Idle capacity and timeliness in mix change decisions

Recent trends in market dynamics and in technology development have increased, with respect to the past, the frequency of mix change decisions. Both the ‘full costing system’ and the ‘direct costing system’, the two techniques currently used for decisions of the kind, assume that product demand is deterministically known; however, this assumption appears to be not acceptable in today’s competitive environment. This paper outlines a different approach, that assumes that demand is random and that the economic value of a product depends not only on quantity-wise factors but also on its timeliness. The model stresses also the economic effect of idle capacity and suggests a way to allocate it to single products. The application of the model is presented by means of a sample study.