Professional Documents
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Multiple Products
Study outcomes
On completion of this study unit you should be able
to:
Compute the break-even point in units and rand in
organisations selling more than one type of
product.
Compute the turnover in units and rand to reach a
target net income in organisations selling more
than one type of product.
Compute the net income in organisations with
more than one type of product when a change in
sales mix occur.
Determine the sales and production mix to
maximise the profit in an organisation.
Study outcomes
Oncompletion of this study unit you
should be able to:
Determine a sales and production mix to
maximise the profit in an organisation
when a restricting factor occurs.
Determine the most profitable product in an
organisation.
Distinguish between cases where a sales
mix in units is applicable and where a sales
mix in rand is applicable.
Introduction
In study unit 5.1 cost-volume-profit
relationships with the emphasis on a
single product were discussed.
In this study unit the emphasis shifts to
multiple products in organisations.
A limiting factor will have an impact on
the production mix.
Sales mix
Sales mix refers to the relationship in which a
company’s products are sold.
Only applicable at companies with more than
one product.
Certain products are more profitable than
others and thus the profitable products should
be maximised.
Please note – Assumptions are still
applicable.
Break-even point and multiple
products
Break-even point = Fixed costs / Contribution
What is the contribution for multiple products?
Use average contribution:
Average contribution per unit = total contribution of
the sales mix divided by the number of units of the
sales mix.
Average contribution margin = average
contribution per unit divided by the average selling
price of the sales mix.
Break-even point and multiple
products
Sales mix does not stay constant and
therefor a formula should be applied to
accomodate this aspect.
Break-even = Fixed cost
(units) Ave contribution per unit
Units 4 2 4 10
Example
P Q R TOTAL
Selling price R 12 R 20 R 25
Variable cost R 6 R 8 R 10
Contribution R 6 R 12 R 15
Units 4 2 4 10
Units 4 2 4 10
Units 4 2 4 10
Fixed cost
Break even =
Contribution
Example
P Q R TOTAL
Selling price R 12 R 20 R 25
Variable cost R 6 R 8 R 10
Contribution R 6 R 12 R 15
Units 4 2 4 10
Fixed cost
Break even =
Contribution
R 108,000
=
R 10.80
How many units of
= 10,000 units each product?
Example
P Q R TOTAL
Selling price R 12 R 20 R 25
Variable cost R 6 R 8 R 10
Contribution R 6 R 12 R 15
Units 4 2 4 10
Fixed cost
Break even =
Contribution
R 108,000
=
R 10.80
= 10,000 units
4 2 4
=
10 10 10
Example - Rand
P Q R TOTAL
Selling price R 12 R 20 R 25
Variable cost R 6 R 8 R 10
Contribution R 6 R 12 R 15
Units 4 2 4 10
Units 4 2 4 10
Units 4 2 4 10
Units 4 2 4 10
Sales in Rand R 30 R 40 R 30
Example
P Q R
Selling price R 12 R 20 R 25
Variable cost R 6 R 8 R 10
Contribution R 6 R 12 R 15
Sales in Rand R 30 R 40 R 30
Sales in Rand R 30 R 40 R 30
Sales mix 25 20 12 57
Example
P Q R
Selling price R 12 R 20 R 25
Variable cost R 6 R 8 R 10
Contribution R 6 R 12 R 15
Sales in Rand R 30 R 40 R 30
Sales mix 25 20 12 57
Sales in Rand R 30 R 40 R 30
Sales mix 25 20 12 57
Average contribution R 10
Example
P Q R
Selling price R 12 R 20 R 25
Variable cost R 6 R 8 R 10
Contribution R 6 R 12 R 15
Fixed cost
Break even =
Contribution
Example
P Q R
Selling price R 12 R 20 R 25
Variable cost R 6 R 8 R 10
Contribution R 6 R 12 R 15
Fixed cost
Break even =
Contribution
R 114,000
=
R 10
Fixed cost
Break even =
Contribution
R 114,000
=
R 10
= 11,400 units
25 20 12
=
57 57 57
Sales in Rand R 30 R 40 R 30
Sales mix 25 20 12 57
Average contribution R 10
Example
P Q R
Selling price R 12 R 20 R 25
Variable cost R 6 R 8 R 10
Contribution R 6 R 12 R 15
Sales mix 25 20 12 57
Sales mix 25 20 12 57
Sales mix 25 20 12 57
Sales mix 25 20 12 57