that maximizes profits for State Strect Books Corporation is 250,000 binders and 600,000 notepads. By selling the maximum quantity of notepads, which is 600,000, the company can generate higher revenues. This sales mix allows for the efficient utilization of machine hours and helps in spreading the fixed overhead costs across a larger volume of sales. By maximizing the production and sales of binders and notepads within their respective limits, State Strect Books Corporation can achieve the highest profit potential.
The Importance of Sales Mix in Profit Maximization
Sales mix refers to the proportion of different products or services that a company sells relative to each other. It plays a crucial role in determining the overall profitability of a business. In the case of State Strect Books Corporation, the decision on the sales mix directly impacts the company's ability to maximize profits.
Total fixed overhead costs represent the expenses incurred by the company regardless of the level of production. In this scenario, the total fixed overhead costs for State Strect Books Corporation amount to $380,000. By determining the optimal sales mix, the company can ensure that these fixed costs are spread out across a combination of binders and notepads that result in the highest profit margin.
The company has 40,000 machine hours available for production. It is essential to utilize these machine hours efficiently to maximize productivity and revenue generation. By selecting the right sales mix, State Strect Books Corporation can make the most of its available resources and optimize its production output.
Out of the given options, the sales mix of 250,000 binders and 600,000 notepads emerges as the most profitable choice. This combination allows the company to fully utilize its production capacity without exceeding the maximum sales limit for each product. By focusing on selling a higher quantity of notepads, which have a greater revenue potential, State Strect Books Corporation can increase its overall profitability.
Moreover, by offering both binders and notepads in the optimal sales mix, the company can cater to a broader customer base and capture diverse market segments. This strategy enhances the company's competitive position and ensures sustained growth in sales and profits.
In conclusion, the selection of the right sales mix is crucial for maximizing profits for State Strect Books Corporation. By prioritizing the sales of notepads and binders in a ratio that aligns with market demand and production capacity, the company can achieve greater revenue generation and profitability. It underscores the significance of strategic decision-making in managing product offerings and achieving financial success in a competitive business environment.