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Multi-Product Break-Even Point Formula: Margin and Weighted Average Contribution Margin Ratio Are Used

1. The document discusses the multi-product break-even point formula which uses the weighted average contribution margin per unit and weighted average contribution margin ratio to calculate break-even points in units and dollars. 2. For a company with three products, the break-even point in units is 6,400 units and in dollars is $472,000. The weighted average contribution margin per unit is $18.75 and weighted average contribution margin ratio is 25.4237%. 3. To break-even the company must sell 800 units of Product A, 1,600 units of Product B, and 4,000 units of Product C or generate $80,000 from Product A, $192,000 from Product

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1K views2 pages

Multi-Product Break-Even Point Formula: Margin and Weighted Average Contribution Margin Ratio Are Used

1. The document discusses the multi-product break-even point formula which uses the weighted average contribution margin per unit and weighted average contribution margin ratio to calculate break-even points in units and dollars. 2. For a company with three products, the break-even point in units is 6,400 units and in dollars is $472,000. The weighted average contribution margin per unit is $18.75 and weighted average contribution margin ratio is 25.4237%. 3. To break-even the company must sell 800 units of Product A, 1,600 units of Product B, and 4,000 units of Product C or generate $80,000 from Product A, $192,000 from Product

Uploaded by

Sayadi Adiih
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Multi-Product Break-Even Point Formula

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

BEP in units = 6,400 units


a. Computation of weighted average CM per unit:
∑(CM per unit x Unit sales mix ratio)
Product A ($40 x 1/8) $ 5.00
Product B ($30 x 2/8) 7.50
Product C ($10 x 5/8) 6.25
WA CM per unit $18.75
The weighted average CM may also be computed by dividing the total CM by the total number of units.
WA CM per unit = (40x1)+(30x2)+(10x5) = 18.75
8
b. Breakdown of the break-even sales in units:
(B-E point x Unit sales mix
ratio)
Product A (6,400 units x 1/8) 800 units
Product B (6,400 units x 2/8) 1,600
Product C (6,400 units x 5/8) 4,000
Total 6,400 units
The company must produce and sell 800 units of Product A, 1,600 units of Product B, and 4,000 units of
Product C in order to break-even.
2. Multi-product break-even point in dollars
BEP in dollars = Total fixed costs
Weighted average CM ratio

$120,000
25.4237%

BEP in dollars = $472,000


a. Computation of weighted average CM ratio:
∑(CMR x Sales revenue ratio)
Product A (40% x 100/590) 6.7797%
Product B (25% x 240/590) 10.1695%
Product C (20% x 250/590) 8.4745%
WA CM per unit 25.4237%
Take note that this time, the ratio used is developed from the ratio of individual sales to total sales.
Product A (100x1) 100
Product B (120x2) 240
Product C (50x5) 250
Total Sales 590
The weighted average CM may also be computed by dividing the total CM by the total sales.
WA CM ratio = (40x1)+(30x2)+(10x5)
(100x1)+(120x2)+(50x5)

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.

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