2. MULTI PRODUCTS SITUATION
ASSUMPTIONS
- The fixed cost for producing all products are
same
- The ratio of products sold is assumed
constantEquation
BREAK EVEN POINT FIXED COST
(IN UNITS) = WEIGHTED AVG. C.M. PER UNIT
WEIGHTED AVG CM = TOTAL CM
TOTAL OUTPUT
3. Example:
- Assume that a company sells two
products: Product A and Product B. The
sales prices are Rs10 for product A and
Rs15 for product B. Variable costs per
unit are Rs8 for Product A and 9 for
Product B. The company has TOTAL
FIXED costs of Rs5,000. Assume the
company expects to sell 1,500 units of
Product A and 500 units of Product B.
4. UNITS 1,500 500 2,000
Product A Product B TOTAL
Sales Rs 15,000 Rs 7,500 Rs 22,500
Variable
costs Rs (12,000) Rs (4,500) Rs (16,500)
Contribution
Margin Rs 3,000 Rs 3,000 Rs 6,000
Fixed Costs Rs (5,000)
Net Income Rs 1,000
5. Weighted Average CM
- Take the Total CM (Rs6,000 in
example) and divide by total units
(2,000 in example).
- In example this gives a Weighted
Average CM of Rs3 per unit.
6. Weighted Average CM
UNITS 1,500 500 2,000
Product A Product B TOTAL
Sales Rs 15,000 Rs 7,500 Rs 22,500
Variable
costs Rs (12,000) Rs (4,500) Rs (16,500)
Contribution
Margin Rs 3,000 Rs 3,000 Rs 6,000
Fixed Costs Rs (5,000)
Net Income Rs 1,000
Weighted Average CM is
Rs6,000/2,000 units = Rs3/unit
7. Calculating the Breakeven Point in
Units(firm)
Breakeven units = FC / Wt. avg. CM
Breakeven Units (firm): 5000 / 3 = 1,667
FC
VC
TC
BEP-1667 UNITS
8. Breakeven Point in units (products)
Take the total units to be sold at the
breakeven point (1,667) and multiply by each
product’s proportion
PRODUCT A: 1,667 * (1,500/2,000) = 1250
units
PRODUCT B: 1,667 * (500/2,000) = 417
units
