by The method of calculating break-even point of a single product company has been discussed in the break-even point analysis article. A multi-product company means a company that sells two or more products. The procedure of computing break-even point of a multi-product company is a little more complicated than that of a single product company.
The determination of the break-even point in CVP analysis is easy once the variable and fixed components of costs have been determined.
A problem arises when the company sells more than one type of product. Break-even analysis may be performed for each type of product if fixed costs are determined separately for each product.
However, fixed costs are normally incurred for all the products hence a need to compute for the composite or multi-product break-even point.
In computing for the multi-product break-even point, the weighted average unit contribution margin and weighted average contribution margin ratio are used.
BEP in units = Total fixed costs / Weighted average CM per unit
BEP in dollars = Total fixed costs / Weighted average CM ratio
The weighted average selling price is worked out as follows:
(Sale price of product A × Sales percentage of product A) + (Sale price of product B × Sale percentage of product B) + (Sale price of product C × Sales percentage of product C) + …….
and the weighted average variable expenses are worked out as follows:
(Variable expenses of product A × Sales percentage of product A) + (Variable expenses of product B × Variable expenses of product B) + (Variable expenses of product C × Sales percentage of product C) + …….
When weighted average variable expenses per unit are subtracted from the weighted average selling price per unit, we get weighted average contribution margin per unit. Therefore, the above formula can also be written as follows:
Breakeven Point = Total fixed expenses / Weighted average contribution margin per Unit
One thought on “Analysis of Multiple products”