Question

A shift in the sales mix from high-margin items to low-margin items can cause total profits to decrease even though total sales may increase.A. TrueB. False

Answer 1

Answer: True

Explanation:

Low Margin items refer to those that have a lower profit per unit because their costs may be higher in relation to their selling price.

High margin items are the opposite.

If the company switches from High Margin items to Low margin items, they will face a situation where they are incurring more costs per sale which would drive their profits down even if sales increase.

The optimal mix for a company should have more high margin items than low margin items.