Managerial Accounting “1”

Week 5
Break-Even Point For Sales Mixed
The sales mix is the proportion in which two or more products are sold. For the calculation of
the break-even point for sales mix, the following ​Steps ​are made

1. Identify the proportion of each product 

= sales of each product / total sales

2. Identify the CM for each product  

= selling P rice − variable cost per unit

3. Identify the Total CM (​ Step 1 * Step 2​) 

= proportion of each product * CM f or each product
Step 3
4. Identify the Average of CM​ ​( Step 1 )
FC
5. Identify the BEP for sales mixed​ = Average CM

Calculate the break-even point for each product both in units  

FC
= Avg CM * P roportion of each product
Example 1

Zera corporation Produces & Sells 2 Products; Product A & Product B and the following
Data is given:

Product A Product B

Sales in units 150,000 Units 50,000 Units

Variable Cost per unit $14 $18

Selling Price $20 $30

Fixed Cost $1,200,000

Required:
1) Calculate the BEP assume that the above sales mixed are used
2) Calculate the increase in sales that will achieve Target Profit $675,000
3) Assume that the total sales will reach 200,000 units
And product A reaches 20,00 units. Calculate the new BEP
Solution
Product A Product B Total

1) The proportion of $150,000 $50,000 $200,000

150,000 50,000
each product ↓ 200,000 = 3
↓ 200,000 = 1 ↓
4 4
3 1 4
2) The CM for each 20 - 14 30 - 18
product = $6 = $ 12

3) Identify the total CM 3*6 1*12 $30

( Step 1 * Step 2) = $18 = $12

4) Identify the Average 30

Step 3
= 4 = 7.5
of CM ​( )
Step 1

FC 1,200,000
5) BEP for sales mixed =
Avg.CM
= 7.5
= 160, 000 U N IT S
3
Product A = 4 * 160, 000 = 120, 000 units
1
Product B = 4 * 160, 000 = 40, 000 units
 Income Statement
Product A Product B
Sales (120,000 * 20). (40,000*30) 3,600,000
‫ــــــ‬
VC (120,000*14) (40,000*18) (2,400,000)
‫ـــــــــــــــــ‬ ‫ـــــــــــــــــــــــــــــــــــــــــ‬
CM 1,200,000
‫ــــــ‬
FC (1,200,000)
‫ــــــــــــــــــــ‬ ‫ـــــــــــــــــــــــــــــــــــــــــــــــ‬
Net Profit Zero
T . P rof it 675,000
2) Increase in sales = AV G CM
= 7.5
= 90, 000 U nits
3
Product A = 4 * 90, 000 = 67, 500 units
1
Product B = 4 * 90, 000 = 22, 500 units
3)
Product A Product B Total

1) the proportion of each $20,000 $180,000 $200,000

20,000 180,000
product ↓ 200,000 = 1
↓ 200,000 = 9 ↓
10 10
1 9 10
2) the CM for each 20 - 14 30 - 18
product = $6 = $ 12

3) Identify the total CM 1 *6 9*12 $114

( Step 1 * Step 2) = $6 = $108

114
4) Identify the Average of
Step 3
= 10
= 11.4
CM ​( )
Step 1

FC 1,200,000
5) BEP for sales mixed =
Avg.CM
= 11.4
= 105, 264 U N IT S
1
Product A = 10 * 105264 = 10, 526 units
9
Product B = 10 * 105, 264 = 94, 738 units
Example 2
XYZ corporation produces & sells 3 products; product A, B&C. And the following data is
given:
Product A Product B Product C

CM /UNIT $3 $2 $8

Sales in units 20,000 units 100,000 units 80,000 units

FC $225,000

Required​: Calculate the BEP for the above sales mixed

Calculate the Net profit For these sales mix

Solution
Product A Product B Product C Total

1)the proportion of $20,000 $100,000 $80,000 $200,000

20,000 1 100,000 5 80,000 4
each product ↓ 200,000 = 10
↓ 200,000 = 10
↓ 200,000 = 10
↓
1 5 4 10
2)the CM for each $3 $2 $8
product

3)Identify the total CM 1 *3 2*5 8*4 $45

( Step 1 * Step 2) = $3 =$10 = $32

4)Identify the Average 45

Step 3
= 10
= 4.5
of CM ​( Step 1 )

FC 225,000
5)BEP for sales mixed = Avg.CM = 45
= 50, 000 U N IT S
1
Product A = 10 * 50, 000 = 5, 000 units
5
Product B = 10 * 50, 000 = 25, 000 units
4
Product C = 10 * 50, 000 = 20, 000 unit
‫‪Income Statement‬‬
‫‪Product A‬‬ ‫‪Product B‬‬ ‫‪Product C‬‬ ‫‪Total‬‬
‫‪Sales‬‬
‫ـــــ‬
‫‪VC‬‬
‫ـــــــــــــــــ‬ ‫ـــــــــــــــــــــــــــــــــــــــــ‬
‫)‪CM (20,000*3) + (100,000*2)+ (80,000*8‬‬ ‫‪900,000‬‬
‫ــــــ‬
‫‪FC‬‬ ‫)‪(225,000‬‬
‫ــــــــــــــــــــ‬ ‫ـــــــــــــــــــــــــــــــــــــــــــــــ‬
‫‪Net Profit‬‬ ‫‪$675,000‬‬
Example 3
XYZ Corporation Produces & Sells 2 products; Product A&B. Given the following
information:
Product A Product B

Sales in units 120,000 units 40,000 units

Selling Price $5 $10

Direct Labor $0.75 $0.25

Direct Material 1 2

FC $295,000

And the other Expenses:

● = $35,000 when production was 10,000 units
● = $30,000 when production was 5,000 units
● = $ 17,000 when production was 4,000 units

Required​: Calculate the BEP for Sales Mix

Solution
Step (1) Calculate the proportion for each product
120,000 3
The proportion of Product A = 160,000 = 4

40,000 1
The Proportion of Product B = 160,000 = 4

Step (2) separate the Mixed cost

High cost − low cost 35,000 − 17,000
VC = High P roduction − Low P roduction = 10,000 − 4,000 = 3$/unit

VC for product A = 3 * 34 = 2.25$/unit

1
VC for product B = 3 * 4
= 0.75 $/unit

Y = a + bX
35, 000 = a + 3(10, 000)

a = 35, 000 − 30, 000 = $5, 000

Step (3) calculate the total FC & the VC for each product

VC for Product (A )= 0.75 + 1 + 2.25 = 4 $/units

VC for Product (B )= 0.75 + 0.25 + 2 = 3 $/units

FC = 5,000 + 295,000 = $300,000

Step (4 ) calculate the BEP for sales Mix

Product A Product B Total
1)The proportion of 120,000 40,000 160,000
each product ↓ ↓ ↓
3 1 4
2)The CM for each 5-4 10 - 3
product = $1 = $7
3)Identify the total 3*1 1*7 $10
CM = $3 = $7
( Step 1 * Step 2)

4)Identify the 10
= 4
= 2.5
Average of CM
Step 3
( Step 1 )

FC 300,000
5)BEP for sales mixed =
Avg.CM
= 2.5
= 120, 000 U N IT S
3
Product A = 4 * 120, 000 = 90, 000 units
1
Product B = 4 * 120, 000 = 30, 000 units