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Multiproduct
Multiproduct
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
= Total fixed costs
units
Weighted average CM per unit
BEP in dollars = Total fixed costs
Weighted average CM ratio
Example
Belle Company manufactures and sells three products: Products A, B, and C. The following data has been
provided 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. Hence, the sales
mix is 1:2:5. The company incurred in $120,000 total fixed costs.
1. Multi-product break-even point in units
BEP in units = Total fixed costs
Weighted average CM per unit
$120,000
$18.75
$120,000
25.4237%
WA CM ratio = 25.4237%
b. Breakdown of the break-even sales revenue:
(B-E point x Sales revenue ratio)
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
The company must generate sales of $80,000 for Product A, $192,000 for product B, and $200,000 for
Product C, in order to break-even. Alternatively, these can be computed by multiplying the individual
break-even point in units for each product by their corresponding selling price, i.e. 800 units x $100 for
Product A = $80,000, 1,600 units x $120 for Product B = $192,000, and 4,000 units x $50 for Product C
= $200,000.