{"id":51,"date":"2015-06-03T19:25:24","date_gmt":"2015-06-03T19:25:24","guid":{"rendered":"https:\/\/courses.candelalearning.com\/managacct2x10xmaster\/?post_type=chapter&p=51"},"modified":"2015-12-27T15:21:30","modified_gmt":"2015-12-27T15:21:30","slug":"cost-volume-profit-analysis-calculations","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-managacct\/chapter\/cost-volume-profit-analysis-calculations\/","title":{"raw":"5.7 Break Even Point for Multiple Products","rendered":"5.7 Break Even Point for Multiple Products"},"content":{"raw":"
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\r\n\r\nAlthough you are likely to use cost-volume-profit analysis for a single product, you will more frequently use it in multi-product situations. The easiest way to use cost-volume-profit analysis for a multi-product company is to use dollars of sales as the volume measure. For CVP purposes, a multi-product company must assume a given product mix or sales mix. Product (or sales) mix <\/strong>refers to the proportion of the company's total sales for each type of product sold.\r\n\r\nTo illustrate the computation of the break-even point for Wonderfood, a multi-product company that makes three types of cereal, assume the following historical data (percent is a percentage of sale, for each product, take the amount \/ sales and multiply by 100 to get the percentage):\r\n\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
<\/td>\r\nProduct 1\u00a0<\/strong><\/td>\r\nProduct 2\u00a0<\/strong><\/td>\r\nProduct 3\u00a0<\/strong><\/td>\r\nTotal\u00a0<\/strong><\/td>\r\n<\/tr>\r\n
<\/td>\r\nAmount<\/strong><\/td>\r\nPercent<\/strong><\/td>\r\nAmount<\/strong><\/td>\r\nPercent<\/strong><\/td>\r\nAmount<\/strong><\/td>\r\nPercent<\/strong><\/td>\r\nAmount<\/strong><\/td>\r\nPercent<\/strong><\/td>\r\n<\/tr>\r\n
Sales<\/td>\r\n\u00a0\u00a0\u00a0\u00a0 60,000<\/td>\r\n100%<\/td>\r\n\u00a0\u00a0\u00a0\u00a0 30,000<\/td>\r\n100%<\/td>\r\n\u00a0\u00a0\u00a0\u00a0 10,000<\/td>\r\n100%<\/td>\r\n\u00a0\u00a0 100,000<\/td>\r\n100%<\/td>\r\n<\/tr>\r\n
Less: variable costs<\/td>\r\n\u00a0\u00a0\u00a0\u00a0 40,000<\/span><\/td>\r\n67%<\/span><\/td>\r\n\u00a0\u00a0\u00a0\u00a0 16,000<\/span><\/td>\r\n53%<\/span><\/td>\r\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 4,000<\/span><\/td>\r\n40%<\/span><\/td>\r\n\u00a0\u00a0\u00a0\u00a0 60,000<\/span><\/td>\r\n60%<\/span><\/td>\r\n<\/tr>\r\n
Contribution margin<\/td>\r\n\u00a0\u00a0\u00a0\u00a0 20,000<\/td>\r\n33%<\/td>\r\n\u00a0\u00a0\u00a0\u00a0 14,000<\/td>\r\n47%<\/td>\r\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 6,000<\/td>\r\n60%<\/td>\r\n\u00a0\u00a0\u00a0\u00a0 40,000<\/td>\r\n40%<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n
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We use the data in the total columns<\/strong> to compute the break-even point. The contribution margin ratio is 40%\u00a0 (total contribution margin $40,000\/total sales $ 100,000). Assuming the product mix remains constant and fixed costs for the company are $50,000, break-even sales are $125,000, computed as follows:<\/div>\r\n
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BE in Sales Dollars =<\/td>\r\nFixed Costs<\/span><\/td>\r\n\u00a0 $50,000\r\n<\/span><\/td>\r\n\u00a0= $ 125,000<\/td>\r\n<\/tr>\r\n
Contribution Margin RATIO<\/td>\r\n0.40<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n[To check our answer: ($ 125,000 break even sales X 0.40 contribution margin ratio) - $ 50,000 fixed costs = $ 0 net income.]\r\n\r\nHere is a video example:\r\n\r\nhttps:\/\/youtu.be\/QsNAp26mFPI\r\n\r\nSince what we found in our example for Wonderfood is a total, we need to determine how much sales would be needed by each product to break even.\u00a0 To find the three product sales totals, we multiply total sales dollars by the percent of product (or sales) mix for each of the three products. The product mix for products 1, 2, and 3 is 60:30:10, respectively. That is, out of the $ 100,000 total sales, there were sales of $ 60,000 for product 1, $ 30,000 for product 2, and $ 10,000 for product 3.\u00a0 An easy way to calculate product or sales mix is to divide each product's sales by total sales like in the following table:\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/strong><\/td>\r\nSales<\/strong><\/td>\r\nSales Mix<\/strong><\/td>\r\n<\/tr>\r\n
Product 1\u00a0 <\/strong><\/td>\r\n60,000<\/td>\r\n\u00a0 60% (60,000 \/ 100,000)<\/em><\/td>\r\n<\/tr>\r\n
Product 2<\/strong><\/td>\r\n30,000<\/td>\r\n30% (30,000 \/ 100,000)<\/em><\/td>\r\n<\/tr>\r\n
Product 3<\/strong><\/td>\r\n10,000<\/span><\/td>\r\n10% (10,000 \/ 100,000)<\/em><\/td>\r\n<\/tr>\r\n
Total Sales<\/strong><\/td>\r\n100,000<\/td>\r\n100%<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nWe can calculate the amount each product needs to sell by multiplying the total break even sales required x the sales mix for each product.\u00a0 This is calculated as:\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
<\/td>\r\nSales Mix<\/strong><\/td>\r\nSales at Break even<\/strong><\/td>\r\n<\/td>\r\n<\/tr>\r\n
Product 1<\/td>\r\n60%<\/td>\r\n$ 75,000<\/td>\r\n(125,000 x 60%)<\/em><\/td>\r\n<\/tr>\r\n
Product 2<\/td>\r\n30%<\/td>\r\n\u00a0 37,500<\/td>\r\n(125,000 x 30%)<\/em><\/td>\r\n<\/tr>\r\n
Product 3<\/td>\r\n10%<\/span><\/td>\r\n12,500<\/span><\/td>\r\n(125,000 x 10%)<\/em><\/td>\r\n<\/tr>\r\n
Total Sales<\/td>\r\n100%<\/td>\r\n125,000<\/td>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n<\/div>\r\nBe aware!\u00a0 Predicting sales mix can be extremely different.\u00a0 If we know we need $125,000 in sales to break even but the sales mix is different from what we budgeted, the numbers will appear quite different (as you should have noticed in the video).\u00a0 If the sales mix is different from our estimate, the break even point will not be the same.\r\n\r\n<\/div>\r\n<\/div>","rendered":"
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Although you are likely to use cost-volume-profit analysis for a single product, you will more frequently use it in multi-product situations. The easiest way to use cost-volume-profit analysis for a multi-product company is to use dollars of sales as the volume measure. For CVP purposes, a multi-product company must assume a given product mix or sales mix. Product (or sales) mix <\/strong>refers to the proportion of the company’s total sales for each type of product sold.<\/p>\n

To illustrate the computation of the break-even point for Wonderfood, a multi-product company that makes three types of cereal, assume the following historical data (percent is a percentage of sale, for each product, take the amount \/ sales and multiply by 100 to get the percentage):<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n\n\n\n\n\n\n\n
<\/td>\nProduct 1\u00a0<\/strong><\/td>\nProduct 2\u00a0<\/strong><\/td>\nProduct 3\u00a0<\/strong><\/td>\nTotal\u00a0<\/strong><\/td>\n<\/tr>\n
<\/td>\nAmount<\/strong><\/td>\nPercent<\/strong><\/td>\nAmount<\/strong><\/td>\nPercent<\/strong><\/td>\nAmount<\/strong><\/td>\nPercent<\/strong><\/td>\nAmount<\/strong><\/td>\nPercent<\/strong><\/td>\n<\/tr>\n
Sales<\/td>\n\u00a0\u00a0\u00a0\u00a0 60,000<\/td>\n100%<\/td>\n\u00a0\u00a0\u00a0\u00a0 30,000<\/td>\n100%<\/td>\n\u00a0\u00a0\u00a0\u00a0 10,000<\/td>\n100%<\/td>\n\u00a0\u00a0 100,000<\/td>\n100%<\/td>\n<\/tr>\n
Less: variable costs<\/td>\n\u00a0\u00a0\u00a0\u00a0 40,000<\/span><\/td>\n67%<\/span><\/td>\n\u00a0\u00a0\u00a0\u00a0 16,000<\/span><\/td>\n53%<\/span><\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 4,000<\/span><\/td>\n40%<\/span><\/td>\n\u00a0\u00a0\u00a0\u00a0 60,000<\/span><\/td>\n60%<\/span><\/td>\n<\/tr>\n
Contribution margin<\/td>\n\u00a0\u00a0\u00a0\u00a0 20,000<\/td>\n33%<\/td>\n\u00a0\u00a0\u00a0\u00a0 14,000<\/td>\n47%<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 6,000<\/td>\n60%<\/td>\n\u00a0\u00a0\u00a0\u00a0 40,000<\/td>\n40%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n
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We use the data in the total columns<\/strong> to compute the break-even point. The contribution margin ratio is 40%\u00a0 (total contribution margin $40,000\/total sales $ 100,000). Assuming the product mix remains constant and fixed costs for the company are $50,000, break-even sales are $125,000, computed as follows:<\/div>\n
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BE in Sales Dollars =<\/td>\nFixed Costs<\/span><\/td>\n\u00a0 $50,000
\n<\/span><\/td>\n		\u00a0= $ 125,000<\/td>\n<\/tr>\n
Contribution Margin RATIO<\/td>\n0.40<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

[To check our answer: ($ 125,000 break even sales X 0.40 contribution margin ratio) – $ 50,000 fixed costs = $ 0 net income.]<\/p>\n

Here is a video example:<\/p>\n