Sales Mix and Profitability
Managing and prioritizing sales and time allows the business to maximize its sales and margin. Through sales mix, the business can determine the profitability of the different ranges of products and services they offered. “Sales mix is important, because some products or services may be more profitable than others, and if a company's sales mix changes, its profits also change” (investopedia.com). To understand the profitability of each venture, the business should consider the profit margin. In an hour, the profit margins for the office visit will be calculated as follows; Hour per billing =0.25 therefore, an hour equal to a total of four patients billing at $50 each with a variable cost of $25.
Total margin profit for office visit per hour =gross profit $(50*4) – variable cost (25*4) a margin of $100 per hour. To serve a total of 20 patients, the profit for the day will $500
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Ortiz is able to serve up to serve patients on the phone call per hour, therefore, the total profit margin for phone call per hour = gross profit $(25*6) –variable cost (12*6) a margin of $78 per hour. If Ortiz the deal with all the 40 phones, then a profit margin of $312 will be realized. However, Ortiz spends a fit hour a weight-loss group that consists of 50 patients. The profit margin, therefore, = gross profit $(50*10) –variable cost (50*5) a margin of $ 250 per hour.
Weight-loss Support group has the highest sale mix. However, in term of profitability, the Office visit ranks first, followed by phones calls and the weight-loss support groups comes third.
Time Consideration
To realize the maximum profit in the limited time of 7 hours that Ortiz has per day, balancing the number of patients attended in each group can help in increasing the profit margin. The office visit will take the great of the time of up to five hours in which a total of $500 will be collected; the phone calls will take an hour of Otiz’s time and $78 will be generated. The weight-loss group will retain its normal hourly rate of a margin of $250. With such planning, a total of $838 will be collected at the closure of the day.
Evaluating the nature and profitability of each product helps to set time allocation and priority for dealing with each product. Stemple (2006) notes that “if you are not optimizing your product mix, you could be at a competitive disadvantage in the industry”. For Dr. Massy’s decision, the contribution of each activity will be as follows. Regardless of the fact that priority has been given to weight-loss group, its contribution remains unaffected from the previous rank, this is because, and Ortiz can only manage just an hour to serve all the fifty clients. She will be able to contact all the patients thus consuming a total of 4 hours making $312 in return. Office visit will generate a total of $200 for the two hours Ortiz will spend in the office. This new ranking will allow for a total contribution margin of $762.
Recommendation
The first rank would be the best means for the business to maximize its margin, it gives priority to products that are able to generate a lot of income per given hour. Its total sales are also high with a $76 more than Dr. Massy strategy. “If only we could look into a crystal ball and find out exactly how many customers were going to buy our product, we would be able to make perfect business decisions and maximize profits”( .accaglobal.com).
References
Staff, I. (2011, January 04). Sales Mix. Retrieved March 02, 2018, from https://www.investopedia.com/terms/s/sales-mix.asp
Stemple, K. (2006, December 13). Product Sales Mix Decisions. Retrieved March 02, 2018, from http://www.reacpa.com/insight/product-sales-mix-decisions/
Http://www.accaglobal.com, A. -. (n.d.). Cost-volume-profit analysis. Retrieved March 02, 2018, from http://www.accaglobal.com/an/en/student/exam-support-resources/fundamentals-exams-study-resources/f5/technical-articles/CVP-analysis.html
