Break-even Point for Multiple Products

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, same computation applies. However, the
CM/u and CMR must be converted to weighted average (waCM/u and waCMR) of the products.
FC FC
BEPu = and BEPp =
waCMu waCMR

waCMu and waCMR is computed as follows:

Product 1 Product 2 Product 3 Total
CMu ₱ xx ₱ xx ₱ xx
Mul: Sales Mix Ratio xx% xx% xx%
waCM/u ₱ xx + ₱ xx + ₱ xx = ₱ xx

Product 1 Product 2 Product 3 Total

CM (CMu x sales mix) ₱ xx ₱ xx ₱ xx ₱ xx
Sales (SP x sales mix) ₱ xx ₱ xx ₱ xx ₱ xx
waCMR (total CM / Total Sales) xx%

Lesson Objective 2
Illustration:
Belle Company manufactures and sells three products: Products A, B, and C. The following data
has been provided by the company:
A B C
Selling price ₱100 ₱120 ₱50
Variable cost per unit 60 90 40
Contribution margin per unit 40 30 10
Contribution margin ratio 40% 25% 20%

The company sells 5 units of C for every unit of A and 2 units of B for every unit of A. The company
incurred in ₱120,000 total fixed costs.
Required: Compute the BEP in units and pesos of each product.

BEP in units
To compute for the BEP in units of each product, we have to determine the sales mix. Based on
the information provided in the problem, the sales mix would be 1:2:5 for product A, B, and C
respectively. The sales mix ratio would be: Product A = 1/8 or 12.5%
Product B = 2/8 or 25%
Product C = 5/8 or 62.5%
Product 1 Product 2 Product 3 Total
CMu ₱ 40 ₱ 30 ₱ 10
Mul: Sales Mix Ratio 12.5% 25% 62.5%
waCM/u ₱5 + ₱ 7.5 + ₱ 6.25 = ₱ 18.75
 120,000
BEPu =
18.75
BEPu = 6,400
The break-even point in units of each product is:
Product A (6,400 units x 12.5%) 800 units
Product B (6,400 units x 25%) 1,600 units
Product C (6,400 units x 62.5%) 4,000 units
Total 6,400 units

BEP in pesos
To compute for the BEP in pesos of each product, the weighted average contribution margin ratio
must first be determined. Sales mix is 1:2:5.
Product 1 Product 2 Product 3 Total
CM (CMu x sales mix) ₱ 40 ₱ 60 ₱ 50 ₱ 150
Sales (SP x sales mix) ₱ 100 ₱ 240 ₱ 250 ₱ 590
waCMR (total CM / Total Sales) 150/590

120,000
BEPp =
150/590
𝐁𝐄𝐏𝐩 = 𝟒𝟕𝟐, 𝟎𝟎𝟎
The break-even point in pesos of each product is:
Product A (₱472,000 x 100/590) ₱ 80,000
Product B (₱472,000 x 240/590) ₱ 192,000
Product C (₱472,000 x 250/590) ₱ 200,000
Total ₱ 472,000

Alternatively, BEP in units of each product can be multiplied with their individual selling price to
compute the BEP in pesos of each product. BEP in pesos of each product will then be added to
compute the BEP in pesos of the company as a whole.

Product A 800 units x 100 = 80,000 units

Product B 1,600 units x 120 = 192,000 units
Product C 4,000 units x 50 = 200,000 units
Total 6,400 units 472,000 units

Exercise 1
Alphabet Corporation sells three products: J, K, and L. The following information was taken
from a recent budget:
J K L
Unit sales 40,000 130,000 30,000
Selling price $60 $80 $75
Variable cost 40 65 50

Total fixed costs are anticipated to be $2,450,000.

Required:
 A. Determine Alphabet's sales mix.
B. Determine the weighted-average contribution margin.
C. Calculate the number of units of J, K, and L that must be sold to break even.

Exercise 2
Boise Company manufactures and sells three products: Good, Better, and Best. Annual fixed
costs are $3,315,000, and data about the three products follow.

Good Better Best

Sales mix in units 30% 50% 20%
Selling price $250 $350 $500
Variable cost 100 150 250

Required:
A. Determine the weighted-average unit contribution margin.
B. Determine the break-even volume in units for each product.
Determine the total number of units that must be sold to obtain a profit for the company of
$234,000.