The sales-to-production method is a technique used in management accounting that is used to analyze the profitability of two or more products derived from a single product. This single product is known as the joint product. With the necessary data in hand, the calculation is relatively easy with the use of a simple calculator.
Calculate the percentage of sales of the given product based on the total sales of the joint product. So, if there were a total of 1,000 units of flower pots sold, and 300 of these flower pots were red and 700 were green, the percentage of total sales of red flower pots would be 30 percent.
Calculate the percentage of production for the given product based on the total production of the joint product. Using the same example, if there were a total of 1,500 units of flower pots produced, and 800 of these flower pots were red and 700 were green, the percentage of production for red flower pots would be 53.33 percent, rounded to the nearest hundredth.
Divide the percentage of total sales by the percentage of production in order to obtain the sales-to-production ratio. Using the same example, the sales-to-production ratio for red flower pots would be 30 percent divided by 53.33 percent, giving a sales-to-production ratio of 0.5625, or 1:1.78. For green flower pots, the sales-to-production ratio would be 1:1.
