Product-mix decision integrated with ABC for better profitability management: the case of communications equipment firm in Taiwan

Authors: Yi-Hui Tai, Wen-Ying Wang, Yu-Huei Chang

Journal: Chiao Da Management Review. Dec. 2012, 32(2): 37-76.

Keywords: Product-mix decision; Market-oriented strategic planning method; Activity-based costing (ABC); Bidding market

The Iiterature on product-mix decisions can be categorized into two groups. The studies in the firrst category compare different cost systems, whereas studies in the second category determine the best product-mix decision using computer simulations or mathematical models. However, product-mix decisions are important not only for the final structure of the product-mix but also for the decision-making process. The comprehensiveness of the decision-making process has a pi votal effect on the appropriateness of the outcome. In particular, in the telecommunications bidding market, pricing and product-mix decisions are indispensable. This is because of certain special features of the telecommunications bidding market. Producers may have many products that conform to the specifications of buyers, but these would have different prices. Each bidding project can have a huge impact on a company's profit or loss. This study considers a communications equipment company operating in the telecommunications bidding market and examines how this company can increase its profits by using activity-based costing to improve its product-mix decision. After making the improvement, the product-mix decision of the company is based on a market-oriented strategic p1anning method in which the vision is first clarified. Then, it is followed by an analysis of the internal and external environments. Next, the company's positioning choice is made; finally, the company's product-mix strategy is derived. According to the company's product-mix strategy, the main factors that influenced the product-mix decision are deduced. The results reveal that the accumulated gross profit after the improvement was 3.13 times greater than that before the improvement, and the accumulated net profit after the improvement was 27 times greater than that before the improvement. The results of this study complement the existing literature and provide implications for companies in the bidding market.